UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


J 


DIGEST  of  LEGAL  OPINIONS  of 
THOMAS  B.  PATON 

General  Counsel  of  the  American  Bankers  Association 


1908-  1921 

With  an  Index  and  Legal  Citations 
Complete  Edition,  1921 


By 

THOMAS  B.  PATON,  Jr. 

of  the  New  York  Bar,  Assistant  General  Counsel 


ISSUED  BY 

AMERICAN  BANKERS  ASSOCIATION 

5  Nassau  Street 
New  York 


First  Edition 6.000  Copies 

Second  Edition 10,000  Copies 

Copyright,  1921 

by  the 

Ambkican  Bankers  Association 

and 

Thomas  B.  Paton 

New  York 


Printed  by 
Rand  McNally  &"  Company 
42  East  22nd  Street 
New  York.  N.Y. 


PREFACE 

FOR  the  past  thirteen  years  there  have  been  submitted  to  the  General  Counsel  by 
members  of  the  American  Bankers  Association  many  letters  of  inquiry  requesting  legal 
advice  upon  a  given  statement  of  facts.  These  questions,  arising  in  the  actual  expe- 
rience of  banks,  have  been  answered  and  advice  has  been  given  in  the  form  of  an  opinion 
based,  in  most  cases,  upon  legal  authority.  Inasmuch  as  so  many  opinions  have  accumulated, 
it  was  thought  advisable,  in  the  interest  of  all  members,  that  a  digest  of  them  be  made  and 
pubUshed.  In  view  of  the  fact  that  a  large  number  of  the  situations  dealt  with  are 
of  importance  to  the  business  world,  it  is  intended  that  its  use  as  a  reference  book  be 
extended  not  only  to  members  of  the  American  Bankers  Association  but  also  to  lawyers 
and  business  men. 

An  attempt  has  been  made  in  each  case  to  write  in  concise  form  a  statement  of  facts, 
followed  by  the  opinion,  together  with  such  legal  authorities  as  could  be  found. 

For  the  variety  of  subjects  treated  and  their  practical  bearing  upon  banking  opera- 
tions, the  bankers  are  solely  responsible,  as  it  is  they  who  have  voluntarily  submitted  ques- 
tions on  the  problems  confronting  them  in  every  day  business.  It  would  then  seem  to  follow 
that  the  book  has  the  advantage  of  containing  a  selection  of  subjects  confined  to  those 
matters  only  which  have  been  troubling  bankers  most  and  which  have  already  proved  of 
sufficient  interest  to  cause  them  to  request  legal  advice. 

It  is,  of  course,  understood  that  the  opinion  of  a  lawyer,  even  though  based  on  decisions 
of  the  courts  of  last  resort  or,  in  the  absence  of  legal  precedent,  reasoned  out  upon  sound 
legal  principles,  still  remains  an  opinion.  At  most  the  reader  can  choose  to  use  it  and 
to  depend  upon  it  as  a  possible  guide  and  source  of  information,  and  for  these  objects  this 
book  is  published. 

Where  an  opinion  is  rendered  on  a  subject  upon  which  no  case  had  ever  been  decided, 
the  MTiter  has  cited  legal  authorities  that  are  analogous  to  and  in  support  of  the  principle 
involved.  It  is  important,  therefore,  for  the  reader  to  note  that  those  citations  which  are 
not  directly  in  point  are  useful  as  supporting  authority  and  collateral  reading. 

The  name  of  the  state  which  follows  each  digest  indicates  the  state  from  which  the 
inquiry  came,  and  where  the  abbreviation  "Jl."  appears,  it  signifies  that  the  full  text  of 
the  same  has  been  published  in  the  "Association  Journal." 

Each  opinion,  unless  it  clearly  appears  to  the  contrary,  can  be  regarded  in  most  cases 
as  applicable  to  inquiries  from  all  of  the  states  in  addition  to  the  state  from  which  the 
inquiry  came. 

This  volume  has  been  preceded  by  and  includes  the  smaller  1919-1920  edition,  bearing 
the  same  title,  containing  a  digest  of  thepubhshed  opinions.  It  contains,  in  addition  thereto, 
a  digest  of  all  of  the  opinions  which  heretofore  have  never  been  published  in  the  '"Associa- 
tion Journal"  and  which  are  in  the  large  majority. 

Thomas  B.  Paton,  Jr. 
New  York,  N.  Y.,  1921. 


(.0~\^^ 


ACCEPTANCE  AND  CERTIFICATION 


Payment  or  certification  of  check 
after  banking  hours 

1.  A  depositor  gave  a  check  after  bank- 
ing hours.  The  payee  presented  the  check 
at  the  bank  at  8.30  o'clock  the  next 
morning,  and  the  bank  certified  it.  The 
drawer  of  the  check  arrived  at  the  bank 
promptly  at  9  a.  m.  and  ordered  pay- 
ment stopped.  The  regular  business  hours 
of  the  bank  are  from  9  a.m.  to  4  p.m. 
Was  payment  or  certification  by  the  bank 
valid?  Opinion:  In  Butler  v.  Broadway 
Savings  Institution,  157  N.  Y.  Supp.  532, 
it  was  held  that  a  by-law  of  a  savings  bank 
that  the  bank  shall  be  open  for  business 
daily  from  10  a.m.  to  3  p.m.,  does  not  render 
illegal  the  payment  of  a  draft  outside  of  the 
fixed  hours.  In  this  case  payment  was 
made  at  9.30  a.m.,  and  at  9.40  a.m.  on  the 
same  morning,  the  depositor  arrived  for  the 
purpose  of  stopping  pajment.  The  court 
said:  "The  rule  quoted  does  not  expressly 
prohibit  the  payment  of  a  draft  without  the 
fixed  hours.  The  rule  is  merely  a  regulation 
for  the  convenience  of  the  bank."  It 
would  seem  to  follow  from  this  authority 
that  payment  or  certification  of  the  check  in 
question  at  8.30  a.m.  was  valid.  {Inquiry 
from  Wash.^  June,  1916.) 

2.  A  bank  certifies  or  pays  a  cus- 
tomer's check  after  banking  hours  and 
the  customer,  before  banking  hours  of  the 
next  day  seeks  to  stop  payment.  The  ques- 
tion was  raised  whether  the  pajmient  or 
certification  was  binding  on  the  customer. 
Opinion:  Such  paj^ment  or  certification  is 
probably  valid,  although  the  point  has  never 
been  directly  passed  upon  by  the  courts  in  a 
case  between  the  customer  and  the  bank. 
Marshall  v.  Am.  Express  Co.,  7  Wis.  1. 
Spokane  Tr.  Co.  v.  Huff,  15  Pac.  80  (Wash.). 
Interstate  Nat.  Bk.  v.  Ringo,  83  Pac. 
(Kan.)  119.  Averell  v.  Second  Nat.  Bk.,  6 
Mackey  (D.  C.)  358,  2  App.  cases  (D.  C.) 
470.  Briton  v.  Lewiston  Nat.  Bk.,  81  Pac. 
(Idaho)  112.  Citv  of  Phila.,  98  Fed.  485. 
Salt  Springs  Nat.  Bk.  v.  Burton,  58  N.  Y. 
430.  Morse  on  Banks,  Sec.  431  (4th  ed.). 
Neg.  Inst.  A.,  Sec.  75  (Comsr's.  dft.). 
{Inquiry  from  Ala.,  July,  1912,  Jl  .) 


Note: 
No.  1. 


Point  later  decided.    See  Opinion 


Acceptance  must  be  written 

3.     A  live  stock  company  instructed  its 
bank  to  honor  a  draft  drawn  in  its  name 


by  C  and  D,  who  were  bmdng  stock 
for  it,  and  the  bank  agreed  to  such  in- 
struction, telephoning  a  prospective  seller  of 
Uve  stock  that  the  check  for  $4,000  was  good. 
Relying  on  this  oral  promise  to  pay  the 
amount,  the  cattle  are  turned  over  to  C  and 
D.  Later,  the  five  stock  company  stopped 
payment  on  the  check,  claiming  that  C  and 
D  had  no  authority  to  draw  it  or  to  buy  so 
large  an  amount  of  stock.  The  holder  seeks 
to  hold  the  bank  hable  on  its  statement. 
Opinion:  While  a  bank  which  promises  over 
the  telephone  to  pay  a  check  cannot  be  held 
on  such  promise,  the  acceptance  not  being 
in  writing,  the  bank  may  be  held  liable  to 
the  holder  where,  by  agreement  between  the 
bank  and  depositor,  the  deposit  is  appropri- 
ated for  the  pa3'ment  of  such  check.  If  there 
are  special  circumstances  from  which  it 
would  appear  that  the  depositor  assigned  a 
certain  amount  of  his  deposit  with  the  con- 
sent of  the  bank,  the  latter,  although  it 
could  not  be  held  liable  as  acceptor  of  the 
check,  might  be  held  as  trustee  of  a  specific 
deposit  or  as  a  debtor  to  the  assignee  for  the 
amount  so  assigned.  Rambo  v.  First  St. 
Bk.  of  Argentine,  128  Pac.  (Kan.)  182.  Van 
Buskirk  v.  St.  Bk.  of  Rocky  Ford,  35  Colo. 
142.  Ballen  v.  Bk.  of  Krenhn,  130  Pac. 
(Okla.)  539.  Gruenther  v.  Bk.  of  Monroe, 
133  N.  W.  (Neb.)  402.  Ballard  v.  Home 
Nat.  Bk.,  136  Pac.  (Kan.)  934.  Neg. 
Inst.  A.,  Sec.  189  (Comsr's.  dft.).  {Inquiry 
from  Ark.,  April,  1917,  Jl.) 

4.  A  bank  was  requested  to  certify 
check  by  wire.  It  refused  on  the  alleged 
ground  that  the  check  did  not  transfer  the 
funds  until  it  reached  the  bank  and  that  the 
depositor  could  revoke  the  payment  after  it 
was  certified.  Opinion:  A  bank  can  certify 
by  wire  and  after  such  certification  the 
drawer  has  no  right  to  stop  pa\inent.  "While 
an  acceptance,  to  be  valid,  must  be  in 
writing,  there  is  no  requirement  that  the 
acceptance  in  all  cases  must  be  written  on 
the  bill.  Elliott  v.  First  St.  Bk.,  152  S.  W. 
(Tex.)  808.  First  Nat.  Bk.  v.  Muskogee 
Pipe  Line  Co.,  139  Pac.  (Okla.)  1136.  Oil 
Well  Supplv  Co.  V.  MacMurphv,  138  N.  W. 
(Minn.)  784.  Neg.  Inst.  A.  of  111.  (Sees. 
131,  132,  133,  186.)  {Inquiry  from  III., 
Dec,  1917,  Jl.) 

5.  In  all  states  where  the  Negotiable 
Instruments  Law  is  in  force  and  in  other 
states  where  the  statutes  require  acceptance 
to  be  in  writing,  a  promise  over  the  telephone 


6-11] 


DIGEST  OF  LEGAL  OPINIONS 


to  pay  a  check,  not  being  in  writing,  does 
not  bind  the  drawee;  but  in  Indiana  where 
the  common  law  rule  prevails  that  verbal 
acceptance  are  valid,  such  telephone  promise 
would  probably  bind  the  drawee  in  favor  of 
one  who  in  reliance  thereon  cashed  the 
check.  Where,  however,  the  drawee  simply 
answers  that  the  check  is  "good"  or  "all 
right"  without  couphng  with  such  answer 
any  specific  promise  to  pay,  such  answer  is 
insufficient  to  bind  the  bank  as  an  acceptor. 
Louisville  Co.  v  Caldwell,  98  Ind.  245. 
Spurgeon  v.  Swain,  13  Ind.  App.  188.  Van 
Buskirk  v.  St.  Bk.  of  Rocky  Ford,  35  Colo. 
142.  First  Nat.  Bk.  v  Commercial  Sav. 
Bk.,  87  Pac.  (Kan.)  746.  (Inquiry  from 
hid.,  Dec,  1910,  Jl.) 

Note:  The  Negotiable  Instruments  Law 
requiring  acceptances  to  be  in  writing  was 
passed  in  Indiana  in  April,  1913. 

6.  The  indorser  of  a  check  attempted 
to  cash  it  at  Bank  A,  which  l^ank  as  a 
precaution  telephoned  Bank  P,  the  drawee. 
In  reply  to  the  question  whether  or  not 
the  check  was  good,  Bank  P  said  "Yes," 
and  when  asked  if  it  would  protect  Bank  A 
on  the  check,  it  replied  over  the  telephone, 
"We  will."  Bank  A  cashed  the  check  on 
these  representations  and  upon  dishonor 
wishes  to  hold  the  drawee  Hable,  because  the 
indorser  proved  worthless.  Opinion:  Bank 
A  cannot  hold  Bank  P  on  the  latter's  oral 
promise  to  pay  the  check,  because  the  Nego- 
tiable Instruments  Act  requires  acceptance 
to  be  in  writing;  nor  is  Bank  P  bound  to 
Bank  A,  the  holder,  who  has  cashed  the 
check  on  faith  of  such  promise,  on  the  princi- 
ple of  estoppel,  as  this  principle  is  inapphca- 
ble  in  the  face  of  positive  statutory  require- 
ment of  written  acceptance.  Bank  A, 
however,  would  have  a  right  of  recovery 
against  the  drawer  of  the  check.  {Inquiry 
from  Ohio,  Sept.,  1914,  Jl.) 

7.  A  bank  purchased  a  check  from 
the  payee  after  receiving  a  statement  over 
the  telephone  by  the  drawee  that  the 
check  was  good.  Payment  was  stopped. 
Opinion:  Under  the  leading  case  construing 
the  Negotiable  Instruments  Law  of  Colorado 
the  bank  had  no  recourse  upon  non-payment 
against  the  drawee,  as  certification  over  the 
telephone  is  invahd,  not  being  in  writing. 
The  bank's  sole  recourse  is  against  the 
drawer  and  payee.  (Inquiry  from  Okla., 
Aug.,  1912,  Jl.) 

8.  An  acceptance  of  a  check  or  draft 
by  telephone  in  Texas  is  vaHd,  because 
there  is  no   Negotiable  Instruments  Act  or 


any  other  statute  in  force  requiring  accept- 
ances to  be  in  writing.  Newman  v.  Schroe- 
der,  71  Tex.  81.  (Inquiry  from  Tex.,  July, 
1913,  Jl.) 

Note:  The  Negotiable  Instruments  Law 
requiring  acceptances  to  be  in  writing  was 
passed  in  Texas  in  March,  1919. 

Acceptance  on  note  by  third  party 

9.  A  regular  form  of  a  negotiable 
promissory  note,  made  by  A  payable  to 
his  own  order  forty-five  days  after  date  at 
the  X  bank,  was  indorsed  in  blank  by  A. 
Across  the  face  the  following  acceptance  was 
written  by  a  third  party:  "Accepted  payable 
at  the  X  bank,  signed  B."  The  question  is 
asked  what  is  the  liability  of  the  acceptor. 
Opinion:  Where  a  third  person  writes  an 
acceptance  across  the  face  of  a  promissory 
note,  the  holder  has  the  option  of  treating 
the  instrument  as  either  a  bill  or  note  and 
the  person  so  signing  can  be  held  liable  as 
acceptor  of  a  bill  of  exchange.  Block  v. 
Bell,  1  Manning  &  Ryland  (Eng.)  149. 
Edis  V.  Bury,  6  Barn  &  Cres,  433.  Lloyd  v. 
Oliver,  18  Q.  B.  471.  Heise  v.  Bumpass, 
40  Ark.  545.  Neg.  Inst.  A.,  Sec.  17  (Comsr's. 
dft.).    (Inquiry  from  Pa.,  Jan.,  1918,  Jl.) 

Banks'  refusal  to  certify 
bearer  checks 

10.  It  is  stated  that  certain  bank 
officers  or  paying  tellers  refuse  to  certify 
checks  payable  to  bearer  or  payable  to 
"John  Doe  or  bearer"  on  the  ground  that 
it  is  not  good  banking  practice.  Opinion: 
Legally  certification  of  either  form  of 
check  is  vahd  but  not  compulsory.  Why 
some  banks  refuse  to  certify  bearer  checks  is 
a  question  for  the  bank  arising  out  of  the 
practical  conduct  of  banking.  It  may  be 
that  they  desire  a  record  of  the  payee. 
(Inquiry  from  Conn.,  February,  1917.) 

11.  A  paying  teller  asks  what  are  the 
objections  from  a  banker's  standpoint  to 
certifying  a  bearer  check.  Opinion:  It 
might  be  that  bearer  checks  so  certified 
would  be  used  to  circulate  as  cash  and  that 
a  claim  could  be  made  that  the  bank  was 
liable  to  the  Federal  tax  for  issuing  notes 
which  circulate  as  money.  It  may  be  that 
the  bank  wishes  to  keep  a  record  of  payees 
of  certified  checks.  In  the  event  a  bearer 
check  was  raised  after  certification  and  paid 
by  a  teller,  there  might  be  more  difl&culty  in 
determining  whether  the  amount  was  correct 
or  not  if  the  check  was  payable  to  bearer 
than  where  it  was  identified  by  having  a 


ACCEPTANCE  AND  CERTIFICATION 


[12-18 


specified  payee.  The  Toledo  Clearing  House 
passed  a  resolution  prohibiting  the  pajonent 
of  "bearer"  checks  and  requiring  all  checks 
to  be  drawn  to  the  order  of  the  p&yee.  The 
reason  was  that  certain  bearer  checks 
issued  by  customers  in  order  to  be  rid  of  the 
necessity  of  coming  and  sending  to  the  bank 
to  identify  payees,  had  been  stolen  from  the 
mails  and  raised  and  the  tellers  had  been 
victimized  through  paying  such  checks. 
These  reasons  may  account  for  the  state- 
ment that  it  is  not  good  practice  to  certify 
checks  payable  to  cash.  {Inquiry  from 
Mass.,  Aug.,  1916.) 

Bank's  obligation  to  pay,  not  to  certify 

12.  A  check  was  presented  at  the  drawee 
bank  at  a  time  when  there  were  suffi- 
cient funds.  The  drawee  returned  it  for 
proper  indorsement  and  inquires  if  it  was 
under  obligation  to  first  certify  the  check 
in  case  of  subsequent  depletion  of  the 
maker's  account.  Opinion:  The  certifica- 
tion is  optional  not  obligatory,  and  the  bank 
would  not  be  hable  for  refusal  to  certify,  if 
the  check  in  this  case  thereafter  became  "not 
good."    {Inquiry  from  Iowa,  June,  1910,  Jl.) 

13.  The  payee  of  a  check  demands 
certification  where  it  is  impossible  for  him 
to  give  proper  identification.  The  bank 
asks  if  it  can  be  held  hable  for  refusing 
certification  in  case  the  drawer's  balance  is 
depleted  before  the  proper  identification 
can  be  obtained.  Opinion:  There  is  no 
hability  of  the  bank  to  the  payee.  The 
bank's  obligation  runs  only  to  the  drawer;  if 
it  wrongfully  refuses  to  pay,  it  is  Uable  to  the 
drawer,  but  the  holder  has  no  right  of  action 
against  the  bank  because  of  such  refusal  to 
pay,  much  less  where  the  bank  refuses  to 
certify.  Concerning  liability  to  the  drawer, 
the  bank  is  entitled,  where  the  payee  pre- 
sents the  check  in  person  and  is  unknown,  to 
delay  or  refuse  payment  until  there  is 
reasonable  opportunity  for  identification. 
Where  the  account  is  depleted,  this  is  the 
drawer's  own  act  and  there  is  no  liability  to 
him.    {Inquiry  from  Mass.,  Feb.,  1915.) 

14.  A  customer  gave  instructions  to 
his  bank  not  to  certify  any  of  his  checks 
and  the  banks  desires  to  know  if  there 
is  any  ruhng  which  makes  it  compulsory  for 
the  bank  to  certify  upon  demand  if  the  funds 
are  sufficient.  Opinion:  The  bank  is  not 
obliged  to  certify  a  check  when  requested. 
Its  only  obligation  is  to  pay.  The  customer's 
instruction  is  sufficient  reason  for  the  bank's 
refusal.  {Inquiry  from  Mass.,  July,  1912,  Jl.) 


15.  A  check  made  payable  to  a  firm 
was  brought  to  the  bank  by  the  firm's 
agent  with  the  request  that  it  be  certified. 
The  bank  doubted  the  authority  of  the  agent 
and  refused  to  certify.  Opinion:  Certifica- 
tion is  a  matter  of  favor  on  the  bank's  part 
and  cannot  be  claimed  as  a  right.  Morse  on 
Banks,  Sec.  404.  {Inquiry  from  Pa.,  May, 
1912,  Jl.) 

Not  necessary  to  communicate  with 
drawer  before  certifying 

16.  A  bank  asks  if  it  is  necessary 
to  communicate  with  the  drawer  of  a  check 
before  certifying  it.  It  beheves  there  is  a 
possibility  of  the  drawer  making  a  good 
claim  for  an  offset.  Opinion:  A  bank  can 
certify  a  check  before  reporting  to  the 
drawer.  As  soon  as  certified,  the  check  is 
paid  so  far  as  the  drawer  is  concerned,  the 
bank  making  payment  not  in  cash  but  by 
certified  obligation,  which  is  virtually  the 
same  as  a  certificate  of  deposit.  {Inquiry 
from  Va.,  April,  1916.) 

Bank  can  certify  for  holder  mthout 
drawer's  consent 

17.  Many  travefing  agents  and  sohci- 
tors  present  local  checks  for  certifica- 
tion before  sending  them  in  to  the  houses 
which  they  represent.  A  bank  refuses 
to  certify  upon  the  ground  that  it  has 
no  authority  to  charge  its  depositor's 
account  without  his  order.  Opinion:  The 
bank  is  within  its  rights  when  it  refuses  to 
certify,  but  if  it  chooses  to  certify  and 
charge  the  check  to  the  account  of  the 
drawer,  it  does  not  require  his  previous 
consent  or  authority  so  to  do.  It  is  the 
general  practice  to  return  certified  checks  as 
paid  vouchers  to  the  depositor,  the  same  as  a 
check  paid  in  the  first  instance  without 
certification.  {Inquiry  from  Mont.,  June, 
1916.) 

Distinction  between  certification  for 
drawer  and  for  holder 

18.  A  bank  states  that  it  sees  the 
justice  for  releasing  the  maker  when  the 
holder  has  a  check  certified  but  that  the 
reasons  would  also  seem  to  hold  good  when 
the  maker  has  his  check  certified.  It  does 
not  see  any  good  reason  why  the  maker 
should  not  be  released  in  both  cases. 
Opinion:  When  a  man  desires  to  raise 
money  and  his  own  name  is  not  sufficient,  if 
he  procures  another  man  to  make  an 
accommodation  note  to  his  order,  which  he 


19-24] 


DIGEST  OF  LEGAL  OPINIONS 


indorses  to  the  lender  or  if  he  makes  a  draft 
to  his  own  order  and  procures  the  other  man 
to  accept  for  his  accommodation  which  he 
hkewise  indorses,  there  would  seem  no 
good  reason  in  either  case  for  saying  that, 
because  the  borrower  has  tendered  a  note  or 
acceptance  on  which  another  man  was 
primarily  hable,  in  view  of  this  primary 
liability,  the  borrower  was  no  longer  liable 
on  his  indorsement  but  the  maker  or 
acceptor  was  solely  liable.  With  equal 
reason  it  would  seem,  when  a  man  desires  to 
make  payment  and  the  creditor  is  not  sat- 
isfied to  take  his  ordinary  uncertified  check 
and  the  drawer  thereupon  procures  the 
bank  to  certify,  the  payee  should  be  entitled 
to  look  not  alone  to  the  primary  debtor,  the 
bank,  but  also  to  the  drawer  of  the  check  if 
the  bank  defaults.  Where,  however,  the 
holder  procures  the  check  to  be  certified  the 
reason  is  different.  If  instead  of  taking  the 
cash  he  receives  the  bank's  obhgation  by 
way  of  certification,  there  is  no  reason  why 
the  drawer  should  longer  remain  Hable. 
{Inquiry  from  N.  F.,  Dec,  1913.) 

19.  A  bank  asks  whether  there  is  any 
difference  in  law  when  a  check  is  cer- 
tified by  the  bank  for  the  drawer  before 
he  dehvers  it  to  the  pa3^ee,  and  when  it  is 
certified  for  a  holder  after  it  has  been  de- 
livered by  the  drawer.  Opinion:  In  the 
former  case  the  drawer  is  not  discharged 
from  liabihty  to  the  holder  in  the  event  the 
certifying  bank  fails.  The  latter  case  is 
covered  by  the  section  of  the  Negotiable 
Instruments  Law  which  provides  that: 
"Where  a  holder  of  a  check  procures  it  to  be 
accepted  or  certified,  the  drawer  and  all 
indorsers  are  discharged  from  Hability  there- 
on."    (Inquiry  from  Pa.,  Oct.,  1913.) 

Illegal  to  certify  post  dated  checks 

20.  A  bank  certified  a  post  dated  check 
before  its  date  at  the  request  of  the  holder. 
The  bank  questions  its  responsibihty  should 
it  refuse  another  check  not  post  dated,  which 
would  have  been  good  but  for  the  certifica- 
tion of  the  post  dated  check.  Opinion:  The 
bank  has  no  right  to  pay  or  certify  a  post 
dated  check  at  the  request  of  the  holder, 
before  its  date  and  so  acts  at  its  peril.  Such 
certification  at  the  request  of  the  drawer  is 
also  held  irregular,  although  in  Idaho,  it  is 
held  proper,  if  the  funds  are  sufficient,  when 
the  amount  becomes  immediately  chargeable 
to  his  account  and  payable  to  the  holder 
irrespective  of  the  date.  Morse  on  Banks 
(4th  ed.),  Sec.  389.  Godinv.  Bk.  of  Com- 
monwealth, 6  Duer  (N.  Y.)  76.     Champion 


V.  Gordon,  60  Pa.  474.  Clarke  Nat.  Bk.  v. 
Bk.  of  Albion.  52  Barb.  (N.  Y.)  592.  Pope 
V.  Bk.  of  Albion,  57  N.  Y.  126.  Smith  v. 
Field,  114  Pac.  (Idaho)  668.  {Inquiry  from 
Nev.,  May,  1913,  Jl.) 

21.  A  check  payable  to  A  was  post  dated 
December  1,  1912,  and  was  certified  June  1, 
1912,  before  its  date.  It  was  delivered  to  a 
trustee  in  escrow.  The  trustee  in  breach  of 
the  trust  delivered  it  to  A,  who  negotiated 
it  to  a  purchaser  for  value  four  months  after 
its  date.  Opinion:  It  might  be  held  by  the 
courts  (1)  that  the  irregular  certification  put 
the  purchaser  on  inquiry,  or  (2)  that  the 
check  was  overdue  when  negotiated,  so  as 
to  deprive  the  purchaser  of  the  status  of  a 
bona  fide  holder.  If  such  were  held,  the 
check  in  the  hands  of  the  purchaser  would 
be  subject  to  the  same  defenses  as  if  held  by 
the  payee.  Bull  v.  Bk.  of  Kasson,  123  U. 
S.  105.  Cowing  v.  Altman,  71  N.  Y.  435. 
Girard  Bk.  v.  Bk.,  39  Pa.  92.  Morrison  v. 
Bailey,  5  Ohio  St.  13.  Bowen  v.  Newell,  4 
Seld.  (N.  Y.)  190.  {Inquiry  from  Ark., 
Sept.  1913.) 

22.  A  gave  B  a  check  post  dated.  B 
wrote  to  the  bank  on  which  it  was  drawn, 
asking  that  payment  be  guaranteed.  The 
cashier  sent  B  a  written  guaranty  that 
the  check  will  be  paid  when  due.  Opinion: 
The  cashier  has  no  authority  to  certify  a  post 
dated  check  before  the  due  date  and  a  holder 
taking  with  notice,  cannot  recover  thereon 
from  the  bank.  In  this  case  B  could  not 
hold  the  bank  upon  its  cashier's  letter. 
Clarke  Nat.  Bk.  v.  Bk.  of  Albion,  52  Barb. 
(N.  Y.)  592.  {Inquiry  from  Okla.,  Oct., 
1915,  Jl.) 

Unwise  to  certify  undated  check 

23.  It  is  not  wise  to  certify  an  un- 
dated check.  While  an  instrument  with- 
out a  date  is,  according  to  the  Negotiable 
Instruments  Law,  valid  and  negotiable,  still 
for  commercial  completeness  there  should  be 
a  date,  and,  as  certification  is  not  obfigatory 
but  only  optional  with  the  bank,  the  better 
practice  would  be  to  refuse  certification. 
{Inquiry  from  Okla.,  April,  1917.) 

Certification  equivalent  to  acceptance 

24.  The  Negotiable  Instruments  Law 
of  New  Hampshire  requires  that  "an  accept- 
ance must  be  in  writing"  and  further 
provides  that  "certification  is  equivalent 
to  an  acceptance."  {Inquiry  from  N.  H., 
Dec,  1911,  Jl.) 


ACCEPTANCE  AND  CERTIFICATION 


[25-28 


Certifying  bank's  liability  to  fraudulent 
holder 

25.  According  to  a  New  Jersey  decision, 
a  certifying  bank  can  refuse  payment  to 
a  fraudulent  holder  where  a  check  has 
been  certified  for  the  drawer,  but  cannot 
so  refuse  where  the  certification  is  for 
the  holder.  If  this  decision  is  sound  law, 
there  might  be  a  desirability  for  separate 
certification  stamps  to  indicate  for  whom  the 
check  was  certified.  An  Ohio  decision  ignores 
this  distinction  and  holds  that  a  bank  must 
pay  fraudulent  holder  whether  the  check  is 
certified  for  the  drawer  or  for  the  holder. 
Times  Square  Auto  Co.  v.  Rutherford  Nat. 
Bk.,  73  Atl.  (N.  J.)  479.  Blake  v.  Hamilton 
Dime  Sav.  Bk.  Co.,  87  N.  E.  (Ohio),  73. 
(Inquiry  from  Conn.,  May,  1913,  Jl.) 

Right  of  bank  to  require  identification 

before  paying  certified  and 

uncertified  check 

26.  A  gives  his  check  to  C.  Bank 
refuses  to  pay  C  on  presentment  be- 
cause he  is  a  stranger,  but  at  his  request 
certifies  the  check.  Thereupon  C  indorses 
check  and  again  demands  payment  claiming 
that  when  a  bank  certifies,  it  engages  to 
pay  when  properly  indorsed.  The  bank 
presents  the  question  whether,  C  having 
indorsed  the  check,  its  certification  waives 
its  right  to  require  the  payee  to  estabHsh 
his  identity  before  making  payment.  Opinion 
The  law  is  very  indefinite  concerning  this 
right  of  the  bank  to  require  the  payee  to 
identify  himself,  but  there  are  expressions 
of  the  courts  which  indicate  that  such  right 
exists  in  the  bank  and  that  it  would  be 
justified  in  refusing  pa\Tnent  until  the  payee 
estabUshes  his  identity.  Just  what  effect 
certifying  the  check  for  the  payee  would 
have  upon  this  right  is  problematical.  It 
can  hardly  be  said  that  the  bank  thereby 
recognizes  the  identity  of  the  payee  because 
many  checks  are  presented  for  certification 
by  messengers  or  other  agents  who  are  not 
the  real  payees.  It  seems  that  this  point 
has  not  been  decided,  but  it  is  quite  safe  to 
say  the  proper  course  for  the  bank  would 
be  to  refuse  paj^ment  of  its  certified  check 
until  it  is  satisfied  of  the  payee's  identity 
for  otherwise  it  would  be  taking  the  risk 
of  pajdng  to  a  thief  or  finder  not  the  real 
payee.  By  such  refusal  the  bank  would 
incur  no  liabihty  to  the  drawer  who  be- 
comes discharged  by  the  certification  and 
whose  credit  would  not  be  injured.  But,  of 
course,  the  payee  might  sue  the  bank  and 
the  question  would  be  whether  the  refusal  to 


pay  until  the  payee  was  properly  identified 
was  such  a  refusal  as  would  authorize  the 
beginning  of  an  action.  The  question  is 
uncertain,  and  it  might  be  held  that  the 
payee  was  entitled  to  payment  without 
proving  his  identity;  but  even  so,  it  seems 
the  payee's  right  of  recovery  would  be 
limited  to  the  amount  of  the  check  and 
interest  and  there  would  be  no  additional 
responsibihty  for  financial  loss  suffered  by 
the  payee  by  being  deprived  of  his  money. 
These  matters  of  requiring  proof  of  identity 
before  payment  are  generally  adjusted 
directly  between  the  bank  and  holder,  and 
it  is  very  seldom  that  a  case  gets  into  court. 
There  is,  therefore,  an  absence  of  authority 
on  the  precise  proposition.  {Inquiry  from 
Ky.,  Sept.,  1913.) 

Note:  In  Citizens'  National  Bank  of 
Evansville  v.  Reynolds,  126  N.  E.  (Ind.)  234 
decided  in  February,  1920,  the  court  held 
a  bank  entitled  to  require  payee  of  a  check 
to  identify  himself  to  its  satisfaction  before 
paying  the  check. 

Payment  of  certified  check  on 
forged  indorsement 

27.  A  depositor  had  his  bank  certify 
his  check  for  SI, 005,  payable  to  X  Co. 
Said  check  was  indorsed  ''X  Co.,  by  M. 
J,  S.,"  and  was  cashed  by  the  Y  bank, 
and  was  indorsed  by  the  latter  "All  prior 
indorsements  guaranteed."  It  was  paid  by 
the  certifying  bank.  M.  J.  S.  had  no 
official  connection  with  the  X  Co.,  and  had 
no  authority  to  indorse  the  check.  Who  is 
responsible  for  this  loss?  Opinion:  The 
recourse  of  the  drawee  bank  would  be 
against  the  Y  bank,  which  guaranteed  the 
indorsements,  and  which  would  be  the 
ultimate  loser.  {Inquiry  from  Okla.,  Nov., 
1920) 

Drawer's  liability  on  accepted  draft 

28.  A  draft  was  drawn  by  Smith  and 
Company  on  Jones  &  Company  at  sixty 
days'  sight  and  accepted  by  Jones  &  Com- 
pany. Opinion:  The  effect  of  the  accept- 
ance is  not  to  discharge  the  drawer  but  to 
constitute  the  acceptor  the  principal  debtor. 
In  Texas,  the  liability  of  the  drawer  of  an 
accepted  draft  is  fixed  by  due  protest  and 
notice,  or  without  protest,  by  suit  against 
the  acceptor  as  provided  for  by  statute. 
Vernon's  Sayles'  Tex.  Civ.  Stat.,  1914, 
Art.  579.  Seguin  Milling  &  Power  Co.  v. 
Guinn,  137  S.  W.  (Tex.)  456.  {Inquiry 
from  Tex.,  Oct.,  1916,  Jl.) 


29-35] 


DIGEST  OF  LEGAL  OPINIONS 


Certification  of  forged  checks 

29.  A  bank  certified  checks  bearing  for- 
gery of  the  payee's  indorsement.  The  checks 
were  purchased  by  another  bank  which  re- 
ceived payment  therefor.  Opinion:  The 
certifying  bank  does  not  warrant  the  genu- 
ineness of  the  payee's  indorsement  and  is 
not  responsible  to  the  purchaser.  If  money 
is  paid  by  the  certifying  bank  thereon,  it 
may  be  recovered.  First  Nat.  Bk.  v.  North- 
western Nat.  Bk.,  152  111.  296.  MetropoH- 
tan  Nat.  Bk.  v.  Merchants'  Nat.  Bk.,  182 
111.  367.  Morse  on  Banks,  Sec.  482.  {Inquiry 
from  III.,  March,  1913.) 

30.  A  forged  check  was  given  in  pay- 
ment of  a  diamond  ring.  Before  accepting 
the  check,  the  seller  required  a  responsible 
indorser,  and  the  latter  before  indorsing  the 
check  telephoned  the  bank  which  promised 
to  pay  the  check.  The  bank  did  not  pay  the 
forged  check.  Opinion:  The  bank's  prom- 
ise to  pay  was  not  binding  where  the  check 
was  a  forgery,  as  its  promise  related  to  a 
valid  check;  even  in  case  of  a  valid  check, 
the  bank  would  not  be  bound  because  its 
promise  was  not  in  writing.  {Inquiry  from 
Kan.,  Oct.,  1909,  Jl.) 

31.  A  bank  certified  its  customer's  check, 
which  remained  outstanding  and  which  was 
claimed  by  the  drawer  to  be  forged.  The 
bank  doubted  the  fact  of  forgery  and  refused 
to  reimburse  its  customer's  account.  Opin- 
ion: If  the  check  remains  outstanding  the 
bank  in  a  suit  by  the  customer  would  be 
held  Hable  for  the  amount  of  the  deposit, 
for  his  positive  testimony  of  the  forgery 
would  probably  outweigh  the  presumption 
of  genuineness  arising  from  the  fact  of  cer- 
tification. Iron  City  Nat.  Bk.  v.  Fort  Pitt 
Bk.,  159  Pa.  46.  {Inquiry  from  Pa.,  Feb., 
1914,  Jl) 


because  the  holder  fails  to  identify  himseK 
is  not  a  dishonor  of  the  instrument  which 
will  render  the  bank  liable  to  its  depositor 
in  damages.  It  is  probably  customary  in 
such  case  for  the  bank  to  certify  the  check 
because  the  fund  will  then  be  saved  to  the 
holder  and  not  subject  to  withdrawal  or 
stoppage  of  payment  before  the  holder  suc- 
ceeds in  estalDlishing  his  identity,  but  there 
is  no  legal  obligation  to  certify  in  any  event. 
{Inquiry  from  N.  Y.,  April,  1916.) 

33.  A  stranger  presents  a  check  for  cer- 
tification. The  question  is  asked  whether 
the  bank  is  justified  in  certifying  the  same 
rather  than  pajdng  it.  Opinion:  "Whether 
a  bank  is  justified  in  certifying  a  check 
when  presented  by  a  stranger  is  a  question 
of  banking  practice  rather  than  law,  there 
being  no  legal  obligation  to  certify  in  any 
case  as  distinguished  from  obligation  to  pay. 
{Inquiry  from  Md.,  April,  1916.) 

Certification  guarantees  signature  and 
sufficiency  of  funds 

34.  A  bank  certified  a  check  payable  to 
a  specified  person  for  a  stranger  who  was 
not  entitled  to  the  instrument.  The  holder 
negotiated  the  check  under  a  forged  indorse- 
ment to  an  innocent  purchaser  for  value. 
Opinion:  The  certifjdng  bank  binds  itself 
that  there  are  sufficient  funds  to  pay  the 
check  and  guarantees  the  genuineness  of  the 
drawer's  signature.  The  bank  is  not  respon- 
sible to  the  innocent  purchaser  because  (1) 
it  does  not  guarantee  the  genuineness  of  the 
payee's  indorsement,  and  (2)  it  is  not  negU- 
gent  in  certifying  a  check  for  an  unidentified 
person.  Neg.  Inst.  A.,  Sec.  188  (Comsr's. 
dft.).  First  Nat.  Bk..  v  Northwestern  Nat. 
Bk.,  152  111.  296.  {Inquiry  from  N.  J., 
Jan.,  1917,  Jl.) 


Certification  of  check  for  stranger  Certification  "subject  to  garnishment" 


32.  The  payee  of  a  check  goes  to  the 
bank  on  which  it  is  drawn  and  demands  of 
the  paying  teller  the  cash.  The  teller  refuses 
and  the  payee  in  turn  demands  certification. 
The  teller  informs  the  payee  that  the  check 
is  good  at  the  present  time,  but  argues  that 
he  does  not  care  to  cash  or  certify  the  check 
because  the  payee  is  unknown  to  him.  The 
payee  deposits  the  check  with  his  own  bank 
and  later  payment  is  refused  because  of  the 
drawer's  stop  pajrment  order.  Has  the 
payee  any  legal  action  against  the  drawee? 
Opinion:  The  bank  had  the  right  to  re- 
quire the  payee  to  identify  himself  as  a  pre- 
requisite to  payment  and  a  refusal  to  pay 


35.  The  account  of  a  depositor  in  a  bank 
was  garnished  and  summons  served  on  the 
bank  October  11th.  Several  daj^s  thereafter 
the  attorney  for  such  depositor  requested 
the  bank  to  certify  a  check  on  the  account, 
the  certification  to  read:  "Subject  to  a 
certain  garnishment,   served   October     11, 

1920,  in  the  Civil  Court  of County, 

in  the  suit,  etc.,  etc."  The  bank  refused  to 
make  such  certification,  and  desires  opinion 
of  the  point.  Opinion:  Where  a  deposi- 
tor's account  is  garnished,  and  request  is 
made  upon  the  bank  to  certify  a  check  on 
the  account  subject  to  the  garnishment  so 
that   if  vacated  the  certified  check  would 


6 


ACCEPTANCE  AND  CERTIFICATION 


[36-40 


take  priority  over  a  subsequent  garnishment, 
refusal  of  the  bank  to  so  certify  is  within  its 
rights  and  proper,  since  a  bank  is  not  obhged 
to  certify  a  check  in  any  event,  and  the  pro- 
priety of  such  a  method  of  aiding  a  deposi- 
tor to  place  his  banking  assets  beyond  the 
reach  of  his  creditors  is  questionable.  A  check 
so  certified  would  not  be  a  negotiable  instru- 
ment, but  a  promise  to  pay  conditioned 
upon  the  fund  being  released  from  the 
described  garnishment.  See  Kitzinger  v. 
Beck,  4  Colo.  App.  206;  El  Reno  Foundry  & 
Mach.  Co.  v.  West.  Ice  Co.  [Okla.  1915] 
153  Pac.  1107.  La  Barre  v.  Doney,  53  Pa. 
Super.  Ct.  435.  Welch  v.  Renfro,  42  Tex 
Civ.  App.  460.  Stannard  v.  Youmans, 
110  Wis.  375.  Maxwell  v.  Bank  of  New 
Richmond,  101  Wis.  286.  Rood,  Garnish- 
ment, Sec.  215.  {Inquiry  from  Wis.,  Jan., 
1921.  Jl.) 

Duty  of  collecting  bank  to  request 
certification 

36.  A  bank  received  for  collection  a 
check  on  which  payment  was  refused  because 
not  properly  indorsed.  The  bank  returned 
the  check  for  correction  and  inquired  as  to 
its  habihty  for  failure  to  request  certification, 
should  the  check  afterwards  be  protested  for 
lack  of  sufficient  funds.  Opinion:  It  is  not 
unlikely  that  the  courts  might  hold  that  due 
diligence  requires  that  the  collecting  bank 
request  certification  before  returning  the 
check  for  correction,  for  such  would  seem 
the  action  a  discreet  person  would  take 
in  his  own  interest  in  an  attempt  to 
insure  ultimate  payment.  Although  the 
payor  bank  is  not  obliged  to  certify,  certifica- 
tion in  such  case  is  a  common  practice.  The 
courts  have  not  yet  passed  upon  the  precise 
question  whether  it  is  the  duty  of  a  collecting 
bank  to  request  certification  of  an  improp- 
erly indorsed  check  before  returning  same 
for  correction.  First  Nat.  Bk.  v.  Fourth 
Nat.  Bk.,  77  N.  Y.  320.  Exch.  Nat.  Bk.  v. 
Third  Nat.  Bk.,  112  U.  S.  276.  {Inquiry 
from  Ala.,  July,  1914,  JI-) 

Indorsement  must  be  properly  made 

37.  A  check  for  $5,000  was  presented 
at  the  drawee  bank  and  pa>Tnent  was 
refused  because  the  check  was  not  in- 
dorsed. The  presenting  bank  then  indorsed 
the  paj^ee's  name  for  the  paj'-ee  and  again 
presented  the  check  which  was  again  refused. 
The  holder  demanded  that  the  bank  certify 
the  check.  Opinion:  The  drawee  bank  was 
under  no  obligation  to  the  holder  to  certify 
the  check.     Its  only  obligation  was  to  pay 


when  duly  presented.     {Inquiry  from  Cal., 
Nov.,  1912,  Jl.) 

38.  A  bank  although  in  funds  refused 
pajnnent  of  a  check  because  it  lacked 
the  payee's  indorsement.  Later,  when  the 
check  properly  indorsed  was  presented,  there 
were  no  funds  to  meet  it.  The  holder  claimed 
that  drawee  was  liable  for  failure  to  certify 
the  check  in  the  first  instance.  Opinion: 
The  bank  was  not  obhged  to  certify,  but  only 
to  pay.  Banks  frequently  certify  such  checks 
"good  when  properly  indorsed,"  but  do  so 
purely  out  of  accommodation.  Redington 
V.  Woods,  49  Cal.  406.  Bk.  of  Lisbon  v.  Bk. 
of  Wyndmere,  15  N.  D.  299.  Canadian 
Bk.  of  Commerce  v.  Bingham,  30  Wash. 
484.  Greenwald  v.  Ford,  109  N.  W.  (S.  D.) 
516.  Ford  v.  People's  Bk.,  Supreme  Court 
of  S.  D.,  April,  1906.  First  Nat.  Bk.  v. 
Marshalltown  St.  Bk.,  107  Iowa  327.  First 
Nat.  Bk.  V.  Northwestern  Nat.  Bk.,  152 
111.  296.  {Inquiry  from  N.  Y.,  Nov.,  1909,  Jl.) 

39.  A  bank  received  through  the  mail 
a  check  drawn  on  one  of  its  customers, 
but  which  was  improperly  indorsed.  The 
bank  returned  the  check  for  correction  and  in 
the  meantime  the  customer  reduced  his  ac- 
count so  that  check  was  not  good.  Opinion: 
The  drawee  bank  is  not  liable  to  the  holder 
for  failure  to  certify  the  check  before  return- 
ing it  for  proper  indorsement.  Many  banks 
do  certify  "good  when  properly  indorsed" 
but  the  bank  is  under  no  obhgation  to  certify 
a  check.    {Inquiry  from  Pa.,  Sept.,  1914,  Jl-) 

Voluntary  certification  of  check  "good 
when  properly  indorsed" 

40.  A  bank  voluntarily  certifies  an  in- 
correctly indorsed  check  "good  when  prop- 
erly indorsed,"  when  presented  through 
the  clearing  house.  Is  the  bank  within  its 
rights  and  does  it  assume  any  responsibility 
in  doing  this  voluntary  act  when  no  such 
request  is  made  by  the  holder?  Opinion: 
Although  this  question  has  never  been 
judicially  passed  upon,  the  propriety  of  such 
action  might  depend  upon  custom.  It  is 
likely  that  a  court  would  hold  that  the  bank 
incurred  no  responsibihty  to  the  drawer. 
The  bank  in  so  certifying  obeys  the  order 
of  the  drawer  to  the  extent  of  promising  to 
pay  the  check  upon  proper  indorsement. 
Certification  cuts  off  the  right  of  the  drawer 
to  thereafter  stop  payment  upon  the  sub- 
sequent discovery  of  fraud  of  the  payee,  but 
if  the  check  had  been  presented  properly 
indorsed  it  would  have  been  paid,  and  such 
contingency  would  not  make  the  bank  re- 


41-48] 


DIGEST  OF  LEGAL  OPINIONS 


sponsible  to  the  drawer  or  give  the  drawer 
just  ground  to  complain,  {Inquiry  from 
Va.,  Oct.,  1916) 

Certifying  bank  has  right  to  charge 
customer's  account  immediately 

41.  A  bank  certified  a  check  payable 
to  a  distant  firm  at  the  request  of  the 
holder  who  was  its  traveling  salesman.  Of 
this  fact  the  depositor  was  ignorant.  The 
depositor  believing  that  the  check  could  not 
be  presented  for  several  days,  drew  a  second 
check,  which  overdrew  the  account  because 
of  the  certification.  He  threatened  suit  for 
damages  because  of  the  bank's  refusal  to  pay. 
Opinion:  The  bank  had  the  right  to  certify 
the  first  check  when  presented  by  the  holder 
and  immediately  charge  same  to  the  custom- 
er's account.  Merchants'  Bk.  v.  St.  Bk,, 
10  Wall.  {Inquiry  from  D.  C,  Sept.,  1912, 
Jl.) 

Language  expressing  certification 
construed 


fide  holder  who  has  purchased  same  on  faith 
thereof.  Oil  Well  Supply  Co.  v.  Mac- 
Murphy,  138  N.  W.  (Minn.)  784.  ElHott  v. 
First  St.  Bk.,  152  S.  W.  (Tex.)  808.  {In- 
quiriy  from  Mo.,  July,  1913,  Jl.) 

"A's  check  on  us  good  for  $100" 

45.  A  check  may  be  accepted  by  tel- 
egram which  is  a  sufficient  compliance 
with  the  statutory  requirement  that  accept- 
ance must  be  in  writing,  but  to  be  binding 
the  telegram  must  clearly  import  an  absolute 
promise  to  pay.  Where  a  bank  wired,  "Will 
you  pay  A's  check  on  you  $100?"  and  the 
drawee  wired  reply,  "A's  check  on  us  good 
for  $100."  Opinion:  That  the  reply  wire 
sufficiently  imports  an  absolute  promise  to 
pay  and  is  binding  as  an  acceptance.  First 
Nat.  Bk.  V.  Commercial  Sav.  Bk.,  87  Pac. 
(Kan.)  706.  Kahn  v.  Walton,  46  Ohio  St. 
195.  North  Atchison  Bk.  v.  Garretson, 
51  Fed.  168.  EUiott  v.  First  St.  Bk.,  152 
S.  W.  (Tex.)  808.  {Inquiry  from  N.  M., 
Jan.,  1918,  Jl.) 


"Check  of  A.  Brown  for  $600  now  good"  "John  Smith  good  on  our  books  for  $60  today" 


42.  A  bank  in  which  A.  Brown  is  a  de- 
positor sent  the  following  telegram,  "Check 
of  A.  Brown  for  five  hundred  dollars  now 
good."  Opinion:  This  telegram  would  not 
constitute  a  sufficient  acceptance  to  bind 
the  bank.  It  is  not  an  absolute  promise  to 
pay,  and  there  is  an  implication  that  the 
bank  would  not  answer  for  Brown's  check 
after  sending  the  wire.  Meyers  v.  Union 
Nat.  Bk.,  27  111.  App.  254.  {Inquiry  from 
Cal.,  Aug.,  1916.,  Jl.) 

43.  The  drawee  of  a  check  in  answer 
to  an  inquiry  by  the  holder  replied  over 
the  telephone  simply  that  the  check  was 
good.  Notwithstanding  a  subsequent  stop 
payment  order,  the  check  was  paid.  Opinion: 
In  Indiana,  where  the  Negotiable  Instru- 
ments Law  has  not  been  enacted,  oral  ac- 
ceptances are  valid.  But  it  is  doubtful  if  the 
mere  oral  answer  that  a  check  is  good,  so 
clearly  indicates  an  absolute  promise  to  pay 
as  to  be  binding  as  an  acceptance.  {In- 
quiry from  Ind.,  May,  1911.,  Jl.) 

Note:  The  Negotiable  Instruments  Law 
which  requires  acceptances  to  be  in  writing 
was  passed  in  Indiana  in  April,  1913. 

"A's  check  good  for  amount" 

44.  A  bank  received  a  wire:  "Will 
you  pay  check  signed  A,  $335?"  and  re- 
plied by  wire,  "A's  check  good  for  amount." 
Opinion:  The  reply  will  be  held  an  accept- 
ance binding  the  bank  to  pay  check  to  a  bona 


46.  In  reply  to  a  telegram  asking  "Is 
John  Smith  good  on  your  books  for  $50?" 
A  bank  answered  by  wire  and  confirmed 
by  letter  as  follows:  "John  Smith  good 
on  our  books  for  $50  today."  When  the 
check  reached  the  bank  it  was  refused 
because  the  funds  had  been  withdrawn. 
Opinion:  The  bank's  wire  confirmed  by  letter 
was  not  binding  on  the  bank  as  an  accept- 
ance. It  was  not  a  promise  but  merely  a 
statement  of  fact  as  to  the  condition  of  the 
customer's  account  on  a  given  day.  First 
Nat.  Bk.  V.  Commercial  Sav.  Bk.,  87  Pac. 
(Kan.)  746.  {Inquiry  from  N.  Y.,  May, 
1912,  Jl.) 

47.  A  bank  before  advancing  value 
in  reliance  upon  a  telegram  concerning 
some  particular  check  should  see  that  the 
answer  by  wire  contains  or  imports  an  ab- 
solute and  unequivocal  promise  to  pay. 
First  Nat.  Bk.  v.  Commercial  Sav.  Bk., 
87  Pac.  (Kan.)  746.  Kahn  v.  Walton, 
46  Ohio  St.  195.  Coffman  v.  Campbell, 
87  111.  98.  North  Atchison  Bk.  v.  Garretson, 
51  Fed.  168.  For  the  wording  of  telegrams 
illustrating  this  point  see  3  ABA  Jl.,  338. 
{Inquiry  from  Okla.,  Dec,  1910.) 

48.  A  drew  two  checks  of  $303.40 
and  $75  respectively  and  had  his  bank 
wire  the  purchasing  bank  as  follows:  "We 
will  honor  Mr.  A's  draft  for  $400  this 
attached."  Later  A  stopped  payment  and 
A's  bank  refused  to  pay  the  amount  claiming 


8 


ACCEPTANCE  AND  CERTIFICATION 


[49-53 


that  its  acceptance  was  of  a  single  draft  of 
S400  and  did  not  accept  the  particular  checks 
of  amount  less  than  $400.  Opinion:  The 
drawee  is  not  bound  to  honor  the  two  checks, 
as  an  agreement  to  pay  a  single  draft  of  $400 
would  not  bind  the  bank  to  pay  two  drafts  of 
a  lesser  amount.  Bk.  v.  Young,  14  Fed. 
889.  Glover  v.  Tuck,  1  Hill,  66.  Lindley  v. 
First  Nat.  Bk.  of  Waterloo,  76  Iowa  629. 
Brinkman  v.  Hunter,  73  Mo.  172.  Ulster 
Co.  Bk.  V.  McFarlan,  5  Hill  432.  Gates  v. 
Parker,  43  Me.  544.  Murdock  v.  Mills, 
11  Mete.  5.  St.  Bk.  of  Fox  Lake  v.  Citizens' 
Nat.  Bk.,  114  Mo.  App.  663.  Guthrie  Nat. 
Bk.  V.  Dosbaugh's  Bk.,  11  Okla.  664. 
{Inquiry  from  Okla.,  April,  1909,  Jl.) 

49.  Bank  A  phoned  Bank  B  saying 
that  C  wants  to  draw  on  Bank  B  and 
is  informed  that  C  has  no  credit  with  Bank 
B.  Thereupon,  Bank  A  reads  a  letter  from 
C  stating  that  he  will  be  at  Bank  B's  place 
before  the  draft  reaches  and  will  give  security 
for  the  draft.  Bank  B  replied,  "let  him  draw 
draft  them."  Opinion:  Although  an  oral 
acceptance  is  binding  on  the  drawee  in  Texas 
Bank  B's  promise  should  be  construed  as  a 
conditional  promise  to  pay  after  C  does  what 
he  says  he  will  do,  and  where  C  has  not  per- 
formed the  condition,  Bank  B  will  not  be 
liable.    Newmann  v.  Schroeder,  71  Tex.  81. 

Note:  The  Negotiable  Instruments  Law 
requiring  acceptances  to  be  in  writing  was 
passed  in  Texas  in  March,  1919.  {Inquiry 
from  Tex.  Feb.  1912.,  Jl.) 

Certification  by  bank  president 
away  from  bank 

50.  The  customer  of  a  bank  approached 
the  president  at  a  railroad  station  just 
at  train  time  and  stated  that  he  was 
about  to  leave  for  a  neighboring  town 
and  bid  on  an  oil  and  gas  lease  that 
was  to  be  sold  through  the  court.  He  also 
stated  that  he  wanted  something  to  show 
the  court  that  he  had  money  with  which 
to  pay  for  the  bid  in  case  he  bought.  The 
president  wrote  on  a  scrap  of  paper:  "We 
will  honor  the  draft  of  Oscar  Smith  for 
13,000.  Tulsa  National  Bank,  by  T.  Miller, 
President."  Smith  was  the  successful 
bidder  and  drew  and  delivered  a  draft  drawn 
not  on  the  bank  but  on  himself  for  $3,000, 
attaching  the  slip  of  paper.  Upon  presenta- 
tion at  the  bank,  the  draft  was  protested 
and  returned  because  Smith  had  for  some 
reason  previously  ordered  payment  stopped. 
The  bank  wishes  to  be  advised  in  the  prem- 
ises.   Opinion:    The  bank  cannot  be  held 


Uable  on  this  certification  as  it  does  not 
come  within  the  terms  of  the  promise  of  the 
president.  In  any  event,  certification  of  a 
customer's  check  away  from  the  bank  is 
improper  and  invalid  (Bullard  v.  Randall, 
Gray  [Mass.]  605)  for  how  is  the  officer  to 
know  but  that  the  funds  have  not  been 
drawn  out  while  he  has  been  away.  {In- 
quiry from  OJzla.,  Dec,  191Jf..) 

Certification  by  wire — ^Does  promise  to 

honor   check   for   $550    cover    two 

checks  aggregating  of  $550? 

51.  A  draws  two  checks  for  $500  and 
$50,  respectively.  Before  depositing  them, 
a  wire  is  sent  to  the  bank  on  which 
they  are  drawn,  requesting  that  the  drawee 
certify  "a  check  for  $550."  The  answer 
received  from  the  drawee  was  that  the 
check  for  $550  was  good.  Before  the 
checks  were  presented,  pajTiient  was  stopped, 
and  the  holder  seeks  to  recover  from  the 
certifying  bank.  Does  the  promise  to 
honor  the  check  for  $550  cover  the  two 
checks?  Opinion:  Had  the  promise  been 
to  honor  "checks"  for  $550  the  bank  unques- 
tionably would  have  been  bound.  See 
First  Nat.  Bk.  v.  First  Nat.  Bk.,  210  Fed. 
543.  The  general  rule  is  that  one  who 
promises  in  advance  to  accept  or  pay  a 
check  is  bound  upon  such  promise  only 
when  the  instrument  in  its  terms  conforms  to 
the  terms  of  the  promise.  See  Lindley  v. 
First  Nat.  Bk.,  76  Iowa,  629;  Brinkman  v. 
Hunter,  73  Mo.,  172.  Although  the  precise 
state  of  facts  in  this  case  has  not  been  judi- 
cially passed  upon,  it  may  be  held  that  the 
two  checks  for  $550  would  sufficiently 
conform  to  the  terms  of  the  acceptance  of  a 
check  for  $550  and  the  acceptor  would  be 
bound.    {Inquiry  from  Okla.,  March,  1919.) 

Letters  "O.  K."  as  certification 

52.  Opinion:  The  letters  "0.  K." 
placed  on  check  with  signature  of  certi- 
fying officer  constitute  a  certification  equally 
as  if  "good"  were  written,  and  if  placed  upon 
an  overdraft,  contrary  to  provisions  of  the 
National  Bank  Act,  would  subject  officer  to 
criminal  penalty.  U.  S.  Rev.  Stat.,  Sec. 
5208.  Commercial  Bk.  v.  Fleming,  14  New 
Bruns.  36.  {Inquiry  from  Ark.,  Oct.,  1913. 
Jl.) 

53.  The  letters  "0.  K."  were  placed 
on  a  check  by  the  Vice-President  of  the 
drawee  bank  over  his  signature,  there  be- 
ing no  funds  on  deposit  at  the  time  to  meet 
the  check.    The  understanding  was  that  the 


9 


54-57] 


DIGEST  OF  LEGAL  OPINIONS 


maker  of  the  check  would  deposit  sufficient 
funds.  Payment  was  refused.  Opinion: 
The  "0.  K."  of  the  Vice-President  would 
constitute  a  certification  provided  the  officer 
had  power  or  authority  to  certify.  Where 
the  check  was  certified  without  funds,  the 
bank  is  hable  to  the  bona  fide  payee  for  value. 
Baxter  v.  ElHs,  111  N.  C.  124.  Morgantown 
Mfg.  Co.  V.  Ohio  R.  etc.,  Ry.  Co.,  121  N.  C. 
514.  Penn.  Tobacco  v.  Leman,  109  Ga. 
428.  Davis  Paint  Co.  v.  Metzger  Oil  Co., 
90  111.  App.  117.  IndianapoHs,  etc.,  Ry. 
Co.  V.  Sands,  133  Ind.  433.  Citizens'  Bk. 
V.  Farwell,  56  Fed.  570,  571.  Barnet  v. 
Smith,  10  Fost.  256.  Muth  v.  St.  Louis  Tr. 
Co.,  88  Mo.  App.  596.  Civ.  Code  of  Cal. 
Sec.  3254,  3193.  Bowen  v.  Needles  Nat. 
Bk.,  94  Fed.  (Cal.)  925.  Union  Tr.  Co.  v. 
Preston  Nat.  Bk.,  136  Mich.  460.  First 
Nat.  Bk.  V.  Union  Tr.  Co.,  158  Mich.  94. 
Sackett  v.  Johnson,  54  Cal.  107,  109. 
{Inquiry  from  Cal.,  April,  1911,  Jl.) 

Certification  "good  if  presented 
within  six  months" 

54.  A  bank  certification  stamp  bears 
the  clause  "good  if  presented  within  six 
months."  Upon  the  supposition  that  the 
bank  after  the  expiration  of  the  six  months 
repaid  the  funds  to  its  depositor  who  claimed 
he  had  lost  the  certified  check,  and  later  the 
check  was  presented  by  a  holder  in  due 
course,  the  bank  inquires,  first,  as  to  the 
legal  effect  of  such  a  clause  and,  second, 
would  the  insertion  of  the  clause  afford  it 
better  protection  than  if  it  was  omitted. 
Opinion:  In  the  absence  of  judicial  inter- 
pretation, the  contract  would  probably  be 
construed  not  as  reheving  the  bank  entirely 
from  its  promise  to  pay  after  six  months,  but 
as  permitting  the  bank,  if  the  check  is 
afterwards  presented,  to  plead  any  equities 
which  it  might  have  in  defense  of  payment. 
Davenport  v.  Palmer,  152  App.  Div.  (N.  Y.) 
761,  763.  French  v.  Lafayette  Ins.  Co.  Fed. 
Cas.  No.  5102  aff'd.,  59  U.  S.  404.  Miller  v. 
St.  Ins.  Co.  74  S.  W.  (Neb.)  416.  Dechter 
V.  Nat.  Council,  etc.,  153  N.  W.  (Minn.) 
742.  Use  V.  Aetna  Indemnity  Co.,  125 
Pac.  (Wash.)  780.  Watertown  Nat.  Bk.,  v. 
Bagley,  119  N.  Y.  S.  192.  N.  Y.  Code  Civ. 
Proc.  Sec.  414.  Neg.  Inst.  A.,  Sees.  188, 
139,  141  (Comsr's.  dft.).  {Inquiry  from 
N.  Y.,  March,  1919,  Jl.) 

55.  A  bank  uses  a  certification  stamp 
which  reads  "good  if  presented  within  five 
days"  with  a  place  and  date  of  certification. 
It  has  adopted  this  form  as  protection  against 


a  possible  form  of  fraud  wherein  the  deposi- 
tor after  issuing  his  check  to  a  confederate 
who  procures  its  certification,  claims  forgery 
and  obtains  the  amount  from  the  bank,  after 
which  the  check  is  negotiated  to  a  bona  fide 
holder.  The  bank  asks  whether  such  condi- 
tional form  of  certification  is  valid  and 
whether  it  could  refuse  payment  if  the  check 
was  presented  after  five  days.  Opinion: 
Such  form  of  certification  is  valid  and  would 
seem  to  have  utiHty  in  affording  the  desired 
protection.  In  a  case  where  the  bank  cred- 
ited the  money  to  the  depositor  after  the  ex- 
piration of  the  period  of  certification,  it  would 
be  reheved  from  habihty  and  whatever 
recourse  the  bona  fide  holder  would  have 
would  be  solely  against  the  drawer.  Neg. 
Inst.  A.,  Sees.  187,  188,  141,  142  (Comsr's. 
dft.).    {Inquiry  from  Pa.,  Feb.,  1916,  Jl.) 

Lost  certified  check — Indemnity 

56.  A  bank  inquires  as  to  what  pro- 
cedure it  should  take  where  a  depositor 
had  a  check  certified  which  he  mailed  to 
payee  who  never  received  it,  and  depositor 
requests  return  of  money.  Opinion:  The 
bank  should  require  an  indemnifying  bond 
before  paying  the  money  to  the  depositor, 
as  there  is  the  possibihty  the  payee  may  have 
received  the  check,  or  may  hereafter  receive 
it  and  indorse  and  negotiate  it.  As  to  the 
length  of  time  the  check  might  be  out- 
standing as  an  enforceable  obligation,  the 
point  has  not  been  passed  upon  in  New 
Jersey,  so  the  question  is  uncertain.  Certi- 
fied checks  would  probably  come  under  the 
same  rule  as  certificates  of  deposit,  and  a 
number  of  courts  have  held  that,  in  these, 
the  statute  of  Umitations  does  not  begin  to 
run  against  one  payable  on  demand  until 
demand  made,  while  other  courts  hold  the 
statute  begins  to  run  from  the  date  of  the 
certificate.  {Inquiry  from  N.  J.,  October, 
1915.) 

57.  A  bank  certified  the  check  of  its 
depositor  in  favor  of  an  attorney  who 
acted  as  bondsman  for  the  depositor.  The 
check  was  lost  and  has  remained  outstanding 
for  ten  years,  and  at  the  same  time  the  de- 
posit is  not  released.  Opinion:  The  certified 
check  is  not  outlawed  in  Pennsylvania  until 
six  years  after  payment  has  been  demanded 
and  the  bank  before  paying  the  amount  of 
the  deposit  represented  by  the  lost  certified 
check  is  entitled  to  satisfactory  indemnity,  or 
conclusive  proof  of  its  destruction.  In  re 
Gardners  Estate,  228  Pa.  282.  {Inquiry 
from  Pa.,  Jan.,  1915,  Jl.) 


10 


ACCEPTANCE  AND  CERTIFICATION 


[58-64 


Outstanding  certified  checks 

58.  A  bank  certified  a  check  payable 
to  a  corporation  at  the  request  of  its  cus- 
tomer. The  check  has  been  outstanding  five 
years  and  never  presented.  Opinion:  In 
Pennsylvania,  the  statute  of  limitations  be- 
gins to  run  against  the  holder  from  the  date 
of  the  bank's  refusal  to  pay.  The  bank  re- 
mains liable  to  pay  the  check  until  the 
statute  comes  to  its  rehef.  {Inquiry  from 
Pa.,  Jan.,  1913,  Jl.) 

59.  The  provision  of  the  Negotiable 
Instruments  Law  that,  where  an  instru- 
ment is  payable  on  demand,  presenta- 
tion must  be  made  within  a  reasonable  time 
after  its  issue,  has  reference  only  to  charging 
parties  contingently  liable.  A  bank  remains 
liable  on  an  outstanding  certified  check  until 
the  statute  of  hmitations  comes  to  its  relief, 
and  such  statute  does  not  begin  to  run  until 
payment  of  the  check  has  been  demanded 
and  refused.  Girard  Bk.  v.  Bk.,  39  Pa.  92. 
McGough  V.  Jamison,  107  Pa.  336.  Fink- 
bone's  Appeal,  86  Pa.  368.  Jackson,  etc., 
Co.  V.  Bk.,  199  111.  151.  Hunt  v.  Divine,  37 
111.  137.    {Inquiry  from  Pa.,  Jan.,  1913,  Jl.) 

60.  A  check  to  the  drawer's  order 
was  certified  for  the  drawer.  The  drawer 
dehvered  the  check  without  indorsement  to  a 
third  person  at  an  auction  sale  before  he  be- 
gan bidding.  Through  some  misunderstand- 
ing the  dealings  fell  through.  On  present- 
ment of  the  check  by  the  holder,  payment  was 
refused  by  the  drawee  because  it  lacked  the 
payee's  indorsement.  The  check  remains  out- 
standing and  the  drawer  wants  the  use  of 
his  money.  Opinion:  The  drawee  bank  is 
not  Hable  to  the  holder  of  the  check,  as  one  of 
the  conditions  of  certification  upon  which  the 
bank's  obligations  to  pay  depends,  is  that  the 
check  shall  be  indorsed  by  the  drawer,  who  is 
also  payee.  To  release  his  money,  the  drawer 
may  bring  replevin  to  recover  the  check,  or 
he  may  give  the  bank  satisfactory  indemnity 
against  the  possibility  that  the  check  may 
thereafter  be  presented  properly  indorsed. 
Lynch  v.  First  Nat.  Bk.,  107  N.  Y.  179. 
Haas  v.  Altieri,  21  N.  Y.  S.  950.  Barnett  v. 
SeUing,  70  N.  Y.  492.  Nicholas  v.  Mase,  94 
N.  Y.  160.  {Inquiry  from  Mont.,  Sept., 
1914,  Jl.) 

Rule  of  twenty-four  hours  for 
acceptance 

61.  The  section  of  Negotiable  Instru- 
ments Law  allowing  drawee  twenty-four 
hours  after  presentment  in  which  to  decide 
whether  or  not  he  will  accept,   does    not 


apply  to  sight  drafts  which,  under  the 
law,  are  payable  on  demand,  and  collect- 
ing bank  is  not  obliged  to  hold  twenty-four 
hours  for  convenience  of  drawee.  Possible 
doubt  created  by  law  can  be  cured  by 
amendment,  Daniel  on  Neg  Inst.,  Sees. 
449,  454.  Wisner  v.  First  Nat.  Bk.  of 
Galitzen — Supreme  Court  of  Pa.,  1908. 
First  Nat,  Bk.  of  Omaha  v.  Whitmore,  177 
Fed.  397.  Neg.  Inst.  A.,  Sees.  136.  137 
(Comsr's  dft.),  {Inquiry  from  Conn.,  Aug., 
1910,  Jl.) 

62.  The  rule  allowing  the  drawee 
twenty-four  hours  to  decide  whether  to 
accept  is  not  applicable  to  checks  or  de- 
mand drafts,  but  only  to  drafts  legally 
presentable  for  acceptance.  Neg.  Inst,  A., 
Sees.  136,  137  (Comsr's  dft.).  Levine  v,  St. 
Bk.,  141  N.  Y.  S.  596.  Siminoff  v.  Goodman 
Bk.,  121  Pac,  (Cal.)  939.  Reeves  v.  First 
Nat.  Bk.  of  Oakland,  129  Pac.  (Cal.)  800. 
Winkler  V,  Citizens'  St.  Bk.,  131  Pac.  (Kan.) 
597,      {Inquiry  from  Kan.,  Dec,  1913,  Jl.) 

63.  The  drawee  of  a  bill  of  exchange 
is  entitled  to  twenty-four  hours  after 
presentment  in  which  to  decide  whether 
he  will  accept,  and  is  entitled  to  have 
the  bill  left  with  him  for  that  period; 
but  in  the  absence  of  agreement,  drawee  is 
not  entitled  to  documents  of  title  attached 
to  the  draft,  prior  to  acceptance,  and  a 
collecting  agent,  unless  expressly  instructed, 
should  withhold  the  attached  documents 
upon  leaving  the  draft  with  the  drawee  for 
acceptance.  Connelly  v.  McKean,  64  Pa. 
113,  Montgomery  Co.  Bk.  v.  Albany  City 
Bk.,  8  Barb.  (N.  Y.)  396.  Ingram  v. 
Foster,  2  J.  P.  Smith  242.  Westbury  v, 
Chicago  Lumber,  etc.,  Co.,  117  Wis.  589, 
Neg.  Inst.  A.,  Sees.  136.  137  (Comsr's  dft.) 
{Inquiry  from  Miss.,  Apr.,  1917,  Jl.) 

64.  The  rule  allowing  a  drawee  twenty- 
four  hours  to  determine  whether  or  not 
he  will  accept  does  not  apply  to  checks 
or  drafts  payable  on  demand,  but  only  to 
drafts  legally  presentable  to  the  drawee  for 
acceptance.  Checks  and  demand  drafts 
therefore  should  be  immediately  protested 
if  payment  is  refused.  In  Texas  a  sight 
draft  carries  grace  and  is  presentable  for 
acceptance.  First  Nat.  Bk.  v,  Whitmore, 
177  Fed.  397,  Contra,  Wisner  v.  Bk.,  220 
Pa,  21.  {Inquiry  from  Tex,  Mar.,  1912,  Jl.) 

Note :  The  Negotiable  Instruments  Law, 
which  abolishes  grace,  was  enacted  in  Texas 
in  March,  1919,  and  thereunder,  an  instru- 
ment drawn  payable  at  sight  is  payable  on 
demand. 


11 


65-69] 


DIGEST  OF  LEGAL  OPINIONS 


Certified  check  holder  not  a  preferred 
creditor 

65.  The  holders  of  checks  certified  by 
a  national  bank  which  becomes  insolvent 
are  not  preferred  over  other  creditors; 
nor  does  the  Wisconsin  Banking  Law  give 
such  preference  to  the  holders  of  certified 
checks  of  insolvent  state  banks.  Iowa  Code, 
Sec.  1877.  {Inquiry  from  Wis.,  June,  1912. 
Jl.) 

Alteration  of  date  of  certified  check 

66.  A  depositor  of  a  bank  gave  a 
check  payable  to  bearer,  dated  in  January, 
1919,  which  was  presented  for  certification 
bearing  such  date.  After  check  had  been 
certified,  the  drawer  gave  a  stop-pa^Tuent 
order  on  check.  When  the  check  was 
presented  through  the  clearings,  the  date 
*"19",  designating  the  year,  had  a  fine 
through  it,  and  '"20"  placed  above  it. 
Payment  was  refused  and  check  returned 
on  account  of  the  palpable  alteration.  In 
the  interim  the  bank  was  enjoined  from  pay- 
ing the  check.  What  should  be  the  attitude 
of  the  bank  in  the  premises?  Opinion: 
Where  a  check  payable  to  bearer  is  certified 
for  the  holder,  and  the  date  is  subsequently 
altered  without  the  consent  of  the  bank, 
refusal  of  payment  by  the  bank  is  justified, 
for  such  alteration  is  material  and  avoids 
the  check  except  as  to  holders  in  due  course, 
who  can  enforce  payment  according  to  its 
original  tenor.  But  where  the  alteration,  as 
in  this  case,  is  apparent  on  the  face  of  the 
check,  there  can  be  no  subsequent  holder 
in  due  course  thereof  who  can  enforce  pay- 
ment. The  bank  having,  in  addition,  been 
enjoined  from  pajdng  the  check,  its  proper 
attitude  is  to  await  a  court  order  or  judg- 
ment in  a  suit  between  the  rival  claimants 
to  the  deposit  represented  by  the  check, 
determining  who  is  entitled  to  the  fund. 
Ehas  V.  Whitney,  98  N.  Y.  Suppl.  667; 
Sees.  52,  124,  125  Neg.  Inst.  Law.  {Inquiry 
from  Iowa,  July,  1920,  Jl.) 

Check  raised  after  certification 

67.  A  bank  asks  whether  it  would 
be  liable  in  paying  a  check  which  has 
been  raised  after  certification.  Opinion: 
Where  a  bank  pays  a  certified  check  which 
has  been  raised  after  certification,  the  bank 
has  the  right  of  recovery  under  the  rule  that 
money  paid  under  mistake  of  fact  is  re- 
coverable, provided  the  position  of  the 
holder  by  reason  of  receiving  such  payment 
will  not  be  changed  for  the  worse  as  a  result 
of  such  mistake.    Nat.  Bank  of  Commerce  v. 


Nat.  Mech.  B.  Assn.,  55  N.  Y.  211.  {In- 
quiry from  N.  Y.,  Sept.,  1920. 

Careless  certification  of  check 
subsequently  raised 

68.  A  Chicago  bank  certified  for  its 
customer  his  check  for  S15  made  payable 
to  "Cash."  Six  daj'^s  later,  accompanied  by 
a  relative  residing  in  a  Montana  town  who 
was  a  customer  of  the  local  bank,  the 
maker  of  the  check  presented  same,  which 
he  had,  after  certification,  raised  to  $1500, 
to  the  local  bank,  which  cashed  it  for  him. 
No  erasures  were  made  on  the  check,  and  it 
appeared  to  have  been  drawn  with  the 
intention  of  raising  it,  as  blank  spaces  were 
left  apparently  for  that  purpose.  The 
certifying  bank  did  not  protect  the  check 
in  any  manner,  but  the  maker  perforated 
same  with  figures  ''$1500S,"  with  a  cheap 
machine  or  by  means  of  a  pin  and  red  ink. 
Certification  was  made  with  a  stamp  on 
same  date  as  the  check,  "Accepted  Aug.  14, 

1919.    When  properly  indorsed 

State  Bank,  per ."    The  check, 

when  presented  to  local  bank,  bore  the 
indorsement  of  the  maker,  another  party 
giving  a  Chicago  address,  and  the  local 
bank's  customer,  who  added  her  indorse- 
ment at  the  window.  The  check  was  sub- 
sequently dishonored  by  the  drawee  bank. 
Local  bank  desires  opinion  as  to  whether  it 
can  recover  from  drawee  bank.  Opinion: 
Where  the  drawer  of  a  check  for  $15  prepares 
the  same,  with  blank  spaces  after  the 
amount,  so  as  to  permit  of  the  insertion  of 
an  increased  amount  without  detection, 
and  the  bank  certifies  the  check  in  that 
condition,  and  the  drawer  thereafter  raises 
the  amount  to  $1500,  and  the  check,  bearing 
certain  indorsements,  is  negotiated  to  a  bank 
for  the  increased  amount,  the  certifying 
bank  is  liable  under  the  law  of  IlHnois  for 
the  full  amount  to  the  innocent  purchaser 
(Merritt  v.  Boyden,  191  111.  136.  Yocum  v. 
Smith,  63  111.  312)  although  there  is  a 
conflict  of  authority  in  other  jurisdictions. 
(Pro:  Helwege  v.  Hibernia  Bank,  28  La. 
Ann.  520.  Godchaux  v.  Union  Nat.  Bank, 
28  La.  Ann.  516.  Isnard  v.  Torres,  10  La. 
Ann.  103.  Contra:  Nat.  Exch.  Bank  v. 
Lester,  194  N.  Y.  461.  Duquet  v.  La- 
Banque  Nationale,  46  Quebec  Super.  31.) 
{Inquiry  from  III.,  March,  1920,  Jl.) 

Raised  certified  check — Use  of  mislead- 
ing protectograph  stamp  by 
certifying  bank 

69.  A    check    for    $102    was    certified 


12 


ACCEPTANCE  AND  CERTIFICATION 


[70-72 


by  bank  A  which  by  error  stamped  it 
with  a  protectograph  "Not  over  $400." 
The  check  was  afterwards  raised  and  cash 
obtained  for  it  from  B.  The  inquiry  is  as 
to  A's  habihty  and  as  to  whether  or  not  it 
was  in  any  way  obhgated  to  use  the  pro- 
tectograph when  certifying.  Opinion:  A 
bank  is  under  no  obhgation  to  use  a  pro- 
tectograph when  certifying  checks.  The 
general  rule  is  that  where  a  check  is  raised 
after  certification  the  bank  is  not  hable  to  a 
holder  for  the  increased  amount.  If  by 
mistake  the  check  is  paid,  the  bank  may 
recover  the  excess  unless  the  position  of  the 
holder  has  been  changed  for  the  worse  in 
consequence  of  the  bank's  mistake.  In  the 
present  case,  in  addition  to  the  mistake  of 
the  bank  in  paying  the  increased  amount 
after  certifying  for  a  smaller  amount,  the 
bank  negligently  invited  the  fraud  by 
stamping  an  increased  amount  over  the 
true  amount,  and  the  effect  of  such  stamp 
would  be  to  mislead  the  innocent  purchaser 
into  assuming  that  the  increased  amount 
was  the  true  amount.  Whether  bank  A 
would  be  hable  in  this  case  would  depend 
upon  what  a  court  might  decide,  as  the 
question  brings  up  a  point  that  does  not 
appear  to  have  been  judicially  passed  upon. 
(Inquiry  from  Ohio,  June,  1915.) 

Protest  for  non-certification 

70.  Jones  gives  his  note  to  Brown  drawn 
on  bank  A.  Brown  deposits  in  bank  B, — 
that  bank  indorses  and  sends  to  bank  C 
which  makes  presentation  to  bank  A  by 
messenger,  but  fails  to  indorse  the  note. 
Bank  A  refuses  certification  and  sends  word 
back  b}'^  bank  C's  messenger,  that  the  note 
is  good  and  will  be  paid  when  properly  in- 
dorsed. Bank  C  threatens  to  protest  the 
note.  Opinion:  Bank  A  is  entitled  to  in- 
drosement  by  the  presenting  bank  C  before 
paying  the  note  and  protest  for  non-pay- 
ment would  not  be  justified.  There  could 
be  no  protest  for  non-certification  because 
A  bank  is  not  obliged  to  certify,  only  to  pay. 
{Inquiry  from  N.  J.,  March,  1917.) 

Revocation  of  mistaken  certification  of 
stopped  check 

71.  On  Jan.  2,  1919,  payment  was 
stopped  on  a  certain  check  of  a  depositor 
of  a  bank.  Several  weeks  later  it  was  pre- 
sented by  an  agent  of  a  reputable  manufac- 
turing company  who  requested  that  it  be  cer- 
tified. The  agent  stated  that  he  was  not 
going  to  negotiate  the  check  until  after  a 
settlement  of  a  dispute  regarding  certain 


goods.  The  bank  through  a  mistake  certified 
the  check  and  upon  discovery  of  the  error 
the  next  day,  wired  the  company  not  to  use 
the  check.  The  company  failed  to  reply  and 
the  bank  now  seeks  redress.  Opinion:  Where 
a  bank  through  mistake  certifies  a  check  up- 
on which  pa>Tnent  has  previously  been 
stopped  and  the  check  remains  in  the  hands 
of  the  payee  at  the  time  he  receives  notice  of 
revocation  of  the  certification  and  no  change 
of  circumstances  nor  harm  nor  injury  to  the 
payee  has  resulted,  the  bank  is  not  hable  to 
the  payee  upon  its  certification.  If  the 
payee  thereafter  wrongfully  negotiates  the 
check  so  as  to  make  the  bank  hable  there- 
on to  an  innocent  purchaser  for  value,  the 
bank  would  have  recourse  upon  the  payee  for 
money  received  to  his  use.  Nat.  Exch.  Bk. 
V.  Zinn  &  Co.,  78  Atl.  (Md.)  1026.  Daniel 
on  Neg.  Inst.,  Sec.  1608.  Rankin  v.  Colonial 
Bk.,  64  N.  Y.  S.  32.  Baldinger  &  Kupper- 
man  Mfg.  Co.  v.  Mfrs.'  Citizens  Tr.  Co., 
156  N.  Y.  S.  445.  Cook  v.  St.  Nat.  Bk., 
52  N.  Y.  115.  {Inquiry  from  Conn.,  May, 
1919,  Jl.) 

Certification  of  raised  check 

72.  In  a  decision  in  New  York  it  was 
held  that  a  bank  certifying  a  check  which 
had  been  raised,  was  entitled  to  recover  the 
amount  from  a  bank  which  had  cashed  the 
certified  check  for  a  forger  and  received 
payment  from  the  certifying  bank.  The 
court  held  the  latter  bank  was  entitled  to 
recover  under  the  general  rule  that  money 
paid  under  mistake  of  fact  is  recoverable; 
that  certification  does  no  more  than  affirm 
the  genuineness  of  the  signature  of  the 
drawer  and  that  he  has  funds  to  meet  it,  but 
does  not  warrant  the  genuineness  of  the  body 
of  the  check;  and  that  the  certifying  bank 
was  not  guilty  of  neghgence  in  not  having 
detected  the  alteration,  by  which  it  was 
claimed  the  bank  advancing  value  on  the 
check  was  misled.  A  New  York  banker  has 
questioned  the  soundness  of  this  decision. 
Opinion:  It  seems  unjust  that  an  innocent 
purchaser  of  a  check  certified  for  one  thou- 
sand dollars  should  have  to  repay  nine 
hundred  dollars  thereof  where  the  check  was 
originally  for  one  hundred  dollars,  but  it 
would  be  equally,  if  not  more  unjust,  if  the 
certifying  bank  had  to  suffer.  The  bank  has 
no  means  of  knowledge  in  its  possession  to 
detect  the  alteration,  and  to  hold  it  liable  on 
every  certified  raised  check  would  impose  a 
serious  burden.  Nat.  Reserve  Bk.  v.  Corn 
Exchange  Bk.,  157  N.  Y.  S.  316.  Marine 
Nat.  Bk.  V.  Nat.  City  Bk.,  59  N.  Y.  67. 


13 


73-77] 


DIGEST  OF  LEGAL  OPINIONS 


Security  Bk.  v.  Nat,  Bk.,  67  N.  Y.  458. 
Continental  Nat.  Bk.  v.  Tradesmen's  Bk., 
173  N.  Y.  272.  (Inquiry  from  N.  Y.,  May, 
1916,  Jl.) 

Inclusion  of  raised  amount  in  certification 

73.  The  inquiry  is  made  as  to  whether 
or  not  a  bank  would  be  hable  if,  instead 
of  merely  certifying  a  raised  check  and 
making  no  mention  of  the  amount,  it 
included  the  raised  amount  in  its  certifica- 
tion? Opinion:  The  majority  of  decisions 
hold  that  a  bank  which  certifies  a  raised 
check  does  not  warrant  the  amount  but  only 
affirms  the  genuineness  of  the  signature  and 
that  the  drawer  has  funds  on  deposit.  It 
might  be  contended  that  there  is  no  differ- 
ence in  principle  between  a  certification 
which  simply  recites  that  the  check  is  good, 
and  one  which  recites  that  the  check  is  good 
for  a  stated  amount,  where  the  amount  re- 
cited in  the  certification  corresponds  with 
the  amount  for  which  the  check  purports  to 
be  drawn,  and  that,  therefore,  the  bank 
should  not  be  hable  in  the  one  case  any  more 
than  in  the  other.  On  the  other  hand  it 
might  be  contended  that  expressly  stating 
the  amount  in  the  certification  amounted  to 
a  positive  affirmation  that  the  bank  had 
investigated  the  correctness  of  the  amount 
and  by  its  certification  promised  to  pay  to  a 
bona  fide  holder  such  amount.  The  point 
has  never  been  decided,  but  as  the  question 
remains  uncertain,  it  would  seem  that  a  bank 
might  be  inviting  a  Habihty  which  would  not 
otherwise  exist  according  to  the  majority  of 
decisions,  and  it  would,  therefore,  be  better 
to  omit  specifying  the  amount  in  the  certi- 
fication.    {Inquiry  from  Ohio,  Aug.,  1916.) 

Stamp   including   amount   certified   not 
advantageous 

74.  The  certification  stamp  used  by  a 
bank  is  as  follows: 

"Good  when  properly  indorsed 

$1,500  and  00  cents 

Jan.    14,    1918 

Do   not   destroy   this    check 

Teller" 


The  wisdom  of  including  the  amount  in  the 
stamp  is  questioned.  Opinion:  Certification 
of  check  without  re-stating  the  amount  in 
the  certification  is,  of  course,  valid  and  in  the 
past  has  been  the  common  practice.  A  bank 
is  not  bound  to  know  more  than  its  drawer's 
signature  and  the  sufficiency  of  his  funds;  it 
is  not  bound  to  know  correctness  of  the 
amount  of  a  check  and,  in  a  case  where  it  cer- 


tifies a  check  raised  from  S15  to  $1,500,  it 
would  probably  be  an  unwise  practice  to  in- 
clude such  amount  in  its  certification  stamp 
for  it  might  be  estopped  from  questioning 
the  amount  as  against  a  holder  in  due  course, 
whereas  upon  an  ordinary  certification  it 
would  not  be  liable  for  the  raised  amount. 
Metropohtan  Nat.  Bk.  v.  Marchants'  Nat. 
Bk.,  55  N.  E.  (lU.)  360.  Parke  v.  Roser,  67 
Ind.  500.  Marine  Nat.  Bk.  v.  Nat.  City  Bk., 
59  N.  Y.  67.  Continental  Nat.  Bk.  v. 
Tradesmen's  Nat.  Bk.,  65  N.  E.  (N.  Y.) 
1108,  Louisiana  Nat.  Bk.  v.  Citizens'  Bk., 
28  La.  Ann.  189.  Security  Bk,  v.  Nat.  Bk. 
of  Repubhc,  67  N.  Y.  458.  {Inquiry  from 
Pa.,  Feb.,  1918,  Jl.) 

Eflfect  of  remittance  stamp 

75.  A  customer  issues  checks  upon 
which  has  been  stamped  ''The  First  State 
Bank  of  B  will  remit  for  this  check  in 
Eastern  exchange,  without  charge"  and 
questions  whether  the  use  of  this  stamp 
would  make  the  bank  hable  as  upon  certifi- 
cation or  simply  convey  the  information  that 
the  check  will  be  paid  at  par.  Opinion:  The 
remittance  stamp  having  been  placed  on  the 
checks  before  they  were  issued  would  not 
have  the  effect  of  a  certification.  A  possible 
question  might  arise  whether  the  stamp 
affected  the  negotiabihty  of  the  check  and 
the  words  "if  desired,"  if  added  would  re- 
move any  doubt  thereon.  First  Nat.  Bk.  v. 
Slette,  67  Minn.  425.  Contrary  case.  Securi- 
ty Tr.  Co.  V.  Des  Moines  County,  198  Fed. 
331.    {Inquiry  from  Minn.,  May,  1913,  Jl.) 

Stopping  payment  of  certified  checks 

76.  Drawee  bank  promising  by  wire 
to  pay  customer's  check  is  liable  to  holder 
and  drawer  cannot  thereafter  stop  pay- 
ment, but  similar  promise  over  telephone 
is  not  binding,  because  acceptance  must  be 
in  writing  and  drawer's  right  to  stop  pay- 
ment continues.  {Inquiry  from  Ala.,  Nov., 
1914,  Jl') 

77.  A  gives  B  a  check  for  $100,  and 
B  procures  its  certification.  Shortly  after- 
ward A  orders  the  bank  to  stop  pay- 
ment. Inasmuch  as  the  check  is  the  obliga- 
tion of  the  bank  as  soon  as  certified,  the  bank 
asks  whether  it  is  under  any  legal  obhgation 
to  A.  Opinion:  The  stopping  of  payment 
is  optional  with  the  bank  and  it  is  under  no 
obhgation  to  obey  the  drawer  who  has  no 
right  to  order  pa^onent  stopped.  In  no 
event  should  payment  be  stopped  upon  the 
request  of  the  drawer  unless  he  can  show 


14 


ACCEPTANCE  AND  CERTIFICATION 


[78-82 


that  he  has  been  defrauded  by  the  payee  and 
sufficiently  indemnifies  the  bank.  (In- 
quiry from  III.,  Feb.,  1916.) 

78.  A  bank  is  not  compelled  to  refuse 
payment  of  a  certified  check  merely  upon 
request  of  the  drawer  who  saj^s  that  he 
has  been  defrauded  and  that  he  would  not 
be  hable  to  the  holder,  even  though  the 
drawer  offered  security  to  the  bank;  at  the 
same  time  the  bank  might  accept  the  securi- 
ty and  comply  with  the  request  of  the 
drawer.      {Inquiry  from  N.  Y.,  Dec,  1913.) 

79.  If  a  certified  check  gets  into  the 
hands  of  an  innocent  holder  the  certi- 
fying bank  is  compelled  to  pay.  If  it  re- 
mains in  the  hands  of  a  payee  who  has  pro- 
cured it  by  fraud,  the  decisions  are  divided 
as  to  the  rights  of  the  bank  refusing  pay- 
ment. There  are  decisions  to  the  effect  that 
the  bank  can  interpose  fraud  upon  the 
drawer  as  a  defense  to  the  check  in  the  hands 
of  the  payee,  where  the  check  has  been  cer- 
tified for  the  drawer,  but  not  where  it  has 
been  certified  for  the  holder;  and  there  are 
contrary  decisions  that  the  check,  whether 
certified  for  the  drawer  or  for  the  holder,  is 
enforceable  by  even  a  fraudulent  payee,  and 
that  equities  of  the  drawer  cannot  be  inter- 
posed by  the  bank  in  defense.  See,  for  ex- 
ample, Carnegie  Trust  Co.  v.  First  Natl. 
Bank,  141  N.  Y.  Supp.  745;  Times  Sq.  Auto 
Co.  V.  Rutherford  Nat.  Bank,  73  Atl.  (N. 
J.)  479;  Blake  v.  Hamilton  Dime  Sav.  Bank 
Co.,  79  Ohio  State  189;  Meriden  Nat.  Bank 
V.  First  Nat.  Bank,  7  Ind,  App.  322.  {In- 
quiry from  Conn.,  Feb.,  191b) 

Stopping  payment  of  checks   certified 
for  drawer 

80.  Two  checks  for  $1,000  and  $1,775, 
respectively,  were  presented  by  the  maker 
for  certification.  Learning  that  he  had 
been  defrauded,  the  maker  requested  the 
bank  to  stop  payment  on  the  two  checks. 
The  bank's  contention  is  that  it  cannot  com- 
ply with  the  request  because  in  any  case  it 
guarantees  payment  and  is  liable  to  an  inno- 
cent holder.  Opinion:  It  is  doubtful 
whether  the  maker  of  a  check  which  he 
has  procured  to  be  certified  has  the 
right  upon  tendering  full  indemnity  against 
loss,  to  stop  pa\Tnent;  at  the  same  time 
it  is  to  the  interest  of  the  bank  to 
protect  its  customer  as  far  as  possible. 
If  full  indemnity  is  offered  to  the  bank  to 
protect  it  against  loss  incurred  for  refusing 
payment  of  these  certified  checks,  it  seems 
proper  to  refuse  pajinent  upon  presentment, 


marking  the  checks  "payment  stopped"  to 
prevent  their  further  negotiation.  This 
would  give  an  opportunity  to  ascertain 
whether  the  holder  was  an  innocent  pur- 
chaser and  if  he  did  not  have  an  enforceable 
title  and  received  no  value  from  the  bank  in 
which  he  deposited  the  items,  there  would 
be  a  good  defense.  If  he  had  an  enforceable 
title  the  bank  would  have  to  pay  the 
amount,  protest  fees  and  interest  but  would 
be  indemnified  by  the  maker's  bond.  {In- 
quiry from  N.  J.,  Nov.,  1917.) 

81.  A  bank  certified  a  check  for  the 
drawer  and  the  payee  procured  it  from 
the  drawer  by  fraud.  Can  the  bank  inter- 
pose such  fraud  upon  the  drawer  in  defense 
of  pa3Tiient?  Opinion:  In  the  present  case 
the  holder  of  this  check  had  no  right  to  use 
it,  but  should  have  returned  it  to  the  drawer. 
Instead  of  so  doing,  the  holder  deposited  it 
in  bank  for  collection,  and  the  certifying 
bank,  at  request  of  the  drawer,  refused  to 
pay  it,  and  the  check  was  protested.  It 
appears  under  the  circumstances  the  refusal 
to  pay  was  rightful.  Of  course  the  present- 
ing bank  properly  protested  the  check,  and 
the  certifying  bank  w^ould  undoubtedly  be 
held  Uable  to  an  innocent  purchaser  of  the 
check.  If,  however,  no  value  was  given  for 
the  check  by  the  bank  in  which  it  was  first 
deposited,  so  as  to  constitute  that  bank  an 
innocent  purchaser,  then  the  question  would 
arise  whether,  in  any  event,  the  certifj-ing 
bank  could  defend  payment  if  sued  thereon. 
According  to  a  New  Jersey  case.  Times 
Square  Automobile  Co.  v.  Rutherford  Nat. 
Bk.,  73  Atl,  479,  it  was  held  that,  where  a 
bank  certifies  a  check  for  the  drawer,  and  the 
payee  has  procured  it  from  the  drawer  by 
fraud,  the  bank  can  interpose  such  fraud 
upon  the  drawer  in  defense  of  pa\Tiient. 
According  to  other  cases,  it  could  not.  But 
whether  or  not  the  certifying  bank  would  be 
held  ultimately  hable,  it  seems  its  action  in 
refusing  pajTnent  was  rightful  as  it  would 
give  the  drawer  an  opportunity  to  start 
some  proceedings  enjoining  collection  of  the 
check  in  the  event  it  was  not  in  the  hands  of 
a  holder  in  due  course.  {Inquiry  from  Del., 
Feb.,  1919.) 

82.  A  check  to  drawer's  order  was  cer- 
tified for  the  drawer,  who  indorsed  it  to  B. 
B  cashed  the  item  at  the  D  bank.  The 
drawer  upon  learning  that  B  was  guilty  of 
fraud,  stopped  payment,  and  the  certifjdng 
bank  refused  to  pay  the  D  bank.  Opinion: 
D  bank  paid  value  to  B  for  the  certified 
check  without  notice  of  the  fraud  and  as  a 


15 


83-89] 


DIGEST  OF  LEGAL  OPINIONS 


holder  in  due  course  can  recover  from  the 
certifying  bank.  Had  B  presented  the  check 
to  the  drawee  some  (but  not  all)  authorities 
hold  that  the  certifying  bank  could  refuse 
payment  and  plead  in  defense  the  fraud  upon 
its  depositor.  (Inquire  from  Okla.,  June, 
1914,  Jl.) 

Stopping    payment    of   check    certified 
without  authority 

83.  A  bank  officer  authorized  to  certify 
checks,  has  no  authority  to  certify  checks 
drawn  by  himself  (Claflin  v.  Farmers  Bank, 
25  N.  Y.  293)  and,  the  check  carrying  notice 
of  invalidity  on  its  face,  the  bank  would 
have  the  right  to  refuse  payment  against 
any  holder.  {Inquiry  from  Pa.,  May,  1918.) 

Certification  of  stopped  check  by  mis- 
take— Right  of  replevin  for  recovery 
of  stopped  certified  checks 

84.  A  check  was  issued  in  December 
and  payment  stopped  in  January,  In  March 
it  was  certified  through  error.  The  certifying 
bank  immediately  wired  the  payee  not  to  use 
the  check.  The  check  not  having  been  pre- 
sented, and  the  account  being  held  under 
dispute,  the  bank  asks  how  it  can  proceed 
to  compel  the  holder  to  surrender  the  check. 
Opinion:  Assuming  the  payee  has  no  en- 
forceable right  or  title  to  the  check  which 
was  certified  through  error  after  payment 
had  been  stopped,  the  proper  procedure 
would  be  an  action  of  replevin  against  him 
to  obtain  possession  of  the  instrument.  An 
action  of  replevin  lies  for  recovery  of  such 
an  instrument.  See,  for  example.  Smith  v. 
Eals,  46  N.  W.  (la.)  1110,  holding  that  the 
acceptor  of  a  bill  of  exchange  which  has 
subsequently  been  rendered  void  by  a  ma- 
terial alteration  may  maintain  an  action  of 
replevin  therefor  against  the  holder.  Whether 
or  not  there  could  be  coupled  with  this 
action  an  injunction  restraining  the  payee 
from  negotiating  the  check  is  a  question 
for  the  local  attorney  to  decide.  {Inquiry 
from,  Conn.,  May,  1919.) 

Certification  by  telegraph 

85.  The  drawee  of  a  bill  telephones  to  a 
telegraph  agent  to  wire  acceptance.  Opin- 
ion: The  acceptance  is  vahd  and  binding 
as  being  an  acceptance  in  writing  by  the 
drawee  by  the  hand  of  his  agent.  Ram- 
bo  V.  Bk.  88  Kan.  257.  Ballard  v.  Home 
Nat.  Bk.,  91  Kan.  97.  Bk.  v.  Garretson,  51 
Fed.  168.  Bk.  v.  Bk.,  114  Mo.  App.  663. 
Geyhn  v.  De  Villeroi,  2  Houst.  (Del.)  311. 
Hirsch  v.  Beverly,  125  Ga.  657.    Trundy  v. 


Farrar,  32  Me.  225.  Cocke  v.  Campbell,  13 
Ala.  286.  Kirklin  v.  Atlas  Sav.  etc.,  Assoc, 
107  Ga.  313.  Phelps  v.  Sullivan,  140  Mass. 
36.  Worrall  v.  Munn,  5  N.  Y.  229.  Central 
Tr.  Co.  V.  Bridges,  57  Fed.  753.  Webb  v. 
Browning,  14  Mo.  354.  Piercy  v.  Hedrick, 
2  W.  Va.  458.  Welch  v.  Hoover,  29  Fed. 
Cas.  No.  17368.  Fountain  v.  Bookstaver, 
141  111.  461.  Long  v.  Colburn,  11  Mass.  97. 
Bk.  of  North  America  v.  Embury,  21  How. 
Pr.  (N.  Y.)  14.  {Inquiry  fro7n  Kan.,  Jan. 
1915,  Jl.) 

86.  A  bank  cashing  a  check  upon  an- 
other bank  on  faith  of  a  telegram  by  the 
drawee  that  it  will  pay  the  check  can  hold 
the  latter  as  an  acceptor.  {Inquiry  from 
Okla.,  Oct.,  1908,  Jl). 

87  In  reply  to  a  request  to  pay  a  certain 
check,  the  drawee  bank  telegraphed  "Signa- 
ture being  genuine,  will  pay  John  Smith's 
check  for  two  hundred  dollars."  Opinion: 
The  drawee  bank  would  be  liable  and  an  ac- 
ceptor under  the  Negotiable  Instruments 
Law  to  one,  who  on  faith  of  the  telegraphic 
promise,  purchased  the  check  for  value. 
First  Nat.  Bk.  v.  Commercial  Sav.  Bk.,  87 
Pac.  (Kan.)  746.  Kohn  v.  Walton,  46  Ohio 
St.  195.  Bk.  V.  Garretson,  51  Fed.  168.  Coff- 
man  v.  Campbell,  87  111.  98.  {Inquiry  from 
Okla.,  Dec,  1910,  Jl.) 

88.  After  the  drawee  bank  has  wired  the 
holder  that  it  will  pay  a  specified  check,  it 
is  too  late  for  the  drawer  to  stop  payment. 
The  telegraphic  promise  by  the  drawee  to 
pay  binds  it  as  an  acceptor  of  the  check. 
But  where  the  drawee  promises  to  pay  the 
check  over  the  telephone,  it  is  not  bound, 
the  acceptance  not  being  in  writing,  except 
in  Texas  where  an  oral  promise  to  pay  will 
bind  the  bank.  Henrietta  Nat.  Bk.  v.  St. 
Nat.  Bk.,  80  Tex.  648.  Elhott  v.  First  St. 
Bk.,  152  S.  W.  (Tex.)  808.  Van  Buskirk 
V.  St.  Bk.  of  Rocky  Ford,  83  Pac.  (Cal.)  778. 
Home  Nat.  Bk.  v.  First  St.  Bk.,  133  S.  W. 
(Tex.)  935.  {Inquiry  from  Texas,  May, 
1917,  Jl) 

Note :  The  Negotiable  Instruments  Law 
requiring  acceptances  to  be  in  writing  was 
passed  in  Texas  in  March,  1919. 

89.  A  bank  received  a  wire,  "Will  you 
pay  John  Doe's  check  for  one  hundred 
dollars?"  and  replied  by  wire  "Yes,  we 
will  pay  John  Doe's  check  for  one  hundred 
dollars."  Payment  of  the  check  was  stopped. 
Opinion:  The  drawee  bank  was  bound  to  pay 
the  amount  of  the  check  to  one  who  pur- 
chased it  on  faith  of  the  telegraphic  promise. 


16 


ACCEPTANCE  AND  CERTIFICATION 


[90-98 


The  bank  accepting  the  check  by  wire  had 
the  right  to  charge  the  amount  to  the 
drawer's  account  the  same  as  in  the  case  of 
a  check,  certified  over  the  counter,  and  the 
drawer  cannot  thereafter  stop  payment. 
Bk.  V.  Garretson,  51  Fed.  168.  Coffman  v. 
Campbell,  87  111.  98.  {Inquiry  from  Tex., 
Sept.,  1912.) 

Certification  by  telephone 

90.  A  bank  answered  an  inquiry  over 
the  telephone  that  certain  specified  checks 
drawn  on  it  were  good,  but  before  pre- 
sentment the  drawer  stopped  payment. 
Opinion:  The  bank  was  not  liable  to  the 
holder  of  the  checks.  {Inquiry  from  Ala., 
Dec,  1912,  Jl.) 

91  The  drawee  of  a  check  answering 
the  holder's  inquiry  concerning  John  Doe's 
check  for  $170  replied  over  the  telephone 
'Tes,  John  Doe  is  good  for  $170."  Be- 
fore the  check  is  presented,  the  maker  stops 
payment.  Opinion:  The  certification  over 
the  telephone  is  not  vaHd  under  the  Negoti- 
able Instruments  Law  which  requires  an  ac- 
ceptance to  be  in  writing.  Van  Buskirk  v. 
St.  Bk.  of  Rocky  Ford,  35  Colo.  142,  (leading 
case)  Neg.  Inst.  Act.  132.  (Commsr's.  dft.). 
{Inquiry  from  Conn.,  Nov.,  1910,  Jl.) 

92.  A  bank  certified  its  custom- 
er's check  over  the  telephone  and  subse- 
quently the  account  was  attached  by  a 
creditor  of  the  customer,  who  claimed  that 
the  certification  was  invalid.  Opinion:  The 
certification  not  being  in  writing,  was  not 
legal  and  binding  under  the  Negotiable  In- 
struments Law.  (Inquiry  from  Mo.,  Jan., 
1911,  Jl.) 

93.  A  promise  over  the  telephone  to 
pay  a  check  is  not  binding  as  an  ac- 
ceptance, not  being  in  writing.  Notwith- 
standing a  verbal  promise  over  the  telephone 
to  pay,  the  l)ank  is  bound  to  pay  another 
check,  first  presented,  which  would  reduce 
the  balance  below  the  amount  necessary  to 
pay  the  first  stated  check.  {Inquiry  from 
N.  J.,  April,  1911,  Jl.) 

94.  A  bank  has  been  in  the  habit 
of  accepting  checks  of  its  customers  over 
the  telephone.  It  immediately  charges 
the  customer's  account  with  the  item  and 
credits  the  "certified  checks"  account,  treat- 
ing it  as  though  it  had  been  certified  over  the 
counter.  Opinion:  A  promise  to  pay  a  check 
over  the  telephone  not  being  in  writing  is 
not  vahd  nor  binding  as  an  acceptance. 
{Inquiry  from  Okla.,  Dec,  1911,  Jl.) 


95.  The  certification  of  a  check  by 
telephone  is  not  valid  under  the  Negotiable 
Instruments  Law  of  Ohio,  because  not 
in  writing.  {Inquiry  from  Ohio,  Dec,  1909, 
Jl.) 

96.  A  drawee  bank  receiving  an  in- 
quiry over  the  telephone  whether  the  check 
of  Mr.  A is  good  and  will  be  paid  re- 
plies in  the  affirmative,  and  afterwards  re- 
fuses to  pay  the  check  because  payment  has 
been  stopped.  Opinion:  Oral  promise  over 
telephone  or  otherwise  by  a  drawee  of  check 
to  pay  same  not  binding  because  acceptance 
must  be  in  writing — Nor  can  bank  in  absence 
of  fraud  be  held  liable  to  holder  who  has 
cashed  check  on  faith  of  promise  on  equit- 
able principle  of  estoppel,  as  this  principle 
inapphcable  in  face  of  positive  statutory  re- 
quirement of  written  acceptance.  (The 
courts  of  Pennsylvania  would  probably 
follow  this  rule.)  {Inquiry  from  Pa.,  Mar., 
1914,  JL) 

97.  A  gave  B  his  check.  B  took  it 
to  a  bank  in  another  town  which  asked 
the  drawee  over  the  telephone  "Is  check 
of  A  good?"  The  drawee  replied  that 
check  was  good  if  signature  was  genuine. 
Before  presentment  A  stopped  payment. 
The  purchasing  bank  threatens  suit  unless 
check  and  protest  fees  are  paid.  Opinion: 
An  oral  promise  over  the  telephone  by  the 
drawee  to  pay  a  check  is  not  binding  under 
the  Negotiable  Instruments  Law  because  the 
acceptance  must  be  in  writing.  Van  Buskirk 
V.  St.  Bk.  of  Rocky  Ford,  35  Colo.  142. 
Rambo  v.  First  St.  Bk.  of  Argentine,  128 
Pac.  (Kan.)  182.  Ballen  &  Friedman  v.  Bk. 
of  Krenhn,  130  Pac.  (Okla.)  539.  {Inquiry 
from  Tenn.,  Feb.,  1915,  Jl.) 

98.  A  gave  B  his  check  for  S500  upon 
which  was  indorsed  by  B  the  condition 
that  the  check  was  given  "when  contract  to 
be  drawn  is  satisfactory  to  both  parties." 
B  cashed  the  check  at  his  bank,  but  only 
after  the  bank  received  the  oral  promise  of 
the  drawee  over  the  telephone.  Failing  to 
agree  upon  a  satisfactory  contract,  A  stopped 
pajTnent  on  the  check.  The  facts  show  that 
B's  bank  did  not  give  the  drawee  the  infor- 
mation on  back  of  the  check.  Is  the  drawee 
bound  by  its  oral  promise?  Opinion:  In 
Texas  an  oral  promise  to  pay  a  check  will 
bind  the  bank  but  the  check  must  conform 
to  the  terms  of  the  promise,  and  where  a 
bank  promises  to  pay  a  check  for  $500  and 
the  check  as  presented  is  coupled  with  a  con- 
dition making  it  payable  only  if  a  future 
drawn  contract  is  satisfactory,   the  check 


17 


99-104] 


DIGEST  OF  LEGAL  OPINIONS 


does  not  conform  to  the  promise  and  the 
bank  is  not  bound.  Lindley  v.  First  Nat. 
Bk.,  76  Iowa  629.  Gates  v.  Parker,  43  Me. 
544.  Murdock  v.  Mills,  11  Mete.  (Mass.)  5. 
St.  Bk.  V.  Citizens  Nat.  Bk.,  114  Mo.  App. 
663.  Ulster  Co.  Bk.  v.  McFarlan,  5  Hill 
(N.  Y.)  432.  Brinkman  v.  Hunter,  73  Mo. 
172.    {Inquiry  from  Tex.,  July,  1917,  Jl.) 

Note :  Under  the  Negotiable  Instruments 
Law  passed  in  Texas,  in  March,  1919,  an 
acceptance  must  be  written. 

99.  A  bought  an  ice  plant  from  B  for 
$900,  but  discovered  that  certain  parts  of 
the  machinery  amounting  in  value  to  $80 
were  missing.  A  dehvered  to  B  two  checks 
in  payment,  one  for  $820  and  another  for  $80. 
In  the  $80  check,  he  stated  that  the  sum  was 
for  the  parts  of  the  machinery  he  did  not 
get.  The  bank  at  the  request  of  B  promised 
over  the  telephone  to  pay  the  checks.  Be- 
fore presentment  A  notified  the  bank  not  to 
pay  the  $80  check.  Opinion:  The  bank  is 
not  legally  bound  to  pay  the  check  because 
a  telephone  promise  is  not  binding  as  an 
acceptance,  and  where  payment  is  subse- 
quently stopped  the  bank  should  not  pay. 
{Inquiry  from  W.  Va.,  Jan.,  1909,  Jl.) 

Revocation  of  certification  by  wire 

100.  A  check  was  certified  by  wire  for 
the  holder  thereof.  The  drawer  of  the  check 
under  a  claim  of  fraud  of  the  payee  stops 
pajonent.  The  holder  who  is  not  a  holder 
in  due  course,  brings  suit  against  the  certi- 
fying bank  and  the  bank  acting  as  stake- 
holder, takes  the  position  that  the  drawer 
may  interplead  and  set  up  the  defense  of 
fraud.  Opinion:  The  certification  is  not  on 
the  check  but  is  a  promise  to  pay  the  check 
upon  which  one  who  advances  value  on  faith 
thereof  would  be  protected;  but  where,  as 
is  alleged,  the  holder  is  not  a  holder  in  due 
course,  and  the  promise  is  procured  by  fraud 
or  without  consideration,  it  might  be  con- 
tended, with  success,  that  such  promise  is 
revocable.  Barthgate  v.  Exchange  Bk.  205 
S.  W.  875.  McKnight  v.  Parsons,  136  Iowa, 
390.  Boldinger  et  al.  Mfg.  Co.  v.  Trust  Co., 
93  Misc.  94,  156  N.  Y.  145.  {Inquiry  from 
Mo.,  Feb.,  1919.) 

Overcertification  of  check  by  national 
bank 

101.  A  national  bank  asks  if  it  is  unlaw- 
ful for  it  to  certify  a  check  when  the  funds 
on  deposit  are  sufficient.  Opinion:  It  is 
not  unlawful  for  an  national  bank  to  certify 
a  check  drawn  against  sufficient  funds.  The 


only  provision  of  the  National  Bank  Act  is 
one  that  prohibits  and  punishes  overcertifi- 
cation. See  Revised  Statutes  of  U.  S.,  Sec- 
tion 5208,  which  makes  it  unlawful  for  any 
officer,  clerk  or  agent  of  a  nationl  bank  to  cer- 
tify a  check  unless  the  drawer  has  on  deposit 
at  the  time  of  certification  an  amount  of 
money  equal  to  the  amount  specified  in 
the  check.  {Inquiry  from  Pa.,  June, 
1917.) 

Right   to  ultimate   possession   of  paid 
certified  check 

102.  A  bank  asks  as  to  whom  a  certified 
check  belongs  after  presentment  and  pay- 
ment, whether  to  the  customer  to  whose 
account  the  amount  was  charged  when  the 
check  was  certified,  or  to  the  bank.  Opinion: 
It  is  the  custom  of  banks  to  dehver  paid 
certified  checks  to  the  customer  as  paid 
vouchers,  the  same  as  ordinary  checks.  The 
customer  has  a  right  to  ultimate  possession. 
{Inquiry  from  N.  C.  Sept.,  1920.) 

103.  A  bank  asks  whether  a  depositor 
can  legally  demand  and  compel  a  bank  to 
return  his  certified  check  when  paid.  Opin- 
ion: A  depositor  has  the  ultimate  right  of 
property  in  his  checks  which  the  bank  has 
paid.  But  the  bank  has  a  temporary  right 
to  the  possession  of  paid  checks  as  its  evi- 
dence of  having  paid  their  amounts.  After 
the  account  is  settled  and  agreed  to,  the 
ultimate  right  to  the  check  is  in  the  deposi- 
tor.   {Inquiry  from  Okla.,  May,  1918.) 

104.  A  customer  brings  to  a  bank  a 
draft  for  $1,900  and  draws  a  check  against 
it  which  he  has  certified.  He  does  not  use 
it  and  returns  the  same  to  the  issuing  bank 
and  receives  back  the  draft  for  which  the 
certified  check  was  issued.  The  cashier  to 
whom  the  certified  check  is  returned,  cancels 
the  same,  but,  instead  of  leaving  it  on  file 
with  the  bank,  takes  it  with  him  when  he 
goes  to  another  institution.  Who  is  entitled 
to  the  check?  Opinion:  The  bank  in  whose 
name  the  certified  check  was  issued  is  entitled 
to  it.  It  does  not  belong  to  the  former  cash- 
ier nor  does  it  belong  to  the  customer  for  he 
gave  no  value  for  it.  It  would  only  be  in 
case  the  bank  received  value  for  the  draft 
so  that  the  customer  gave  value  for  the  cer- 
tified check  that  he  would  be  entitled  to  it 
instead  of  the  bank.  In  any  event  the 
bank  could  not  be  held  Hable  on  the  check. 
It  could  not  get  into  the  hands  of  an  innocent 
purchaser  because  the  word  "cancelled" 
on  it  would  constitute  notice.  {Inquiry 
from  S.  C,  April,  1919.) 


18 


ACCEPTANCE  AND  CERTIFICATION 


[105-110 


Right  to  possession  of  unused  certified 
check 

105.  The  customer  of  a  bank  drew  a 
check  of  $250  in  favor  of  the  state  treas- 
urer, which  was  certified  by  the  bank's  assis- 
tant cashier.  A  month  later  the  check, 
never  having  been  used,  nor  endorsed  was  re- 
turned to  the  bank  by  the  customer  with  a 
request  that  the  bank  send  him  a  draft  for 
the  amount.  The  request  was  refused  and 
the  customer  demanded  the  return  of  the 
check.  Opinion:  The  customer  and  not  the 
bank  has  a  better  right  to  the  check, 
which  should  be  returned  after  cancellation 
of  the  certification.  Pickle  v.  Muse,  88 
Tenn.  383.  {Inquiry  from  Ida.,  Mar., 
1912.  Jl) 

Certification    of    check    *'Not    payable 
through  an  express  company." 

106.  On  the  presentation  of  a  check 
with  the  provision  "Not  payable  through 
an  express  company,"  it  is  asked,  would 
the  paying  bank  have  the  right  to  certify 
the  item  in  the  usual  manner,  or  should 
the  certification  contain  a  similar  restric- 
tion? Opinion:  The  bank  might  certify 
either  with  or  without  adding  to  its  certi- 
fication "Not  payable  through  an  ex- 
press company"  as  in  either  event  the  certi- 
fication would  be  according  to  the  terms  of 
the  check,  namely,  that  it  was  not  payable 
when  presented  through  an  express  com- 
pany. The  effect  of  such  certification  would 
be  to  release  the  drawer,  and  the  holder  of 
the  check  would  have  to  look  to  the  bank  for 
payment  by  presenting  same  through  an 
agency  other  than  an  express  company. 
{Inquiry  from  Va.,  April,  1917.) 

Certification  of  check  containing  mem- 
orandum  such   as   *'in  full   of 
accounts,"  etc. 

107.  A  bank  certifies  checks  bearing 
notations  on  the  back  such  as  "in  full 
of  account  to  date,"  "in  pajTnent  for 
rent  to  Feb.  1st."  "for  1911-1912  taxes," 
etc.,  and  asks  if  its  certification  under  such 
conditions  would  involve  the  bank  in  any 
way.  Opinion:  The  certification  of  checks 
bearing  added  conditions  or  marginal  memo- 
randa of  some  sort  might  in  certain  cases 
involve  the  certifying  bank  with  additional 
burdens  and  responsibilities  where  the 
memoranda  has  been  tampered  with  be- 
tween certification  and  payment.  {Inquiry 
from  Cal.,  July,  1914) 


Certification  of  check  payable  on 
condition 

108.  A  bank  certified  a  check  for  a 
customer  and  the  understanding  was  and 
so  stated  on  the  check  that  it  was  only  to  be 
used  in  case  of  forfeit.  Later  when  the 
check  was  presented,  the  certifying  bank, 
upon  the  advice  of  the  maker,  refused  pay- 
ment because  the  condition  was  not  com- 
phed  with.  Opinion:  Such  check  would  be 
a  non-negotiable  order  on  the  bank  to  pay 
and  the  certification  would  be  Hkewise  con- 
ditional. The  bank  would  be  liable  only  in 
the  event  the  maker  fails  to  carry  out  the 
transaction,  in  which  event  the  amount  was 
payable  as  a  forfeit.  {Inquiry  from  Pa., 
Dec,  1916.) 

Injunction  against  bank  paying  certi- 
fied check 

109.  A  and  B  are  husband  and  mfe. 
A  had  an  account  with  his  bank  and 
closed  the  same,  taking  certified  checks 
payable  to  the  order  of  himself  for  the 
amount.  B  has  brought  action  against  A 
and  has  obtained  a  court  order  enjoining  the 
bank  from  paying  the  certified  checks  and 
restraining  A  from  presenting  them  for  pay- 
ment or  negotiating  them.  The  bank  asks 
what  would  be  its  liability  notwithstanding 
the  injuction,  if  the  checks  were  presented. 
Opinion :  A  decree  of  the  court  enj  oining  the 
bank  from  making  payment  should  be 
obeyed,  but  as  there  is  a  possibiUty  that, 
despite  this  injunction  or  before  it  was 
issued,  A  has  negotiated  the  checks,  it 
would  seem  that  the  bank  should  have  the 
order  modified  so  as  either  to  permit  it  to 
pay  the  checks  if  presented  by  a  bona  fide 
transferee  or  else  require  that  B  give  to  the 
bank  a  satisfactory  bond  of  indemnity  to 
save  it  harmless  from  liability  in  refusing 
payment  to  a  bona  fide  holder.  There  is 
very  Httle  authority  on  this  subject,  but  see 
Grobe  v.  Roup.  28  S.  E.  (W.  Va.)  699  and 
Petty  V.  Dunlap  Hardware  Co.,  25  S.  E. 
(Ga.)  697.  {Inquiry  from  Ohio,  April, 
1915.) 

Check    certified    for    holder — Right    of 
holder  of  unindorsed  check  to  re- 
cover from  certifying  bank  where 
drawer  has   equities   against 
holder 

110.  A  corporation,  which  is  customer 
of  a  bank,  made  a  check  paj^able  to 
its  own  order  and  without  indorsing  it  de- 
livered it  to  the  present  holder  who  had  it 


19 


111-114] 


DIGEST  OF  LEGAL  OPINIONS 


certified.  There  is  a  dispute  between  the 
customer  and  the  holder.  The  customer 
states  that  it  will  not  indorse  the  check  and 
desires  that  the  bank  cancel  the  certification 
and  credit  its  account,  offering  an  indemnity 
bond  to  save  the  bank  harmless.  The  pres- 
ent holder  claims  to  hold  the  check  for 
value  given.  The  bank  asks  how  to  proceed. 
Opinion:  It  has  been  held  that  where  the 
payee  of  a  check  transfers  it  without  indorse- 
ment and  the  transferee  has  it  certified,  the 
latter  holds  the  check  subject  to  defenses, 
but  if  there  is  no  defense  to  the  check,  the 
holder  can  recover  against  the  bank.  See 
Meuer  v.  Phenix  Nat.  Bank,  42  Misc.  (N. 
Y.)  341,  affirmed  in  183  N.  Y.  511.  Unless 
the  parties  can  adjust  the  matter  between 
themselves,  it  might  be  the  proper  proce- 
dure for  the  bank  to  recredit  the  amount  to 
the  customer  upon  receipt  of  a  sufficient 
bond  of  indemnity  to  protect  the  bank 
should  it  be  held  ultimately  hable.  {In- 
quiry from  N.  Y.,  Jan.,  1918.) 

Authority  of  bank  officer  to  represent 

or  guaranty  genuineness  of  certified 

check  of  another  bank 

111.     A  merchant    sold    1500   worth   of 
merchandise,  taking  in  payment  a  certified 


check  drawn  on  a  bank  in  another  city. 
However,  before  parting  with  the  goods 
the  merchant  went  to  his  bank  and  asked 
the  advice  of  the  cashier  as  to  the  genu- 
ineness of  the  check.  The  cashier  ex- 
amined the  check,  sajdng  that  he  was 
familiar  with  the  certification,  and  advised 
the  depositor  that  he  was  safe  in  parting 
with  his  goods,  and  that  he  would  let  him 
have  cash  for  the  check.  After  the  sale  the 
check  was  deposited  by  the  merchant  who 
was  allowed  to  withdraw  $500.  The  check 
and  certification  proved  to  be  a  forgery,  and 
the  bank  wants  to  recover  from  its  depositor. 
Opinion:  It  is  doubtful  whether  a  decision 
upon  this  precise  state  of  facts  exists.  The 
question  would  be  whether  the  cashier  had 
authority  to  bind  his  bank  by  such  a  repre- 
sentation so  as  to  constitute  an  estoppel.  In 
Security  Bank  v.  National  Bank,  67  N.  Y. 
458,  a  teller  who  certified  a  raised  check  said 
to  the  holder,  "You  need  not  have  the  slight- 
est doubt  about  that  check;  it  is  correct  in 
every  particular."  This  statement  was  held 
not  to  bind  the  bank.  It  is  doubtful  whether 
the  cashier's  representation  in  this  case  will 
bind  the  bank.  For  other  authorities  see 
Continental  Nat.  Bk.  v.  Tradesmen's  Bank, 
173  N.  Y.  272;  Clews  v.  Bank  of  N.  Y.  114 
N.  Y.  70,    {Inquiry  from  Md.,  June,  1918.) 


ACCEPTANCES— BANKERS 


Difference  between  bankers  and  trade 
acceptance 

112.  What  is  the  difference  between  a 
banker's  and  a  trade  acceptance?  Opinion: 
A  trade  acceptance  is  a  draft  or  bill  of 
exchange  drawn  by  the  seller  on  the  pur- 
chaser of  goods  sold  and  accepted  by  such 
purchaser.  A  banker's  acceptance  is  a  draft 
or  bill  of  exchange  of  which  the  acceptor  is  a 
bank  or  trust  company  or  person  or  corpora- 
tion lawfully  engaged  in  the  business  of 
granting  bankers'  acceptance  credits.  {In- 
quiry from  N.  Y.,  Jan.,  1917.) 

Liability  of  drawer  to  holder 

113.  When  a  draft  or  bill  of  exchange 
is  accepted  by  a  bank,  is  the  drawer 
relived  from  Hability  thereon?  Opinion: 
Where  a  bill  of  exchange  is  drawn  upon 
a  bank,  payable  at  a  future  date,  and  is 
accepted,  the  bank  becomes  principal  debtor 
thereon,  but  the  drawer  remains  liable 
to  the  holder,  provided  the  necessary  steps 
on  dishonor  be  duly  taken.  The  statu- 
tory  rule  applicable  to  checks  that  where 


the  holder  procures  it  to  be  certified,  the 
drawer  and  all  indorsers  are  discharged 
is  based  on  the  reason  that  the  check  is 
payable  in  money  on  demand  and  if  the 
holder  chooses  to  take  payment  in  a  certified 
check  instead  of  money,  the  drawer  is  dis- 
charged. But  this  rule  does  not  apply  to  a 
bill  of  exchange  drawn  on  a  bank  payable  at 
a  future  day.  Times  Square  Auto  Co.,  v. 
Rutherford  Nat.  Bank,  (N.  J.)  73  Atl.  479; 
Haddock  etc.  Co.  v.  Haddock,  192  N.  Y. 
499;  In  Re  Stevens,  74  Vt.  408.  {Inquiry 
from  N.  Y.,  April,  1920,  Jl.) 

114.  Where  a  bill  is  drawn  under  a 
confirmed  bankers  credit,  has  the  holder 
recourse  to  the  drawer  in  the  event  of 
its  non-paj^ment  by  the  acceptor?  Opinion: 
The  question  is  covered  by  Section  61  of 
the  Negotiable  Instruments  Act  which 
provides  "The  drawer  by  drawing  the 
instrument ....  engages  that  on  due  present- 
ment the  instrument  will  be  accepted  or 
paid,  or  both,  according  to  its  tenor,  and 
that  if  it  be  dishonored,  and  the  necessary- 
proceedings  on  dishonor  be  duly  taken,  he 


20 


ACCEPTANCES— BANKERS 


[115-118 


will  pay  the  amount  thereof  to  the  holder,  or 
to  any  subsequent  indorser  who  may  be 
compelled  to  pay  it."  It  is  therefore  clear 
that  the  drawer  engages  that  the  draft  will 
be  accepted  and  that  if  dishonored  and  the 
necessary  proceedings  taken  he  will  pay  the 
amount.    (Inquiry  from  N.  Y.,  June,  1919.) 

Addition   of  words    "without   recourse" 

115.  May  the  drawer  of  a  bill  under 
a  confirmed  bankers  credit  reheve  him- 
self from  Uabihty  to  the  holder  by  the 
addition  of  the  words:  "without  recourse?" 
Would  this  affect  the  negotiability  of  the 
bill  or  its  sale  to  a  third  party?  Opinion: 
The  words  "without  recourse"  would  reheve 
the  drawer  from  liability  for  non-payment. 
It  would  not  affect  the  negotiability  of  the 
bill  but  whether  it  would  affect  its  sale  to  a 
third  party  is  another  question.  The  bill 
would  he  weakened  in  that  the  third  party 
would  have  no  recourse  upon  the  drawer, 
but  where  the  accepting  bank  is  of  sound 
financial  standing,  this  should  not  materially 
weaken  the  marketabilit}^  of  the  bill. 
(Inquiry  from  N,  Y.,  June,  1919.) 

Liability    of   drawer    to    acceptor.      (a) 

where  purchaser  arranges  credit  (b) 

where    drawer   arranges    credit 

116.  A  shipper  of  goods  to  Europe  has 
arranged  with  an  acceptance  corporation 
to  pay  drafts  covering  the  invoices  to 
the  consignee  with  cash  or  a  bankers 
acceptance.  In  case  the  consignee  is  un- 
able to  pay  his  obhgations  to  the  accept- 
ance corporation  when  they  fall  due,  is  the 
consignor  in  any  way  liable?  Opinion:  The 
shipper's  liability  on  the  draft  drawn  by 
him  under  a  bank  credit  would  depend  upon 
whether  he  were  drawing  on  a  bank  under  a 
confirmed  credit  furnished  by  the  consignee, 
or  whether  the  shipper  were  obtaining  credit 
from  the  bank,  under  an  arrangement  where- 
by the  shipper  would  draw  on  the  bank  and 
lodge  with  the  bank  as  security  his  documen- 
tary export  bills  for  collection. 

In  the  first  instance  the  shipper  draws 
against  a  credit  provided  by  the  purchaser 
and  there  is  no  recourse  by  the  accepting 
bank  against  the  drawer  in  the  event  the 
purchaser  fails  to  make  good  his  obligations 
to  the  bank.  The  insertion  in  the  draft  of 
the  words  "without  recourse"  is  not  nec- 
essary. 

In  the  second  case  the  credit  is  arranged 
by  the  shipper  and  the  draft  is  accepted  for 
his  accommodation.  In  such  a  case  the 
acceptor  would  have  recourse  against  the 


drawer.  Christian  v.  Keen,  80  Va.  369  has 
a  certain  analogy.  It  holds  that  where  an 
acceptance  is  for  the  drawer's  accommoda- 
tion the  acceptor  does  not  thereby  become 
entitled  to  sue  the  drawer  upon  the  bill ;  but 
when  he  has  paid  the  bill,  and  not  before,  he 
may  recover  back  the  amount  from  the 
drawer  in  an  action  for  money  had  and 
received.  (Inquiry  from  N.  Y .,  Mar., 
1920.) 

Insolvency  of  acceptor 

117.  A  bank  accepts  a  ninety-day  bill 
drawn  by  one  of  its  customers  against 
a  letter  of  credit  arrangement  and  cover- 
ing importation  of  goods.  The  accepting 
bank  negotiates  the  bill  but  does  not 
place  the  proceeds  to  the  credit  of  its  cus- 
tomer. (1)  Should  the  accepting  bank  fail, 
could  the  drawer  defend  against  habihty  on 
the  ground  that  he  did  not  receive  the  benefit 
of  the  funds  and  that  the  purchaser  was  not 
a  holder  for  value.  (2)  Would  the  drawer 
have  a  prior  claim  against  the  accepting 
bank  on  the  ground  that  the  proceeds  were 
received  for  a  specific  purpose  and  the  accept- 
or had  no  right  to  use  the  funds  for  any 
other  purpose.  Opinion:  (1)  The  pur- 
chaser before  maturity  would  be  a  holder  in 
due  course  of  a  negotiable  instrument  with 
right  to  enforce  payment  from  the  drawer 
free  from  defenses  or  equities  between  prior 
parties.  Where  the  liability  of  the  drawer 
was  preserved  by  due  protest  and  notice,  it 
would  become  absolute  and  he  could  not 
plead  in  defense  that  he  never  received  the 
money  from  the  accepting  bank.  (2)  If  the 
funds  had  been  placed  to  the  drawer's  credit 
as  per  arrangement,  the  accepting  bank 
would  have  become  debtor  and  upon  its 
failure,  the  drawer  would  have  no  prefer- 
ence; but  where  the  acceptor  received  funds 
for  the  specific  purpose  of  placing  to  the 
credit  of  the  drawer  and  never  did  so,  there 
might  be  ground  for  a  contention  that  the 
funds  were  held  as  trustee  and  the  acceptor 
never  became  debtor  so  that  if  at  the  time  of 
failure,  the  proceeds  could  be  traced  and 
identified,  the  drawer  might  claim  in  full  as 
a  trust  fund.  If,  however,  before  the  failure 
the  funds  had  been  so  dissipated  that  their 
identity  was  lost  and  they  could  not  be 
traced  or  identified  in  original  or  suljstituted 
form,  the  priority  of  claim  would  be  gone. 
(Inquiry  from  N.  Y.,  June,  1919.) 

Revocation  of  acceptance  made  through 
error 

118.  A  bank  which  had  accepted  a  draft 
requested  the  bank  presenting  it  for  accept- 


21 


119-120] 


DIGEST  OF  LEGAL  OPINIONS 


ance  to  return  it  for  cancellation  of  the 
acceptance  made  through  error.  No  advice 
had  been  sent  to  any  of  the  interested  par- 
ties with  regard  to  the  acceptance.  May 
the  collecting  bank  return  the  draft,  if  the 
collection  is  restored  to  its  status  prior  to  the 
acceptance  of  the  draft?  Opinion:  Where  a 
check  or  draft  has  been  certified  by  mistake, 
the  certifying  bank  has  the  right  to  revoke 
its  certification,  provided  no  rights  of  other 
parties  have  intervened.  Dillaway  v. 
Northwestern  Nat.  Bank.  82  111.  App.  71; 
Mt.  Morris  Bank  v.  23rd  Ward  Bank,  70 
N.  Y.  Supp.  78  (certified  note) ;  Ranking  v. 
Colonial  Bank,  64  N.  Y.  Supp.  32.  So  also 
the  acceptance  of  a  draft  through  mistake 
may  be  revoked  provided  no  change  of  cir- 
cumstances has  occurred  which  would 
render  it  inequitable.  This  principle  appUes 
where  as  here  the  draft  is  still  in  the  hands 
of  the  bank  which  held  it  when  it  was  ac- 
cepted and  it  is  notified  so  speedily  that  the 
rights  of  third  parties  have  not  intervened. 
{Inquiry  from  Cal.,  June,  1918.) 

Right  of  state  banks  and  trust 
companies  to  accept 

119.  Do  the  laws  of  Michigan  give  the 
state  banks  and  trust  companies  the  right  to 
accept?  Opinion:  By  act  approved  May  10, 
1917  (No.  299  Laws  1917)  the  Michigan 
legislature  amended  Section  4  of  the  Bank- 
ing Law  which  contains  grant  of  powers  to 
banks  (commercial  and  savings)  by  adding 
the  following  power:     "Eighth,  To  accept 


for  payment  at  a  future  date,  not  to  exceed 
six  months,  drafts  drawn  by  its  patrons,  but 
no  banks  shall  accept  such  drafts  in  the  ag- 
gregate to  an  amount  exceeding  fifty  per  cent 
of  its  capital  and  undivided  surplus."  No 
corresponding  grant  of  power  to  trust  com- 
panies is  found.  {Inquiry  from  Mich.,  Aug. 
1919.) 

Investment  in  bankers'  acceptances  by 
New     York     savings    bank 

120.  Has  a  New  York  savings  bank  the 
right  to  buy  bankers'  acceptance  that  does 
not  bear  the  indorsement  of  a  Federal  Re- 
serve member  bank?  Opinion:  Under  Sec. 
239  of  New  York  Banking  Law,  a  savings 
bank  may  invest  in  bankers'  acceptances 
of  banks,  national  banks  or  trust  companies 
incorporated  under  the  laws  of  New  York, 
or  under  Federal  law,  and  having  their  prin- 
cipal place  of  business  in  the  state,  where 
such  acceptances  are  of  the  kind  and  matu- 
rities made  ehgible  by  law  for  rediscount 
with  Federal  reserve  banks,  although  not 
indorsed  by  a  member  bank,  which  indorse- 
ment is  required  to  authorize  a  Federal  re- 
serve bank  to  discount  such  acceptances. 
While  such  indorsement  is  a  prerequisite  for 
rediscount  by  a  Federal  Reserve  Bank,  it  is 
not  made  a  condition  of  eligibility  by  the 
New  York  law  for  investment  by  a  savings 
bank.  If  the  acceptance  is  of  the  described 
land  and  maturity,  it  is  ehgible  for  invest- 
ment. Sec.  239  N.  Y.  Bank.  Law,  1918. 
Sec.  13  Fed.  Reserve  Act.  {Inquiry  from 
N.  F.,  April,  1920,  Jl.) 


22 


ACCEPTANCES— TRADE 


[121-122 


Forma 

121.     The  following  standard  form  has 
been  approved  as  negotiable  and  valid: 

TRADE  ACCEPTANCE 

FORM     APPROVED    BY    THE 

American   Trade   Acceptance   Council 

EMBRACINa    COMMITTEES    OF 

CHAMBER   OF   COMMERCE   OF  THE    U.  S.  A. 
AMERICAN    BANKERS'    ASSOCIATION 
NATIONAL    ASSOCIATION    OF   CREDIT    MEN 


©4 


o 


O 


>5 


e      CDJ 


■^ 

so 

<^ 

'■a 

g 

53i 

». 

<u 

s 

^c: 

o 

re* 

».. 

u 

-^ 

<» 
-« 

J5 

00 

s  -^ 

< 

V2 

-§ 

13 

o 

S 

C)J 

tD 

> 

^ 

r*:- 

w 

CO 

S 

rtf 

•^ 

ir- 

^ 

rs; 


•.s>    '*-' 


5)5 


05 


■13 


Si 


Form   designed   for  physicians 

122.  A  corporation  dealing  in  phy- 
sicians' suppUes  is  trying  to  devise  a  form 
of  trade  acceptance  which  it  can  induce 
its  physician  customers  to  sign  at  the  time 
they  ask  for  credit  extension.  The  corpora- 
tion states  it  is  almost  impossible  to  secure  a 
physician's  signature  on  a  note  or  the  regular 
trade  acceptance  and  it  suggests  the  follow- 
ing 

"Invoice  acceptance. 

Notice  to  Customers :  We 
allow  one  half  the  cash  dis- 
count to  customers  imme- 
diately signing  our  invoice 
acceptances.  7%  interest 
after  30  days. 
Dated:  Chicago,  Ilhnois 192 

To 

Dear  Sir :    Please  pay  to  John  Doe,  Cashier, 

or  to  his  order  the  sum  of dollars,  on 

192      at    Bank,    with 

interest  at  the  rate  of per  cent  from 

192     until  paid,  with  exchange, 

and  with  all  costs  of  collection  and  with 


days  of  grace,  in  payment  of  goods  pur- 
chased from  us  under  our  order  number 

invoice  number . 

Yours  very  truly, 
A  Co.,  by  John  Smith,  President." 

Accepted :  At 

On 192 


05 


Is  this  a  proper  and  legal  form?  Opinion: 
The  only  provision  that  might  possibly 
affect  the  negotiability  of  the  acceptance  is 
"with  all  costs  of  collection"  and  if  there  was 
added  thereto  the  words  "if  not  paid  at 
maturity"  the  instrument  would  be  nego- 
tiable. The  Negotiable  Instruments  Law 
expressly  provides  that  "the  sum  payable 
is  a  sum  certain  within  the  meaning  of  this 
Act  although  it  is  to  be  paid  (1)  with  interest 
or ....  (4)  with  exchange,  whether  at  a  fixed 
rate  or  the  current  rate;  or  (5)  with  costs  of 
collection  or  an  attorney's  fee,  in  case  pay- 
ment shall  not  be  made  at  maturity."  This 
covers  the  provisions  in  the  form  as  to  inter- 
est and  exchange  but  if  the  provision  "with 
all  costs  of  collection"  should  be  construed 
as  covering  costs  incurred  in  presenting  the 
check,  this  might  be  held  to  render  the 
amount  uncertain  and  the  acceptance  non- 
negotiable  unless  the  words  "if  not  paid  at 
maturity"  were  added.  The  provision  for 
days  of  grace  and  the  statement  of  the  con- 


23 


123-125] 


DIGEST  OF  LEGAL  OPINIONS 


sideration  do  not  affect  negotiability.  While 
the  form  is  not  quite  as  formal  as  the  ap- 
proved standard  form  of  trade  acceptance, 
there  is  no  objection  to  it  on  the  ground  of 
non-negotiability  except  in  the  particular 
referred  to.    {Inquiry  from  III.,  June,  1918.) 

"The  drawee  may  accept  this  bill  pay- 
able at  any  bank,  banker  or  trust 
company  in  the  United  States 
which  he  may  designate" 

123.     The  following  form  of  trade  accep- 
tance is  suggested. 
To 192— 


after  date,  pay  to  order  of 

ourselves Dollars  % 

The  obligation  of  the  acceptor  hereof  arises 
out  of  the  purchase  of  goods  from  the 
drawer. 


Accepted- 


-) 


Payable    at- 

No 


-) 


-Due- 


-) 


By 

-192— 

Opinion:  The  form  is  negotiable  and  will 
meet  the  requirements  of  the  Federal  Re- 
serve Act.  The  American  Trade  Acceptance 
Council  has  adopted  a  standard  form, 
substantially  the  same  as  that  suggested, 
with  the  added  clause:  "The  drawee  may 
accept  this  bill  payable  at  any  bank,  banker 
or  trust  company  in  the  United  States  which 
he  may  designate."  The  necessity  of  the 
last  stated  clause  is  to  meet  the  rule  of  law 
that  an  acceptance  made  payable  at  another 
town  than  that  of  the  acceptor  is  a  qualified 
acceptance,  varying  the  terms  of  the  bill  as 
drawn  and  discharging  prior  non-consenting 
parties.  This  necessity  does  not  exist  where 
the  draft  is  made  payable  to  "ourselves" 
and  after  acceptance  is  returned  to  and  is 
negotiated  by  the  drawer,  because  the  latter 
thereby  consents  to  the  variation,  but  does 
apply  when  a  draft  is  issued  payable  to  a 
payee  other  than  the  drawer,  for  if  this  was 
negotiated  and  then  accepted  payable  at  a 
bank  in  another  city,  the  prior  non-consent- 
ing parties  would  be  discharged  by  operation 
of  the  principle  above  referred  to.  Walker 
V.  Bk.,  13  Barb.  (N.  Y.)  636.  Niagara  Bk. 
V.  Fairman  Co.,  31  Barb.  (N.Y.)  403.  {In- 
quiry from  Va.,  Nov.,  1917,  Jl.) 

Change  in  place  of  payment  by  acceptor 

124.  What  is  the  effect  of  making  an 
acceptance  of  a  draft  payable  at  a  bank 
in  another  city  than  that  of  the  drawee? 


Opinion:  It  would  seem  (although  a  con- 
trary contention  has  been  urged)  that 
notwithstanding  the  provision  of  the  Nego- 
tiable Instruments  Act  that  "an  acceptance 
to  pay  at  a  particular  place  is  a  general 
acceptance  unless  it  expressly  states  that  the 
bill  is  to  be  paid  there  only  and  not  else- 
where," an  acceptance  payable  at  a  bank  in 
another  city  is  a  qualified  acceptance  which 
discharges  the  drawer  and  indorsers  from 
liabihty  unless  they  have  authorized  or 
subsequently  assented  to  the  same.  Under 
the  English  common  law,  where  a  bill  was 
accepted  at  a  particular  place,  it  was  a 
qualified  acceptance  rendering  presentment 
at  that  place  necessary  as  a  condition 
precedent  to  action  against  the  acceptor, 
whereas  if  the  acceptance  mentioned  no 
particular  place  of  payment,  i.e.  was  payable 
generally,  it  was  a  general  acceptance  and 
the  acceptor  could  be  sued  without  present- 
ment at  that  place.  This  rule  was  changed 
by  statute  (1  and  2  Geo.  IV)  which  provided 
that  an  acceptance  payable  at  a  particular 
place  should  be  deemed  a  general  acceptance 
unless  expressed  to  be  payable  "there  only 
and  not  otherwise  or  elsewhere."  The 
American  judicial  rule  has  always  been  in 
accord  with  the  English  statutory  rule  and 
the  provision  of  the  Negotiable  Instrument 
Act  which  is  similar  to  the  Enghsh  statute, 
is  simply  a  codification  of  the  American 
common  law  rule.  It  cannot  be  reasonably 
interpreted  as  abrogating  the  further  rule, 
laid  down  in  a  number  of  American  cases, 
that  while  an  acceptance  payaljle  at  a 
particular  bank  or  place  in  the  same  town  or 
city  at  which  the  drawee  is  addressed 
generally,  is  not  a  qualified  acceptance,  yet 
if  the  drawee,  addressed  generally,  makes  his 
acceptance  payable  at  a  bank  or  place  in 
another  town  or  city,  it  is  a  qualified  accept- 
ance. Otherwise,  a  drawee  addressed 
generally  in  New  York,  might  accept  pay- 
able at  a  place  in  a  distant  part  of  the  world, 
which  would  be  a  clear  variation  of  the  effect 
of  the  bill  as  drawn,  and  the  non-consenting 
drawer,  notwithstanding,  still  remain  liable. 
{Inquiry  from  N.  Y.,  Nov.,  1915.) 

Use  of  word  "ourselves" 

125.  Should  the  printed  form  for  trade 
acceptances  include'  the  word  "ourselves" 
after  the  phrase:  "pay  to  the  order 
of,"  instead  of  leaving  the  space  blank 
and  writing  in  the  name  of  the  drawer? 
Opinion:  This  is,  of  course,  optional.  In 
view  of  the  fact  that  most  all  trade  accept- 
ances are  made  payable  to  the  seller's  order, 


24 


ACCEPTANCES— TRADE 


[126-131 


it  might  be  desirable  to  print  the  word 
"ourselves,"  instead  of  leaving  the  payee 
blank.    {Inquiry  from  N.  Y .,  Dec.  1917.) 

Note  stamped  "this  is  a  trade 
acceptance" 

126.  Will  a  Federal  Reserve  Bank  con- 
sider an  ordinary  note  stamped  "This  is 
a  Trade  Acceptance"  as  such  an  accep- 
tance? Opinion:  The  instrument  is  a  note 
and  not  a  draft  and  the  mere  calling  it  a 
trade  acceptance  does  not  change  its 
character.  The  Federal  Reserve  Board  in 
Regulation  A  Series  of  1916  and  Series  of 
1917,  covering  rediscounts  under  section  13 
of  the  Federal  Reserve  Act,  defines  promis- 
sory notes,  drafts,  bills  of  exchange  and 
trade  acceptances.  A  promissory  note  is 
"an  unconditional  promise  in  writing  signed 
by  the  maker  to  pay"  etc.  A  draft  or  bill  of 
exchange  is  defined  as  "an  unconditional 
order  in  writing  addressed  by  one  person  to 
another.. requiring  the  person  to  whom  it  is 
addressed  to  pay"  etc.  and  a  trade  accept- 
ance is  "a  draft  or  bill  of  exchange  drawn  by 
the  seller  on  the  purchaser  of  goods  sold  and 
accepted  by  such  purchaser."  {Inquiry  from 
N.  Y.,  May  1918.) 

Legal   eflfect   of  trade   acceptance    and 
note 

127.  Does  a  trade  acceptance  have  any 
legal  advantages  over  a  plain  note  which 
has  on  it  the  same  names  as  maker  and 
indorser,  which  a  trade  acceptance  has 
as  drawer  and  acceptor?  Opinion:  The 
only  difference  is  one  of  form.  The  legal 
effect  of  the  instruments  is  substantially  the 
same.  Both  the  acceptance  and  the  note 
contain  a  promise  to  make  payment  at 
maturity  to  the  payee  who  is  liable  as  in- 
dorser if  the  promise  is  not  fulfilled.  {In- 
quiry from  Ky.,  July,  1920) 

128.  Has  the  indorser  of  an  accep- 
tance the  same  Hability  as  the  indorser 
of  a  note?  Opinion:  If  the  buyer  accepting 
a  trade  acceptance  dishonors  it  at  maturity, 
he  is  primarily  liable  thereon  and  the  seller 
is  liable  as  indorser,  the  same  as  if  he  had 
indorsed  the  buyer's  note  payable  to  his 
order,  assuming  he  is  duly  charged  with 
hability.     {Inquiry  from  Wis.,  Oct.,  1917.) 

Date  of  trade  acceptance 

129.  Is  a  trade  acceptance  which  bears 
the  date  of  July  1,  which  has  been  ac- 
cepted July  10  and  which  reads  "thirty 
days  after  date,"  due  August  1  or  August 


10?  It  is  our  understanding  that,  although 
the  date  on  a  negotiable  instrument  is  of 
importance,  the  instrument  takes  effect 
upon  delivery,  which  we  should  think  would 
be  the  date  of  acceptance.  Opinion:  Where 
a  bill  dated  July  1,  payable  thirty  days  after 
date,  is  accepted  July  10,  the  bill  is  payable 
thirty  days  after  its  date  and  not  thirty 
days  after  date  of  the  acceptance,  because 
such  acceptance  is  a  signification  by  the 
drawee  of  his  assent  to  the  order  of  the 
drawer,  which  calls  for  payment  thirty  days 
after  date  of  the  bill.  {Inquiry  from  S.  D., 
Oct.,  1920,  Jl.) 

Necessity  and  desirability  of  dating 
acceptance 

130.  Where  a  draft  is  made  payable 
at  a  fixed  period  after  the  date  of  the 
instrument  is  it  necessary  and  advisable 
that  the  acceptor  date  his  acceptance? 
Opinion:  There  is  no  legal  necessity  for 
adding  the  date.  The  Negotiable  Instru- 
ments Act  requires  that  "the  acceptance 
must  be  in  writing  and  signed  by  the 
drawee."  There  is  no  requirement  that  the 
acceptance  be  dated,  even  in  the  case  of 
bills  payable  a  certain  number  of  days  after 
sight,  although  there  is  a  practical  necessity 
for  dating  the  latter  class  of  acceptance. 
There  seems  to  be  no  practical  advantage 
in  dating  the  acceptance  of  a  draft  payable 
at  a  fixed  period  after  date,  unless  there  be 
some  mercantile  reason  for  so  doing,  which 
is  not  readily  apparent.  {Inquiry  from 
N.  Y.,  April,  1919.) 

Ante-dating  of  acceptance 

131.  A  trade  acceptance  dated  April 
23rd,  calhng  for  payment  on  July  23rd, 
was  accepted  under  date  of  April  17th. 
What  effect  has  this  acceptance  prior  to 
the  date  of  the  instrument?  Opinion: 
The  ante-dating  of  the  acceptance  is  valid 
under  the  express  provision  of  the  Nego- 
tiable Instruments  Act,  where  the  ante- 
dating is  not  done  for  an  illegal  or  fraudulent 
purpose. 

Under  either  the  Negotiable  Instriunents 
Law  or  the  law  merchant,  there  is  apparently 
no  question  but  that  the  acceptance  is  vahd 
where  made  by  an  individual  and  that  it 
would  be  a  promise  to  pay  the  bill  at  maturi- 
ty according  to  its  terms.  But  there  is  a 
question  whether,  in  case  an  acceptance  is 
made  })y  a  person  in  a  representative  capa- 
cit}^,  it  would  charge  with  notice  the  holder 
to  whom  negotiated  and  put  him  on  inquiry 


25 


132-134] 


DIGEST  OF  LEGAL  OPINIONS 


as  to  the  authority  of  the  representative  to 
bind  his  principal  by  dating  the  acceptance 
prior  to  the  date  of  the  draft.  On  this 
particular  question  no  cases  have  been  dis- 
covered. It  has  been  held  that  the  certifica- 
tion of  a  post-dated  check  before  the  day  of 
its  date  is  without  authority  and  puts  the 
holder  on  inquiry.  An  abundance  of  cau- 
tion, in  case  the  antedating  of  a  trade 
acceptance  is  that  of  a  corporation  or  by  an 
agent,  might  dictate  inquiry  of  the  principal 
as  to  whether  the  same  was  authorized.  If 
authorized,  the  acceptance  is  perfectly 
valid.    {Inquiry  from  Conn.,  July,  1920.) 

"After  March  7th,  1919,  pay  to  order  of,''  etc. 

132.  A  trade  acceptance  payable  at  a 
bank  reads:  "After  March  7th,  1919,  pay 
to  the  order  of  John  Doe,"  etc.  If  presented 
for  payment  after  such  date,  say  March  30, 
is  it  the  duty  of  the  bank  to  pay  or  is  the 
bank  put  on  inquiry  by  reason  of  the  lapse  of 
time?  Are  such  acceptances  payable  on 
demand  at  any  time  after  the  date  named? 
Would  it  be  better  to  say:  "On  demand 
after  March  7th,  1919,  pay,"  etc.?  Opinion: 
Where  a  draft  payable  ninety  days  after 
date  is  accepted  payable  at  a  bank  and 
is  presented  after  maturity,  opinions  differ 
as  to  the  authority  of  the  bank  to  pay 
the  overdue  acceptance  without  express 
instructions,  and  our  opinion  has  been  pre- 
viously expressed  that  it  is  safer  to  con- 
strue the  authority  as  limited  to  the  precise 
date  of  maturity.  But  the  present  form 
of  draft  is  different,  being  an  order  to 
pay  after  a  stated  date  and  is  probably 
designed  to  remove  the  doubt  in  the  first 
stated  case.  Such  form,  when  accepted 
payable  at  bank,  may  reasonably  be  con- 
strued as  authorizing  the  bank  to  pay  at  any 
reasonable  time  after  the  date  stated,  the 
same  as  it  would  a  check.  The  words  "on 
demand"  would  not  add  anything  to  the 
order.  {Inquiry  from  Wash.,  March,  1918.) 

Signatures 

Completing  signature  of  drawer  after 

acceptance  not   a   material 

alteration 

133.  It  has  been  the  custom  among 
merchants  to  send  out  trade  acceptances 
with  only  a  printed  signature  of  the  drawer, 
as,  for  example,  "Smith  Manufacturing  Com- 
pany," underneath  which  is  a  blank  fine 
starting  with  the  word  "By."  After  the 
acceptor  has  signed  and  mailed  the  instru- 


ment back  to  the  drawer  there  is  added,  in 
pen  and  ink,  after  the  word  "By",  the  words 
"John  Smith,^ Treasurer."  The  purpose  of 
the  foregoing  is  to  protect  the  instrument 
should  it  be  lost  in  the  mail  or  otherwise  fall 
into  improper  hands.  The  question  is  raised 
whether  there  has  been  a  material  alteration 
which  would  entitle  the  acceptor  to  repu- 
diate his  obligation.  Opinion:  The  com- 
pletion of  the  drawer's  signature  after  the 
instrument  has  been  returned,  accepted, 
would  not  be  a  material  alteration  within  the 
meaning  of  the  law.  There  is  no  change  in 
the  number  or  relations  of  the  parties,  and  no 
change  in  the  legal  effect  of  the  instrument, 
and,  furthermore,  the  execution  of  the  instru- 
ment by  the  acceptor,  with  the  blank 
unfilled,  would  constitute  an  implied  au- 
thority to  the  drawer  to  fill  in  the  blank  with 
his  completed  signature  upon  return  of  the 
instrument  to  him.  Decatur  First  Nat.  Bk. 
V.  Johnston,  97  Ala.  655.  People  v.  Gor- 
ham,  9  Cal.  App.  341.  Moody  v.  Hoelkeld, 
13  Ga.  55.  {Inquiry  from  N.Y.,  Jan.,  1918, 
Jl.) 

Corporation   signature   and   indorsement   by 
"Cashier" 

134.  A  trade  acceptance  is  signed  "M 
&  Co.,  John  Smith,  Cashier"  to  their  own 
order  and  is  also  indorsed  in  the  same 
way.  Is  this  a  proper  indorsement?  It  has 
been  accepted  by  the  drawee  payable  at 
bank.  May  the  bank  at  which  the  accept- 
ance is  payable  demand  an  official  endorse- 
ment, even  though  the  endorsement  has 
been  guaranteed  by  another  bank?  Opin- 
ion: Whether  M.  &  Co.  is  a  firm  or  a  cor- 
poration, the  cashier  has  not  by  virtue  of 
such  office  impHed  power  to  make  or  indorse 
negotiable  paper.  The  rule  is  not  the  same 
as  in  the  case  of  the  cashier  of  a  bank. 
Presumably  the  cashier  of  M.  &  Co.,  has  been 
given  authority  to  sign  and  indorse  commer- 
cial paper.  If  so  authorized,  the  signature  is 
legal  and  vaHd  and  the  bank  at  which  the 
acceptance  is  payable  cannot  demand  an 
official  indorsement  but  would  have  the 
right  to  inquire  as  to  the  authority  of  the 
indorser.  The  Negotiable  Instruments  Act 
provides  that  "the  signature  of  any  party 
may  be  made  by  a  duly  authorized  agent. 
No  particular  form  of  appointment  is  nec- 
essary for  this  purpose;  and  the  authority 
of  the  agent  may  be  estabhshed  as  in  other 
cases  of  agency." 

In  view  of  the  guaranty  of  the  indorse- 
ment by  a  responsible  bank:,  the  acceptance 


26 


ACCEPTANCES— TRADE 


[135-138 


may  be  safely  paid  without  making  specific 
inquiry  into  the  authority  of  the  cashier. 
{Inquiry  from  Pa.,  July,  1920) 

Proper  form  of  signature  of  corporation 

135.  A  trade  acceptance  is  accepted  in 
the  following  form:  "The  A.  Co.,  John 
Doe,"  without  the  affixation  of  an  title 
such  as  "President"  or  "Treasurer."  Is 
the  acceptance  legal?  Opinion:  It  is  not 
strictly  essential  to  the  vahdity  of  the  signa- 
ture of  a  corporation  to  commercial  paper 
that  the  name  or  official  title  of  the  signing 
officer  be  affixed.  In  the  event  of  suit  to 
enforce  the  paper  it  would,  of  course,  be 
incumbent  upon  the  holder  to  prove  that  the 
name  of  the  corporation  was  signed  by  a 
person  having  authority  to  do  so.  The 
designation  of  the  ofl&cial  title  would  make 
the  signature  more  complete  in  its  indication 
of  the  relation  which  the  signing  official 
bears  to  the  company  and,  probably,  where 
the  acceptance  is  to  be  rediscounted  with  the 
Federal  Reserve  Bank,  such  designation 
would  make  the  instrument  more  acceptable. 
But  in  every  case  the  enforceabihty  of  the 
paper  depends  on  the  authority  of  the  sign- 
ing officer. 

The  acceptance  is  legal  if  John  Doe  has 
authority  to  bind  the  A.  Co.  {Inquiry  from 
III,  Aug.,  1918.) 


Rate  of  interest  on  trade  acceptances 

136.  Is  a  trade  acceptance  usurious, 
where  it  is  drawn  in  a  state  where  the 
rate  of  interest  is  permissible,  upon  a 
drawee  in  another  state,  where  it  is  accepted 
and  made  payable,  in  which  state  such  a 
rate  of  interest  is  usurious?  Opinion: 
Ordinarily  the  vahdity  of  an  acceptance  is 
governed  by  the  law  of  the  state  where  the 
contract  of  acceptance  is  made  and  where  it 
is  made  payable.  Hall  v.  Cord  ell,  142  U.  S. 
116;  New  York,  etc.,  Bank  v.  Gobson,  5 
Duer  (N.  Y.)  574. 

But  in  a  contract  such  as  this,  between 
parties  in  different  states,  the  problem  of 
determining  which  law  governs  in  deciding 
whether  the  contract  is  usurious  is  largely 
determined  by  the  intent  of  the  parties,  if 
entertained  in  good  faith  and  not  for  the 
purpose  of  evading  the  usury  laws  of  an- 
other state. 

In  the  present  case  the  credit  was  ex- 
tended by  parties  in  a  state  where  the  rate 
was  legal  and  it  is  fair  to  presume  that  the 
contract  as  to  this  interest  was  made  with 


reference  to  the  law  of  such  state,  especially 
in  view  of  the  fact  that,  while  the  acceptance 
was  executed  and  made  payable  in  another 
state,  the  final  consummation  of  the  con- 
tract was  by  its  dehvery  to  the  payee  in  the 
state  of  his  residence,  where  the  credit  was 
extended.  See  Staples  v.  Nott,  128  N.  Y. 
403.  Eccles  v.  Herrick,  15  Colo.  App.  350. 
Opdyke  v.  Merwin,  13  Hun  (N.  Y.)  401. 
McKay  v.  Balknap  Savings  Bank,  27  Colo. 
50.  Georgia  State  Bank  v.  Lewin,  45  Barb. 
(N.  Y.)  340.  McGarry  v.  Nicklin,  110 
Ala.  559. 

The  rate  of  interest  will  probably  be  held 
legal.     {Inquiry  from  Colo.,  Feb.,  1919.) 


Eflfect  of  acceptance  indorsed  on  back 
ofbiU 

137.  An  acceptance  by  the  drawee 
indorsed  on  the  back  of  the  bill, 
instead  of  being  written  across  the  face, 
while  unusual,  is  vahd  at  common  law. 
Under  the  Negotiable  Instruments  Act, 
however,  the  holder  is  entitled  to  acceptance 
"on  the  bill,"  presumably  on  its  face,  but  if 
the  holder  takes  the  indorsed  acceptance, 
the  instrument  is  valid  and  negotiable. 
Daniel  Neg.  Inst.,  Sec.  498.  Haines  v. 
Nance, 52  111.  App.  406.  Block  v.  Wilkerson, 
42  Ark.  253.  {Inquiry  from  Pa.,  June, 
1919,  Jl.) 

Trade   acceptance   propaganda   not   in 
restraint  of  trade 

138.  Various  trade  associations  have 
adopted  or  are  about  to  adopt  resolutions 
recoEomending  to  their  members,  in  effect, 
that  trade  acceptances  be  substituted  for 
open  accounts  and  that  uniform  terms  of 
credit  based  upon  trade  acceptances  be 
adopted.  The  question  is  asked  whether  co- 
operation along  the  fines  covered  by  the  reso- 
lutions is  in  contravention  of  the  Sherman 
Anti-Trust  Law.  Opinion:  Sec.  1,  Act  July 
2,  1890,  provides  that  "Every  contract, 
combination  in  the  form  of  trust  or  other- 
wise, or  conspiracy  in  restrain  of  trade  or 
commerce  among  the  several  states,  or  with 
foreign  nations,  is  hereby  declared  to  be 
illegal.  Every  person  who  shall  make  any 
such  contract  or  engage  in  any  such  com- 
bination or  conspiracy  shall  be  deemed 
guilty  of  a  misdemeanor,"  etc.  No  violation 
of  the  foregoing  would  result.  The  action 
contemplated  by  the  trade  associations 
would  tend  to  promote  rather  than  restrain 
interstate  trade.     It,  of  course,  is  not  con- 


27 


139-143] 


DIGEST  OF  LEGAL  OPINIONS 


templated  that  members  or  others  not 
adopting  the  scheme  should  be  boycotted 
and  refused  all  manner  of  credit,  which 
would  present  a  different  situation.  Hop- 
kins V.  U.  S.,  171  U.  S.  578.  Loewe  v. 
Lawlor,  208  U.  S.  274.  Swift  v.  U.  S.,  196 
U.  S.  375.  {Inquiry  from  N.  Y .,  Nov., 
1917,  Jl.) 

Consideration 

Trade  acceptance  for  monthly  balance  of  open 
account 

139.  A  wholesaler  sells  to  a  retailer 
a  number  of  small  bills  of  goods.  At 
the  end  of  the  month  he  attaches  a  state- 
ment of  the  amount  due  to  a  draft  on  the 
retailer,  who  accepts  the  draft  and  the 
wholesaler  arranges  with  his  bank  for  the 
discount  of  the  paper.  Is  this  the  customary- 
trade  acceptance?  The  retailer  might  buy 
some  Httle  bill  of  goods  every  day  for  the 
month  and  sell  the  purchased  article  long 
before  the  draft  from  the  wholesaler  was 
presented  for  acceptance.  Opinion:  A 
trade  acceptance  has  been  defined  as  "a  bill 
of  exchange  drawn  by  the  seller  on  the 
purchaser  of  goods  sold  and  accepted  by 
such  purchaser."  The  Federal  Reserve 
Board  has  recently  ruled  that  a  bill  drawn 
for  a  balance  due  on  open  account  of  long 
standing  which  is  accepted  by  the  debtor, 
might  constitute  a  trade  acceptance,  but 
only  those  trade  acceptances  which  are 
drawn  contemporaneously  or  within  a 
reasonable  time  after  the  shipment  or 
deHvery  of  goods  sold  can  be  treated  as  bills 
of  exchange  drawn  against  actually  existing 
values.  The  time  must  be  so  reasonable 
as  to  justify  the  assumption  that  the 
goods  are  in  existence  in  the  hands  of 
the  drawee  in  their  original  form  or  in  the 
form  of  proceeds  of  sale.  It  would  seem 
that  a  bill  drawn  at  the  end  of  each  month 
covering  sales  for  the  month  would  be 
within  a  reasonable  time,  {Inquiry  from 
Wis.,  Oct.,  1917.) 

Trade  acceptance  based  on  manufacture  and 
installation    of    elevator    supplies 

140.  May  a  trade  acceptance  be  used 
by  a  concern  which  manufacturers  and 
installs  the  articles  manufactured,  such 
as  elevator  supplies?  Opinion:  A  trade 
acceptance  as  defined  by  the  regulations  of 
the  Federal  Reserve  Board  is  "a  draft  or 
bill  of  exchange  drawn  by  the  seller  on  the 
purchaser  of  goods  sold  and  accepted  by 


such  purchaser."  The  Federal  Reserve 
Board  has  held  that  the  definition  includes 
a  draft  for  the  compensation  for  advertising 
space  and  a  draft  "for  the  purchase  price  of 
electrical  and  mechanical  goods,  which 
include  the  cost  of  installation."  {Inquiry 
from  N.  J.,  Sept.,  1918.) 

Negotiability 

Trade  acceptance  not  conditional  or  qualified 

141.  Is  a  trade  acceptance  a  condition- 
al and  qualified  acceptance  of  a  bill  of 
exchange?  Opinion:  The  Negotiable  In- 
struments Act  provides:  "A  general  ac- 
ceptance assents  without  qualification  to 
the  order  of  the  drawer.  A  qualified  accept- 
ance in  express  terms  varies  the  effect  of  the 
bill  as  drawn."  Unless  the  acceptor  upon  a 
trade  acceptance  varies  the  terms  of  the 
order  of  the  drawer,  the  acceptance  is  not 
qualified.    {Inquiry  from  N.  Y.,  Mar.,  1920) 

142.  The  following  is  written  across  the 
face  of  the  paper  by  the  acceptor:  "The 
obhgation  of  the  acceptor  hereof  arises 
out  of  the  purchase  of  goods  from  the 
drawer."  Does  this  phrase  indicate  that  its 
payment  is  contingent  upon  the  consumma- 
tion of  the  contract  between  himself  and  the 
drawer?  Opinion:  This  phrase  written 
across  the  face  of  the  acceptance  does  not 
make  the  promise  of  the  acceptor  conditional 
or  contingent  upon  the  consummation  of  the 
contract  between  the  acceptor  and  the 
drawer.  It  is  simply  a  statement  of  the 
transaction  which  gives  rise  to  the  instru- 
ment. The  Negotiable  Instruments  Act 
provides  that  "an  unqualified  order  or 
promise  to  pay  is  unconditional  within  the 
meaning  of  this  Act  though  coupled  with 

a  statement  of  the  transaction  which 

gives  rise  to  the  instrument."  {Inquiry 
from  N.  Y.,  Mar.,  1920.) 

143.  When  a  trade  acceptance  is  not 
paid  when  due,  the  acceptor  is  Hable  for 
the  principal  and  interest.  The  drawer  is 
also  Uable,  provided  the  necessary  steps  up- 
on dishonor  are  taken.  Under  the  provisions 
of  the  CaHfornia  statute  a  trade  acceptance 
is  a  negotiable  instrument.  Ragsdale  v. 
Gresham,  141  Ala.  308.  Daniel  Neg.  Inst., 
Sec.  532.  Kerr's  Civ.  Code  Cal.,  Sees.  3177, 
3116.  Musson  v.  Lake,  4  How.  (U.  S.)  262. 
Allen  V.  Kemble,  6  Moore  P.  C.  314. 
{Inquiry  from  Cal.,  Dec,  1916,  Jl.) 

Note:  The  Negotiable  Instruments  Act 
has  since  been  passed  in  California,   and 


28 


ACCEPTANCES— TRADE 


[144-147 


under  this,  the  ordinary  form  of  trade  accept- 
ance is  negotiable. 

Effect  on  negotiability  of  clause  "subject  to 
discount  of per  cent  if  paid  on  or 


before 

144.  Is  the  negotiabihty  of  a  trade 
acceptance  affected  by  the  insertion  of 
the  following  clause:  "subject  to  a  dis- 
count of per  cent  if  paid  on  or  before 

Opinion:    The  case  of  Far- 


mers' Loan  and  Trust  Co.  v.  Planck,  152 
N.  W.  (Nebr.)  holds  that  such  a  clause  does 
not  affect  the  negotiability  of  commercial 
paper  under  the  Negotiable  Instruments 
Act.  The  court  says:  "The  authorities  upon 
this  point  are  in  conflict.  In  the  following 
cases  it  is  held  that  such  a  note  is  non- 
negotiable:  Frahck  v.  Norton,  2  Mich.  130, 
55  Am.  Dec.  56.  Story  v.  Lamb,  52  Mich. 
525,  18  N.  W.  248.  Way  v.  Smith,  111 
Mass.  523.  National  Bank  of  Commerce  v. 
Feeney,  9  S.  D.  550,  70  N.  W.  874,  46  L.  R. 
A.  732.  Farmers'  Loan  &  Trust  Co.  v. 
McCoy  &  Spivey  Bros.,  32  Okla.  277,  122 
Pac.  125,  40  L.  R.  A.  (N.  S.)  177."  After 
discussing  these  cases  the  court  continues: 
"The  doctrine  thus  stated  is  in  conflict  with 
some  of  the  Nebraska  decisions  and  with  the 
Negotiable  Instruments  Law.  Kirkwood  v. 
First  Nat.  Bank,  40  Neb.  484,  58  N.  W. 
1016,  24  L.  R.  A.  444,  42  Am.  St.  Rep.  683. 
Stark  V.  Olsen,  44  Neb.  646,  63  N.  S.  37. 
Fisher  v.  O'Hanlon,  93  Neb.  529,  141  N.  W. 
157.  Rev.  St.  1913,  Sees.  5320,  5322." 
The  court  also  cites  support  of  its  decision 
Loring  v.  Anderson,  95  Minn.  101,  103  N. 
W.  722.  Harrison  v.  Hunter  (Tex.  Civ. 
App.)  168  S.  W.  1036. 

The  better  opinion  is  that  the  clause  in 
question  does  not  render  the  instrmnent 
indefinite  as  to  amount  or  time  of  payment 
and  hence  does  not  affect  its  negotiability. 
{Inquiry  from  N.  Y.,  Jan.,  1918.) 

"5  per  cent,  discount  will  be  allowed  if  this 

acceptance  is  taken  up  within  30  days 

from  date" 

145.  A  business  house  uses  the  regular 
form  of  trade  acceptance  and  prints  on 
the  face  of  the  acceptance  the  following 
words:  "5  per  cent,  discount  will  be  allowed 
if  this  acceptance  is  taken  up  within  thirty 
days  from  date."  The  business  house  holds 
the  acceptance  until  the  thirty-day  period 
has  expired.  If  the  buyer  sends  them 
the  money  they  allow  him  5  per  cent,  dis- 
count, cancel  the  trade  acceptance  and  re- 


turn it  to  him.  If  he  does  not  pay  in  thirty 
days,  they  offer  the  trade  acceptance  to  the 
bank  for  discount.  At  the  time  the  accept- 
ance is  thus  offered,  the  discount  clause 
means  nothing,  for  the  discount  period  has 
expired.  The  bank,  however,  desires  to  be 
sure  that  the  negotiability  of  the  acceptance 
has  not  been  destroyed  by  the  added  words. 
Opinion:  A  Minnesota  case  holds  that  a 
provision  of  this  character  does  not  affect 
negotiability,  it  being  stated  that  it  did  not 
make  the  instrument  uncertain  as  to 
amount.  On  the  other  hand,  a  decision  in 
North  Dakota  holds  that  such  a  provision 
renders  an  instrument  non-negotiable.  Al- 
though the  courts  take  different  views  on  the 
proposition,  the  Minnesota  court  seems  to 
hold  the  better  view.  Loring  v.  Anderson, 
95  Minn.  101.  Nat.  Bk.  of  Com.  v.  Feeney, 
12  N.  Dak.  156.  {Inquiry  from  Minn., 
July,  1918,  Jl.) 

Addition  of  phrase  "maturity  being  in  con- 
formity with  original  terms  of  purchase" 

146.  A  question  arises  as  to  the  ad- 
visabiHty  of  adding  to  the  body  of  trade 
acceptances  after  the  words  "The  obhgation 
of  the  acceptor  arises  out  of  the  purchase 
of  goods  from  the  drawer"  the  following 
"maturity  being  in  conformity  with  original 
terms  of  purchase."  Opinion:  The  addition 
of  the  phrase  suggested  will  not  affect  the 
negotiability  of  the  instrument.  The  ad- 
visability of  such  addition  is  a  matter  for 
business  men  who  deal  in  trade  acceptances. 
It  is  probably  designed  to  indicate  that  the 
instrument  is  not  drawn  for  a  long-out- 
standing debt  for  purchased  goods.  {In- 
quiry from  N.  Y.,  Sept.,  1919.) 

Addition  of  words   "with  Chicago  or    New 
York  exchange" 

147.  A  firm  in  Chicago  has  prepared 
a  form  of  trade  acceptance,  using  the 
standard  form,  but  changing  it  to  read:  "Ac- 
cepted (date.)  Payable  at  (designated  bank 
or  trust  company)  with  Chicago  or  New 
York  exchange."  A  bank  desires  to  know 
whether  the  addition  of  the  words  "with  Chi- 
cago or  New  York  exchange"  will  destroy 
the  negotiability  of  the  acceptance.  Opin- 
ion: The  insertion  of  the  words  will  not  affect 
negotiability.  The  Negotiable  Instruments 
Act  expressly  provides:  "Sec.  2.  The  sum 
payable  is  a  sum  certain  within  the  meaning 
of  the  act,  although  it  is  to  be  paid  x  x  x 
4,  with  exchange,  whether  at  a  fixed  rate  or 
at  the  current  rate  x  x  x  ."  {Inquiry 
from  III.,  July,  1918,  Jl.) 


29 


148-153] 


DIGEST  OF  LEGAL  OPINIONS 


Insertion  of  waiver  of  exemption  and  attorney's 
fee  clauses  does  not  affect  negotiability 

148.  Is  there  any  reason  whj'-  the  usual 
waiver  of  homestead  exemption,  as  well 
as  provision  for  attorney's  fees,  should  not 
be  placed  on  trade  acceptances?  Opin- 
ion: The  clauses  waiving  homestead  ex- 
emption and  agreeing  to  pay  costs  of  collec- 
tion, including  attorney's  fees,  in  case  the 
instrument  is  not  paid  at  maturity  would  not 
affect  the  negotiability  of  a  trade  acceptance 
any  more  than  that  of  a  promissory  note. 
While  their  inclusion  is  perfectly  legal,  the 
advisabihty  of  such  use  is  a  question  for 
those  dealing  in  trade  acceptances.  {In- 
quiry from  Va.,  July,  1919.) 

Provision    for    costs    of    collection 

149.  Does  a  provision  in  a  trade  accept- 
ance for  the  pajTnent  of  costs  of  collection 
in  case  pajonent  shall  not  be  made  at 
maturity  affect  its  negotiability?  Opinion: 
Negotiability  is  not  affected.  Neg.  Inst. 
{Inquiry  from  N.Y.,  June,  1918.) 

Provision  for  payment  of  interest  after 
maturity 

150.  Does  a  provision  for  the  pay- 
ment of  interest  after  maturity  affect  the 
negotiability  of  a  trade  acceptance? 
Opinion:  Negotiability  is  not  affected. 
Merril  v.  Hurley,  62  N.  W.  (S.  D.)  598. 
Towne  v.  Rice,  122  Mass.  67.  Kirkwood  v. 
First  Nat.  Bank,  40  Neb.  484.  {Inquiry 
from  N.  Y.,  June,  1918.) 

Effect  of  interest  clause 

151.  May  a  trade  acceptance  be  drawn 
so  as  to  carry  interest.  Opinion:  The  pro- 
vision for  the  payment  of  interest  will  not 
nulHfy  a  trade  acceptance  nor  affect  its 
negotiabihty.  The  Negotiable  Instruments 
Act  expressly  provides  that  the  sum  pay- 
able is  a  sum  certain  within  the  meaning  of 
the  act,  although  it  is  to  be  paid  with 
interest.     {Inquiry  from  Wis.,  Aug.,  1919.) 

Provision  that  title  to  goods  remain  in  the 
seller  until  instrument  paid 

152.  Does  a  provision  in  a  trade  accept- 
ance that  the  title  to  the  goods  shall 
remain  in  the  seller  until  the  instrument  is 
paid  affect  its  negotiabihty?  Opinion:  Ne- 
gotiabihty is  not  affected.  Chicago  Railway 
Equipment  Co.   v.   Merchants  Nat.  Bank, 


136  U.  S.  268.  Mott  v.  Havana  Nat.  Bank, 
22  Hun  (N.  Y.)  354.  {Inquiry  from  N.  ¥., 
June,  1918.) 

^''Per  invoice   of   as  affecting  negotiability 

153.  May  a  trade  acceptance  form 
include  the  phrase  "per  invoice  of"  with- 
out affecting  its  negotiability?  Opinion: 
One  of  the  requisites  of  negotiability  is  that 
the  order  or  promise  to  pay  must  be  un- 
conditional. The  Negotiable  Instruments 
Act  provides:  "An  unquahfied  order  or 
promise  to  pay  is  unconditional  within  the 
meaning  of  this  act,  though  coupled  with: 
1.  An  indication  of  a  particular  fund  out 
of  which  reimbursement  is  to  be  made,  or  a 
particular  account  to  be  debited  with  the 
amount;  or  2.  A  statement  of  the  transac- 
tion which  gives  rise  to  the  instrument." 
Newberry  v.  Wentworth,  218  Mass.  30, 
holds  that  the  words  "as  per  terms  of  con- 
tract" added  to  a  note  do  not  destroy  its 
negotiabihty.  Also  in  Waterbury-Wallace 
Co.  y.  Ivey,  163  N.  Y.  Tupp  719,  a  note 
promised  to  pay  the  amount  and  interest 
"as  per  contract"  and  the  maker  contended 
that  the  reference  to  the  contract  must  be 
construed  as  a  promise  to  pay  in  accordance 
with  the  terms  of  that  contract,  which  by 
reference  to  it  is  made  part  of  the  note, 
and  that  the  contract  showed  that  the  note 
was  to  be  paid  on  a  condition;  but  the  court 
held  that  in  determining  whether  the  refer- 
ence to  the  contract  destroyed  negotiability 
of  the  note,  examination  would  be  confined 
to  the  note  itself;  that  it  was  a  mere  reference 
to  the  transaction  out  of  which  the  note 
grew,  and  the  note  was  negotiable.  The 
case  would  be  different,  the  court  said,  if  the 
language  was  "subject  to"  the  contract. 
In  Snelhng  State  Bank  v.  Clasen,  157  N.  W. 
(Minn.)  643,  the  words  "as  per  contract," 
written  over  an  indorser's  signature,  were  held 
not  to  affect  negotiability  but,  the  court  said, 
"the  purchaser  cannot  overlook  them  and 
then  claim  that  he  had  no  notice  of  what  an 
observance  of  them  and  fair  inquiry  would 
disclose."  If  such  words  put  the  purchaser 
on  inquiry,  the  instrument  cannot  be 
deemed  fully  negotiable.  In  Lowery  v. 
Steward,  25  N.  Y.  239  a  draft  ordered  pay- 
ment "on  a/c  24  bales  of  cotton  shipped  to 
you  as  per  bill  of  lading  by  steamer  Colorado 
enclosed  to  you  in  letter."  It  was  held  to  be 
non-negotiable.  While  the  words  "per 
invoice  of  "  would  be  held  by  the  majority 
of  courts  not  to  affect  negotiabihty  but 
simply  a  statement  of  the  transaction  giving 
rise  to  the  instrument,  there  is  sufficient 


80 


ACCEPTANCES— TRADE 


154-159] 


possibility  that  such  words  might,  by  some 
courts,  be  construed  as  making  the  invoice 
part  of  the  draft  and  the  promise  to  pay 
only  in  accordance  with  the  terms  thereof, 
so  as  to  destroy  negotiabihty.  It  would  be 
better,  therefore,  to  use  some  such  phrase  as 

"in   payment   of  invoice   No "    which 

would  clearly  indicate  simply  a  statement 
of  the  transaction  which  gave  rise  to  the 
instrument.  {Inquiry  from  Mass.,  March, 
1918.) 

"In  settlement  of  invoice  No. " 


154-  What  form  may  be  used  in  a  trade 
acceptance  to  indicate  that  the  acceptance 
covers  a  particular  invoice  or  invoices  with- 
out qualifying  the  acceptance?  Opinion: 
The  phase  "in  settlement  of  invoice  num- 
ber  "  will  not  affect  negotiability  and 

sufficiently  identifies  the  invoice  for  which 
payment  is  made.  {Inquiry  from  N.  Y., 
Jan.,  1918.) 


Negotiability    as    dependent    on   fulfillment 
of  contract  of  sale 

157.  Does  the  failure  of  the  seller 
(drawer)  to  fulfill  his  contract  with  the 
acceptor  destroy  its  negotiability?  Opin- 
ion: Failure  of  the  drawer  to  fulfill  his  con- 
tract does  not  destroy  the  negotiability  of  a 
trade  acceptance.  {Inquiry  from  N .  Y ., 
March,  1920.) 

158.  Does  not  the  holder  of  trade 
acceptance  paper  take  the  same  with  notice 
that  its  negotiability  is  contingent  upon 
the  consummation  of  the  contract  be- 
tween the  drawer  and  the  acceptor? 
Opinion:  No  such  notice  is  imputed  to  the 
holder.  If  there  is  anything  in  the  accept- 
ance which  would  make  its  payment  con- 
ditional, then  it  would  be  non-negotiable; 
but  in  the  standard  form  of  trade  acceptance 
there  is  nothing  conditional  in  the  order  or 
in  the  promise  of  the  acceptor.  {Inquiry 
from  N.  Y.,  March,  1920.) 


Insertion  of  invoice  number 

155.  Does  the  placing  of  an  invoice  num- 
ber on  a  trade  acceptance  render  it  any  the 
less  eligible  for  discount?  Opinion:  Care 
must  be  taken  that  nothing  is  put  in  the 
draft  which  effects  its  negotiability.  If  a 
clause  referring  to  an  invoice  was  put  on 
a  draft  in  such  form  as  to  indicate  that  the 
draft  was  payable  only  out  of  the  pro- 
ceeds of  the  invoice  or  that  the  order  or 
promise  to  pay  was  subject  to  the  invoices 
this  would  destroy  its  negotiability.  The 
invoice  clause  can  be  so  worded  that  it  will 
not  affect  negotiabihty.     For  example  "In 

payment   of   invoice   number ."  If 

the  invoice  number,  without  more,  is  placed 
on  the  draft,  this  would  doubtless  be  con- 
strued simply  as  an  indication  of  the  trans- 
action which  gave  rise  to  the  instrument  and 
would  not  affect  negotiabihty.  {Inquiry 
from  N.  Y.,  Dec.  1917.) 

Marginal  statement  of  consideration  does  not 
affect  negotiability 

156.  Underneath  a  trade  acceptance,  on 
the  bottom  margin,  are  the  words:  "100 
Ex  Adams  pep  50  50.00"  designed 
to  show  the  exact  invoice  for  which  the 
acceptance  is  given.  Does  this  affect  nego- 
tiability? Opinion:  Negotiabihty  is  not 
affected.  At  most  the  marginal  notation  in- 
dicates a  statement  of  the  consideration. 
{Inquiry  from  N.  Y.,  Jan.,  1918.) 


Negotiation 

Negotiation  of  trade  acceptance  by  acceptor 

159.  The  ordinary  course  of  a  trade 
acceptance  is  to  have  it  accepted  by  the 
buyer,  returned,  and  if  negotiated  at  all 
subsequently,  such  negotiation  would  be  by 
the  seller  or  drawer.  Is  there  any  reason  in 
law  or  in  the  rulings  of  the  Federal  Reserve 
Board  which  would  prohibit  an  arrange- 
ment by  which  the  drawer  would  draw  and 
the  acceptor  would  accept  and  the  acceptor 
would  negotiate  the  bill  himself  and  pay 
cash  to  the  drawer  but  leave  the  drawer 
contingently  liable  upon  the  acceptance 
created?  Opinion:  A  trade  acceptance  has 
been  defined  by  the  Federal  Reserve  Board 
as  a  draft  or  bill  of  exchange  drawn  by  the 
seller  on  the  purchaser  of  goods  sold  and 
accepted  by  such  purchaser.  Where  the  bill 
is  drawn  for  goods  sold  and  accepted  by  the 
purchaser  so  as  to  constitute  a  trade  accept- 
ance and  is  made  payable  to  the  drawer,  it 
requires  his  indorsement  to  be  further  nego- 
tiated. But  assuming  it  is  indorsed  by  the 
payee  there  is  no  apparent  reason  why  it 
would  not  be  legal  for  the  acceptor  to  ne- 
gotiate the  acceptance.  There  must,  of 
course,  be  "dehvery"  of  a  negotiable  instru- 
ment, but  it  would  seem  that  where  the 
acceptor  receives  the  bill  drawn  and  indorsed 
by  the  seller  and  places  thereupon  his 
acceptance,  there  may  be  constructive 
dehvery  without  the  return  of  the  paper  to 
the  payee  so  that  the  acceptor  would  vir- 


31 


160-162] 


DIGEST  OF  LEGAL  OPINIONS 


tually  hold  the  instrument  as  by  re-delivery 
from  the  payee;  and  if  this  be  so,  it  would 
seem  that  the  acceptance  can  be  negotiated 
by  the  acceptor,  the  drawer  remaining  con- 
tingently Uable.  In  the  hands  of  a  holder, 
in  due  course  a  vaHd  delivery  is  conclusively 
presumed. 

There  is  a  possibiUty  that  the  Federal 
Reserve  Board  might  raise  some  objection 
to  the  practice  in  the  event  it  was  sought  to 
rediscount  such  paper.  {Inquiry  from  N .  Y ., 
Jan.,  1919.) 

Ten  per  cent,  loan  limit 

160.  Section  5200  of  the  United  States 
Revised  Statutes  Hmits  the  total  liabil- 
ity to  any  national  bank  of  any  one 
person,  etc.,  for  money  borrowed  to  one- 
tenth  of  the  unimpaired  capital  and  surplus, 
the  total  not  to  exceed  thirty  per  cent,  of  the 
capital,  but  provides  that  "the  discount  of 
bills  of  exchange  drawn  in  good  faith 
against  actually  existing  values,  ....  shall 
not  be  considered  as  money  borrowed." 
Section  13  of  the  Federal  Reserve  Act, 
authorizing  Federal  Reserve  banks  to  dis- 
count, for  member  banks,  notes,  drafts  and 
bills  of  exchange  arising  out  of  actual  com- 
mercial transactions,  provides  that  "the 
aggregate  of  such  notes,  drafts  and  bills 
bearing  the  signature  or  indorsement  of  any 
one  borrower.  . .  . rediscounted  for  any  one 
bank  shall  at  no  time  exceed  ten  per  centum 
of  the  unimpaired  capital  and  surplus  of 
said  bank;  but  this  restriction  shall  not  apply 
to  the  discount  of  bills  of  exchange  drawn  in 
good  faith  against  actually  existing  values." 
Section  9  of  the  Federal  Reserve  Act  con- 
tains a  similar  provision  with  respect  to  the 
rediscounting  of  paper  discounted  with  state 
banks  and  trust  companies,  members  of 
the  federal  reserve  system.  Are  trade  accept- 
ances to  be  included  in  determining  the  ten 
per  cent,  limitations?  Opinion:  Trade 
acceptances  are  bills  of  exchange  drawn  in 
good  faith  against  actually  existing  values, 
accepted  by  the  buyer  of  goods,  and  are  not 
within  the  ten  per  cent,  limitation.  See 
opinion  of  Counsel  of  Federal  Reserve 
Board,  November,  27,  1916.  {Inquiry  from 
N.  Y.,  April,  1918.) 

Discount    of  fraudulent    trade    acceptance 
— Criminal  liability 

161.  A  trade  acceptance  was  presented 
to  a  bank  for  discount,  the  drawer  rep- 
resenting that  it  was  for  a  merchandise 
transaction.    This  trade  acceptance  proved 


to  have  been  given  in  exchange  to  the  drawee 
for  another  one  of  like  amount.  Rather  it 
was  a  plain  case  of  kiting.  Has  there  been 
a  crime  committed?  Opinion:  It  seems 
that  the  person  negotiating  the  trade  accept- 
ance obtained  money  under  false  pretenses 
and  is  therefore  punishable  under  the  Ohio 
statute  (Sec.  7076  Ohio  Rev.  St.  1898).  The 
drawer  represented  that  the  trade  accept- 
ance was  based  upon  a  merchandise  trans- 
action, when  it  was  not  (the  false  pretense) , 
thereby  inducing  the  bank  to  discount  the 
paper,  which  it  would  have  declined  to  do 
had  it  been  apprised  of  the  true  nature  of  the 
transaction.  It  would  seem  that  all  the 
constituent  elements  of  the  statutory  crime 
are  present:  namely,  the  intent  to  defraud, 
actual  fraud,  false  pretenses  used  to  per- 
petrate the  fraud,  and  the  fraud  accom- 
plished by  means  of  the  false  pretenses  used 
for  the  purpose.  See  Winnett  v.  State,  18 
Ohio  Cir.  Ct.  515,  enumerating  these  con- 
stituent elements  of  the  statutory  offense. 
See  also,  In  re  Fitzpatrick,  21  Ohio  Cir.  Ct. 
519.    {Inquiry  from  Ohio,  Nov.,  1920.) 

Trade    acceptance    discounted  for    acceptor 
(buyer) 

162.  The  seller  and  the  buyer  of  goods 
arrange  that  the  buyer  shall  have  the 
acceptance  discounted  with  his  own  local 
bank.  In  such  a  case  should  the  seller  draw 
the  bill  to  his  own  order  and  send  it  indorsed 
with  the  invoice  to  the  buyer,  who  would 
then  accept  it  and  present  it  for  discount? 
If  the  seller  should  draw  the  bill  to  the  order 
of  the  local  bank  and  send  it  to  the  buyer 
with  the  invoice,  the  buyer  accepting  same 
on  receipt  and  presenting  it  for  discount, 
would  the  seller  be  responsible  on  the  bill, 
being  drawer,  in  the  event  of  the  acceptor's 
not  paying  same?  Opinion:  In  the  case 
suggested  presumably  the  proceeds  of  dis- 
count would  be  forwarded  by  buyer  to  seller, 
otherwise  the  buyer  would  not  only  get  the 
goods  but  also  the  trade  acceptance,  upon 
which  to  obtain  the  money  from  his  local 
bank.  The  trade  acceptance  could  either  be 
drawn  by  the  seller  to  his  own  order  and 
indorsed  in  blank  by  him,  or  it  could  be 
drawn  to  the  order  of  the  local  bank  and 
forwarded  to  the  buyer  with  the  invoice. 
Upon  acceptance  and  discount  by  the  local 
bank  for  the  buyer,  the  drawer  would  be 
liable,  in  either  case,  to  the  local  bank  should 
the  acceptor  fail  to  pay  the  acceptance  at 
maturity.  {Inquiry  from  Mass.,  March, 
1918.) 


32 


ACCEPTANCES— TRADE 


[163-168 


Rights  of  holder 

163.  What  defenses  are  open  to  an 
acceptor  of  a  trade  acceptance  as  against 
an  innocent  purchaser  for  value  before 
maturity?  Opinion:  Such  a  purchaser  is 
technically  termed  in  the  Negotiable  In- 
struments Act,  a  holder  in  due  course. 
The  Art  provides  that  "a  holder  in  due 
course  holds  the  instrument  free  from  any 
defect  of  title  of  prior  parties,  and  free  from 
defenses  available  to  prior  parties  among 
themselves,  and  may  enforce  payment  of  the 
instrument  for  the  full  amount  thereof 
against  all  parties  Uable  thereon."  Tliis  pro- 
vision applies  to  the  holder  in  due  course  of 
a  negotiable  trade  acceptance.  The  lia- 
bihty  of  the  acceptor  is  virtually  the  same  as 
that  of  the  maker  of  a  promissory  note.  The 
acceptor  cannot  interpose  a  defense  against 
a  holder  in  due  course  which  he  may  have 
against  the  drawer.  {Inquiry  from  N.  Y., 
Sept.,  1919.) 

164.  Is  a  trade  acceptance  a  negotia- 
ble instrument?  Does  a  holder  in  due 
course  take  free  from  defenses  as  against 
the  seller?  Opinion:  There  is  no  question 
but  that  the  ordinary  form  of  trade  accept- 
ance is  a  negotiable  instrument  and  in  the 
hands  of  a  holder  in  due  course  is  enforceable 
against  the  acceptor,  free  from  any  defense, 
because  of  fraud,  defect  of  goods,  etc.  {In- 
quiry from  N.  F.,  Sept.,  1919.) 

165.  Is  a  bank,  or  other  holder,  that 
purchases  trade  acceptance  paper  from  the 
drawer  an  innocent  holder  in  the  sense 
in  which  that  term  is  used  in  ordinary  bills 
of  exchange?  Opinion:  The  purchaser  of 
a  negotiable  trade  acceptance  is  a  holder  in 
due  course  the  same  as  in  the  case  of  or- 
dinary bills  of  exchange.  {Inquiry  from  N. 
Y.,  March,  1920.) 

Effect   on    mechanic's   lien   rights 

166.  A  material  man  who  has  taken 
a  trade  acceptance  from  a  contractor  and 
negotiated  it  at  a  bank,  finds  that  he 
ought  to  enforce  the  lien  right  in  order  to 
protect  himself  against  loss.  May  he  enforce 
his  lien  immediately  by  repurchasing  the 
acceptance  and  offering  to  return  it  to  the 
contractor?  Opinion:  Where  the  material 
man  repurchases  the  acceptance  he  has  the 
right  to  enforce  the  mechanic's  lien  but  this 
right  is  suspended  until  maturity  of  the 
acceptance  unless,  of  course,  there  was  fraud 
in  the  transaction  which  might  give  him  the 
right  to  annul  the  contract  of  acceptance 
and  proceed  immediately.     However,   the 


material  man  can  perfect  his  hen  before 
maturity.  That  is  to  say,  he  can  file  a 
mechanic's  hen  but  the  beginning  of  suit  to 
enforce  the  lien  is  suspended  until  the 
acceptance  is  due.  {Inquiry  from  III.,  Jan., 
1918.) 

167.  The  question  has  arisen  as  to 
the  status  of  the  material  man  who  takes 
a  trade  acceptance  to  cover  shipment  made 
to  a  contractor  for  use  in  construction 
work.  Does  he  thereby  lose  any  mechanic's 
hen  right  which  he  would  have  had  under  the 
open  book  account  system?  Does  he  be- 
come a  money  creditor  in  place  of  a  creditor 
for  material?  Opinion:  The  material  man 
who  takes  a  trade  acceptance  for  material 
supplied  does  not  thereby  lose  mechanic's 
lien  right  which  he  otherwise  might  have. 
The  right  to  enforce  the  Hen  would,  however, 
be  suspended  until  maturity  of  the  accept- 
ance and  a  pre-requisite  to  such  right  of 
enforcement  would  be  a  tender  of  the  return 
of  the  trade  acceptance  as  a  condition 
precedent.  If  he  has  negotiated  same  and 
cannot  return  it,  the  mechanic's  lien  right 
would  not  be  enforceable.  Hines  v.  Chicago 
Bldg.,  etc.,  Co.,  115  Ala.  637.  Eddy  v. 
Loyd,  90  Ark.  340.  Waterbury  Lumber, 
etc.,  Co.,  87  Conn.  316.  Behnont  Farm  v. 
Dobbs  Hardware  Co.,  124  Ga.  827.  Ed- 
wards V.  Derrickson,  28  N.  J.  L.  39.  Dono- 
van V.  Frazier,  44  N.  Y.  S.  533.  American 
Car  &  Foundry  Co.  v.  Alexandria  Water  Co., 
221  Pa.  529.  Doane  v.  Chnton,  2  Utah  417. 
Meek  v.  Parker,  63  Ark.  367.  Lentz  v. 
Eimermann,  119  Wis.  492.  {Inquiry  from 
N.  Y.,  Feb.,  1918,  Jl.) 

Seller's  right  of  replevin 

168.  The  seller  of  goods  receiving  a 
trade  acceptance  asks  if  he  is  in  any  worse 
position  so  far  as  his  right  of  replevin 
goes  than  the  seller  of  goods  who  simply 
charges  the  purchase  price  to  the  purchaser 
on  an  open  account.  Opinion:  In  any  case 
where  goods  have  been  sold  and  dehvered, 
and  an  action  of  replevin  would  he  on  behalf 
of  the  seller  because  of  some  breach  of  con- 
tract or  fraud  entitling  him  to  annul  the  con- 
tract and  seize  the  goods  as  still  his  property, 
the  only  difference  between  the  position  of 
the  seller  who  takes  a  trade  acceptance  and 
one  who  has  charged  the  amount  in  open  ac- 
count, would  seem  to  be  this:  In  an  action  of 
replevin  where  a  trade  acceptance  has  been 
taken  and  the  seller  seeks  to  rescind  the  con- 
tract, a  prerequisite  would  be  a  tender  of  the 
return  of  the  instrument  as  a  condition  pre- 
cedent to  the  right  of  recovery.    Implement 


33 


169-173] 


DIGEST  OF  LEGAL  OPINIONS 


Co.  V.  Ellis,  125  Mo.  App.  692.     {Inquiry 
from  N.  Y.,  Dec,  1917,  Jl.) 

Suit  on  original  indebtedness  where  acceptance 
not  paid 

169.  Where  an  acceptance  is  not  paid 
at  maturity  may  a  suit  be  brought  on 
the  original  indebtedness?  Opinion:  The 
general  rule,  recognized  by  the  majority  of 
the  authorities,  is  that  where  privity  of  con- 
tract exists,  the  holder  of  a  note  may  waive 
his  right  to  proceed  thereon  and  declare  for 
the  original  consideration.  In  the  absence 
of  a  contrary  agreement,  the  common  law 
rule  of  England,  adopted  in  most  of  the 
states,  is  that  a  draft,  acceptance,  or  note  of 
the  debtor  is  not  a  pajTnent  or  an  extinguish- 
ment of  the  original  demand.  Matteson  v. 
Ellsworth,  33  Wis.  488.  Dougal  v.  Cowles, 
5  Day  (Conn.)  511.  Stewart  Paper  Mfg.  Co. 
v.  Rau,  92  Ga.  511.  Under  these  authori- 
ties, if  an  acceptance  is  not  paid,  the  original 
creditor  may,  if  he  still  holds  the  paper,  sue 
on  the  original  indebtedness. 

But  in  two  or  three  states  including 
Indiana,  the  taking  of  a  bill  or  note  by  the 
creditor  for  an  existing  debt  is  a  pajonent  of 
the  debt  unless  it  is  otherwise  agreed,  and 
the  burden  of  proving  such  an  agreement  is 
on  the  creditor.  Roberts  v.  Vonnegut,  104 
N.  E.  (Ind.)  321.  Knight  v.  Kerfoot,  102 
N.  E.  (Ind.)  983.  Under  the  Indiana  rule, 
suit  would  have  to  be  brought  on  the  accept- 
ance, rather  than  upon  the  open  account  or 
the  original  indebtedness.  (Inquiry  from 
Ind.,  July,  1918.) 

Effect  on  original  contract 

170.  May  a  trade  acceptance  be  con- 
sidered a  definite  settlement  of  account 
or  is  it  merely  an  evidence  of  indebted- 
ness that  does  not  change  special  clauses  in 
contracts  pertaining  to  the  retention  of  title 
until  paid,  etc.?  Opinion:  The  majority 
rule  is  that  the  taking  of  a  draft,  note,  or 
acceptance  of  a  debtor  is  not  an  absolute 
payment  or  extinguislmient  of  the  original 
demand,  but  only  conditional  payment,  in 
the  absence  of  an  agreement  between  the 
parties  that  it  is  to  be  received  as  absolute 
payment.  The  minority  rule  is  that  it 
constitutes  an  absolute  pajTiient  unless 
otherwise  agreed  between  the  parties,  with 
the  burden  of  proving  such  an  agreement 
upon  the  creditor.  Where  a  bill  or  note 
has  not  been  accepted  as  absolute  payment 
the  fact  that  the  creditor  has  transferred  it 
to  a  third  person  does  not,  of  itself,  bar  an 
action  upon   the  original  indebtedness   or 


show  that  the  paper  was  accepted  as  abso- 
lute payment  unless  the  bill  or  note  is  out- 
standing in  the  hands  of  a  third  person  at  the 
time  the  action  on  the  original  indebtedness 
is  commenced.  Applying  these  rules  to  the 
question  stated  a  contract  that  title  shall 
remain  in  the  seller  until  the  acceptance  be 
paid,  is  evidence  that  the  trade  acceptance 
was  not  received  as  absolute  pa5Tnent,  and 
if  not  paid  the  seller  would  have  his  enforce- 
able rights  on  the  original  indebtedness, 
assuming  that  at  the  time  action  was  com- 
menced the  instrument  was  in  his  possession. 
{Inquiry  from  N.  Y.,  June,  1918.) 

Liability  of  parties 

Liability  of  drawer 

171.  What  is  the  Uabihty  of  the  drawer 

of  a  trade  acceptance  which  is  drawn  ''to 
the  order  of  ourselves"  and  indorsed  by 
such  drawer?  Opinion:  The  drawer  is 
liable  both  as  drawer  and  indorser  in  the 
event  of  non-pa3aiient  of  the  acceptance; 
that  is  to  say,  his  contract  is  that  he  will 
himseK  pay  the  amount  if  due  demand  be 
made  at  maturity  and  the  necessary  steps  be 
taken  to  preserve  his  liability  where  pay- 
ment is  refused,  i.e.,  protest  and  notice. 
Protest,  as  distinguished  from  notice  of  dis- 
honor would  not  be  requisite,  although 
customary,  unless  the  instrument  was  a 
foreign  bill  of  exchange.  {Inquiry  from  S. 
C,  Aug.,  1919.) 

172.  Where  a  trade  acceptance  is  signed 
before  dehvery  of  the  goods,  has  the  ac- 
ceptor a  legal  defense  for  such  causes  as  mis- 
representation, failure  of  consideration,  etc.? 
Opinion:  Such  defenses  are  available  as 
against  the  drawer,  but  not  as  against  an 
innocent  purchaser  before  maturity.  {In- 
quiry from  N.  Y.,  Sept.,  1918.) 

Liability  of  Acceptor — Defense  that  goods  not 

delivered 

173.  A  person  giving  an  order  for  ma- 
chinery pays  in  advance  by  means  of 
a  trade  acceptance.  Is  such  acceptor  in  case 
the  contract  is  not  fulfilled  liable  to  a  pur- 
chaser (1)  who  had  knowledge  of  the  facts 
but  who  bought  before  any  breach  of  the 
contract,  or  to  one  (2)  who  had  no  knowl- 
edge of  the  facts?  Opinion:  An  executory 
agreement,  such  as  an  agreement  to  sell 
goods  is  a  sufficient  consideration  to  support 
the  promise  to  pay  negotiable  paper  and  it 
is  generally  held  that  a  person  who  acquires 
such  paper  with  knowledge  that  it  is  based 
on  an  executory  consideration  but  without 


34 


ACCEPTANCES— TRADE 


[174-178 


knowledge  of  the  breach  of  the  executory 
agreement  acquires  an  enforceable  title  as  a 
holder  in  due  course.  But  if  at  the  time  he 
acquires  it  he  has  knowledge  of  such  breach, 
it  is  subject  to  such  defense  in  his  hands.  In 
the  case  stated  (1)  the  purchaser  for  value 
with  knowledge  that  it  was  based  on  an 
executory  agreement  but  without  knowledge 
of  the  breach  thereof  could  enforce  payment 
from  the  acceptor  but  (2)  in  the  case  of  the 
purchaser  who  had  knowledge  at  the  time  of 
the  purchase  of  the  breach  of  contract  and 
that  the  goods  had  not  been  deUvered,  the 
acceptor  could  set  up  as  against  him  the 
defense  of  non-deUvery.  {Inquiry  from 
Iowa,  July,  1918.) 

Non-liahility  of  payor  hank  to  holder 

174.  What  rights  does  a  bank  hold- 
ing a  trade  acceptance  payable  at  an- 
other bank,  have  against  the  payor  bank, 
when  it  refuses  to  pay  on  date  of  maturity 
although  sufficient  funds  are  on  deposit,  and 
later,  through  the  insolvency  of  the  acceptor, 
the  bank  holding  the  acceptance  suffers  a 
loss  by  reason  of  the  bank  making  subse- 
quent payments  on  other  checks  or  accept- 
ances? Opinion:  An  acceptance  payable 
at  a  bank  is  similar  to  a  check  in  that  it  is  an 
order  on  the  bank  to  pay  the  same  for  the 
account  of  the  acceptor.  But  if  the  bank 
wrongfully  refuses  payment,  equally  as  in 
the  case  of  a  check,  the  holder  has  no  right 
of  action  against  the  bank  because  there  is 
no  privity  of  contract  between  the  two  and 
his  sole  recourse  is  against  the  acceptor  and 
prior  parties.  The  Negotiable  Instruments 
Act  expressly  provides  that  "A  check  of 
itself  does  not  operate  as  an  assignment  of 
any  part  of  the  funds  to  the  credit  of  the 
drawer,  with  the  bank,  and  the  bank  is  not 
liable  to  the  holder,  unless  and  until  it 
accepts  or  certifies  the  check."  {Inquiry 
from  Ohio,  April,  1919.) 

Non-liahility  of  payor  hank  to  indorsers 

175.  Does  the  failure  of  a  bank  to  charge 
a  trade  acceptance  presented  after  maturity 
to  the  account  of  the  acceptor  render  it 
Uable  to  the  indorsers  in  the  event  of  the 
failure  of  the  acceptor  to  pay  when  pre- 
sented at  his  office?  Opinion:  It  is  a 
condition  of  the  hability  of  indorsers  upon 
a  trade  acceptance  that  the  instrument  be 
duly  presented  at  maturity.  If  not  so  pre- 
sented they  are  discharged.  No  liability  in 
any  event  runs  from  bank  to  the  indorsers  of 
a  trade  acceptance  growing  out  of  its  refusal 
to  pay.     {Inquiry  from  N.  Y.,  Nov.  1913.) 


Presentment  and  collection  acceptor's  hank  as 
collecting  agent  for  holder 

176.  Where  an  acceptance  is  made  pay- 
able at  a  bank  on  a  certain  date  and 
sufficient  funds  are  on  deposit  to  meet 
the  said  acceptance  and  the  bank  does  not 
charge  the  acceptance  to  the  account  of  the 
acceptor,  and  then  the  acceptor  fails,  does 
the  holder  have  a  right  of  action  because  of 
the  negligence  of  the  said  bank  in  not  paying 
the  acceptance?  Opinion:  Where  the 
holder  forwards  the  paper  directly  to  the 
bank  at  which  it  is  made  payable  for  collec- 
tion, aside  from  the  duty  of  the  bank  to  the 
acceptor  to  pay  and  charge  up  the  accept- 
ance at  maturity  against  his  account,  such 
bank  would  owe  a  duty  as  collecting  agent 
of  the  holder  to  collect  the  acceptance  at 
maturity.  Under  the  facts  stated  the  bank 
would  probably  be  hable  for  neglect  of  duty 
to  the  holder  for  any  loss  resulting.  {Inquiry 
from  Ohio,  March,  1919.) 

Duty  of  collecting  hank  in  ohtaining  acceptance 

177.  What  is  the  habifity  of  a  col- 
lecting bank  in  surrendering  documents 
and  obtaining  the  signature  of  the  buyer  to 
a  trade  acceptance?  More  particularly 
what  is  the  hability  where  the  documents 
and  the  unsigned  acceptance  are  put  in 
through  a  window?  Opinion:  The  test  of 
the  liabihty  of  the  bank  is  whether  it  has 
used  due  care  under  the  circumstances.  Due 
care  is  measured  by  what  a  prudent  man 
would  do  with  his  own  property  under  like 
circumstances.  Where  the  drawee  has  a 
window  at  which  it  is  customary  for  drafts 
and  documents  to  be  presented  and  the 
person  in  charge  of  the  window  signs  the 
acceptance  in  the  name  of  the  drawee  and 
the  documents  are  surrendered,  due  care  is 
probably  exercised  even  though  the  agent 
is  unauthorized.  The  drawee  would  doubt- 
less be  held  hable  in  such  case  for  placing 
such  person  in  a  position  of  apparent  au- 
thority. Much,  of  course,  would  depend 
upon  the  precise  circumstances  surrounding 
the  transaction.  {Inquiry  from  N.  Y.,  April, 
1917.) 

Duty  of  collecting  hank  to  make  protest — 
Liahility 

178.  Bank  A  sends  a  trade  acceptance 
out  of  the  state  to  bank  B,  with  instruc- 
tions to  secure  acceptance  if  possil)le,  other- 
wise to  protest  the  item  if  not  paid  at 
maturit3\  Bank  B  failed  to  protest  at 
maturity,   but  shortly  after  sent   word  to 


35 


179-182] 


DIGEST  OF  LEGAL  OPINIONS 


bank  A  that  settlement  would  be  made  in  a 
few  days.  Bank  A  inquires  as  to  its  pro- 
cedure. Opinion:  A  trade  acceptance  is 
subject  to  protest  if  not  paid  at  maturity,  as 
is  also  an  unaccepted  draft,  and  it  was  the 
duty  of  bank  B  to  cause  protest  to  be  made 
pursuant  to  instructions,  and  failing  in  this 
duty  it  is  hable  for  the  resultant  damage,  if 
any.  If  the  acceptance  has  been  collected 
and  not  remitted  for,  or  there  has  been 
negUgence  in  failing  to  protest  same  for  non- 
payment, which  has  resulted  in  loss,  there 
would  be  a  right  of  action  by  bank  A  against 
bank  B,  and  this  would  seem  to  be  the 
correct  procedure.  (Inquiry  from  Wis.,  May, 
1920.) 

Payment  at  maturity 

Duty  of  payor  bank  to  charge  the  acceptor's 
account 

179.  The  question  has  arisen  whether, 
when  a  trade  acceptance  is  made  pay- 
able at  a  bank,  the  bank  has  the  right  to 
charge  the  amount  up  against  the  acceptor's 
account  upon  presentment  at  maturity, 
without  express  instructions  from  the  maker 
of  the  acceptance,  the  same  as  it  would 
charge  up  a  customer's  check  upon  pay- 
ment. Opinion:  Section  87  of  the  Negotia- 
ble Instruments  Act  provides:  "Where  the 
instrument  is  made  payable  at  a  bank,  it  is 
equivalent  to  an  order  to  the  bank  to  pay  the 
same  for  the  account  of  the  principal  debtor 
thereon."  Under  this  provision  the  bank 
would  not  only  be  authorized,  but  it  would 
be  its  duty,  where  the  acceptor's  funds  were 
sufficient,  to  pay  the  acceptance  upon  pre- 
sentment at  maturity  without  express  in- 
structions from  the  maker  to  that  end.  This 
provision  is  omitted  in  lUinois,  Nebraska 
and  South  Dakota  which  leaves  the  con- 
trary rule  to  operate;  in  Kansas,  the  section 
was  originally  enacted  but  was  repealed  by 
Chapter  94  Laws  1915;  in  Minnesota  the 
word  "not"  is  interpolated  so  that  the 
section  reads  "shall  not  be  equivalent,  etc."; 
and  therefore  in  these  states  some  express 
instructions  from  the  customer  would  be 
necessary  before  the  bank  could  pay  his 
acceptance,  unless  the  bank  itself  owned  the 
acceptance,  in  which  case  it  would  be  charge- 
able to  the  customer's  account  by  way  of 
set-off.  In  Missouri  the  section  stands  and 
the  bank  is  obhged  to  pay  but  its  authority 
is  Limited  to  the  date  of  maturity  only. 
Texas  passed  the  Negotiable  Instruments 
Act  with  Section  87  left  intact.  Georgia  is 
the  only  state  in  the  Union  which  has  not 
passed  the  act  and  it  remains  a  question 


there  whether  an  instrument  payable  at  a 
bank  is  equivalent  to  an  order  to  the  bank 
to  pay  the  same  for  the  account  of  the  princi- 
pal debtor  thereon.  Neg.  Inst.  Law 
(Commsr's  dft.)  Sec.  87.  Kan.  Laws  1915, 
Ch.  94.  See  10  A.B.A.Jl.  461.  It  then  ap- 
pears that  under  the  Negotiable  Instruments 
Law  a  bank  has  not  only  the  right,  but  is 
under  duty  when  in  sufficient  funds  to 
charge  the  acceptance  presented  at  maturity 
to  its  customer's  account  and  this  rule  will 
apply  in  every  state  except  as  limited  in 
those  states  above  enumerated.  (Inquiry 
from  III,  Neb.,  S.  D.,  Kan.,  Minn.,  Mo., 
Tex.,  Ga.,  July,  1919.) 

180.  Is  it  the  right  and  duty  of  a  bank 
at  which  a  trade  acceptance  is  payable 
to  pay  it  and  charge  it  to  the  customer's 
account  if  sufficient,  without  notice  to  him 
when  presented  at  maturity?  Opinion: 
Under  the  provision  of  the  Negotiable  In- 
struments Act  that  where  an  instrument 
is  made  payable  at  a  bank  it  is  equivalent 
to  an  order  to  the  bank  to  pay  the  same,  the 
bank  may  and  should  pay  a  trade  acceptance 
when  presented  at  maturit}^  without  specific 
instructions  from  the  acceptor.  (Inquiry 
from  Wash.,  May,  1918.) 

181.  A  trade  acceptance  on  which  there 
is  a  clause  reading  "Value  received  and 
charge  same  to  account  of  acceptor"  is 
made  payable  at  a  Texas  Bank.  May  the 
bank  refuse  to  pay  the  acceptance  in  the 
absence  of  any  definite  instruction  from  the 
acceptor?  Opinion:  The  Negotiable  In- 
struments law  is  not  in  force  in  Texas. 
(It  was  later  adopted).  The  decisions  un- 
der the  common  law  as  to  right  of  a  bank  to 
pay  paper  made  payable  at  the  bank  without 
express  instructions  from  the  customer  are 
in  conflict,  and  the  Texas  courts  do  not 
appear  to  have  passed  on  the  question. 
However,  the  clause  "value  received  and 
charge  same  to  account  of  acceptor"  should 
apparently  be  construed  as  an  express  in- 
struction to  the  bank  that  it  should  pay 
the  acceptance  without  looking  for  more 
specific  instructions.  (Inquiry  from  Texas., 
Aug.,  1918.) 

Note:  The  Negotiable  Instruments  law 
passed  in  Texas  in  March,  1919,  would  render 
an  express  instruction  unnecessary. 

Suggestions  as  to  amending  Neg.  Insts.  Act. 

182.  A  request  comes  from  Nebraska  as 
to  how  best  to  amend  the  law  so  as  to  pro- 
vide that  trade  acceptances  made  payable 
at  a  bank  by  the  acceptor  can  be  charged 


36 


ACCEPTANCES— TRADE 


[183-185 


direct  to  the  account  of  the  "acceptor"  by 
the  bank.  Opinion:  Section  87  of  the  Ne- 
gotiable Instruments  Act  provides:  "Where 
the  instrument  is  made  payable  at  a  bank 
it  is  equivalent  to  an  order  to  the  bank  to 
pay  the  same  for  the  account  of  the  prin- 
cipal debtor  thereon."  This  section  has 
been  omitted  in  the  Nebraska  statute.  The 
best  procedure  is  to  have  introduced  a  bill 
in  the  Nebraska  legislature  amending  the 
Negotiable  Instruments  Act  by  inserting 
the  section  above  quoted.  It  would  proper- 
ly fit  in  the  law  following  section  86  and 
should  probably  be  designated  as  section  86 
(a)  in  view  of  the  fact  that  section  87  of 
the  Nebraska  Negotiable  Instruments  Law 
is  section  88  of  the  Uniform  Law.  {Inquiry 
from  Neb.,  Sept.,  1918.) 

Acceptance  payable  at  bank — Form  of  direction 
to  bank  to  pay. 

183.  The  following  is  suggested  as  a  form 
of  direction  to  a  bank  to  pay  a  trade  accept- 
ance: "The  bank  named  herein  is  hereby 
directed  to  pay  this  item  at  maturity  with- 
out notice  or  further  instructions  from  the 
acceptor  and  is  authorized  to  charge  the 
acceptance  against  the  account  of  the  under- 
signed." Is  this  form  suitable?  Opinion: 
The  proposed  form  would  change  the  legal 
effect  in  those  states  which  have  modified 
Section  87  of  the  Negotiable  Instruments 
Act  and  would  render  it  obligatory  on  the 
acceptor's  bank  to  pay  the  acceptance  when 
presented  at  maturity.  No  legal  necessity 
for  the  use  of  such  a  form  exists  in  states 
wherein  Section  87  is  in  force  since  by  that 
section  the  making  of  an  instrument  pay- 
able at  a  bank  is  equivalent  to  an  order  to 
the  bank  to  pay,  but  the  form  may  serve  a 
useful  purpose  in  making  it  clear  to  payor 
banks  that  it  is  their  duty  to  pay.  {Inquiry 
from  N.  Y.,  Nov.,  1919.) 

184.  To  facilitate  the  prompt  handling 
of  trade  acceptances  the  suggestion  is  made 
that  acceptors  of  bills  of  exchange  should 
have  printed  on  such  bills  a  definite  author- 
ization and  direction  which  would  obviate 
the  necessity  of  banks  calling  up  their  cus- 
tomers to  get  specific  authorization  on  each 
bill  as  it  is  received.  The  proposed  form  is 
as  follows:  "Above  named  l)ank  is  hereby 
authorized  and  directed  to  pay  and  charge 
this  acceptance  to  the  account  of  the  under- 
signed upon  presentation  for  payment  at 
maturity  or  thereafter  without  further 
notice."  Is  this  proper  notice  and  is  there 
anything  in  it  to  conflict  with  the  Negotiable 
Instruments  Act   or  commercial   law? 


Opinion:  The  proposed  form,  over  the 
signature  of  the  acceptor,  would  afford 
authority  to  and  make  it  the  obligation  of 
the  bank  to  pay  the  acceptance  upon  pres- 
entation at  or  after  maturity.  In  most  of 
the  states  under  the  Negotiable  Instru- 
ments Act  the  bank  at  which  an  acceptance 
is  made  payable  is  not  only  authorized  but 
obliged  to  pay  and  charge  it  up  when  pre- 
sented at  maturity;  but  there  are  a  few 
states  where  this  is  not  so  and  express 
authorization  is  necessary;  and  furthermore 
where  the  acceptance  is  not  presented  until 
after  maturity  there  is  doubt  as  to  the  bank's 
authority  to  pay.  In  view  of  this,  the 
printing  of  the  proposed  provision  is  de- 
sirable and  it  cannot  be  seen  that  it  would 
in  any  way  affect  the  negotiabihty  of  the 
instrument.  {Inquiry  from  N.  Y .,  Aug., 
1919.) 

Liability  of  bank  to  holder  for  failure  to  pay 

customer's  acceptance  made  payable  at 

bank 

185.  A  trade  acceptance  is  presented 
through  a  clearing  house  on  the  day  of 
maturity  to  the  bank  at  which  it  is 
made  payable.  Although  the  Negotiable 
Instruments  Act  is  in  full  force  in  the  state 
the  bank  declines  to  pay  without  specific 
instructions  from  the  acceptor,  although  the 
funds  are  sufficient  to  make  the  payment. 
At  the  close  of  business  the  balance  has  been 
reduced  to  an  amount  insufficient  for  this 
purpose.  Can  the  bank  be  held  responsible 
for  not  having  charged  the  acceptance  to  the 
customer's  account  when  received  in  the 
morning  clearing?  Should  it  have  set  aside 
a  sufficient  amount  of  the  deposit  to  take 
care  of  the  acceptance  pending  instructions 
and  have  refused  payment  of  the  checks 
presented  later  in  the  day  rather  than  pay 
those  checks  and  protest  the  acceptance? 
Opinion:  While  the  bank  should  have 
charged  the  customer's  account  with  the 
amount  of  the  acceptance  in  regular  course 
and  refused  payment  of  the  checks,  later 
presented,  still  it  is  not  responsible  for  its 
failure  so  to  do  as  it  is  answerable  solely  to 
its  customer  for  dishonoring  his  paper  and 
injuring  his  credit  and  in  the  present  case 
the  dishonor  was  caused  by  the  customer 
himself  by  drawing  out  the  funds  on  later 
presented  checks.  There  would  be  no  Ua- 
l)ihty  of  the  bank  to  the  owner  of  the 
acceptance  unless,  instead  of  returning  it 
unpaid  it  holds  the  instmment  so  long  as  to 
make  its  retention  an  acceptance  binding 
on  it.     {Inquiry  from  N.  Y.,  Jan.,  1920.) 


37 


186-191] 


DIGEST  OF  LEGAL  OPINIONS 


Right  of  bank  to  return  acceptance  "not  good" 
before  3  o'clock  on  day  of  maturity 

186.  Has  a  Clearing  house  bank  the 
right  to  return  a  time  note  or  acceptance 
made  pa3'able  at  the  bank  before  closing 
time  on  the  day  of  maturity  because  "not 
good?"  Opinion:  The  maker  of  a  time 
note  or  the  acceptor  of  a  time  draft  has 
until  the  close  of  banking  hours  on  the  day 
of  maturity  to  deposit  the  money  to  cover 
the  instrument,  and  is  not  in  default  until 
that  time;  consequently  the  bank  would 
not  have  the  right  to  return  it  dishonored 
or  "not  good"  before  three  o'clock.  See 
German  American  Bank  of  Rochester  v. 
Milliman,  31  Misc.  Rep.  87,  65  N.  Y.  Supp. 
242,  a  carefully  reasoned  case  decided  by 
the  county  court  of  Monroe  county,  in 
which  the  authorities  are  reviewed.  {In- 
quiry from  III.,  July,  1918.) 

Payment  after  maturity 

Bank's  authority  to  pay  overdue  acceptance 

187.  Where  a  note  or  trade  accept- 
ance maturing  at  a  fixed  or  determi- 
nable future  time  is  made  payable  at  the 
maker's  bank  and  is  not  presented  for  pay- 
ment until  after  the  due  date,  opinions  differ 
as  to  the  authority  of  the  bank  to  pay  with- 
out express  instructions  from  its  customer. 
An  Australian  decision  that  the  bank's 
authority  to  pay  continues  after  maturity 
until  countermanded,  is  not  regarded  as 
controlling  in  this  country.  The  precise 
point  has  never  been  decided  in  this  country. 
It  would  be  desirable  to  pass  an  amendment 
of  the  Negotiable  Instruments  Law  which 
would  provide  a  definite  rule  on  this  point. 
Such  an  amendment  has  been  passed  in 
Missouri  as  follows:  "Where  the  instru- 
ment is  made  payable  at  a  bank  it  is 
equivalent  to  an  order  to  the  bank  to  pay 
the  same  for  the  account  of  the  principal 
debtor  thereon,  but  where  the  instrument 
is  made  payable  at  a  fixed  or  determinable 
future  time,  the  order  to  the  bank  is  limited 
to  the  date  of  maturity  only."  Or  it 
might  prove  more  advantageous  for  the 
amendment  to  provide  that  a  bank  may  pay 
overdue  acceptances  and  notes  within  a  rea- 
sonable time  after  maturity.  Wine  v.  Bk.  of 
New  South  Wales,  4  AustraHan  Jur.  Rep.  78. 
{Inquiry  from  Wash.,  April,  1918.) 

188.  May  a  bank  charge  a  past  due 
trade  acceptance  to  a  customer's  account? 
Opinion:  An  opinion  rendered  by  Counsel 
for  the  Federal  Reserve  Bank  of  San 
Francisco  to  the  effect  that  a  bank  has 
the   authority  in  question   is   not   entirely 


convincing  that  it  is  perfectly  safe  to  make 
such  payment.  That  pa^inent  after  ma- 
turity shall  be  made  in  due  course  as  pro- 
vided in  the  Negotiable  Instruments  Act  it 
must  be  without  notice  of  the  holder's 
defect  of  title.  It  would  seem  that  the 
fact  that  a  negotiable  instrument  is  overdue 
when  presented  would  affect  the  title  of  the 
holder.  {Inquiry from  Wash.,  May,  1918.) 

189.  Is  a  bank  authorized  under  the 
Negotiable  Instruments  Act  to  charge  a 
past  due  acceptance,  payable  at  the  bank, 
to  the  customer's  account?  Opinion:  The 
right  is  doubtful,  except  where  the  ac- 
ceptance is  owned  by  the  bank  itself 
when,  of  course,  it  would  have  the  right 
to  apply  the  customer's  deposit  to  its  pay- 
ment.   {Inquiry  from  Wash.,  March,  1918.) 

190.  A  makes  his  trade  acceptance  pay- 
able at  a  bank  and  at  maturity  makes 
payment  to  the  holder  but  allows  the 
latter  to  retain  the  acceptance.  The  holder 
in  defraud  of  A,  presents  the  acceptance  to 
the  bank  after  maturity  and  receives  pay- 
ment and  it  is  charged  to  A's  account. 
Should  the  bank  have  required  an  express 
instruction  from  the  maker  before  making 
payment?  Opinion:  The  safest  course  for 
the  bank  would  have  been  to  have  asked 
an  express  instruction  from  the  maker  before 
payment  of  the  trade  acceptance.  If  it 
had  been  asked,  the  bank  would  have 
learned  that  the  acceptance  had  been  paid 
by  the  acceptor.  It  is  a  serious  question, 
still  undecided  by  the  courts,  whether  the 
authority  of  the  bank  to  pay  continues 
after  maturity  and  whether  the  fact  that 
the  trade  acceptance  is  overdue  when  pre- 
sented at  the  bank  is  not  sufficient  to  put 
the  bank  upon  inquiry  of  the  acceptor  before 
making  pavment.  Neg.  Inst.  Act  Cal., 
Civ.  Code,  Sec.  3168,  3169,  3200.  8  Corpus 
Juris,  329,  330.  Fairfield  Nat.  Bk.  v. 
Hammer,  (Conn.)  95  Atl.  31.  Austin  v. 
First  Nat.  Bk.,  147  S.  W.  35,  150  S.  W.  8. 
{Inquiry  from  N.  Y.,  June,  1918,  Jl.) 

Protest 

Necessity  of  protest 

191.  If  a  trade  acceptance  made  pay- 
able at  a  bank  is  not  paid  when  due, 
should  it  be  protested.  Opinion:  Protest 
should  be  made;  although  strictly  it  is  only 
legally  necessary''  where  the  instrument  is  a 
foreign  bill  of  exchange.  But  it  is  customary 
to  make  protest  in  all  cases  as  a  convenient 
means  of  proving  dishonor.  {Inquiry  from 
Ark.,  Nov.,  1918.) 


38 


ACCOMMODATION  PAPER 


[192-197 


Stopping  payment 

192.  Is  a  trade  acceptance,  even  after 
complete  execution,  like  a  check,  subject 
to  a  stop  pajonent  order.  Opinion :  Where 
the  acceptor  makes  his  acceptance  pay- 
able at  a  bank,  he  has  the  right  to 
countermand  the  order  to  pay,  the  same  as 
in  the  case  of  his  check.  {Inquiry  from 
N.  Y.,  Sept.,  1918.) 

Taxation 

Stamp  tax 

193.  A  drawer  sends  out  a  trade  ac- 
ceptance with  his  signature  printed,  and 
after  it  is  returned  accepted,  the  docu- 
ment is  then  completed  by  the  signature  of 
the  drawer.  When  and  by  whom  should 
the  tax  stamps  be  affixed?  Opinion:  This 
precise  point  is  covered  by  the  ruling  of  the 
Commissioner  of  Internal  Revenue  that 
"trade  acceptances  which  are  issued  with 
signature  of  the  drawer  printed  thereon  to 
prevent  unauthorized  negotiations,  and  are 
only  signed  after  acceptance  by  the  drawee, 
are  subject  to  the  tax  when  actually  signed 
by  the  drawer,  who  is  required  to  pay  the 
tax  and  affix  and  cancel  stamp  thereon." 
(Inquiry  from  N.  Y.,  Dec,  1917.) 

194.  Are  tax  stamps  required  on  trade 
acceptances?  Opinion:  The  commissioner 
of  internal  revenue  has  ruled  that    trade 


acceptances  are  taxable  as  drafts  pay- 
able otherwise  than  at  sight  or  demand. 
{Inquiry  from  N.  Y .,  Dec,  1917.) 

Who  shall  affix? 

195.  As  between  the  buyer  and  the 
seller  who  should  pay  for  revenue  stamps 
on  trade  acceptances?  Opinion:  Appar- 
ently the  question  has  never  been  set- 
tled by  the  courts.  Article  39  of  Stamp 
Tax  Regulations  provides  that  trade  ac- 
ceptances are  taxable  in  the  same  manner 
as  ordinar}'-  time  drafts;  Article  34  provides 
that  a  time  draft  is  subject  to  tax  con- 
currently with  its  acceptance  or  delivery 
and  Article  35  provides  that  "The  drawee, 
payee  or  indorsee  should  see  that  the  tax  is 
paid  before  or  at  the  time  of  acceptance  or 
delivery.  The  question  of  who  shall  pay  for 
the  stamp  is  a  matter  for  adjustment  be- 
tweew  the  parties." 

Probably  if  a  trade  acceptance  was 
negotiated  by  the  drawer  before  presenta- 
tion to  the  drawee,  it  would  be  incumbent 
upon  the  drawer  to  affix  the  stamp:  but 
where  the  trade  acceptance  is  made  by  the 
seller  to  his  own  order  and  is  presented  to 
the  drawee  for  acceptance,  the  instrument  is 
not  completely  made  until  acceptance  and 
dehvery;  hence  it  would  seem  to  be  incum- 
bent upon  the  drawee  to  affix  the  stamp, 
the  same  as  if  he  were  making  a  promissory 
note.    {Inquiry  from  N.  Y.,  May,  1920.) 


ACCOMMODATION  PAPER 


Accommodation  and  commercial  paper 
distinguished 

196.  A  firm  sold  a  certain  amount  of 
its  furniture  to  P  for  the  purpose  of  join- 
ing with  him  in  the  formation  of  a  new  part- 
nership, and  for  which  they  received  P's 
notes  secured  by  a  deed  of  trust  on  real  estate. 
The  firm  indorsed  the  notes  and  discounted 
them  with  a  bank.  The  bank  examiner 
claimed  that  the  firm  signed  as  accommoda- 
tion indorsers,  and  that  the  notes  were  accom- 
modation paper  and  were  subject  to  the  stat- 
utory restrictions  on  money  borrowed  by  a 
single  firm.  Opinion:  The  notes  should  be 
considered  commercial  or  business  paper, 
within  the  meaning  of  the  Virginia  statute 
excepting  such  paper  from  restrictions  on 
money  borrowed,  and  not  speculative  or  ac- 
commodation paper.  Virginia  Code,  Sec. 
1164.  Second  Nat.  Bk.  of  Oswego  v. 
Burt,  93  N.  Y.  233.  {Inquiry  from  Va., 
Jan.,  1912.) 


Liability  of  accommodation  maker 

Liability  to  indorsee  of  note 
197.  In  extending  credit  to  a  co-oper- 
ative company,  it  appeared  that  various 
individuals  of  the  company  had  given 
accommodation  notes  to  the  company. 
Could  such  notes  be  collected  by  a  bank 
which  accepted  same  with  full  knowledge 
that  they  were  given  without  consideration 
in  order  to  assist  the  company  in  obtaining 
credit  thereon  as  collateral?  Opinion: 
It  has  been  held  that  the  accommodation 
maker  cannot  set  up  as  a  defense  that  it 
was  given  without  consideration  for  this 
would  defeat  tlie  very  purpose  for  which  it 
was  made.  Greenwav  v.  W.  D.  Orthwein 
Grain  Co.,  85  Fed.  536.  Consol.  L.  Co.  v. 
Fidelity  etc.  Co.,  161  Cal.  397.  Mayer  v. 
Thomas,  97  Ga.  772,  holding  that  there  is 
a  sufficient  consideration  for  the  signature 
of  an  accommodation  maker  where  it 
accomplishes    the    purpose    for    which    he 


39 


198-201] 


DIGEST  OF  LEGAL  OPINIONS 


signed  the  note,  that  is,  the  payment  of  its 
value  by  the  discounting  bank  to  the 
indorser  who  was  the  party  accommodated. 
Heintz  v.  Cohn,  29  111.  308.  Kansas  L.  S.  C. 
Co.  V.  Haston,  68  Kan.  749.  Dunn  v. 
Weston,  71  Me.  270.  Cloud  First  Nat.  Bk. 
V.  Lang,  94  Minn.  261.  {Inquiry  from  Colo., 
Nov.,  1917.) 

198.  Certain  members  of  a  local  cham- 
ber of  commerce  as  individuals  were  ac- 
commodation makers  of  a  note  for  $700, 
payable  to  a  bank,  the  consideration  therefor 
having  been  advanced  by  the  bank  to  the 
board  of  trustees  of  the  municipality.  It 
was  orally  understood  between  the  trustees 
and  the  makers  of  the  note  that  the  board 
would  provide  for  payment,  but  failed  to 
do  so.  Can  the  accommodation  makers  be 
held  liable  to  the  bank,  or  can  they  interpose 
the  defense  that  they  personally  received  no 
consideration?  Opinion:  The  bank  can 
recover  from  the  accommodation  makers,  as 
the  consideration  moving  to  the  municipality 
was  sufficient  to  support  their  promise. 
Accommodation  paper  has  often  been  de- 
fined as  a  loan  of  the  maker's  credit  without 
restriction  as  to  the  manner  of  its  use. 
Dunbar  v.  Smith,  66  Ala.  490.  Mayer  v. 
Thomas,  97  Ga.  772.  Emery  v.  Hobson,  62 
Me.  578.  Black  River  Sav.  Bank  v.  Ed- 
wards, 10  Gray  (Mass.)  387.  Steers  v. 
Holmes,  79  Mich.  430.  Meggett  v.  Baum, 
57  Miss.  22.  Pahner  v.  Field,  76  Hun. 
(N.  Y.)  229.  Lord  v.  Ocean  Bank,  20  Pa. 
St.  384.  Farrar  v.  Gregg,  1  Rich.  (S.  C.) 
378.  Marr  v.  Johnson,  9  Yerg.  (Tenn.)  1. 
Arnold  v.  Sprahue,  34  Vt.  402.  Violett  v. 
Patton,  5  Cranch  (U.  S.)  49.  Central  Bank 
V.  Ford  (Tex.  1913)  152S.  W.700).  {Inquiry 
from  Cat.,  April,  1915.) 

199.  A  corporation  engaged  in  buying 
grain  borrowed  $3,000,  being  the  limit 
of  its  bills  payable  under  its  articles  of 
incorporation.  Some  of  its  stockholders 
who  are  also  a  majority  of  directors  give  an 
additional  note  of  $3,000  and  the  proceeds 
go  to  the  credit  of  the  corporation  and  are 
used  in  its  business.  A  bank  inquires 
whether  the  stockholders  who  have  jointly 
signed  this  note  can  claim  they  received  no 
consideration  therefor  as  a  good  defense 
for  the  note.  Opinion:  The  Negotiable 
Instruments  Act  provides  that  an  accommo- 
dation maker  "is  hable  on  the  instrument  to 
a  holder  for  value  notwithstanding  such 
holder  at  the  time  of  taking  such  instrument 
knew  him  to  be  an  accommodation  party." 
The  following  authorities  are  pertinent. 
The   holder  for   value   of   accommodation 


paper  may  recover  on  it  against  the  accom- 
modation maker,  though  he  knew  it  to  be 
such  paper.  (Fox  v.  State  (Ark.  1913) 
145  S.  W.  228.  Metcalf  v.  Draper,  98  111. 
App.  399.  Bankers  Iowa  St.  Bk.  v.  Mason 
Hand  Lathe  Co.,  121  Iowa  570.  Maffatt  v. 
Greene,  149  Mo.  48.  Nat.  Bk.  v.  White,  46 
N.  Y.  Suppl.  555.  Nat.  Bank  of  Com.  v. 
Sancho  Packing  Co.,  186  Fed.  257).  Credit 
given  to  the  accommodation  party  is 
sufficient  consideration  to  bind  the  accom- 
modation maker  or  indorser.  (Bank  of 
Morgan  City  v.  Herwig,  121  La.  513.  First 
Nat.  Bk.  V.  Lang,  94  Minn.  261).  While  it 
is  true  that  accommodation  paper  must 
always  be  supported  by  a  consideration, 
yet  the  accommodation  party  is  bound  by 
the  beneficial  consideration  moving  to  the 
party  accommodated,  even  if  no  other 
passes.  (Bank  of  Morgan  City  v.  Herwig, 
121  La.  513.  First  Nat.  Bk.  v.  Lang,  94 
Minn.  261.)  The  payee  of  this  note  being  a 
holder  for  value  is  entitled  to  recover 
thereon  against  the  accommodation  makers. 
{Inquiry  from  Neb.,  June,  1916.) 

200.  The  holder  of  a  note,  where  the 
surety  signs  as  co-maker,  asks  whether 
such  surety  has  defenses  other  than  the 
actual  maker.  Opinion:  Where  a  surety 
signs  as  a  co-maker  he  is  liable  as  pri- 
mary debtor  without  demand,  protest  or 
notice,  and  cannot  defend  for  omission  of 
those  steps  as  could  an  indorser.  Assuming 
that  the  holder  knows  him  to  be  surety, 
certain  acts  of  the  holder  would  discharge 
him.  For  example,  if  the  note  was  diverted 
from  the  agreed  purpose  for  which  the 
surety  signed  and  this  was  known  to  the 
holder;  or  where  the  holder  parted  with 
security  for  the  debt,  for,  upon  making 
payment,  the  surety  would  be  entitled  to 
such  security.  It  was  formerly  the  law,  that 
a  binding  extension  of  time  by  the  holder  to 
the  principal  releases  the  surety,  but  this 
doctrine  has  been  abrogated  by  the  Negoti- 
able Instruments  Act  as  to  the  accommoda- 
tions maker,  although  it  still  applies  to  the 
accommodation  indorser.  {Inquiry  from 
Wis.,  Aug.,  1915.) 

Liability  of  accommodation  indorser 

201.  A  bank  submits  a  form  of  note 
containing  numerous  agreements  owing  to 
which  there  might  be  some  question  as  to 
its  negotiability.  One  of  the  notes  is  in- 
dorsed by  a  firm,  and  the  question  is  asked 
whether  the  indorser  is  liable  as  the  firm 
derived  no  benefit  therefrom.  Opinion: 
Assuming  the  note  to  be  negotiable  so  as  to 


40 


ACCOMMODATION  PAPER 


[202-204 


come  within  the  provisions  of  the  Negotiable 
Instruments  Act  (Sec.  29),  and  assmning  the 
indorsement  was  made  by  authority  of  the 
partnership,  the  indorser  would  be  liable 
upon  due  demand  and  non-payment  at 
maturity.  It  seems,  however,  that  where,  as 
in  the  instant  case,  the  loan  is  made  on  the 
security  of  the  name  of  an  accommodation 
indorser,  rather  than  upon  collateral,  it 
would  be  better  to  use  the  plain  negotiable 
form  of  note.  Under  the  circumstances  it 
would  be  well  to  have  the  firm  sign  as  surety 
maker,  as  then  it  would  be  bound  as  an 
original  promisor.  {Inquiry  from  Ark.. 
April,  1917.) 

Liability  on  note  pledged  as  collateral 

202.  A  bank  made  a  loan  of  $7,500.00 
to  John  Doe  and  took  his  note  for 
same.  As  collateral  security  it  received  a 
certain  promissory  note  of  Doe  for  $9,000.00 
indorsed  by  Richard  Roe  who  sent  it  to  the 
bank  contemporaneously  with  a  letter  in 
substance  as  follows:  "I  herewith  send 
you  note  made  by  John  Doe  for  $9,000.00. 
You  are  to  hold  this  note  which  is  indorsed 
by  me  over  to  you,  as  a  security  for  a  loan 
of  $7,500.00  which  Doe  desires  to  borrow 
from  you."  Signed  "Richard  Roe."  The 
$7,500.00  was  reduced  to  $5,050.00,  and  in 
the  meantime  the  $9,000.00  note  had 
matured  and  was  protested.  Subsequently 
the  note  by  Doe  for  $7,500.00  was  increased 
to  $9,000.00,  the  increase  representing  the 
consolidation  of  other  notes  owing  to  the 
bank  by  Doe.  The  inquiry  is  as  to  Roe's 
liabihty.  Opinion:  Roe  cannot  be  held 
for  more  than  $5,050.00,  the  unpaid  portion 
of  the  $7,500.00  note  of  Doe.  Roe's  con- 
tract as  accommodation  indorser  of  the 
$9,000.00  note,  was  to  pay  such  note  if 
Doe  did  not,  but  it  was  quahfied  by  a 
contemporaneous  writing,  coupled  with 
delivery  of  the  note,  to  the  effect  that  it 
was  indorsed  over  to  the  bank  by  Roe  to 
secure  a  specific  loan  of  $7,500.00  to  Doe. 
The  loan  was  made  and  subsequently 
reduced  to  $5,050.00.  Roe  can  successfully 
maintain  that  his  obligation  as  indorser  was 
Umited  to  such  specific  loan,  and  that  the 
reduction  of  indebtedness  reduced  his  liabili- 
ty to  $5,050.00,  and  that  such  liability  was 
Dot  revived  or  increased  by  the  consolida- 
tion of  other  later  loans  which  increased  the 
amount  due  on  the  collateral  note  of  Doe  to 
$9,000.00.  It  is  familiar  law  that  the 
surety's  liability  is  restricted  to  the  strict 
terms  of  the  debt,  and  if  part  of  the  debt  is 
paid  off  this  releases  him  pro  tanto.     See 


Natl.  Park  Bank  v.  Koehler,  204  N.  Y.  174, 
97  N.  E.  468.  (Inquiry  from  D.  C,  June, 
1915.) 

Liability  on  certificate  of  deposit 

203.  A  party  has  a  certificate  of  deposit 
(time  deposit)  on  a  bank,  and  not  hking 
its  condition  the  directors  tell  him  that 
if  he  will  let  his  certificate  remain,  they 
will  indorse  it  as  individuals.  Is  their  in- 
dorsement binding  upon  them?  Opinion: 
Directors  of  a  bank  who  as  individuals 
indorse  the  bank's  time  certificate  of 
deposit  would  be  hable  thereon  as  indorsers. 
To  preserve  their  Hability,  demand  of  pay- 
ment on  the  day  of  maturity  would  be 
required,  and  in  the  event  of  non-payment, 
notice  of  dishonor  to  the  indorsers  would 
be  requisite.  The  indorsers,  however, 
might  waive  demand,  protest  and  notice. 
Directors  so  indorsing  would  be  accommoda- 
tion indorsers  and  in  event  of  nonpayment, 
hable  to  each  other  in  the  order  in  which 
their  names  appeared  upon  the  back  of  the 
certificate,  unless  they  agreed  among  them- 
selves to  share  the  Habihty.  {Inquiry  from 
Ga.,  Jan.,  1919.) 

Does  accommodation  indorser  of  check  warrant 
amount  to  drawee? 

204.  A  raised  check  bearing  an  ac- 
commodation indorsement  was  presented 
to  a  bank  and  cashed.  In  the  regular 
course  of  business  it  came  to  the  drawee 
bank  which  paid  it  and  charged  it  to  the 
customer's  account.  The  liability  of  the 
accommodation  indorser  to  the  bank  which 
cashed  the  check  and  of  the  latter  to  the 
drawee  bank  is  conceded.  But  the  question 
is  asked  whether  an  accommodation  indorser 
warrants  the  amount  of  the  check  to  the 
drawee.  Opinion:  Where  the  payee  pre- 
sents a  raised  check  directly  to  the  bank 
upon  which  it  is  drawn  and  the  drawee 
pays  the  same  upon  the  strength  of  an 
accommodation  indorsement,  the  question 
of  the  liability  of  the  accommodation 
indorser  to  the  drawee  is  somewhat  doubtful. 
There  is  no  basis  for  an  action  for  money 
had  and  received  as  the  accommodation 
indorser  has  not  received  the  money.  The 
only  hability  would  be  on  the  ground  of 
express  or  implied  warranty.  Under  the 
Negotiable  Instruments  Act  (Sec.  66)  the 
warranty  of  genuineness  of  an  indorser 
runs  only  to  a  holder  in  due  course  and  the 
drawee  does  not  come  within  the  definition 
of  that  term.  Under  another  provision  of 
the  same  act  (Sec.  29)  an  accommodation 


41 


205-208] 


DIGEST  OF  LEGAL  OPINIONS 


indorser  is  made  liable  on  the  indorsement 
to  a  holder  for  value,  but  the  drawee 
does  not  come  within  the  definition  of  a 
holder  for  value.  The  Negotiable  Instru- 
ments Act,  therefore,  would  seem  to  provide 
no  warranty  by  an  accommodation  indorser 
to  a  drawee. 

A  decision  upholding  such  liability  to  the 
drawee  (Smith  v.  State  Bank,  104  N.  Y. 
Supp.  750)  has  been  questioned.  Brannon 
Neg.  Inst,  page  39. 

The  United  States  Supreme  court  in  U.  S. 
V.  National  Exchange  Bank,  214  U.  S.  319 
has  held  that  an  indorser  (in  this  case  not  an 
accommodation  indorser)  who  received  pay- 
ment from  the  drawee  of  a  check  bearing  a 
prior  forged  indorsement  is  liable  to  the 
drawee  upon  a  warranty  of  genuineness 
implied  by  the  presentation  and  collection 
of  the  check,  irrespective  of  any  express 
warranty,  and  it  is  possible  that,  although 
technically  under  the  Negotiable  Instru- 
ments Act  an  accommodation  indorser  is 
not  a  warrantor  of  genuineness  to  the 
drawee,  he  might  be  held  hable  as  an 
implied  warrantor  where,  by  his  indorse- 
ment he  has  enaliled  the  payee  of  a  raised 
check  to  obtain  the  money  wrongfully  from 
the  drawee.  {Inquiry  from  Iowa.,  July, 
1914,  Jl.) 

205.  What  is  the  liabiHty  of  an  ac- 
commodation indorser  where  he  places  his 
name  on  the  back  of  a  note  payable  to  a 
bank.  Opinion:  The  person  so  signing  is 
liable  to  the  bank  as  indorser  equally  as 
where  a  note  is  made  payable  to  an  individual 
who  indorses  same  to  the  bank.  The  Negoti- 
able Instruments  Act  provides:  Sec.  55, — 
"An  accommodation  party  is  one  who  has 
signed  the  instrument  as  maker,  drawer, 
acceptor,  or  indorser,  without  receiving 
value  therefor,  and  for  the  purpose  of 
lending  his  name  to  some  other  person. 
Such  a  person  is  liable  on  the  instrument  to 
a  holder  for  value,  notwithstanding  such 
holder  at  the  time  of  taking  the  instrument 
knew  him  to  be  only  an  accommodation 
party."  It  also  provides :  Sec.  114.  "Where 
a  person,  not  otherwise  a  party  to  an 
instrument,  places  thereon  his  signature  in 
blank  before  delivery,  he  is  liable  as  in- 
dorser"— 1.  "If  the  instrument  is  payable 
to  the  order  of  a  third  person,  he  is  liable  to 
the  payee  and  to  all  subsequent  parties. 
2.  If  the  instrument  is  payable  to  the  order 
of  the  maker  or  drawer,  or  is  payable  to 
bearer,  he  is  liable  to  all  parties  subsequent 
to  the  maker  or  drawer.  3.  If  he  signs  for 
the   accommodation    of   the   payee,    he   is 


liable  to  all  parties  subsequent  to  the  payee." 
{Inquiry  from  N.  Y.,  April,  1912.) 

206.  Under  the  Negotiable  Instruments 
Act  an  accommodation  indorser  is  liable 
on  a  note  to  a  holder  in  due  course,  not- 
withstanding such  holder  at  the  time  of  tak- 
ing the  instrument  knew  him  to  be  only  an 
accommodation  party.  Neg.  Inst.  A.  Sec. 
29  (Comsr's.  dft.),  {Inquiry  from  N.  Y., 
March,  1911,  Jl.) 

Liability  on  renewal  note  with  other 
indorsers'  names  off 

207.  In  the  renewal  of  a  note  indorsed 
by  A.  B.  and  C.,  can  A  and  B  as  in- 
dorsers be  left  off  the  note  by  the  holding 
bank  without  the  consent  of  C  and  C  be 
still  held?  Opinion:  If  C  indorsed  the 
renewal  on  the  understanding  or  implied 
condition  that  bank  would  also  procure  the 
indorsement  of  A  and  B,  this  would  be  a 
defense  by  him  to  the  note  in  the  hands  of 
the  bank,  although  if  the  bank  had  negotiated 
the  note  before  maturity  to  a  bona  fide 
holder,  C  would  probably  be  Uable.  Ac- 
commodation indorsers  are  Hable  on  the 
note  in  the  order  in  which  their  names 
appear,  unless  they  agree  between  them- 
selves that  they  shall  be  equally  liable. 
Under  such  an  agreement  C  if  he  paid 
original  note,  could  look  to  the  others  for 
contribution,  or  if  there  was  no  such 
agreement  C  as  last  indorser  could  hold 
prior  indorsers  for  whole  amount.  It  would 
be  to  C's  detriment  to  have  the  indorsements 
of  A  and  B  left  off  the  renewal  and  without 
his  consent  the  bank  could  not  hold  C. 
See  26  Ward  Bank  v.  Stearns,  148  N.  Y. 
515,  42  N.  E.  1050.  Enterprise  Brewing 
Co.  V.  Canning,  Mass.  96  N.  E.  673.  Wil- 
liams V.  Peoples  Bank,  Ga.  72  S.  E.  177. 
{Inquiry  from  Del.,  March,  191  A.) 

Renewal  of  note  containing  two  accommodation 
indorsers  by  taking  signature  of  one  only 

208.  A  bank  accepted  a  renewal  of  a 
note  of  A  and  wife  containing  two  accom- 
modation indorsers  named  Morris  and  San- 
ders respectively,  by  taking  renewal  with 
the  indorsement  of  Morris  only.  Is  Morris 
reheved  from  liability?  Opinion:  So  far  as 
appears  from  the  note,  the  indorsers,  Morris 
and  Sanders,  were  liable  thereon  in  the  order 
that  their  names  appeared;  hence  the  taking 
of  a  renewal  by  the  bank  with  the  indorse- 
ment of  Morris  only  would  not  relieve  him 
from  liabihty.  If  there  was  an  agreement 
between  the  two,  to  knowledge  of  the  bank, 
that  they  were  to  be  liable  jointly,  and  if 


42 


ACCOMMODATION  PAPER 


[209-213 


Morris'  indorsement  of  the  renewal  was  on 
condition  that  Sanders  should  also  indorse, 
a  different  question  would  be  presented. 
{Inquiry  from  Tenn.,  Nov.,  1920.) 

Liability  of  acconiniodatioii  indorsers 
as  between  themselves 

209.  A  requested  S  to  indorse  his  check, 
to  enable  him  to  have  same  cashed.  S 
indorsed  the  check,  but  afterwards  request- 
ed the  bank  not  to  cash  same.  Later 
A  obtained  the  indorsement  of  Z,  and 
then  negotiated  the  check  to  the  bank. 
Z  was  obliged  to  take  the  check  up  and 
seeks  to  hold  A  as  prior  indorser.  Opinion: 
Accommodation  indorsers  are  liable  in  the 
order  in  which  they  indorse  unless  they 
have  agreed  otherwise  between  themselves. 
In  making  his  indorsement  Z  had  the  right 
to  consider  the  liabilit}^  of  the  prior  indorser 
and  having  indorsed  in  good  faith,  can 
hold  S  upon  his  indorsement.  {Inquiry  from 
Mich.,  Jan.,  1916.) 

210.  B  and  C  indorse  a  note  in  the 
order  named  for  the  accommodation  of  A, 
and  C  is  compelled  to  pay  the  note.  C  seeks 
to  hold  B  liable  for  the  full  amount  of  the 
note.  Opinion:  C  can  hold  B  liable  for  the 
full  amount  unless  there  has  been  some  speci- 
fic agreement  between  the  accommodation  in- 
dorsers that  they  shall  only  be  ratably  liable. 
The  Negotiable  Instruments  Act  of  New 
York  provides  "As  respects  one  another,  in- 
dorsers are  liable  prima  facie  in  the  order  in 
which  they  indorse,  but  evidence  is  admissi- 
ble to  show  that  as  between  or  among  them- 
selves they  have  agreed  otherwise."  Neg. 
Inst.  A.,  Sec.  68  (Comsr's.  dft.).  Easterly 
v.  Barber,  66  N.  Y.  433.  Egbert  v.  Hanson, 
34  Misc.  (N.  Y.)  596.  In  re  McCord,  174 
Fed.  73.  McCarty  v.  Roots,  62  U.  S.  432. 
Kelly  v.  Burroughs,  102  N.  Y.  93.  {Inquiry 
from  N.  F.,  June,  1918,  Jl.) 

211.  A  note  of  a  corporation  having 
three  indorsers  was  protested  for  non-pay- 
ment in  1909,  and  since  that  time  inter- 
est thereon  has  been  paid  by  the  corporation 
but  nothing  has  been  paid  thereon  by  the  in- 
dorsers except  that  one  of  the  indorsers  made 
partial  payments  in  reduction  of  the  prin- 
cipal, the  last  of  which  was  in  January,  1913. 
What  are  the  liabilities  of  the  parties?  Opin- 
ion: The  right  of  action  of  the  holder  of  the 
note  accrued  against  all  parties  when  the  note 
was  protested  in  January,  1909,  and  due  no- 
tice was  given  the  indorsers.  The  note  is 
barred  by  the  Statute  of  Limitations  (six 
years  in  Pennsylvania)  as  to  all  indorsers  and 


the  sole  remaining  liability  is  that  of  the  cor- 
poration maker.  Interest  paid  by  the  cor- 
poration maker  and  not  by  the  indorsers  op- 
erates to  suspend  the  running  of  the  statute 
as  to  it,  but  partial  pa^Tnent  made  by  one  of 
several  joint  debtors  without  the  acquies- 
cence, consent  or  ratification  of  the  other 
joint  debtors  will  not  operate  to  suspend  the 
running  of  the  statute  as  to  him.  Any  ac- 
tion for  contribution  which  the  indorser  who 
made  partial  payment  may  have  had  against 
the  company  indorsers  has  likewise  been 
barred  by  the  statute.  Stew.  Purdon  Dig. 
(13th  ed.).  Sec.  36,  p.  2294.  Glad's  Estate, 
214  Pa.  141.  Wright  v.  Jordan,  181  Pa. 
100.  Underwood  v.  Patrick,  94  Fed.  468. 
Knight  v.  Clements,  45  Ala.  89.  Waughop 
V.  Bartlett,  165  111.  124.  Bottles  v.  Miller, 
112  Ind.  584.  Shoemaker  v.  Benedict,  11 
N.  Y.  176.  Lazarus  v.  Fuller,  89  Pa.  331. 
Bush  V.  Stowell,  71  Pa.  208.  Clark  v.  Burn, 
86  Pa.  502.  Coleman  v.  Forbes,  22  Pa.  156. 
Levy  v.  Cadet,  17  S.  &  R.  126.  Searight 
V.  Craighead,  1  Pa.  135.  Houser  v.  Irwin, 
3  W.  &  S.  347.  Schoneman  v.  Fegley,  7 
Barr.  433.  Bixler  v.  Billet,  14  York  Leg. 
Rec.  20.  Schofield  v.  Twining,  127  Fed.  490. 
{Inquiry  from  Pa.,  Mar.,  1919,  Jl.) 

212.  A  made  a  negotiable  note  pay- 
able to  the  order  of  B,  bearing  three  in- 
dorsements of  B,  C  and  D  in  the  order 
named,  who  indorsed  for  accommodation.  D 
paid  the  note  and  demanded  full  payment 
from  the  previous  indorsers;  B  and  C  will 
only  contribute  one-third.  Opinion:  The  ac- 
commodation indorsers  are  liable  for  the  full 
amount  in  the  order  in  which  they  indorse 
unless  as  between  or  among  themselves  they 
have  agreed  otherwise.  Hogue  v.  Davis,  8 
Gratt.  4.  Slagle  v.  Rust,  4  Gratt.  274. 
Reinhardt  v.  Schall,  69  Md.  356.  Farwell 
V.  Ensign,  66  Mich.  600.  Ross  v.  Espy,  66 
Pa.  481.     {Inquiry  from  Va.,  Nov.,  1909,  Jl.) 

Liability  in  order  of  indorsement  unless 
they  agree  otherwise 

213.  A  note  was  executed  by  a  con- 
struction company  by  its  president,  and 
indorsed  by  each  of  its  stockholders,  also 
by  each  member  of  a  firm.  Is  the  last 
indorser  equally  liable  with  the  first,  or  must 
recourse  be  had  in  the  order  in  which  they 
appear?  Opinion :  The  liability  of  indorsers 
is  fixed  by  Sec.  68  of  the  Negotiable  Instru- 
ments Act,  which  provides:  "As  respects 
one  another  indorsers  are  liable  in  the  order 
in  which  they  indorse;  but  evidence  is 
admissible  to  show  that  as  between  or 
among  themselves  they  have  agreed  other- 


43 


214-217] 


iDIGEST  OF  LEGAL  OPINIONS 


wise,  Joint  payees  or  joint  indorsers  who 
indorse  are  deemed  to  indorse  jointly  and 
severally."  This  appHes  to  accommodation 
indorsers  as  well  as  to  others.  Unless  there 
is  proof  of  a  special  agreement  that  they 
shall  share  equally  in  the  habihty,  the  last 
indorser  can  look  to  the  prior  indorsers  for 
the  full  amount  and  so  on  up  to  the  first 
indorser  who  would,  if  the  maker  defaulted, 
be  solely  hable  for  the  full  amount.  See, 
also,  Wilson  v.  Hendee,  74  N.  J.  Law,  640. 
Weeks  v.  Parsons,  179  Mass.  570.  {Inquiry 
from  W.  Va.,  Feb.,  1919.) 

Liability  of  accommodation  indorsers 
on  corporation  note 

214.  A  corporation  discounted  its  note 
payable  at  a  bank.  The  note  was  in- 
dorsed for  accommodation  by  several  of  the 
directors  of  the  company  and  signed  "X  Com- 
pay,  by  C.  H.  Jones."  The  company  failed 
before  maturity.  Opinion :  The  accommoda- 
tion indorsers  were  Hable  on  the  note  pro- 
vided demand  and  due  notice  of  dishonor 
were  given  them.  The  fact  that  the  indors- 
ers were  directors  of  the  bankrupt  company 
does  not  dispense  with  these  steps.  The  pos- 
session by  the  bank  of  the  note  at  maturity 
constituted  sufficient  demand.  C.  H.  Jones's 
signature  imports  a  corporate,  not  a  personal 
obhgation.  Neg.  Inst.  A.,  Sec.  29  (Comsr's 
dft.).  Moore  v.  Alexander,  63  App.  Div. 
(N.  Y.)  100.  {Inquiry  from  Mich.,  March 
1911,  Jl.) 

Result  where  indorser  had  claim  against 
maker  corporation 

215.  A  bank  states  that  it  frequently 
buys  commercial  paper  of  a  corporation, 
indorsed  by  one  or  more  of  its  officers 
whose  statement  shows  money  due  by 
the  corporation  to  the  indorser  of  the  note. 
The  bank  asks  what  would  be  the  status 
of  the  indorser's  claim,  as  affecting  the 
claim  of  anyone  holding  its  paper,  in  case 
the  corporation  became  financially  embar- 
rassed. Opinion:  It  seems  under  the  author- 
ities that  in  the  case  stated,  the  officer 
indorsing  the  corporation  note  would  have 
a  claim  against  the  insolvent  concern 
for  money  owing  him  which  would  rank 
equally  with  that  of  the  bank  holding  the 
corporation's  note;  but  independently  of 
this,  the  accommodation  indorser  would  be 
liable  to  the  bank  for  the  full  amount  of  the 
note.  Yeaton  v.  Alexandria  Bank,  5  Cranch 
(U.  S.)  49.  Wolf  V.  Brakebill,  32  Cal.  App. 
300.  Polhemus  v.  Prudential  etc.,  74  N.  J. 
L.  570.    Laubach  v.  PurceU,  35  N.  J.  L.  434. 


Schepp  V.  Carpenter,  51  N.  Y.  602.  Nalitz- 
ky  V.  Williams,  237  Fed.  802.  {Inquiry 
from  N.  J.,  March,  1919.) 

216.  A  corporation  in  the  hands  of  a 
receiver  issued  its  promissory  note,  in- 
dorsed for  accommodation  by  several  respon- 
sible persons.  The  note  was  issued  pursuant 
to  a  court  order,  but  the  legality  of  said  order 
was  questioned  by  the  bank  about  to  purchase 
the  same.  Opinion:  The  bank  should  not 
purchase  the  note  until  it  has  ascertained 
whether  the  note  is  void  or  illegal.  Accom- 
modation indorsers  are  liable  on  a  corpora- 
tion note,  although  the  corporation  because 
of  incapacity  is  not  Hable,  but  if  the  note  is 
void  for  illegaHty,  this  defense  is  open  to  the 
accommodation  indorsers.  Gunnis,  Barrett 
&  Co.  V.  Weighley,  114  Pa.  191.  Taylor  v. 
Dansby,  42  Mich.  82.  Lee  v.  YandeU,  69 
Tex.  36.  Moledon  v.  Leflore,  62  Ark.  387. 
Randolph  Com.  Paper,  Sec.  915,  citing  1 
Pars.  Notes  and  Bk.  244.  Daniel  on  Neg. 
Inst.,  Sec.  1306  a.  Osborn  v.  Robbins,  36 
N.  Y.  365.  Neg.  Inst.  A.  of  Pa.,  Sec.  64. 
Leonard  v.  Draper,  187  Mass.  536,  73  N.  E. 
644.  Bruck  v.  Lambeck,  118  N.  Y.  S.  494. 
Burke  v.  Smith,  75  Atl.  (Md.)  114.  {Inquiry 
from  Pa.,  Sept.,  1912.,  Jl.) 

Application  of  payment  by 
accommodation  indorsers 

217.  A  person  borrowed  $16,000.00  from 
a  bank  for  which  he  gave  his  note  signed 
also  by  a  surety.  Another  of  maker's 
notes  for  $1,000.00  for  which  the  bank 
held  other  security  becoming  due,  the  maker 
informed  the  bank  that  he  would  be  able  to 
pay  about  $1,500.00  shortly.  A  day  or  two 
after,  the  surety  on  the  $1,600.00  note 
sent  the  bank  a  draft  for  $1,000.00  with 
instructions  to  "Credit  on  note  of  Smith 
— ,"  the  principal.  The  bank  assuming 
that  principal  had  raised  the  money  from 
surety,  and  that  surety  was  simply  send- 
ing it  to  insure  its  going  right,  appHed  it  to 
the  $1,000.00  note.  On  being  informed  of 
this,  both  principal  and  surety  objected. 
Opinion:  The  surety,  of  course,  had  the 
right  to  have  the  money  appHed  on  the  note 
whereon  he  was  surety,  if  such  was  his 
intention  If  he  forwarded  money  belonging 
to  the  principal,  the  bank  might  possibly 
maintain  that  it  was  forwarded  with  the 
intention  of  applying  on  the  $1,000.00  note, 
but  if  he  forwarded  his  own  money  the  bank 
would  be  obliged  to  allow  him  credit  therefor 
on  the  note  on  which  he  was  surety.  It 
could  not  be  appHed  upon  a  debt  for  which 
he  was  not  Hable  at  all.    See  Citizens  Bk.  v. 


44 


ACCOMMODATION  PAPER 


[218-222 


Carey    2    Ind.    T.    84,   48    S.    W.     1012., 
{Inquiry  from  Iowa.,  June,  1915) 

Corporation  as  accommodation 
maker  and  indorser 

218.  A  local  corporation  is  operated  by 
an  Ohio  corporation.  The  former  borrows 
money  with  the  indorsement  of  the  latter. 
Would  the  corporation  indorser  become 
hable  in  case  of  the  maker's  default? 
Opinion:  The  cases  are  generally  agreed 
that  a  corporation  has  no  legal  power  to 
make  or  indorse  commercial  paper  for 
accommodation.  Piser  v.  Serota  &  Gens, 
182  111.  App.  390.  Blake  v.  Domestic  Mfg. 
Co.  (N.  J.  Chy.  1897)  38  Atl.  241.  Natl. 
Pk.  Bk.  V.  Am.  M.  W.  Co.  v.  German  Amer. 
M.  W.  etc.  Co.  116  N.  Y.  281.  In  re 
Romadka  Bros.  Co.,  216  Fed.  113.  If  the  in- 
dorsement in  question  is  an  accommodation 
indorsement  and  the  Ohio  corporation 
received  no  benefit  therefrom,  its  indorse- 
ment would  not  be  binding  except  as  to  a 
bona  fide  holder  without  notice  of  the 
acconmaodation  character  of  the  indorse- 
ment.    {Inquiry  from  Mo.,   Sept.,   1918.) 

219.  A  corporation  indorsed  notes  for 
the  accommodation  of  third  persons  or 
corporations,  growing  out  of  real  estate 
and  building  transactions.  Can  the  cor- 
poration, in  the  absence  of  express  power 
conferred  in  its  charter,  become  hable  upon 
commercial  paper  for  the  mere  accommoda- 
tion of  third  parties?  Opinion:  Judicial 
authority  is  nearly  unanimous  to  the  effect 
that  a  corporation  has  not  power  to  make, 
indorse  or  accept,  or  otherwise  become 
hable  upon  negotiable  paper  for  the  mere 
accommodation  of  another  person  or  cor- 
poration (In  re  Romadka  Co.,  216  Fed.  113. 
Smith  V.  Land  etc.  Co.,  213  Fed.  56.  Ice 
Co.  V.  Bank  etc.  Co.,  12  Ga.  App.  818. 
Piser  V.  Serota,  182  111.  app.  390.  Blake  v. 
Domestic  Mfg.  Co.  (N.  J.  Ch.  1897)  38  Atl. 
241.  Jacobus  v.  Mantel  Co.,  211  N.  Y. 
154,  105  N.  E.  210.  Bank  v.  Jones,  141 
N.  Y.  Suppl.  304.  Cayahoga  etc.  Co.  v. 
Lewis,  4  Ohio  Dec.  17.  McCaleb  v.  Power 
Co.  (Tex.  Civ.  App.)  173  S.  W.  1191). 
The  foregoing  also  applies  even  though  a 
consideration  is  paid  therefor  (Nat.  Park 
Bank  v.  German  Am,  Mut.  Warehouse  etc. 
Co.,  116  N.  Y.  281.,  {Inquiry  from  .N  J., 
May,  1920.) 

220.  As  a  general  proposition  no  cor- 
poration in  any  state,  in  the  absence  of 
statutory  authority,  has  power  to  make  or  in- 
dorse paper  for  accommodation.  Such  paper 
is  vaUd  and  enforceable  only  in  the  hands  of 


a  holder  taking  the  same  before  maturity,  in 
good  faith  and  without  notice.  Davis  v. 
Old  Colony  R.  Co.,  131  Mass.  258.  Berry  v. 
Yates,  24  Barb.  (N.  Y.)  199.  Culver  v. 
Reno  Real  Est.  Co.,  91  Pa.  367.  El.  Co.  v. 
Memphis,  etc.,  R.  Co.,  85  Tenn.  703. 
Madison,  etc.,  Plank  Road  Co.  v.  Water- 
town,  etc.,  Plank  R.  Co.,  7  Wis.  59.  Crewer, 
etc.,  United  Min.  Co.  v.  Willyams,  14  Wkly. 
Rep.  1003.  Johansen  v.  Chaphn,  6  Montreal 
Q.  B.,  111.  Blake  v.  Domestic  Mfg.  Co., 
38  Atl.  (N.  J.)  241.  Nat.  Bk.  of  Republic 
V.  Young,  41  N.  J.  Eq.  531.  1  Daniel  on 
Neg.  Inst.,  Sees.,  382,  386.  Green's  Brice's 
Ultra  Vires,  255,  272.  Lucas  v.  Pitney,  27 
N.  J.  L.  221.  Nat.  Park  Bk.  v.  German 
American  Mut.  Warehouse  etc.,  Co.,  116 
N.  Y.  281.  Owen  &  Co.  v.  Storms  &  Co., 
78  N.  J.  L.  154.  Knapp  &  Co.  v.  Tidewater 
Coal  Co.,  81  Atl.  (N.  J.)  1063.  Nat.  Bk.  v. 
Sixth  Nat.  Bk.,  212  Pa.  238.  {Inquiry 
from  N.  J.,  Sept.,  1915,  Jl.) 

221.  There  are  two  corporations,  one 
of  which  owns  the  majority  of  stock  in 
the  other.  The  corporation  owning  the 
majority  of  stock  is  indorsing  for  the 
other.  Is  this  an  accommodation?  Would 
this  come  under  the  law  avoiding  accommo- 
dation indorsements  by  corporations,  or 
would  the  interest  involved  indicate  that 
it  had  received  some  benefit  and  therefore 
bind  it?  Opinion:  The  general  rule  is  that 
a  corporation  cannot  bind  itself  as  accom- 
modation indorser  for  another  corporation 
or  person.  The  case  might  be  different  if 
the  indorsing  corporation  received  some 
consideration  or  benefit.  It  is  doubtful 
that  the  fact  that  the  indorsing  corporation 
is  part  owner  of  the  other  one,  would  take  it 
out  of  the  rule  that  a  corporation  has  no 
power  to  indorse  for  accommodation  of 
another,  unless  specially  authorized  by  its 
charter.  See  10  Cyc.  1109.  {Inquiry  from 
N.  Y.,  Aug.,  1917.) 

Accommodation  indorsement  hy  hank  of 
banker's  acceptance 

222.  Can  a  bank  under  the  law  lend 
its  indorsement  to  a  banker's  acceptance? 
Opinion:  Wliile  a  bank  can  bind  itself  by 
indorsement  of  its  own  paper,  it  cannot  be 
an  accommodation  indorser,  and  where  a 
bank,  by  agreement  with  a  broker,  buj^s 
paper  in  the  morning  and  indorses  it 
back  in  the  afternoon  for  a  commission, 
such  transaction  is  of  accommodation 
character  and  ultra  vires,  and  a  purchaser 
with  notice  cannot  hold  a  bank  on  such 
indorsement.     (Johnson    v.   Charlottesville 


45 


223-227] 


DIGEST  OF  LEGAL  OPINIONS 


Nat.  Bank,  3  Hughes  [U.  S.]  657.  Bowen 
V.  Needles  Nat.  Bank,  87  Fed.  430.) 
Such  paper,  however,  is  enforceable  against 
the  indorser  by  a  holder  in  due  course. 
(Credit  Co.  v.  Howe  Machine  Co.,  54  Conn. 
387.  Sturdevant  Bros.  v.  Farmers,  etc., 
Bank  [Neb.]  95  N.  W.  819.  Vallett  v. 
Parker,  6  Wend.  [N.  Y.]  615.  Safford  v. 
Wyckoff,  4  Hill  [N.  Y.]  442.  See  also  First 
Nat.  Bank  v.  Munroe  [Ga.]  69  S.  E.  1123.) 
Paper  bearing  accommodation  bank  in- 
dorsements being  susceptible  of  market- 
ability, the  hidden  vice  being  unknown  to 
purchasers,  the  only  remedy  is  through 
action  by  supervising  authorities.  {Inquiry 
from  N.  Y.,  Dec,  1920,  Jl.) 

Accommodation  guarantor  of  payment 

223.  A  bank  submitted  the  following 
form  of  guaranty:  "For  value  received 
I,  or  we,  guarantee  payment  of  the  within 
note  and  hereby  waive  protest,  demand 
and  notice  of  non-payment  thereof."  Is 
this  form  of  any  value  in  the  case  of  a 
note  signed  by  two  parties  but  not  in- 
dorsed? Opinion:  A  contract  of  one  who 
indorses  a  note  in  the  words  above  quoted, 
and  who  receives  no  consideration  or  benefit 
from  the  loan  made  to  the  maker,  is  that  of 
guarantor  of  payment.  Northern  State 
Bk.  V.  Bellamy,  125  N.  W.  (N.  D.)  888. 
He  is  bound  as  guarantor  and  not  as  indors- 
er. Noble  V.  Beeman  etc.,  131  Pac.  (Ore.) 
1006.    {Inquiry  from  Wis.,  March,  1919) 

Accommodation  indorsement  as  a 
valuable  consideration 

224.  Thomas  Doe  secured  the  indorse- 
ment of  Clark  Doe  on  the  former's  note 
and  had  it  discounted  for  his  own  ben- 
efit. At  the  same  time  Thomas  Doe 
executed  a  similar  note  which  he  delivered 
to  Clark  Doe  as  security  for  his  said  in- 
dorsement. Is  Clark  Doe  a  bona  fide  holder 
of  the  security  note?  Opinion:  It  would 
seem  that  the  indorsement  and  surrender 
to  Thomas  Doe  of  note  number  one  was  a 
good  and  sufficient  consideration  to  support 
note  number  two,  which  was  evidently 
given  for  the  purpose  of  indemnifying  Clark 
Doe  for  his  accommodation  indorsement 
on  note  number  one.  It  has  been  held  that, 
upon  an  exchange  of  promissory  notes,  each 
note  is  a  valid  consideration  for  the  other 
and  is  fully  available  in  the  hands  of  the 
holder.  Rice  v.  Grange,  131  N.  Y.  149. 
State  Bk.  v.  Smith,  155  N.  Y.  185.  Newman 
V.  Frost,  52  N.  Y.  422.  Mihns  v.  Kauffman, 
104  App.  Div.  442.  Wilhams  v.  Banks, 
11  Md.  198.  {Inquiry  from  Pa.,  Jan.,  1917) 


Protest 

Not  necessary  to  hold  accommodation  maker 

225 .  A  promissory  note  payable  to  order 
of  and  at  bank  A,  is  signed  by  Richard 
Roe  and  John  Doe,  the  latter  getting 
no  benefit.  Can  Doe  be  held  liable  if  no 
protest  was  made.  Opinion:  If,  instead 
of  signing  on  the  face  of  the  note  under- 
neath the  name  of  Roe,  Doe  had  placed 
his  signature  on  back  before  dehvery, 
he  would  then  be  liable  as  indorser,  and 
demand  and  notice  of  dishonor  at  maturity 
would  be  necessary  to  procure  his  Hability. 
Strict  formal  protest  would  not  be  necessary 
because  the  note  is  not  a  foreign  bill  of 
exchange.  But  Doe  is  not  an  indorser  of  the 
note  but  a  maker,  and  is  liable  thereon, 
although  a  mere  accommodation  maker, 
without  any  necessity  for  demand  and 
notice  of  dishonor.  The  Negotiable  Instru- 
ments Act  expressly  provides  that  "pre- 
sentment for  payment  is  not  necessary  in 
order  to  charge  the  person  primarily  Hable 
on  the  instrument,"  and  it  further  provides 
that  "the  person  'primarily'  hable  on  an 
instrument  is  the  person  who  by  the  terms 
of  the  instrument  is  absolutely  required  to 
pay  the  same."  It  has  been  held  that  an 
accommodation  maker  is  a  person  primarily 
hable,  even  though  he  add  the  word  "surety" 
to  his  signature,  or  the  fact  that  he  signed 
for  accommodation  is  otherwise  known  to 
the  holder.  {Inquiry  from  Minn.,  Aug., 
1914) 

226.  A  promissory  note  whereby  "We, 
or  either  of  us  promise  to  pay"  bank  A 
is  signed  by  John  Doe  and  Richard  Roe, 
the  latter  acting  as  accommodation  maker. 
Bank  A  desires  to  ascertain  its  duty  as 
to  Richard  Roe.  Opinion:  Under  the  Ne- 
gotiable Instruments  Act,  Richard  Roe 
is  primarily  liable  to  pay  this  note,  equally 
as  is  John  Doe.  The  law  does  not  require 
notice  to  him  before  the  note  is  due, 
nor  is  any  demand  of  payment,  protest  or 
notice  of  dishonor,  at  maturity  necessary 
to  preserve  his  liability,  nor  will  a  delay 
of  the  holder  to  proceed  against  John  Doe, 
the  principal,  discharge  Richard  Roe  the 
surety,  from  liability.  Should  Richard 
Roe,  however,  indorse  a  note  for  accommo- 
dation of  the  maker,  he  would  then  be  entitled 
to  due  demand  at  maturity,  and  immediate 
notice  of  dishonor,  and  failure  of  these  steps 
would  discharge  him  from  liability.  {Inquiry 
from  Neb.,  Dec,  1915) 

227.  A  note  is  signed  by  John  Doe, 
John  Smith  and  John  Roe,  the  latter  two 


46 


ACCOMMODATION  PAPER 


[228-232 


receiving  no  benefit  whatever  from  the 
note.  Should  the  note  be  protested  if  not 
paid?  Opinion:  All  parties  are  primarily 
liable  under  the  Negotiable  Instruments 
Act.  There  is  no  necessity  for  protest  if 
not  paid  when  due.  Rouse  v.  Wooten, 
140  N.  C.  557.  Smith  and  Row  would  be 
equally  liable  thereon  with  Doe  and  it  would 
not  be  necessary  to  first  exhaust  the  remedy 
against  Doe  before  proceeding  against 
them.    {Inquiry  from  W.  Va.,Feb.,  1917.) 

Accommodation  signature  or  indorse- 
ment after  delivery 

228.  An  accommodation  indorser  signing 
a  note  after  delivery,  and  after  the  consid- 
eration has  passed  between  the  parties,  is  not 
liable,  unless  there  is  a  new  consideration. 
But  no  new  consideration  is  required  where 
the  note  is  indorsed  pursuant  to  an  agree- 
ment made  prior  to  delivery.  Eitel  v.  Farr, 
165  S.  W.  (Mo.)  1191.  {Inquiry  from  Ala., 
July,  1914,  Jl.) 

Accommodation  maker  subsequent  to  delivery 

229.  H  made  application  to  bank  for 
loan  of  S10,000.  Bank  agreed  to  make  loan 
on  condition  that  A  sign  the  note  with  H. 
However,  A  not  being  available  on  date 
loan  was  consummated,  the  money  was 
delivered  to  H  on  note  signed  by  H  alone. 
Two  days  later  the  note  was  signed  by  A, 
at  the  soHcitation  of  H  and  the  president  of 
the  bank.  A  now  claims  that  he  is  not 
liable  on  note  for  want  of  consideration. 
Is  this  a  good  defense  on  part  of  A? 
Opinion:  A  party  signing  a  note  as  accom- 
modation maker  after  the  note  has  been 
executed  and  dehvered  and  the  consideration 
has  passed,  is  not  hable  thereon  unless  there 
is  a  new  consideration.  (Briggs  v.  Downing, 
48  Iowa  550.  Eitel  v.  Farr  [Mo.]  165  S.  W. 
1191.  Messenger  v.  Vaughan,  45  Mo. 
App.  15).  But  where  signature  is  obtained 
pursuant  to  a  previous  promise  made  by  the 
original  maker,  the  act  will  relate  back  to 
the  inception  of  the  first  contract,  and  the 
accommodation  maker  will  be  bound,  even 
though  he  was  not  a  party  to,  or  had 
knowledge  of  the  promise  at  the  time  it 
was  made,  provided  he  had  knowledge 
thereof  at  the  time  of  signing.  (Mont- 
gomery County  V,  Auehley,  92  Mo.  126.) 
If,  however,  the  subsequent  signature  is 
procured  in  ignorance  by  the  signer  of  the 
original  promise,  no  liability  will  attach. 
In  this  case,  while  A  was  not  a  party  to  the 
agreement  when  made,  his  subsequent 
signature    was    with    knowledge    and    in 


pursuance  of  the  prior  agreement  and  he  is 
therefore  liable  on  the  note.  {Inquiry  from 
Iowa,  Dec,  1920,  Jl.) 

Subsequent  accommodation  indorsement  in 
pursuance  of  prior  arrangement 

230.  A  asked  a  bank  for  a  loan  and 
offered  B  for  indorser.  The  bank  took 
A's  signature  on  the  note,  advanced  him 
money  with  the  understanding  that  B 
should,  and  he  did,  afterwards  indorse 
the  note.  Can  B  be  held  liable  in  case  A 
defaults?  Opinion:  B  can  be  held.  The 
case  is  different  where  there  has  been  no 
arrangement  made  at  the  time  the  advance 
is  made.  In  such  a  case  a  subsequent 
indorsement  by  B  of  a  note  previously 
executed  and  delivered  by  A  upon  which 
money  was  advanced  at  the  time  of  execu- 
tion, would  not  be  binding  on  B  for  want  of 
consideration.  The  rule  is  well  stated  in 
Eitel  V.  Farr,  165  S.  W.  (Mo.)  1191,  which 
holds:  One  who  signs  a  note  after  it  has 
been  executed  and  delivered  and  the  con- 
sideration has  passed  between  the  parties 
incurs  no  liabilit}^  unless  there  be  a  new 
consideration;  but  where  a  note  is  so 
signed  pursuant  to  a  promise  or  agreement 
made  in  advance  of  delivery,  the  act 
relates  back  to  the  inception  of  the  first 
contract  and  no  consideration  is  required. 
{Inquiry  from  Iowa,  Jan.,  1919.) 

231.  A  bank  makes  a  loan  to  A  for  $500 
upon  his  note,  with  the  understanding 
and  agreement  that  B  would  sign  later  as 
accommodation  indorser.  B  afterwards 
comes  to  the  bank  and  signs  the  note.  Opin- 
ion: One  who  signs  a  note  as  accommoda- 
tion indorser  after  its  delivery  and  the  pass- 
ing of  consideration  is  not  liable,  without  a 
new  consideration,  unless  such  indorsement 
is  made  pursuant  to  an  agreement  in  ad- 
vance of  deUvery.  In  this  case  B  is  liable  if 
his  subsequent  indorsement  was  in  pursu- 
ance of  the  prior  agreement.  Montgomery 
Co.  V.  Ouchley,  92  Mo.  126.  Eitel  v.  Farr, 
165  S.  W.  (Mo.)  1191.  Messenger  v. 
Vaughan,  45  Mo.  App.  15.  {Inquiry  from 
Kansas,  Jidy,  1916,  Jl.) 

232.  A  bank  holds  a  note.  After  it 
had  acquired  title  and  parted  with  full  con- 
sideration, and  before  the  maturity  of  the 
note,  a  stranger  to  the  note  and  to  all  trans- 
actions connected  therewith  prior  to  its 
issue,  indorsed  the  same  at  bank's  solicita- 
tion. Is  such  indorser  bound,  or  would  such 
an  indorser  be  bound  if  the  note  was  past 
due,  and  he  had  indorsed  same  because  the 


47 


233-238] 


DIGEST  OF  LEGAL  OPINIONS 


bank  had  agreed  to  carry  the  note  for  a 
while  if  he  did?  Opinion:  In  the  first  case 
the  indorser  is  not  bound.  See  Opinion  233. 
In  the  second  case  the  indorser  would  be 
bound  provided  the  agreement  of  the  bank 
was  binding  on  it  to  extend  the  time  of 
payment  for  a  definite  period.  See  Strone 
V.  Sheffield,  144  N.  Y.  392.  Colver  v. 
Wheeler,  11  Ohio  Civ.  Ct.  Rep.  604.  {In- 
quiry from  Mich.,  Oct.,  1915) 

233.  A  bank  discounted  a  three  months' 
note  of  a  corporation,  indorsed  individually 
by  two  officers  of  the  corporation.  After 
the  expiration  of  one  month,  the  bank,  wish- 
ing further  protection,  requested  the  sig- 
nature of  an  additional  indorser.  Opinion: 
The  additional  indorser  by  indorsing  for  ac- 
commodation could  not  be  held  liable,  as 
there  would  be  no  consideration  to  support 
his  indorsement.  Stoudenmire  v.  Ware, 
48  Ala.  589.  Tousey  v.  Taw,  19  Ind.  212. 
Bingham  v.  Kimball,  17  Ind.  396.  Turtle 
V,  Sargent,  63  Minn.  211.  Security  Bk.  v. 
Bell,  32  Minn.  409.  Wren  v.  Hoffman,  41 
Miss.  616.  Frick  Co.  v.  Hoff,  128  N.  W. 
(S.  Dak.)  495.  {Inquiry  from  N.  Y.,  May, 
1913,  Jl.) 

Liability  of  additional  surety  on  note 

234.  A  loans  B  $10,000,  and  C  signs 
the  note  as  surety.  When  the  note  matures, 
A  becomes  dissatisfied  with  the  security 
for  the  loan,  and  demands  that  D  be 
procured  as  an  additional  surety  before 
he  will  renew  the  note.  Would  D,  the  last 
signer,  be  liable  on  the  note?  Opinion: 
Where,  after  a  note  is  signed  and  dehvered 
by  principal  maker  and  surety,  the  holder 
becomes  dissatisfied,  and  the  maker  pro- 
cures a  third  person  to  sign  as  additional 
surety,  but  not  in  pursuance  of  an  original 
promise  at  the  time  the  note  is  given,  the 
contract  of  the  additional  surety  is  without 
consideration  and  unenforceable.  But  where 
the  note  is  matured  and  the  additional 
surety  signs  to  procure  the  holder  to  renew 
it,  the  renewal  of  the  note  is  a  consideration 
for  the  additional  signature,  and  the  surety 
is  liable  thereon.  Elhs  v.  Clark,  110  Mass. 
389.      {Inquiry  from  Okla.,  Sept.,  1920,  Jl.) 

235.  A  signed  a  promissory  note  in  favor 
of  a  bank,  which  discounted  it  for  him. 
The  understanding  with  A  was  that  B  would 
also  sign  as  surety,  but  B  was  not  pres- 
ent at  the  time.  Later  B  did  sign  as  surety. 
On  A's  failure  to  pay,  payment  is  sought  to 
be  enforced  against  B.  Opinion:  B's  signa- 
ture is  without  consideration  and  not  binding 


unless  made  in  pursuance  of  a  promise  made 
in  advance  of  discount.  Frick  Co,  v.  Hoff 
(N.  Dak.)  128  N.  W.  495.  Lackey  v. 
Boruff  (Ind.)  53  N.  E.  412.  Paul  v.  Stack- 
house,  38  Pa.  302.  Eitel  v.  Farr  (Mo.)  165 
S.  W.  1191.  {Inquiry  from  Texas,  Aug., 
1915,  Jl.) 

Release  by  extension  of  time  of  payment 

236.  A  bank  asks  whether  an  extension 
of  time  may  be  had  as  to  makers  of 
notes  and  indorsers.  Opinion:  A  majori- 
ty of  cases  hold  that  under  the  Negotiable 
Instruments  Act  an  extension  of  time 
granted  the  principal  maker,  does  not  release 
a  non-consenting  surety-maker,  but  that  an 
indorser  who  guarantees  payment  is  dis- 
charged by  an  extension  of  time  without  his 
consent.  It  has,  however,  been  held  in 
Iowa  that,  where  the  question  arises  between 
the  parties,  such  as  between  the  payee  and 
an  accommodation  surety-maker,  the  Act  is 
not  apphcable  for  the  reason  that  the  payee 
in  such  a  case  is  not  regarded  as  a  holder  in 
due  course,  and  hence  an  extension  of  time 
by  the  payee  to  the  principal  debtor  without 
the  consent  of  the  accommodation  joint 
maker  will  release  the  latter.  Fullerton 
L.  Co.  V.  Snouffer,  139  Iowa,  176.  {In- 
quiry from  Iowa,  July,  1918.) 

237.  A  bank  sends  a  copy  of  a  past  due 
note  which  was  signed  by  John  Doe  as 
maker  and  John  Smith  and  Richard  Roe  as 
sureties.  The  bank  desires  a  renewal 
but  is  unable  to  secure  the  signatures  of 
John  Smith  and  Richard  Roe  as  sureties. 
The  bank  desires  to  know  whether,  if  it 
takes  a  renewal  note  from  John  Doe  with 
the  understanding  from  him  alone  that  the 
old  note  be  held  as  collateral,  the  sureties 
upon  the  old  note  would  be  liable  for  the 
payment  of  the  new  note.  Opinion:  The 
taking  of  the  new  note  from  the  maker,  in 
place  of  the  old  note  might  operate  to  dis- 
charge the  sureties;  but  it  has  been  held  that 
where  an  old  note  has  been  retained  as 
collateral  secruity  for  a  new  one  and  there  is 
no  postponement  of  the  remedy  against  the 
sureties,  they  will  remain  liable.  See 
Chattanooga  Sav.  Bk.  v.  Lumby,  185  111. 
App.  110.  {Inquiry  from  Iowa,  June,  1918.) 

238.  A  borrows  $1,000.00  from  bank  on 
negotiable  note,  and  B  and  C  sign  jointly 
with  him  as  sureties.  At  maturity  the 
bank  accepts  renewal  note  signed  by  A 
and  B  only,  and  releases  C.  At  the  time 
B  signed  the  renewal  note  he  understood 
that  C  was  to  sign  it  also.    Can  B  main- 


48 


ACCOMMODATION  PAPER 


[239-241 


tain  an  action  for  release  on  note  on 
the  ground  that  the  bank  released  C 
without  his  consent.  Opinion:  At  common 
law  B  would  be  released  by  the  extension  of 
time  of  payment  without  his  consent,  but 
under  the  Negotiable  Instruments  Act,  being 
a  maker,  a  number  of  cases  hold  that  the 
surety  maker  is  not  discharged  by  an 
extension  of  time  of  payment  but  can  only 
be  discharged  in  one  of  the  ways  provided 
by  the  Act  for  the  discharge  of  a  person 
primarily  Ha})le.  Edmonston  v.  Ascough, 
43  Colo.  55.  Vanderford  v.  Farmers  Bank, 
105  Md.  164.  Lane  v.  Hyder,  163  Mo.  App. 
688,  and  other  cases.  But,  see  contra 
Natl.  Park  Bk.  v.  Koehler,  204  N.  Y.  174. 
(Inquiry  from  Kan.,  Oct.,  1915) 

239.  A  bank  holds  a  note  signed  by 
"X.  Co.,  D,  B,  and  C,"  and  there  was 
given  as  collateral  a  savings  bank  book 
in  D's  name  for  $1,000,  accompanied  by 
an  order  on  the  savings  bank  for  SI, 000, 
signed  by  D.  After  several  renewals  of  the 
note,  D  refused  to  sign  another  renewal, 
and  now  makes  demand  upon  the  bank  for 
his  savings  bank  book.  The  bank  holds 
the  renewal  note  signed  by  X.  Co.,  B 
and  C.  Is  the  bank  obliged  to  surrender 
the  book.?  Opinion:  A  renewal  of  the 
note  under  the  circumstances  related  above, 
without  the  consent  of  accommodation 
maker  D,  does  not  release  D,  and  he  still 
remains  liable  on  the  original  note  which 
has  not  been  surrendered  or  discharged  by 
the  renewals,  and  the  collateral  of  D  held 
by  the  bank  is  not  released.  Bank  v. 
Cooper  (Kan.)  162  Pac.  1169.  Citizens 
Bank  v.  Douglass,  178  Mo.  App.  664. 
Nat.  Park  Bank  v.  Koehler,  204  N.  Y.  174. 
Union  Trust  Co.  v.  McGinty,  212  Mass. 
205,  98  N.  E.  679.  Nortonville  First  Nat. 
Bank  v.  Williams,  164  Ky.  143,  175  S.  W. 
10.  Vanderford  v.  Farmers  etc.  Nat. 
Bank,  105  Md.  164.  Rouse  v.  Wooten, 
140  N.  C.  557.  Richards  v.  Market  Exch. 
Bank  Co.,  81  Ohio  St.  348,  90  N.  E.  1000. 
Adams  v.  Ferguson,  44  Okla.  544,  Cellars 
V.  Lyon,  (Oreg.)  89  Pac.  126.  Graham  v. 
Shephard,  136  Tenn.  418,  189  S.  W.  867. 
Wolstenholme  v.  Smith,  34  Utah  300,  97. 
Pac.  329.  Bradley  etc.  Co.  v.  Heyburn, 
56  Wash.  628,  106  Pac.  170.  Cowan  v. 
Ramsey,  15  Ariz.  533.  Rev.  L.  Mass.  Ch. 
73,  Sees.  136,  137.  And  see  Union  Trust 
Co.  V.  McCrum,  129  N.  Y.  S.  1078.  Gins- 
berg V.  Greenberg,  143  N.  Y.  S.  1017. 
{Inquiry  from  Mass.,  Aug.,  1920,  Jl.) 


Receipt  of  interest  in  advance  prima 
facie  an  extension 

240.  A  bank  holds  a  note  for  $500 
which  was  made  a  j^ear  or  more  ago,  pay- 
able six  months  after  date,  and  has 
twenty  signers.  The  first  signer  received 
value,  and  the  remaining  nineteen  signers 
were  accommodation  makers.  The  note 
was  not  paid  at  maturity,  but  the  interest 
payments  were  thereafter  kept  up  by  the 
principal  maker.  The  accommodation  mak- 
ers disclaim  liabihty  for  the  reason  that 
interest  payments  were  made  and  accepted 
after  maturity.  An  opinion  is  asked 
whether,  under  the  circumstances,  the  ac- 
commodation makers  are  liable.  Opinion: 
The  fact  that  the  note  was  not  paid  at 
maturity  but  the  interest  payments  were 
kept  up  by  the  principal  maker,  is  not 
sufficient  ground  of  defense  by  the  other 
nineteen  makers  who  signed  the  note  for  the 
accommodation  of  the  principal  maker  and 
the  bank  has  an  undoubted  right  of  action 
against  them.  It  has  been  held  in  Pennsyl- 
vania that  the  fact  that  a  person  is  an  ac- 
commodation maker  of  a  promissory  note, 
and  so  known  to  the  lender  who  is  a  holder 
for  value,  does  not  give  the  maker  the 
rights  of  an  indorser  or  surety  or  change 
his  responsibility  for  the  indebtedness  from 
what  it  would  be  as  a  maker  for  value,  and 
he  can  discharge  the  indebtedness  evidenced 
by  the  note  only  as  a  maker  for  value  could 
do,  and  the  giving  of  time  to  the  real  debtor 
cannot  avail  the  accommodation  maker  as 
a  defense  to  an  action  on  the  note.  Del. 
Trust  Co.  V.  Haser,  199  Pa.  St.  17,  followed 
in  Chambers  v.  McLean,  24  Pa.  Super  .Ct. 
567.  It  will  thus  be  seen  that  all  the  signers 
of  the  instrument  would  be  regarded  in 
Pennsylvania  as  primarily  Hable,  and, 
therefore,  not  released  by  an  extension 
granted  the  principal  debtor  without  their 
knowledge  or  consent.  See,  also.  Sec.  29 
of  Pennsylvania  Act  of  May  16,  1901 
P.  L.  194.      {Inquiry  from  Pa.,  Dec,  1913.) 

241.  Would  the  Hability  of  an  accom- 
modation joint  maker  or  indorser  be  affected 
if  the  principal  extended  a  note  by  paying 
up  the  interest  for  a  definite  period  in 
advance?  Opinion:  It  has  been  held  in 
several  cases  that  an  extension  of  time 
to  the  principal  debtor  without  consent 
of  the  surety  docs  not  discharge  an  accom- 
modation joint  maker  from  lialnlity  as  he  is 
primarily  liable  and  under  the  provisions 
of  the  Ncgotialile  Instrument  Act  is  not 
discharged  by  such  extension.  But  an 
accommodation  indorser  is  only  secondarily 


49 


242-2461 


DIGEST  OF  LEGAL  OPINIONS 


liable  and  would  be  discharged  under  the 
express  provisions  of  the  Act.  {Inquiry 
from  S.  C,  Feb.,  1918.) 

242.  A  note  had  been  signed  by  two 
parties,  one  who  received  the  money,  the 
other  acting  as  accommodation  maker. 
The  note  being  past  due,  the  payee  took  a 
new  note  from  the  first  party.  Does  the  ex- 
tension of  the  time  of  payment  release  the 
accommodation  maker?  Opinion:  The  doc- 
trine of  the  law  of  suretyship  that  a  binding 
extension  of  time  by  the  creditor  to  the  pri- 
cipal  debtor  releases  a  non-consenting  surety 
has,  according  to  a  number  of  authorities, 
been  abrogated  by  the  Negotiable  Instru- 
ments Act  where  the  surety  signs  the  instru- 
ment as  one  of  the  makers.  This  point  has 
not  been  decided  in  South  Dakota,  but 
according  to  the  weight  of  authority  the 
accommodation  maker  being  primarily  hable 
would  not  be  released.  Edmonston  v. 
Ascough  (Col.)  95  Pac.  313.  Vanderford 
V.  Farmers  Bk.  (Md.)  66  Atl.  47.  Lane 
V.  Hyder  (Mo.)  147  S.  W.  514.  Cellers  v. 
Meachem  (Ore.)  89  Pac.  426.  Fullerton 
Lumber  Co.  v.  Snouffer,  139  Iowa  176. 
{Inquiry  from  S.  Dak.,  Oct.,  1918,  Jl.) 

243.  A  bank  took  a  renewal  demand 
note  without  the  consent  of  the  accom- 
modation maker,  and  the  bank  inquires 
whether  such  action  released  the  latter. 
Opinion:  The  proposition  is  unquestioned 
that  in  Texas,  where  the  rule  of  the  Ne- 
gotiable Instruments  Act  does  not  yet 
prevail,  an  extension  of  time  by  the  holder 
of  a  note  to  the  principal  maker  without 
the  consent  of  the  surety  maker  will  re- 
lease the  latter  from  hability.  But,  it 
seems,  that  the  taking  by  the  bank  of  a 
demand  note  from  the  principal  maker, 
attaching  as  collateral  (as  appears  to  have 
been  done)  the  old  note,  was  not  such  an 
extension  of  time.  A  demand  note  is  due 
immediately  and  it  seems  clear,  that  at  any 
time  before  the  expiration  of  the  four  years 
statute  of  limitations,  an  action  could  have 
been  brought  against  the  surety  maker, 
even  though  the  bank  held  the  demand 
note.  Where  a  creditor  takes  a  renewal  of  a 
note  maturing  before  a  collateral  note,  the 
surety  on  the  latter  is  not  discharged. 
Healey  v.  Dolson,  8  Ont.  689.  See,  also, 
Stutts  V.  Strayer,  60  Ohio  St.  384,  holding 
that  the  surety  is  not  discharged  by  an 
independent  contract  between  the  principal 
parties,  though  it  may  be  contemporaneous 
and  relate  to  the  same  subject  matter,  but 
does  not  vary  the  contract  of  the  surety. 
Also,  re  Aldred's  Estate,  79  Atl.  (Pa.)  143, 


holding  that  sureties  on  a  demand  note 
given  as  collateral  security  to  an  indorser 
on  another  note  of  the  maker  are  not  re- 
leased from  liability  because  of  renewals  of 
the  other  note  where  there  were  no  re- 
newals or  extensions  of  the  note  which 
they  had  indorsed.  {Inquiry  from  Texas, 
Jan.,  1919.) 

Note:  The  Negotiable  Instruments  Law 
was  passed  in  Texas  in  March,  1919. 
Under  this  law  an  extension  of  time  by  the 
holder  to  the  principal  does  not  release  the 
surety. 

Married  women  as  surety  or 
accommodation  party 

244.  Can  a  wife,  who  indorses  her  hus- 
band's note  simply  as  a  matter  of  accom- 
modation and  without  benefit  to  herself, 
avoid  responsibility  in  case  her  husband 
fails  to  pay  at  maturity?  Opinion:  In 
Connecticut,  prior  to  1877,  married  women 
were  under  common  law  disability  but, 
by  statute  passed  that  year,  a  married 
woman  has  power  to  make  contracts  with 
third  persons  as  if  unmarried  and  be  held 
liable  as  accommodation  indorser  upon  her 
husband's  note.  Wagner  v.  Mutual  Life 
Ins.  Co.,  88  Conn.  536.  Freeman's  Appeal, 
68  Conn.  533.  Kilbourn  v  Brown,  56 
Conn.  149.  Gen.  St.  Conn.  1918,  Ch.  281, 
281,  Sec.  5274.  {Inquiry  from  Conn.,  Aug., 
1919,  Jl.) 

245.  A  bank  loaned  money  to  a  man  on 
a  note  bearing  his  wife's  indorsement,  and 
the  same  was  not  paid.  The  bank  in- 
quires as  to  the  possibility  of  recovery 
against  both  maker  and  indorser.  Opinion: 
By  statute  in  Connecticut  a  married  woman 
may  become  indorser  or  surety  for  her  hus- 
band, and  in  case  of  her  default  her  sepa- 
rate property  may  be  subjected  to  the 
satisfaction  of  the  debt.  Gen.  Stat.  Conn. 
(1888)  Chap.  186  Sec.  2796.  Freeman's 
Appeal,  68  Conn.  533.  {Inquiry  from  Conn., 
Feb.,  1916.) 

246.  Under  the  laws  of  Georgia,  a  woman 
cannot  bind  herself  as  surety  or  accommoda- 
tion indorser,  except  that  she  will  be  held 
liable  thereon  to  a  bona  fide  holder  for 
value  without  notice  of  the  character  of  the 
indorsement.  Park's  Anno.  Code  Ga., 
1914,  Vol.  2,  Sec.  3007.  Farmers,  etc.,  Bk.  v. 
Eubank,  2  Ga.  App.  839.  Booth  v.  Mer- 
chants Bk.,  9  Ga.  App.  650.  Villa  Rica 
Lumber  Co.  v.  Paratain,  92  Ga.  370. 
Schofield  V.  Jones,  85  Ga.  816.  Jones  v. 
Bradwell,     84    Ga.     309.       McDaniel    v. 


50 


ACCOMMODATION  PAPER 


[247-255 


Ackridge,   12  Ga.  App.  79.     {Inquiry  from 
Ga.,  Nov.,  1916,  Jl.) 

247.  A  married  woman  in  Minnesota 
owning  eighty  acres  of  land  Ijecame  surety 
on  the  note  of  another  person.  Opinion: 
A  married  woman  in  Minnesota  has 
capacity  to  bind  herself  as  surety  upon  the 
note  of  another,  and  her  property  is  liable  for 
her  debts  the  same  as  if  unmarried.  Rev. 
L.  Minn.  (Suppl.  1909),  Ch.  72,  Sec.  3607. 
Minn.  Rev.  L.  1905,  Sec.  3335.  N.  AV.  Mut. 
L.  Ins.  Co.  V.  Alhs,  23  Minn.  337.  {Inquiry 
from  Minn.,  Oct.,  1913,  Jl.) 

248.  In  Missouri  a  married  woman  has 
power  to  make  contracts  in  her  own  name 
and  bind  herself  as  surety  upon  her  hus- 
band's note.  Mo.  Rev.  St.  1889,  Sec.  6864. 
Brown  v.  Dressier,  125  Mo.  589.  McCorkle 
V.  Goldsmith,  60  Mo.  App.  475.  Grandy 
V.  Campbell,  78  Mo.  App.  502.  {Inquiry 
from  Mo.,  Oct.,  1913,  Jl.) 

249.  A  note  dated  and  payable  in  New 
York,  and  bearing  the  indorsement  of  a  mar- 
ried woman  who  was  a  resident  of  New  Jer- 
sey, was  presented  at  a  New  York  bank  for 
discount.  Opinion:  In  New  Jersey  a  mar- 
ried woman  cannot  bind  herself  as  accommo- 
dation indorser  or  surety,  unless  estopped  to 
deny  liability.  But  the  bank  has  the  right 
to  presume  that  the  indorsement  was  made  in 
New  York,  where  the  same  is  vahd,  and  the 
married  woman  is  estopped  from  denying 
that  her  indorsement  is  a  New  York  con- 
tract. Vliet  V.  Eastburn,  64  N.  J.  L.  627. 
Union  Nat.  Bk.  v.  Chapman,  169  N.  Y. 
538.  Chemical  Nat.  Bk.  v.  Kellogg,  183 
N.  Y.  92.  {Inquiry  from  N.  J.,  Sept., 
1916,  Jl.) 

250.  In  New  Jersey,  a  married  woman 
cannot  bind  herself  upon  a  note  executed 
for  the  accommodation  of  another  unless  she 
or  her  separate  estate  derives  a  benefit 
therefrom.  But  a  married  woman  can  make 
a  note  for  a  loan  to  herself,  although  in- 
tending to  turn  the  money  over  to  her  hus- 
band. In  such  a  case  a  note  executed  Ijy  the 
married  woman  as  sole  maker,  payable  to  a 
bank  and  indorsed  by  her  husband,  would  be 
safe  as  an  enforcea})lc  instrument,  and  the 
proceeds  should  be  paid  hy  the  bank  to  the 
wife.  Comp.  St.  N.  J.,  1910,  Sec.  5,  p. 
3226.  Vankirk  v.  Skillman,  34  N.  J.  L. 
109.  Peoples  Nat.  Bk.  v.  Schepflin.  73  N.  J. 
L.  29.  Perkins  v.  Elhott,  23  N.  J.  Eq.  526. 
Vliet  V.  Eastburn,  64  N.  J.  L.  627.  Todd  v. 
Bailey,  58  N.  J.  L.  10.  {Inquiry  from  N. 
J.,  March,  1913,  Jl.) 


251.  Under  the  law  of  New  Jersey  a 
married  woman  cannot  bind  herself  as 
accommodation  indorser,  and  the  fact  that 
the  paper  so  indorsed  is  made  by  a  corpora- 
tion, of  which  she  is  a  stockholder,  does  not 
make  the  indorsement  binding  upon  her 
under  the  New  Jersey  statute.  Allen  v. 
Beebe,  63  N.  J.  L.  377.  {Inquiry  from  N. 
J.,  Jan.,  1911,  Jl.) 

252.  A  married  woman  depositor  of 
a  New  Jersey  bank  requested  it  to  cash  a 
check  for  a  woman  friend.  After  first  re- 
quiring its  depositor  whose  name  did  not 
appear  on  check  to  indorse,  the  bank 
handed  the  money  to  her.  The  check  was 
returned  unpaid,  and  the  bank  charged  it 
off  its  depositor's  account.  She  claims  she  is 
not  liable.  Opinion:  Under  the  laws  of 
New  Jersey,  a  married  woman  has  no 
power  to  bind  herself  as  an  accommodation 
indorser,  guarantor  or  surety  of  any  other 
person,  unless  she  or  her  separate  estate 
benefits  therefrom,  directly  or  indirectly. 
Compiled  Laws  1910  (N.  J.)  pp.  3222-6. 
As  it  seems  the  bank's  depositor  did  not 
obtain  the  money  for  her  own  use,  the 
bank  cannot  hold  her  on  her  accommodation 
indorsement.  {Inquiry  from  N.  J.,  Sept., 
1912.) 

253.  A  bank  desires  to  learn  the  legal 
effect  of  a  note  signed  by  a  husband  and 
wife  for  a  loan  obtained  by  the  husband. 
Opinion:  Under  the  provisions  of  Section 
7999  of  the  General  Code  of  Ohio,  a  married 
woman  may  contract  to  the  same  extent 
as  if  she  were  unmarried,  and  would  be 
bound  on  a  note  signed  by  her  husband 
and  herself  for  a  loan  obtained  by  the 
husband.    {Inquiry  from  Ohio,  May,  1918.) 

254.  A  bank  discounted  the  note  of  a 
married  woman,  where  it  contained  a  decla- 
ration that  the  funds  were  for  her  private 
use,  chargeable  against  her  separate  estate. 
Opinion:  Pajnnent  could  be  enforced  by 
the  bank  unless  it  knew  that  the  married 
woman  was  in  fact  a  mere  accommodation 
maker.  In  Ponnsj-lvania  a  married  woman 
can  bind  herself  on  a  note  executed  for  her 
own  benefit,  but  not  as  accommodation 
maker  for  another.  Manor  Nat.  Bk.  v. 
Lowery  (Pa.)  89  Atl.  678.  Purdon's  Dig. 
Pa.  (13th  Ed.  1903)  p.  2451.  Sibley  v. 
Robertson,  212  Pa.  24.  {Inquiry from  Ohio. 
May,  1914.  Jl) 

255.  In  Pennsylvania  every  restriction 
imposed  by  the  common  law  upon  the 
capacity  of  a  married  woman  to  contract 


51 


256-261] 


DIGEST  OF  LEGAL  OPINIONS 


has  been  removed,  except  in  two  cases:  (1) 
she  cannot  become  accommodation  indorser 
maker,  guarantor  or  surety  for  another;  and 
(2)  she  cannot,  unless  her  husband  joins,  con- 
vey or  mortage  her  real  estate.  For  a  cita- 
tion of  decisions  showing  detailed  develop- 
ment of  the  law,  see  Purdon's  Dig.  Pa.  (13th 
Ed.)  p.  2451.  Abell  v.  Chaffee,  154  Pa. 
254.  Hanar  v.  Croney,  13  Pa.  Co.  Ct.  193. 
Peter  Adams  Paper  Co.  v.  Cassard,  206  Pa. 
179.  Hazleton  Nat.  Bk.  v.  Khntz,  24  Pa. 
Super.  Ct.  456.  Patrick  v.  Smith,  165  Pa. 
526.  Harrisburg  Nat.  Bk.  v.  Bradshaw, 
178  Pa.  180.  Brooks  v.  Nat.  Bk.,  125  Pa. 
394.  Harper  v.  O'Neil  194  Pa.  141.  Sibley 
V.  Robertson,  212  Pa.  24.  Wiltbank  v. 
Tobler,  181  Pa.  103.  In  re  Young's  Est. 
(Pa.  1912)  83  Atl.  201.    7  Cyc.  702.    Henry 


V  Bigley,  5  Pa.  Super.  Ct.  503.    {Inquiry 
from  Pa.,  April,  1913.  Jl.) 

256.  A  married  woman  in  Pennsylvania 
has  no  power  to  bind  herself  as  accommoda- 
tion indorser,  whether  it  be  for  the  accommo- 
dation of  her  husband  or  other  maker. 
The  Enabling  Act  of  1893  expressly  excepts 
contracts  of  this  character.  Rathfan  v. 
Locher,  215  Pa.  571.  (Inquiry  from  Pa., 
Sept.,  1910.  Jl.) 

257.  In  West  Virginia  a  married  woman 
can  bind  herself  as  surety  upon  note  of  her 
husband.  Dages  v.  Lee,  20  W.Va.  584. 
Camden  v.  Hiteshew,  23  W.  Va.  236. 
Wilhamson  v.  CHne,  40  W.  Va.,  194.W.  Va. 
Acts  1893,  Chap.  3.  W.  Va.  Code  1913, 
Chap.  66.  {Inquiry  from  W.  Va.,  Dec, 
1914.  Jl.) 


ADVERTISEMENT 


Advertising  of  capital 

258.  A  bank  with  capital  of  $50,000 
has  S30,675  actually  paid  in,  and  wishes 
to  advertise  that  its  capital  is  $50,000. 
Opinion:  No  statute  in  Arkansas  expressly 
prohibits  the  bank  from  so  advertising, 
although  a  certain  statute  providing  that  a 
false  report  with  intent  to  deceive  as  to  the 
condition  of  a  bank  is  a  criminal  offense, 
may  have  application.  Statutes  of  Ark., 
Sec.  1813.  {Inquiry  from  Ark.,  Nov., 
1911.    Jl.) 

Bank  advertising  when  business 
established 

259.  Can  a  bank  advertise  the  fact 
that  it  has  been  established  since  1866, 
although  the  present  owners  did  not  become 
proprietors  until  1914  when  the  bank  was 
incorporated?  Opinion:  It  is  proper  to  ad- 
vertise that  the  business  was  established  in 
1866,  and  incorporated  in  1914.  {Inquiry 
from  N.  J.,  May,  1916.) 

Imprint  of  U.  S.  flag  on  draft 

260.  The  placing  of  a  representation 
of  the  flag  upon  a  draft  or  certificate  of 
deposit,  disconnected  from  any  advertise- 
ment, would  not  violate  the  Missouri 
statute  against  using  the  flag  for  advertising 
purposes.  Rev.  Stat.  Mo.  1909,  Chap.  36, 
Sec.  4884 — 4886  incl.  {Inquiry  from  Mo., 
June,  1917.  Jl.) 

Note:  In  Halter  v.  Nebraska,  205  U.  S. 
34  (decided  by  U.  S.  Sup.  Ct.  in  1907)  it 
was  held  that  no  privilege  of  American 
citizenship  is  denied  by  the  provision  of  Act 


Nebraska  April  8,  1903,  making  it  a  mis- 
demeanor to  use  representations  of  the 
National  flag  upon  articles  of  merchandise 
for  advertising  purposes.  The  Supreme 
Court  of  Illinois  in  1900,  in  Ruhstrat  v. 
People,  57  N.  E.  41,  had  previously  held 
that  the  right  to  use  or  display  the  National 
flag  is  a  privilege  of  a  citizen  of  the  United 
States,  and  Act  IlHnois,  April  22,  1899, 
prohibiting  its  use  for  advertising  purposes, 
thereby  abridges  privileges  and  immunities 
of  a  citizen  of  the  United  States. 

Imprint  of  U.  S.  flag  on  bank's 
statement  folder 

261.  A  bank's  statement  folder  showing 
its  condition  and  used  for  advertising 
purposes  contains  an  imprint  of  the  like- 
ness of  the  United  States  flag.  Opinion: 
There  is  no  Federal  statute  prohibiting  such 
imprint;  the  extent  of  Federal  legislation  on 
the  subject  is  to  prohibit  the  use  of  the  flag  as 
a  trade  mark.  While  the  New  York  statute 
in  regard  to  the  desecration  and  improper 
use  of  the  United  States  and  New  York  State 
flags  expressly  provides  that  it  shall  not  apply 
to  a  newspaper,  pamphlet  or  circuliar  on 
which  the  flag  is  printed  or  painted  discon- 
nected from  any  advertisement,  the  state- 
ment folder  might  be  deemed  an  advertise- 
ment of  the  bank's  business  and  it  would  be 
safer  to  consult  the  District  Attorney  of  the 
County  before  imprinting  the  flag  on  the 
folder.  U.  S.  Comp.  Stat.  1918.  Sec. 
9490.  N.  Y.  Penal  Law  ,Sec.  1425,  Subsec. 
16.  People  V.  van  De  Carr,  178  N.  Y.  425. 
{Inquiry  from  N.   Y.,  June,  1914-  Jl-) 


52 


ALTERED  AND  RAISED  PAPER 


[262-268 


262.  Until  the  Massachusetts  Act  of 
1913  prohibiting  the  misuse  of  the  United 
States  flag  is  judicially  construed,  it  would 
be  unsafe  for  banks  in  that  state  to  imprint 
such  flag  upon  their  statement  folders.  Rev. 
Laws  of  Mass.  1913,  Chap.  464  {Inquiry 
from  Mass.,  Sept.,  1914.  Jl.) 

263.  Inquiry  is  made  whether  the 
imprint  of  the  U.  S.  flag  on  a  bank's 
statement  folder  is  legal.  Opinion:  The 
Act  of  the  Pennsylvania  legislature  of 
April  29,  1897,  provides  that  any  person 
"who  shall  *  *  *  use  said  flag  (American 
flag)  for  advertising  any  business  or  trade 
whatsoever,  shall  be  guilty  of  a  felony." 
The  Act  of  May  23,  1907,  prohibits  among 
other  things,  the  unlawful  use  of  the  flag  or 
any  representation  thereof  for  advertising 
purposes,  but  provides  that  the  Act  shall  not 
be  "construed  to  apply  to  a  newspaper, 
periodical,  book,  pamphlet,  circular,  cer- 
tificate, diploma,  warrant  or  commission 
of  appointment  to  officer,  ornamental  pic- 
ture or  badges,  or  stationery  for  use  in 
correspondence,  on  any  of  which  shall  be 
printed,  painted,  or  placed  said  flag,  or 
representation  thereof,  disconnected  from 
any  advertisement  for  the  purpose  of  sale, 
barter,  or  trade."  See  5  Purdon's  Digest 
Supplement,  pp.  2534,  5529.  In  view 
thereof,  it  seems,  the  imprint  of  the  flag 
on  the  bank's  statement  folder,  which  is  an 
advertisement  of  the  bank's  business,  would 
probably  come  within  the  prohibition  of  the 
Act.    {Inquiry  from  Pa.,  June,  1917.) 


Imprint  of  U.  S.  flag  on  circulars 

264.  Two  circulars  are  submitted  bearing 

the  imprint  of  U.  S.  flag  urging  planting 
of  additional  food  crops.  Opinion:  It  does 
not  seem  these  circulars  would  violate  the 
Virginia  Act  for  it  permits  the  imprint  of 
the  flag  on  circulars  where  disconnected  with 
any  advertisement.  {Inquiry  from  Va., 
May,  1917.) 

False  advertisement  by  national  bank 

265.  A  bank  complains  and  asks  if  the 
National  Banking  Laws  permit  a  national 
bank  to  use  advertisements  reading  as  fol- 
lows:    "Uncle  Sam  guarantees  protection 

to  all  depositors  in   the  Bank." 

Opinion:  It  seems  there  is  nothing  in  the 
National  Bank  Laws  wliich  would  make 
criminal  the  publishing  of  an  untrue 
advertisement  by  a  national  bank  of  the 
character  described.  But  it  is  quite  certain 
that  if  the  matter  were  brought  to  the 
attention  of  the  Comptroller  of  the  Currency, 
he  would  probably  be  able  to  correct  this 
practice.  The  publishing  of  an  untrue 
advertisement  such  as  the  alcove  indicated, 
might  come  within  the  provisions  of  Chapter 
43  of  the  Laws  of  West  Virginia,  1015, 
entitled  "An  Act  to  provide  against  fraudu- 
lent advertising  and  fixing  penalties  for  its 
violation."  It  might  be  well  to  call  this 
matter  to  the  attention  of  the  local  prosecut- 
ing officer  and  obtain  his  views.  {Inquiry 
from  W.  Va.,  Aug.,  1917.) 


ALTERED  AND  RAISED  PAPER 


Difference   between   forged   and   raised 
check 

266.  Is  a  check  that  has  been  raised, 
with  signature  genuine,  considered  forgery, 
or  considered  a  raised  check?  Opinion: 
When  a  genuine  check  is  raised,  it  is  ma- 
terially altered,  and  a  material  alteration 
of  the  amount  would  constitute  forgery 
equally  as  if  the  signature  were  forged. 
Popularly,  however,  such  a  check  is  re- 
ferred to  as  a  raised  check,  while  in  a  case 
of  forgery  of  the  signature  it  is  more  gen- 
erally referred  to  as  a  forged  check.  In 
case  of  forgery  of  signature,  the  bank  which 
pays  cannot  recover  from  a  Ijona  fide  holder 
receiving  payment.  In  the  case,  however, 
of  a  genuine  check  raised  in  amount,  the 
payor  bank  has  right  of  recover3^  {Inquiry 
from  Ohio,  Dec,  1917.) 


Responsibility  of  paying  teller  to  bank 

267.  A  check  for  S5  was  raised  to  $250 
and  the  name  of  payee  erased  and  bearer 
inserted.  It  was  paid  by  a  teller  in  viola- 
tion of  his  instructions  not  to  pay  a  bearer 
check  in  excess  of  $100.  Opinion:  The 
l)ank  is  responsible  to  its  customer  and  the 
teller  is  hable  to  the  bank.  {Inquiry  from 
N.  Y.,  Dec,  1908,  Jl.) 

268.  Where  a  bank  paid  a  raised  check, 
and  there  were  no  exceptional  circumstances 
of  negligence  on  the  drawer's  part,  it  cannot 
charge  the  raised  amount  to  the  customer's 
account.  In  the  absence  of  gross  or  inexcus- 
al)le  neglect,  a  bank  officer  or  minor  official 
is  not  personally  liable  for  a  mistake  in 
paying  such  check.  Belknap  v.  Nat.  Bk. 
of  North  America,  100  Mass.  380.  Union 
Bk.   V.   Knapp,   3   Pick.    (Mass.)   96,   108 


53 


269-273J 


DIGEST  OF  LEGAL  OPINIONS 


Union  Bk.  v.  Clossey,  10  Johns.  (N.  Y.) 
27L  Bolles'  "Modern  Law  of  Banking," 
p.  383.  {Inquiry  from  Me.,  March,  1909,  J  I.) 

Payor  bank's  right  of  recovery 

269.  Bank  A  paid  $80.00  on  a  check 
that  had  been  raised  from  $8.00  and  for- 
warded it  to  the  drawee  bank  which 
charged  drawer's  account  with  $80.00.  The 
latter  requests  A  to  reimburse  him  to  the 
extent  of  $72.00.  Opinion:  The  general 
rule  is  that  a  drawee  bank  which  pays  a 
raised  check  to  the  holder  may  recover  the 
amount  paid,  as  money  paid  under  mistake 
of  fact.  Redington  v.  Woods,  45  Cal.  406. 
Some  courts  hold  that  the  indorsement  of 
the  holder  in  such  case  amounts  to  a  repre- 
sentation and  warranty  that  the  check  is 
genuine,  upon  which  the  drawee  bank  may 
rely.  Cit}^  Bank  of  Houston  v.  First  Nat. 
Bank,  45  Tex.  203.  Under  the  authorities 
A  is  liable  to  the  drawee  bank  for  the  excess, 
namely  $72.00,and  the  drawee  is  responsible 
for  this  amount  to  the  drawer.  Probably, 
also,  the  drawer  could  recover  directly  from 
bank  A,  where  the  drawee  has  not  credited 
him  with  the  amount.  (Inquiry  from  Ala., 
June,  1920.) 

Bank  responsible  for  signature  hut  not  for 
amount 

270.  A  issues  his  check  on  bank  B  in 
favor  of  C  for  $5.00.  C  raises  the  check 
to  $50.00  and  cashes  it  for  latter  amount 
at  a  saloon.  The  saloon  keeper  D,  who  is  a 
customer  of  bank  A,  indorses  it,  and  cashes 
it  at  that  bank,  receiving  $50.00.  B  asks 
if  it  can  recover  from  its  customer  D.  Opin- 
ion: Bank  B  has  an  undoubted  right  to 
recover  from  D,  the  raised  amount.  It  is 
uniformly  held  that  when  a  bank  has  paid  a 
check  which  has  been  raised  or  altered,  it 
may  recover  the  amount  from  the  person  to 
whom  payment  was  made,  although  he  was 
a  holder  in  good  faith.  The  bank  is  not 
responsible  for  the  amount,  the  same  as  it  is 
for  the  drawer's  signature.  See  Redington 
V.  Woods,  45  Cal.  406.  Crocker- Woolworth 
Nat.  Bank  v.  Nevada  Bank,  139  Cal.  564, 
73  Pac.  456,  63  L.R.A.  245,  96  Am.  St.  Rep. 
169.    {Inquiry  from  Cal.,  June,  1914-) 

Money  paid  under  mistake  of  fact  is  ground 
for  recovery 

271.  The  payee  of  a  check  drawn  on 
bank  B  indorses  it  in  blank  and  deposits 
with  bank  A  which  credits  amount  to  his 
account.  A  indorses  "Pay  to  any  bank 
or  banker.    Previous  indorsements  guaran- 


teed" and  sends  check  to  B  where  it  is  paid 
and  cancelled.  Later  on  it  is  discovered 
that  the  check  has  been  altered.  A  paid  out 
amount  of  altered  check  to  its  depositor  and 
cannot  recover  from  him,  and  asks  if  it  is 
obliged  to  refund  to  B.  Opinion.  Bank  A 
held  the  check  under  blank  indorsement 
and  was  apparent  owner.  It  is  clearly 
liable  for  the  money  collected  thereon, 
whether  it  indorsed  the  same  to  the  drawee, 
"Pay  any  banker,"  or  indorsed  specifically 
to  the  drawee,  or  indorsed  the  same  in  blank 
or  did  not  indorse  at  all.  The  ground  of 
liability  is  that  bank  A  has  received  money 
paid  under  mistake  of  fact  without  con- 
sideration, to  which  it  is  not  entitled  and 
which  it  must  refund.  The  case  would  be 
different  if  the  signature  of  the  drawer  was 
a  forgery.  {Inquiry  from  Colo.,  Nov.,  1917.) 

"Cash"  substituted  for  payee's  name 

272.  A  check  is  altered  by  scratching 
out  the  payee's  name  and  writing  "cash" 
above  it.  The  check  is  indorsed  "Pay  to 
any  bank  or  banker,  prior  indorsements 
guaranteed."  The  depositor  claims  the 
alteration  was  not  authorized.  Has  the 
payor  l^ank  recourse  upon  the  bank  to  which 
payment  was  made?  Opinion:  Payment, 
of  course,  is  not  chargeable  to  the  depositor 
where  the  alteration  was  made  without  his 
authority.  The  money,  however,  is  re- 
coverable from  the  bank  to  which  payment 
was  made,  unless  that  bank,  being  an  agent, 
has  turned  over  the  proceeds  to  its  principal, 
in  which  event,  the  right  of  recovery  would 
be  against  the  latter.  {Inquiry  from  La., 
Nov.,  1915.) 

Right  of  recovery  though  check  poorly  raised 

273.  A  check  which  had  been  raised 
from  $5.00  to  $25.00  was  deposited  with 
bank  A  by  a  customer  who  had  received 
it  from  an  employee,  which  collected  from 
drawee  the  raised  amount.  Shortly  after- 
wards the  drawee  bank  returned  the  check 
to  A,  supported  by  an  affidavit  from  the 
maker,  stating  that  the  check  had  been 
raised,  and  asked  A  to  remit  the  difference, 
$20.00.  The  work  in  raising  the  check  was 
poorly  done.  Who  is  responsible?  Opinion: 
The  drawee  bank  which  pays  a  raised  check 
has  a  right  of  recovery  from  the  bank  receiv- 
ing payment.  If  the  check  has  been  raised 
from  $5.00  to  $25.00,  A,  which  collected  the 
check  from  the  drawee  bank,  should  remit 
the  difference  of  $20.00,  and  it  has  in  turn 
recourse  upon  its  customer.  The  ultimate 
loser  would  be  the  one  who  cashed  the  check 


54 


ALTERED  AND  RAISED  PAPER 


[274-279 


for  the  forger.  If  it  was  A's  customer,  he  is 
the  loser.  If  the  emploj'ee  of  the  customer, 
then  he  is  the  loser,  and  must  refund 
S20.00  to  A's  customer.  {Inquiry  from  III., 
June,  1916.) 

Amount  raised  and  payee  changed 

274.  Bank  A  presented  to  Bank  B  for 
payment  two  checks,  each  of  which  has 
been  raised  and  the  name  of  each  payee 
changed.  The  checks  were  indorsed  "All 
prior  indorsements  guaranteed,"  and  were 
paid  by  bank  B.  Can  bank  B  recover? 
Opinion:  The  rule  is  well  settled  that, 
where  a  bank  pays  a  check  drawn  upon  it 
which  has  been  fraudulently  and  materially 
altered,  it  may  recover  from  the  bank  or 
person  who  has  received  payment  under  the 
general  rule  that  money  paid  under  a  mis- 
take of  fact  is  recoverable.  See,  for  ex- 
ample. White  V.  Cont'l  Bk.,  64  N.  Y.  316. 
also,  Redington  v.  Woods,  45  Cal.  406. 
Cont'l  Nat.  Bk.  v.  Met.  Nat.  Bk.,  107  111. 
App.  455.  Third  Nat.  Bk.  v.  Allen,  50  Mo. 
310.  Nat.  Pk.  Bk.  v.  Eldred  Bk.,  90  Hun. 
(N.  Y.)  285.  Nat.  City  Bk.  v.  Westcott, 
26  Week,  Dig.  (N.  Y.)  161.  Oppenheim  v. 
West  Side  Bk.,  22  Misc.  Rep.  (N.  Y.)  722. 
Under  the  law,  therefore,  bank  A  is  liable  to 
reimburse  bank  B  for  the  amount.  (Inquiry 
from  Me.,  Nov.,  1920.) 

275.  A  check  upon  which  the  payee's 
name  was  changed  and  the  amount  raised 
was  paid  by  the  drawee  bank.  A,  which 
received  it  from  bank  B.  The  check  bore 
the  indorsements  of  the  fictitious  payee 
and  of  another  person,  and  there  was 
no  evidence  of  alteration  apparent.  Who 
loses?  Opinion :  The  rule  is  well  established 
that  the  drawee  bank  which  pays  a  check 
which  has  been  raised  or  otherwise  altered, 
the  drawer's  signature  being  genuine,  has 
a  right  of  recovery  of  the  money  paid.  In 
this  case  A  has  a  clear  right  of  recovery 
from  B,  and  the  ultimate  loser  will  be  the 
person  who  cashed  the  check  for  the  forger. 
{Inquiry  from  Pa.,  July,  1920.) 

Raising   of  marginal  figures   only 

276.  A  check  drawn  on  bank  A  for 
$210  was  altered  bj'^  changing  the  figures 
to  read  $240,  the  true  amount  written 
in  the  body  of  the  check  being  unchanged. 
The  check  was  deposited  in  bank  B  which 
credited  depositor  with  the  raised  amount, 
and,  through  regular  channels  collected 
same  from  bank  A.  About  six  months 
later  the  maker  of  the  check  threatened 
suit  against  bank  B  for  the  difference, 


Can  he  recover?  Opinion:  The  law  is 
settled  that,  where  a  bank  in  good  faith  and 
without  negligence  pays  to  an  innocent 
holder  a  check  drawn  upon  it  which 
has  been  raised,  it  may  recover  from 
such  holder  the  amount  of  the  excess  paid, 
as  money  paid  under  mistake  of  fact.  Under 
this  rule  bank  B  would  be  liable  to  bank  A 
for  the  excess  over  the  true  amount  of  the 
check,  or,  if  the  maker  permitted  the  drawee 
to  charge  the  full  amount  to  his  account,  B 
would  be  liable  therefor  to  the  maker.  The 
courts  hold  that  the  drawee  is  under  no 
more  oljligation  than  is  the  holder  of  the 
check  to  know  that  it  has  been  raised.  B's 
sole  recourse  is  upon  its  depositor.  {Inquiry 
from  Miss.,  June,  1920.) 

277.  A  bank  which  takes  from  the 
payee  a  check  raised  from  $2  to  $200, 
and  receives  the  full  amount  thereon  from 
another  bank,  is  responsible  to  the  latter  for 
the  amount,  such  latter  bank  being  respon- 
sible to  the  drawee  from  whom  it  has 
collected  the  full  amount.  Park  Bk.  v. 
Eldred  Bk.,  90  Hun  (N.  Y.)  285.  Neg.  Inst. 
A.,  Sec.  66  (Comsr's.  dft.).  {Inquiry  from 
Mo.,  April,  1910,  Jl.) 

Typewritten  amount  raised 

278.  A  railroad  company  issued  a  check 
on  bank  A  to  B  for  $1.20,  which  was 
raised  to  $54.20,  the  filling  in  being  type- 
written. B  indorsed  and  passed  it  to  C  who 
in  turn  indorsed  and  gave  it  to  D,  and  the 
latter  indorsed  and  deposited  it  in  bank  E 
which  collected  raised  amount  from  A.  All 
the  indorsers  disclaimed  any  knowledgeof  the 
check  being  altered,  and  bank  A  demanded 
that  the  check  be  taken  up  by  E.  Opiiiion: 
A  bank  is  authorized  to  pay  only  in  con- 
formity with  the  order  of  its  depositor,  and 
if  it  pays  a  check  which  has  been  materially 
altered  after  it  has  left  the  depositor's 
hands,  it  cannot  charge  the  payment  to  the 
drawer,  except  for  the  amount  for  which  the 
check  was  originally  issued.  But  a  bank 
which  pays  a  raised  check  has  a  right  of 
recovery  from  the  one  to  whom  paid,  and, 
in  the  present  case  bank  A  which  paid  the 
check  can  charge  but  $1.20  of  the  amount 
to  the  railroad  company's  account  and  has 
the  right  to  recover  the  excess  from  bank  E 
which  received  payment.  E  in  turn  has  the 
right  to  charge  such  excess  back  to  its  cus- 
tomer who  in  turn  has  recourse  on  the  prior 
indorsers.     {Inquiry  from  Mo.,  Feb.,  1915.) 

279.  A  deposited   a    check    calhng  for 
00  which  he  had  cashed  for  the  payee, 


55 


280-284] 


DIGEST  OF  LEGAL  OPINIONS 


with  bank  B  which  credited  his  account 
with  it  and  charged  the  $80.00  to  the 
account  of  another  customer  who  drew 
the  check.  It  was  learned  shortly  after- 
wards that  the  check  had  been  raised  from 
$8.00  to  $80.00  by  the  payee.  The  check 
was  not  protected  in  any  way,  and  the  bank 
asks  if  it  should  immediately  charge  it  back 
to  A?  Opinion:  A  bank  is  authorized  to 
pay  money  from  the  account  of  a  depositor 
only  in  conformity  with  his  order  and  if  it 
pays  a  check  which  has  been  raised  or  ma- 
terially altered  after  issue  it  cannot,  as  a 
general  rule,  charge  the  payment  to  the 
drawer.  In  the  present  case  there  appears 
to  be  no  negligence  on  the  part  of  the  drawer 
which  would  make  him  responsible,  but  the 
bank  would  be  entitled  to  recover  from  the 
party  to  whom  payment  was  made.  The 
check  should  be  charged  to  the  drawer  for 
$8.00  only,  and  $72.00,  representing  the 
raised  amount,  should  be  charged  back  to 
A  from  whom  the  bank  received  the  check. 
He  is  entitled  to  credit  for  $8.00  only,  and 
that  is  all  that  can  be  charged  against  the 
drawer  of  the  check.  {Inquiry  frym  N.  H., 
March,  1915.) 

280.  A  bank  paid  its  customer's  check 
for  $80  to  another  customer.  Ten  days  later 
it  was  advised  that  the  check  had  been 
raised  from  $8.  Opinion:  The  drawer  is 
not  chargeable  unless  he  had  left  blanks 
in  the  check  which  the  holder  wsa  able  to 
fiU  out  without  suspicion.  In  the  absence  of 
such  neghgence  the  drawer  is  chargeable 
with  $8  and  the  sum  of  $72  representing  the 
raised  amount  is  properly  chargeable  against 
the  other  customer.  Leather  Mfg.  Nat.  Bk. 
V.  Morgan,  117  U.  S.  96.  Critten  v.  Chem- 
ical Nat.  Bk.,  171  N.  Y.  219.  Redington  v. 
Woods,  45  Cal.  406.  Bk.  of  Commerce  v. 
Union  Bk.,  3  N.  Y.  326.  (Inquiry  from  N. 
H.,  Oct.,  1915,  Jl.) 

Cash  for   deposit   stolen   hy   messenger   and 
raised  check  substituted 

281.  The  payee  of  a  check  sent  it  for 
deposit  with  other  checks  and  cash  to  bank 
A,  by  messenger,  who  raised  the  check 
and  took  raised  amount  from  the  cash, 
making  out  a  new  deposit  slip  to  conform 
to  alteration.  The  drawee  bank  paid 
the  check  and  asks  reimbursement  from 
bank  A.  Upon  whom  does  the  loss  fall? 
Opinion:  It  is  uniformly  held  by  the  courts 
that  the  drawee  bank  which  pays  a  raised 
check  may  recover  the  increased  amount 
from  the  person  to  whom  payment  was 
made.    Bank  of  Commerce  v.  Union  Bank, 


3  N.  Y.  230.  National  City  Bank  v. 
Westcott,  118  N.  Y.  468,  23  N.  E.  900  16 
Am.  St.  Rep.  771.  And  in  this  case  the 
drawee  has  a  right  of  recovery  from  bank  A, 
but  as  the  check  had  been  indorsed  by  the 
payee  before  the  messenger  who  took  it 
to  that  bank  for  deposit  has  raised  it, 
probably,  also,  bank  A  can  recover  from  the 
payee,  because  the  cash  was  stolen  from 
the  payee  by  his  own  agent  before  making 
the  deposit  and  bank  A  credited  the  payee 
with  an  amount  greater  than  the  true 
amount  of  the  checks  deposited.  (Inquiry 
from  N.  Y.,  Nov.  1915.) 

Check  filled  out  hy  payee  for  drawer 

282.  A,  who  owed  B  $2,  hadhim  fill  out 
a  check  for  that  amount,  and  then  signed 
it.  B  raised  the  check  to  $21  and  cashed 
it  for  that  amount  with  C  who  received 
cash  for  it  from  bank  D.  The  latter  col- 
lected the  raised  amount  from  the  drawee 
bank  which  two  weeks  later  discovered 
the  fraud.  Bank  D,  being  requested  imme- 
diately afterwards  to  do  so,  refused  to  refund 
the  difference  to  the  drawee  bank.  Opinion; 
There  being  no  forgery  of  the  drawer's 
signature,  but  the  amount  being  raised,  the 
decisions  are  to  the  effect  that  the  drawee 
bank  which  pays  the  check  may  recover  the 
excess  from  the  bank  receiving  payment, 
and  in  this  case  bank  D  is  responsible  for 
the  amount.  (Inquiry  from  Okla.,  Feb., 
1915.) 

283.  Bank  A  cashed  two  checks  pur- 
ported to  be  for  $50  each,  and  received 
payment  from  the  drawee  bank  B.  Later 
it  was  discovered  that  the  checks  had  been 
raised  from  $5.00  to  $50.00,  and  bank  A 
asks  whether  it  is  hable  to  bank  B  for  the 
difference  between  the  original  amount  of 
the  checks  and  the  amount  for  which  they 
were  cashed.  Opinion:  The  rule  of  law  is 
that  a  drawee  bank  which  pays  a  check  that 
has  been  raised  in  amount  has  a  right  of 
recovery  of  the  excess  from  the  holder  re- 
ceiving payment  and  can  only  charge  the 
amount  of  the  original  check  to  the  drawer. 
It  would  seem  under  the  facts  stated  there 
is  a  clear  habiUty  on  the  bank's  part  for  the 
$90  excess  over  the  original  amount  of  the 
two  checks.  Bank  A's  recourse  is  upon  the 
person  from  whom  it  received  the  checks. 
(Inquiry  from  Texas,  July,  1919.) 

Alteration  apparent  on  face  of  check 

284.  A  check  raised  from  $6.71  to 
$16.71  after  passing  through  several  in- 
dorsers'    hands    was    sent    by  a  collecting 


56 


ALTERED  AND  RAISED  PAPER 


[285-290 


bank  to  drawee  Ijank  which  paid  the  raised 
amount.  The  alteration  was  not  skillfully 
done,  and  the  check  was  marked  by  a  pro- 
tectograph,  very  indistinctly  "Not  over  ten 
dollars."  Who  is  the  loser?  Opinion:  The 
drawee  which  pays  a  raised  check  has  a 
right  of  recovery  from  the  person  to  whom 
paid.  The  drawee  is  no  more  responsible 
for  knowing  the  correctness  of  the  amount 
than  is  the  holder.  There  is  a  right  of  re- 
course by  the  drawee,  and  all  along  down  the 
the  line  of  indorsers,  and  the  loser  will  be  the 
indorser  who  first  acquired  the  check  after 
it  had  been  raised.  {Inquiry  from  Iowa, 
Oct.,  1915.) 

285.  A  customer  presented  for  deposit 
to  his  account  a  check,  the  body  of  which 
was  visibly  altered.  The  bank  refused  to 
receive  the  check,  taking  the  position  that 
the  amount  should  be  properly  authenti- 
cated by  the  maker  or  a  new  check  issued. 
Opinion:  If  the  check  was  raised,  the 
drawee  paying  the  same  could  recover  the 
money  paid.  The  bank  would  not  be  safe  in 
receiving  such  check  for  collection  and 
should  send  the  check  back,  rather  than  for- 
ward it  for  payment  or  rejection  and  thus 
avoid  correspondence  and  trouble.  {Inquiry 
from  N.  Y.,July,  1913,  Jl.) 

286.  A  check,  the  date  of  which  was 
apparently  altered,  was  presented  for  pay- 
ment and  was  refused  by  the  drawee. 
Opinion :  The  safer  course  for  the  collecting 
bank  was  to  protest  the  check  for  non-pay- 
ment, although  such  protest  would  not  be 
necessary  if  it  later  developed  that  the  alter- 
ation was  not  authorized  and  the  instrument 
was  not  vahd.  Elias  v.  Whitney,  50  Misc. 
(N.  Y.)  326.  {Inquiry  from  N.  J.,  Oct., 
1912,  Jl.) 

287.  A  gave  his  check  to  B  for  S3.60 
who  raised  the  amount  to  $93.60  and 
cashed  the  check  at  C's  store.  It  was 
deposited  in  bank  D  which  collected  from 
the  drawee  bank.  Some  slight  evidences  of 
alteration  appear  on  the  face  of  the  check. 
Who  loses?  Opinion:  The  general  rule  is 
that,  as  between  the  payor  bank  and  the 
persons  through  whose  hands  a  forged  or 
altered  check  may  pass,  the  bank  is  respon- 
sible only  for  the  genuineness  of  the  maker's 
signature,  and  where  the  bank  pays  money 
by  mistake  on  a  raised  or  altered  check, 
may  recover  it  back  from  the  person  to 
whom  it  was  paid,  provided  that  the  bank 
has  not  been  guilty  of  culpable  negligence 
in  making  the  payment.  In  this  case,  al- 
though the  check  might  have  a  somewhat 


suspicious  appearance,  a  court  would  proba- 
bly hold  that  the  holder  who  purchased 
the  check  had  equal  opportunity  as  the 
drawee  which  paid  it  to  have  seen  the  altera- 
tion and  that  if  the  purchaser  took  it  to  be 
all  right  the  bank  was  equally  entitled  to 
regard  it  as  all  right,  and  that,  therefore,  the 
drawee  bank  was  entitled  to  recover  from 
prior  parties  thereon  the  difference  between 
the  original  and  the  raised  amount,  that  is  to 
say,  S90.     {Inquiry  from  Ohio,  Aug.,  1917.) 

288.  A  bank  paid  a  check,  raised 
from  $20.90  to  $40.90.  The  alteration 
was  apparent  on  the  face  of  the  check. 
Opinion:  The  drawee  bank  can  recover  the 
money  as  paid  without  consideration  in  the 
absence  of  special  circumstances  of  negli- 
gence or  laches  making  it  liable.  The  fact 
that  the  alteration  was  plainly  shown  does 
not  prevent  recovery,  as  such  fact  is  equally 
apparent  to  the  holder.  {Inquiry  from  Ore., 
April,  1916,  Jl.) 

Apparent   overdraft   created   by   payment   of 
raised  check 

289.  A  check  drawn  on  bank  A  that 
had  been  raised  was  cashed  by  bank  B 
which  collected  the  raised  amount  from  A  al- 
though the  amount  called  for  by  the  raised 
check  overdrew  the  account  of  the  latter's 
customer.  It  is  asked,  should  not  this  fact 
have  put  the  drawee  bank  on  inquiry,  and, 
under  the  circumstances  can  B  be  held 
Uable?  Opinion:  The  fact  that  the  aniount 
called  for  by  the  raised  check  resulted  in  an 
overdraft,  would  not  necessarily  put  the 
drawee  bank  on  inquiry  as  to  the  genuine- 
ness of  the  amount  and  constitute  such 
neghgence  as  to  prevent  it  from  recovering. 
Depositors  not  infrequently  overdraw  their 
accounts,  and  this  would  hardly  seem  to 
charge  the  bank  with  notice  that  the  check 
was  raised.  The  presenting  bank  is  probably 
responsible.  {Inquiry  from  Kan.,  April, 
1916.) 

290.  A  check  was  raised  from  $5.50 
to  $65.50,  and  cashed  at  the  drawee 
bank.  The  alteration  was  poorly  done  and 
easily  detected,  and  the  next  day  the  bank 
notified  the  drawer  that  his  account  was 
overdrawn,  ])ut  the  latter  paid  no  attention 
to  the  matter  for  several  months.  Who 
should  bear  the  loss?  Opinion:  The  bank 
can  only  charge  its  depositor  with  $5.50  on 
this  check  and  must  be  the  loser  of  the 
$60.00.  It  has  been  held  in  numerous  cases 
that  a  bank  is  authorized  to  pay  only  in 
conformity  with  the  order  of  its  depositor 


57 


291-295] 


DIGEST  OF  LEGAL  OPINIONS 


and  if  it  pays  a  check  that  has  been  material- 
ly altered  after  it  has  left  the  depositor's 
hands,  it  cannot  charge  the  payment  to  the 
drawer.  In  this  case  the  check  was  a  valid 
order  for  $5.50  only — that  was  all  the 
drawer  authorized  and  ordered  the  bank  to 
pay.  There  are  exceptional  cases  where  a 
depositor  has  been  negligent  in  so  drawing 
a  check  as  to  facilitate  the  fraud  in  which  he 
has  been  held  responsible  therefor.  But 
such  is  not  this  case.  The  fact  that  the  bank 
notified  the  drawer  that  his  account  was 
overdrawn  and  that  he  did  not  come  to  the 
bank  for  two  months  afterwards,  would  not 
charge  him  with  responsibility.  {Inquiry 
from  Mo.,  Sept.,  1914.) 

Liability  of  drawer  for 
careless  execution 

Blank  spaces  carelessly  left 

291.  A  drawer  filled  out  a  check  in 
figures  $1L85,  leaving  the  Hne  for  the 
written  amount  blank.  The  payee  changed 
the  figures  to  $831.85  in  a  way  not  discern- 
ible except  under  glass  and  filled  in  the  writ- 
ten part  of  the  check  for  that  amount.  Opin- 
ion: Bank  which  pays  check  is  not  respon- 
sible because  of  drawer's  negligence.  Tim- 
bel  V.  Garfield  Nat.  Bk.,  N.  Y.  Super.  Ct. 
App.  Div.  Nov.  8,  1907.  Tr.  Co.  v.  Conklin, 
119  N.  Y.  S.  367.  (Inquiry  from  Ark., 
June,  1913,  Jl.) 

292.  Bank  A  cashed  a  raised  check 
which  was  written  with  a  protectograph. 
The  figures  were  carelessly  made  and  there 
was  plenty  of  room  to  insert  another 
figure.  The  drawee  bank  paid  the  check 
and  cancelled  it,  but,  discovering  the  fact 
that  it  had  been  raised,  returned  it  to 
bank  A  with  notation  on  it  "Cancelled  in 
error."  Upon  whom  does  the  loss  fall? 
Opinion:  It  is  recognized  as  a  general  rule 
that  the  drawer  or  customer  owes  to  the 
drawee  or  banker,  the  duty  of  exercising 
reasonable  care  in  the  issuance  of  his  check 
on  the  banker.  In  Critten  v.  Chemical  Nat. 
Bank,  171  N.  Y.  219,  63  N.  E.  969,  57  L.  R. 
A.  529,  the  rule  is  stated  that  "While  the 
drawer  of  a  check  may  be  hable  where  he 
draws  the  instrument  in  such  an  incomplete 
state  as  to  facilitate  or  invite  fraudulent 
alteration,  it  is  not  the  law  that  he  is  bound 
so  to  prepare  the  check  that  nobody  else  can 
successfully  tamper  with  it.  This  was  a  case 
where  the  question  involved  was  the  duty 
and  habihty  of  the  drawer  to  his  bank  to 
which,  in  view  of  its  obligation  to  pay  the 
drawer's  checks,  a  greater  amount  of  care 
is  due  than  to  the  general  public,  which  is 


under  no  obligation  to  purchase  such  checks. 
In  the  present  case  the  figures  were  carelessly 
written,  and  there  was  plenty  of  room  to 
insert  another  figure.  If  the  instrument  in 
question  was  drawn  in  such  an  incomplete 
state  as  to  facilitate  or  invite  fraudulent 
alteration,  it  would  seem,  according  to  the 
above  rule,  that  the  drawer  would  be  liable 
for  the  raised  amount.  But  if  the  filling  in 
of  another  figure  in  the  unfilled  space  was 
successfully  accomplished  only  after  skillful 
tampering,  then  he  would  not  be  liable. 
There  are  some  cases  which  hold  that  the 
drawer  of  a  check  or  the  maker  of  a  note  is 
liable  for  the  increased  amount  to  an  inno- 
cent purchaser  where  he  leaves  blanks  un- 
filled or  allows  space  to  remain  which 
facihtates  an  alteration  by  raising  an  amount 
without  detection.  Other  cases  hold  that  he 
would  not  be  so  liable,  being  under  no  duty 
to  the  general  pubhc  to  anticipate  and  pro- 
vide against  the  commission  of  such  crime. 
See  Nat.  Ex.  Bk.  v.  Lester,  194,  N.  Y.  461, 
87  N.  E.  779.  {Inquiry  from  Mass.  July, 
1919.) 

293.  A  bank  submits  a  copy  of  a 
raised  check  and  asks  upon  whom  the 
responsibility  hes.  The  particulars  there- 
of are  sufficiently  shown  in  the  opinion. 
Opinion:  In  the  present  case  the  depositor 
left  sufficient  space  after  the  word  "Four" 
before  drawing  the  line  to  write  in  the  letters 
"teen"  and  sufficient  space  between  the 
dollar  mark  and  the  figure  "4"  to  insert  the 
figure  "1."  This  case  clearly  falls  within 
the  decisions  holding  that  if  a  depositor  is 
so  negligent  as  to  leave  spaces  which  can  be 
filled  in  without  giving  the  check  a  suspi- 
cious appearance,  he  and  not  the  bank 
should  be  the  loser.  {Inquiry  from  Minn., 
May,  1916.) 

294.  If  a  check  is  raised,  or  if  the 
name  of  the  payee  is  changed  and  the 
check  is  cashed  at  the  bank,  who  is  respon- 
sible, the  drawer  or  the  bank?  Opinion: 
Where  a  check  is  raised  and  paid  by  the 
drawee  bank,  as  between  the  maker  and  the 
bank,  the  bank  is  the  loser,  unless  the  maker 
has  been  negligent  in  drawing  the  check,  as 
by  leaving  blanks  unfilled.  But  the  bank 
would  have  the  right  to  recover  the  money 
from  any  holder  receiving  payment.  If  the 
name  of  the  payee  is  changed,  the  bank 
could  not  charge  the  amount  to  the  maker, 
but  could  recover  from  the  holder  receiving 
payment.    {Inquiry  from  Ohio,  July,  1918.) 

295.  Where  a  draft  to  bearer  is  drawn 
for  " twelve   dollars,"    the    word 


58 


ALTERED  AND  RAISED  PAPER 


[296-299 


"twelve"  being  written  at  the  right  of 
the  line,  a  space  also  being  left  between  the 
dollar  mark  and  the  figures  "12,"  and  is  in- 
dorsed in  that  condition  and  afterwards 
fraudulently  raised  to  "five  hundred  and 
twelve  dollars"  in  words  and  figures,  and  ne- 
gotiated to  a  bank  by  the  drawer  on  faith  of 
the  indorsement,  the  authorities  conflict  as 
to  the  right  of  recourse  of  the  bank  upon  the 
indorser  for  the  full  amount.  The  generally 
accepted  rule  of  the  law  merchant  is  that 
where  blanks  negligently  left  are  filled,  the 
party  who  has  invited  the  fraud  by  leaving 
the  blanks  should  stand  the  loss,  rather  than 
a  holder  for  value.  Bk.  of  Herington  v. 
Wangerin,  65  Kan.  423.  Hackett  v.  First 
Nat.  Bk.  of  Louisiana,  114  Ky.  193,  70  S.  W. 
664.  Nat.  Exchange  Bk.  of  Albany  v. 
Lester,  N.  Y.  App.  Div.  decided  May  8, 
1907.  Humphrey  Hardware  Co  v  Herrick, 
72  Neb.  878,  101  N.  W.  1016.  {Inquiry 
from  Tex.,  Jan.,  1909,  Jl.) 

Check  signed  in  blank  or  partly  unfilled 
296.  A  check  drawn  on  bank  A  was 
paid  by  it.  The  drawer  acknowledged 
the  signature  to  be  genuine,  but  claimed 
that  the  rest  of  the  check  which  was  written 
in  a  different  hand  and  made  payable  to 
"Cash,"  was  forged.  Upon  whom  does  the 
burden  of  proof  rest  as  to  the  forgery?  The 
bank  claims  it  was  justified  in  paying  the 
check,  while  its  customer  insists,  that,  under 
Sec.  32  of  Ch.  73  of  the  Revised  Laws  of 
Massachusetts,  the  bank  must  bear  the  loss. 
That  section  provides  that  "Where  an  in- 
complete instrument  has  not  been  delivered, 
it  will  not,  if  completed  and  negotiated 
without  authority,  be  a  valid  contract  in  the 
hands  of  any  holder  as  against  any  person 
whose  signature  was  placed  thereon  before 
delivery  "  Opinion:  The  mere  fact  that 
the  handwriting  in  the  body  of  the  check  is 
different  from  that  of  the  signature  does  not 
affect  the  validity  of  the  payment.  If  the 
customer's  claim  of  forgery  is  based  on  the 
fact  that  the  check  was  signed  in  blank  or 
was  partly  unfilled  and,  after  being  lost  or 
stolen  in  this  condition,  was  filled  out  and 
was  paid  by  the  bank,  the  bank  can  charge 
the  payment  to  its  customer,  as  the  latter 
owes  a  duty  to  his  banker  to  safeguard  his 
checks  which  is  violated  when  he  signs  them 
in  blank  and  creates  an  opportunity  for  their 
misuse.  This  duty  runs  to  the  drawee  bank 
which  is  under  obligation  to  pay  his  checks. 
Some  courts  hold,  while  others  deny,  that 
there  is  also  a  liability  to  the  innocent  pur- 
chaser. In  New  York,  which  has  a  statute 
similar  to  the  Massachusetts  one  mentioned, 


the  courts  recognize  this  duty  and  liability 
of  the  drawer  to  the  drawee  bank  in  such 
case.  There  does  not  appear  to  be  any 
Massachusetts  decision  to  the  contrary.  But 
if  the  check  were  issued  in  ordinary  and  com- 
plete form  and  afterwards  altered  without 
the  authority  of  the  customer,  the  payment 
would  not  be  chargeable.  The  signature 
being  genuine,  the  burden  of  proof  would  be 
on  the  customer  to  estabhsh  that  the  writ- 
ing above  the  signature  was  a  forgery. 
{Inquiry  from  Mass.,  Feb.,  1915.) 

Care  required  of  drawer  in  preparing 
check 

297.  Where  a  bank  paid  its  customer's 
check,  the  amount  of  which  was  raised 
after  erasure  by  acid,  it  is  responsible 
to  the  customer,  the  customer  not  being 
bound  to  safeguard  his  check  against  every 
possible  alteration.  Critten  v.  Chemical 
Nat.  Bk.,  171  N.  Y.  219.  Belknap  v.  Nat. 
Bk.  of  North  America,  100  Mass.  380. 
Greenfield  Sav.  Bk.  v.  Stowell,  123  Mass. 
196.    {Inquiry  from  Mass.,  July,  1908.  Jl.) 

298.  Is  the  maker  of  a  raised  check 
hable  for  the  amount  where  such  check 
shows  on  its  face  no  indication  of  having 
been  raised?  Opinion:  A  bank  is  not 
relieved  from  liability  to  its  depositor 
for  paying  a  raised  check  because  the  in- 
crease of  amount  is  not  apparent  from  the 
face  of  the  check  itself.  While  the  drawer  of  a 
check  may  be  hable  where  he  draws  the 
instrument  in  such  an  incomplete  state  as  to 
facilitate  or  invite  fraudulent  alteration,  it 
is  not  the  law  that  he  is  bound  so  to  prepare 
the  check  that  nobody  else  can  successfully 
tamper  with  it.  Critten  v.  Chemical  Nat. 
Bank,  171  N.  Y.  219,  63  N.  E.  969,  57 
L.  R.  A.  529.  Houser  v.  Bank,  29  Pa. 
Super.  Ct.  613.  )Inquiry  fron  Pa.,  April, 
1920.) 

299.  A  gave  B  a  check  supposed  to 
be  for  the  sum  of  ninety-nine  cents, 
but  which  was  cashed  by  B  for  $99.99.  B 
made  out  the  check,  which  A  signed  but 
without  noticing  just  how  it  was  filled  out. 
Opinion:  If  the  check  was  originally  drawn 
for  $99.99,  A  is  hable.  If  the  amount  was 
subsequently  raised  the  rule  appHes  that  the 
drawer  is  not  bound  so  to  prepare  a  check 
that  nobody  can  successfully  tamper  with 
it,  but  if  he  carelessly  executes  the  check  so 
as  to  facilitate  or  invite  raising  of  the  amount 
without  giving  the  check  a  suspicious  ap- 
pearance, the  bank  may  charge  the  full 
amount    paid    to    the    drawer's    account. 


59 


300-304] 


DIGEST  OF  LEGAL  OPINIONS 


Critten  v.  Chemical  Nat.  Bk.,  171  N.  Y. 
219.  Young  V.  Grote,  4  Bing.  253.  {Inquiry 
from  S.  Dak.,  March,  WIS,  Jl.) 

Amount  need  not  he  protected  by  perforation 

300.  A  bank  in  issuing  a  draft  filled  it 
out  in  pen  and  ink  with  ordinary  care, 
but  did  not  use  a  protectograph.  The 
draft  was  subsequently  fraudulently  raised 
to  an  increased  amount,  perforated  and  ne- 
gotiated to  an  innocent  purchaser.  Opinion: 
The  innocent  purchaser  would  have  no  re- 
course upon  the  drawer  except  for  the 
original  amount.  No  case  has  gone  to  the 
extent  of  holding  the  amount  must  be  pro- 
tected by  perforation.  Nat.  Exch.  Bk.  v. 
Lester,  87  N.  E.  779.  Critten  v.  Chemical 
Nat.  Bk.,  171  N.  Y.  219.  (Inquiry  from 
N.  C,  Aug.,  1918,  Jl.) 

Where  protectograph  cutting  not  changed 

301.  Bank  A  draws  a  draft  on  its  cor- 
respondent B  for  $500  and  cuts  across  its 
face  with  a  protectograph  "Not  over  five 
hundred  dollars,"  and  the  draft  is  later 
raised  in  figures  and  writing,  but  the  pro- 
tectograph cutting  is  not  changed,  and  the 
draft  is  paid  for  the  amount  called  for  by  the 
figures  and  writing.  Would  A  have  recourse 
on  B?  Opinion:  Where  a  check  is  drawn 
with  reasonable  care,  even  without  the 
protectograph,  and  is  raised,  and  afterwards 
paid  by  the  drawee,  the  latter  cannot  charge 
the  increased  amount  to  the  drawer's  ac- 
count. The  protectograph  is  an  added  pro- 
tection designed  to  place  the  drawee  on  his 
guard.  The  rule  governing  the  duty  of  the 
drawer  of  a  check  is  well  stated  in  Critten 
V.  Chemical  Nat.  Bank,  171  N.  Y.  219,  to 
the  following  effect:  While  he  draws  the 
instrument  in  such  an  incomplete  state  as  to 
facilitate  or  invite  fraudulent  alteration,  he 
is  not  bound  so  to  prepare  the  check  that 
nobody  else  can  successfully  tamper  with 
it.  It  follows  that  A  would  have  recourse  on 
B  for  making  payment  on  a  raised  check 
for  a  larger  amount  than  that  for  which 
it  was  originally  drawn.  {Inquiry  from 
Cal,  May,  1918.) 

Different  handwriting  on  check 

302.  The  first  letter  of  a  drawer's 
name,  to  wit  "R,"  was  written  by  an- 
other and  the  drawer  finished  the  signature 
in  his  own  handwriting,  to  wit,  "obert 
Moore."  Opinion:  The  drawer  was  bound 
by  his  signature,  but  if  the  signature  created 
doubt  as  to  the  genuineness  in  the  mind  of 
the  drawee,  refusal  of  pajonent  would  be 


justified  until  verification  was  obtained.  See 
opinion  No.  296.  {Inquiry  from  Ariz., 
April,  1912,  Jl.) 

303.  A  drawee  bank  paid  a  check 
upon  which  the  drawer's  signature  was  gen- 
uine, but  the  body  of  the  check  was  forged 
in  a  different  handwriting,  there  being  no 
sign  of  an  alteration.  Opinion:  If  the  check 
was  signed  in  blank,  stolen  and  filled  out  or 
was  originally  unfilled  or  partly  unfilled  and 
afterwards  altered  by  filling  the  blanks,  the 
payment  by  the  drawee  would  be  chargeable 
to  the  customer ;  but  if  the  check  was  issued 
in  ordinary  and  complete  form  and  after- 
wards altered  without  authority,  the  pay- 
ment would  not  be  chargeable.  Young  v. 
Grote,  4  Bing.  253.  Critten  v.  Chemical 
Nat.  Bk.,  171  N.  Y.  219.  {Inquiry  from 
Mass.,  Dec,  1914,  Jl.) 

Check  altered  by  bookkeeper  of  drawer 
corporation 

304.  Authority  was  given  to  A,  a  book- 
keeper of  a  corporation,  who  was  intrusted 
with  its  banking  business,  to  make  out 
and  sign  checks,  which  were  counter- 
signed by  an  officer.  A  disappeared,  and  it 
was  discovered  that  the  name  of  a  payee  of 
a  check  drawn  by  the  corporation  had  been 
erased  from  the  check  and  A's  name  substi- 
tuted. The  check  was  in  the  handwriting 
of  A,  and  was  indorsed  by  him,  and  de- 
posited in  his  private  account  with  the 
drawee  bank.  It  bore  no  evidence  of  al- 
teration. Demand  was  made  by  a  surety 
company,  which  had  an  assignment  of  all 
of  the  rights  of  the  corporation,  upon  the 
drawee  bank  for  amount  of  the  check  which 
it  had  credited  to  A's  account.  Can  it 
recover?  Opinion.  As  a  general  rule  where 
a  bank  pays  an  altered  check,  it  is  not  by 
order  or  authority  of  the  depositor,  and  is 
not  chargeable  to  his  account;  but  this  rule 
does  not  apply  where  the  facts  work  an 
estoppel  against  the  depositor  by  reason  of 
negligence  or  otherwise.  This  case  would 
seem  to  be  one  for  the  application  of  the 
rule  that  where  one  of  two  innocent  parties 
must  suffer  for  the  fraud  of  a  third  person, 
the  one  who  has  reposed  the  confidence  and 
put  in  the  power  of  such  third  person  to 
commit  the  fraud  must  bear  the  loss.  See 
Allen  Grocery  Company  v.  Bank  of  Buchan- 
an County,  192  Mo.  App.  476,  182  S.  W. 
777.  It  would  seem  also  that  the  alteration 
would  be  binding  on  the  corporation,  being 
done  by  its  agent,  authorized  to  fill  out 
checks,  and  intrusted  with  the  management 
of  its  banking  business,  and  that  it,  and  its 


60 


Jl 


ALTERED  AND  RAISED  PAPER 


[305-308 


assignee,  the  surety  company,  would  be 
estopped  from  questioning  the  validity  of 
the  payment  of  the  check.  See  Equitable 
Life  Ins.  Co.  v.  National  Bank  of  Commerce, 
181  S.  W.  (Mo.)  1176.  National  Dredging 
Co.  V.  President,  etc.,  of  Farmers  Bank,  6 
Penn.  (Del.)  580,  69  Atl.  607.  {Inquiry  from 
III.,  March,  1919.) 

Raised  lead  pencil  checks 

305.  The  drawer  who  writes  his  check 
in  lead  pencil  is  not,  for  that  reason, 
liable  for  the  difference  to  the  purchaser  of 
such  check  after  it  has  been  raised.  Critten 
V.  Chemical  Nat.  Bk.,  171  N.  Y.  219.  Tr. 
Co.  V.  Conklin,  119  N.  Y.  S.  369.  {Inquiry 
from  Ark.,  June,  1912,  Jl.) 

306.  A  check  that  had  fbeen  raised 
was  cashed  by  the  drawee  bank  for  the 
raised  amount.  As  was  the  drawer's  prac- 
tice, the  check  was  written  in  lead  pencil. 
Would  this  fact  have  any  bearing  on  the 
question  of  the  bank's  liability?  Opinion: 
It  is  a  very  undesirable  practice  for 
drawers  of  checks  to  write  them  in  lead 
pencil.  Where  a  bank  pays  a  raised  check, 
it  cannot  charge  the  excess  to  its  depositor, 
and  so  far  as  it  appears,  checks  drawn  in  lead 
pencil  would  come  within  this  rule,  as,  under 
the  law  as  it  now  stands,  a  check  drawn  in 
lead  pencil  is  legal  and  valid,  and  it  has 
never  yet  been  held  that  the  fact  that  the 
drawer  has  issued  his  check  in  lead  pencil  is 
such  carelessness  or  negligence  as  to  make 
him,  rather  than  the  bank,  loser  in  case  of 
payment  of  a  check  so  written.  In  this  case 
the  bank  has  paid  a  raised  check  and  cannot 
charge  the  excess  to  the  drawer's  account. 
Had  the  check  been  deposited  in  the  bank 
by  a  customer,  it  might  have  recovered  the 
excess  from  the  latter.  {Inquiry  from  Kan., 
Aug.,  1919.) 

Payee  a  stranger  to  drawer 

307.  A  depositor  of  a  bank  wrote 
a  check  with  a  lead  pencil  payable  to 
a  stranger.  The  check  was  afterwards 
raised  and  passed  to  a  merchant  who  cashed 
it  at  the  drawee  bank.  Does  the  bank, 
merchant  or  drawer  lose?  Opinion:  It  has 
been  held  that  an  instrument  drawn  in  lead 
pencil  is  valid  and  negotiable.  The  mer- 
chant who  cashed  the  raised  check  and 
collected  it  from  the  bank,  is  liable  to  the 
bank  for  the  excess,  under  the  rule  that 
money  paid  by  mistake  upon  a  raised  check 
can  be  recovered  back.  The  bank  was  no 
more  bound  to  know  that  this  check  was 
raised    than    was    the    merchant,    and,   as 


between  the  two  the  merchant  is  the  loser.  As 
to  the  drawer,  it  is  the  settled  principle  in 
Kentucky  as  announced  by  the  court  in 
Hackett  v.  First  Nat.  Bank,  114  Ky.  193, 
70  S.  W.  664,  that,  where  the  drawer  of  a 
bill,  check  or  note,  has  himself,  by  careless 
execution  of  the  instrument,  left  room  for 
insertion  to  be  made  without  exciting  the 
suspicions  of  a  careful  man,  he  will  be  liable 
upon  it  to  a  bona  fide  holder  without  notice, 
when  the  opportunity  which  he  afforded  has 
been  embraced  and  the  instrument  filled  up 
with  a  larger  amount  than  it  bore  when  he 
signed  it — but  this  principle  has  not  as  yet 
been  extended  so  far  as  to  declare  that  the 
drawing  of  a  check  in  lead  pencil  was  "care- 
less execution"  which  enabled  a  larger 
amount  to  be  inserted  without  exciting 
suspicion.  The  use  of  lead  pencil  checks, 
because  of  the  facility  with  which  they  can 
be  altered,  should  be  discouraged.  {Inquiry 
from  Ky.,  Oct.,  1918.) 

Blanks  in  check  written  with  indelible  pencil 
filled  with  ordinary  lead  pencil 
308.  A  check  written  with  indelible 
pencil,  the  original  figures  and  amount 
in  the  body  of  which  being  written  some 
distance  from  the  left  hand  end,  was 
raised  from  $7.50  to  $17.50,  the  inserting  of 
the  "1"  before  the  $7.50  and  the  adding  of 
"teen"  to  the  "Seven"  being  made  with 
ordinary  lead  pencil.  The  drawee  bank  paid 
the  raised  amount,  although  the  alteration 
of  the  check  which  bore  two  indorsements 
could  easily  be  detected.  Could  the  drawer 
hold  the  bank?  Opinion:  If  a  bank  pays 
a  check  which  has  been  materially  altered 
after  its  issue  by  raising  the  amount,  it  can- 
not, in  the  absence  of  special  circumstances, 
charge  the  drawer  for  more  than  the  original 
amount.  But  a  depositor  owes  his  bank  a 
duty  of  care  which  is  broken  where  he  writes 
a  check  leaving  spaces  before  or  after  the 
words  or  figures  expressing  the  amount 
which  enables  the  holder  to  increase  the 
amount  without  causing  suspicion.  In  the 
present  case,  although  the  drawer  was  care- 
less, and  might  have  been  held  responsible 
to  the  bank  had  not  the  alterations  been 
made  in  ordinary  lead  pencil  and  easily 
detected,  the  bank  itself  was  careless  in 
paying  a  check  which  so  clearly  showed  on 
its  face  that  it  had  been  altered,  and  under 
the  circumstances  it  would  seem  that  the 
check  could  not  be  charged  to  the  drawer's 
account  for  more  than  $7.50.  But  the  bank 
has  recourse  on  the  last  indorser  who  re- 
ceived payment  of  the  raised  check,  although 
he  was   a   holder   in   good  faith  and  may 


61 


309-312] 


DIGEST  OF  LEGAL  OPINIONS 


recover  from  him  the  difference  between  the 
amount  for  which  the  check  was  drawn  and 
the  amount  paid.  {Inquiry  from  Mont., 
July,  1914.) 

309.  B  used  a  lead  pencil  in  drawing 
a  check  which  is  afterwards  raised  and 
cashed  at  the  drawee  bank  which  charges 
B's  account  with  the  increased  amount. 
The  latter  objects.  Opinion:  While  a 
check  must  be  in  writing,  the  Negotiable 
Instruments  Act  does  not  require  that 
the  writing  must  be  in  ink,  and  a  check 
drawn  and  signed  in  lead  pencil  is  vahd  if 
the  bank  does  not  object  to  it.  Such  a  check 
is  so  readily  altered,  however,  that  it  would 
seem  that  a  bank  should  insist  that  their 
customers  draw  checks  in  ink  in  order  to 
procure  their  payment.  Whether  a  bank 
without  such  a  prior  agreement  or  require- 
ment would  be  justified  in  refusing  payment 
of  a  check,  simply  because  it  was  drawn  in 
lead  pencil,  has  never  been  decided,  and 
there  is  no  case  on  record  which  has  involved 
the  question  of  responsibihty  as  between 
bank  and  depositor  for  payment  of  a  check 
drawn  in  lead  pencil  which  has  been  raised, 
the  general  rule  is  that  payment  of  a  raised 
check  is  not  chargeable  to  the  depositor, 
except  for  the  original  amount,  although  a 
maker  of  a  check  may  be  hable  to  his  banker 
where  he  draws  the  instrument  in  such  an 
incomplete  state  as  to  facihtate  or  invite 
fraudulent  alteration  being  not  bound,  how- 
ever, so  to  prepare  the  check  that  nobody 
else  can  successfully  tamper  with  it.  It  is 
doubtful  if  the  mere  drawing  of  a  check  in 
lead  pencil,  which  is  lawful,  would  be  held 
such  a  careless  and  negligent  act  as  to  place 
the  loss  upon  the  depositor  where  the 
check  has  been  raised  and  paid,  for  the  bank, 
in  agreeing  to  pay  and  in  paying  checks, 
drawn  in  lead  pencil,  would  seem  to  assiune 
the  risk.  In  the  present  case  the  bank 
would  be  hable  to  B  unless  the  check  was 
drawn  in  such  an  incomplete  state  as  to 
facilitate  or  invite  fraudulent  alteration. 
Lead  pencil  check — as  to  validity — see 
Drefahl  v.  Rabe,  132  Iowa  563,  107  N.  W. 
179.  Brown  v.  Butchers'  &  Drovers'  Bank, 
6  Hill  (N.  Y.)  443.  {Inquiry  from  Me. 
Feb.,  1918.) 

310.  A  bank  states  that  it  has  a  few 
customers  who  persist  in  writing  and 
signing  checks  with  an  ordinary  lead  pencil 
and  that  such  checks  frequently  become 
blurred  and  an  alteration  would  be  ahnost 
impossible  to  detect.  Would  there  be  any 
liability  on  its  part  in  paying  a  check  raised 
or  altered  under  such  circumstances? 


Opinion:  A  check  drawn  in  lead  pencil  is  legal 
but  it  is  very  unsafe  for  the  bank  to  handle, 
being  so  susceptible  to  alteration,  and  the 
customers  should  be  discouraged  from  so 
drawing  their  checks.  As  to  the  law,  a  bank 
which  pays  an  altered  check  cannot  charge 
the  raised  amount  to  the  depositor,  in  the 
absence  of  negligence  on  his  part,  but  can 
recover  the  excess  from  the  person  receiving 
the  money.  It  has  never  yet  been  held  that 
the  fact  that  the  depositor  draws  his  check 
in  lead  pencil  is  such  a  careless  act  as  to 
make  him  responsible  for  the  loss  where  it 
has  been  altered  and  then  paid  by  the  bank. 
{Inquiry  from  N.  Y.,  Feb.,  1918.) 

311.  A  drawee  bank  promised  over  the 
telephone  to  cash  or  honor  its  customer's 
check  for  $66.60.  The  check  had  been 
raised  from  $16.60,  and  was  written  in 
lead  pencil  although  it  bore  no  signs  of 
alteration.  The  bank  paid  the  raised 
amount  and  now  wishes  to  recover  the  ex- 
cess from  the  holder  who  received  payment. 
Opinion:  The  bank's  promise  even  if  in 
writing,  would  only  bind  the  bank  to  pay  a 
good  check  for  that  amount,  namely, 
$66.60,  and  not  an  altered  check  and  such 
promise  not  being  in  writing,  but  over  the 
telephone,  was  not  binding  in  any  event. 
The  telephone  message  did  not  warrant 
that  the  check  was  drawn  for  the  $66.60 
by  its  customer.  The  rule  is  well  estab- 
lished that  the  drawee  bank  which  pays 
a  raised  check  has  a  right  to  recover  the 
money  from  the  holder  to  whom  payment 
was  made,  as  it  is  no  more  responsible  for 
the  genuineness  of  such  amount  than  is  the 
holder.  The  fact  that  the  check  was  drawn 
in  lead  pencil  and  thus  susceptible  to  altera- 
tion, it  might  be  contended,  was  a  careless 
act  of  the  drawer  and  made  him  chargeable 
with  the  amount,  in  case  the  check  was 
raised.  But  it  is  not  unlawful  to  draw  a 
check  in  lead  pencil  and  the  courts  have 
never  yet  gone  to  the  extent  of  holding  the 
drawer  of  a  check  responsible,  because  it  has 
been  written  in  lead  pencil  and  paid  for  an 
increased  amount,  tinder  the  law,  there- 
fore, the  holder  is  liable  to  refund  to  the 
drawee  bank  the  excess  of  $50  in  this  case. 
{Inquiry  from  S.  D.,  Dec,  1919.) 

Charge  of  original  amount  to 
depositor 

312.  A  drawee  bank  paid  two  checks 
bearing  the  genuine  signature  of  its  cus- 
tomers, but  their  amounts  of  nine  dollars 
and  six  dollars  were  raised  to  ninety  dollars 
and   sixty   dollars   respectively.     Opinion: 


62 


ALTERED  AND  RAISED  PAPER 


[313-318 


The  drawee  bank  has  a  right  of  recovery  of 
the  excess  paid  upon  the  raised  checks  from 
the  owner  who  received  payment  upon  the 
principle  that  money  paid  under  a  mistake 
of  fact  is  recoverable.  Espy  v.  Bk.  of 
Cincinnati,  18  Wall.  614  Nat.  Park  Bk.  v. 
Ninth  Nat.  Bk.,  46  N.  Y.  77.  Nat.  Park 
Bk.  V.  Seaboard  Bk.,  114  N.  Y.  28.  {Inquiry 
from  Iowa,  Jan.,  1917,  Jl.) 

313.  A  check  drawn  on  bank  A  for  $5.50 
was  raised  to  $80.50  and  cashed  by  bank  B 
for  that  amount  which  was  collected  from 
A.  Within  two  days  B  discovered  the  al- 
teration, which  had  been  very  skillfully  done, 
and  immediately  notified  A.  Who  loses? 
Opinion :  It  is  uniformly  held  by  the  courts 
that  where  a  bank  pays  a  check  that  has 
been  raised,  it  may  recover  the  amount 
from  the  party  to  whom  payment  was  made, 
although  he  was  a  holder  in  good  faith. 
The  drawee  cannot  charge  the  amount  to 
the  drawer  although  the  forgery  was  skill- 
fully done,  but  has  a  right  of  action 
against  the  bank  which  received  payment. 
In  this  case  A  has  the  right  to  charge  to  its 
customer's  account  the  original  amount  of 
the  check,  viz.,  $5.50,  and  should  receive 
from  B  the  excess,  $75.00  {Inquiry  from 
Kan.,  Nov.,  1914.) 

314.  A  draws  a  number  of  checks  which 
are  raised  as  to  amount  when  they  reach 
the  paying  bank,  and  are  charged  to 
A's  account.  Does  the  loss  fall  on  the 
drawer  of  the  checks,  or  the  bank?  Opin- 
ion: Where  a  bank  pays  a  raised  check,  it 
is  liable  to  the  depositor  for  the  excess  paid. 
See  Clark  v.  Nat.  Shoe  &  Leather  Bank,  32 
App.  Div.  316  (N.  Y.)  A  bank  paying  a 
raised  check  is  entitled  to  recover  the  money 
from  the  innocent  holder  to  whom  paid. 
Reddington  v.  Woods,  45  Cal.  406.  Oppen- 
heim  v.  West  Side  Bank,  22  Misc.  Rep. 
(N.  Y.)  722.   {Inquiry  from  La.,  June,  1918.) 

315.  A  bank  innocently  cashing  a  raised 
check  cannot  hold  the  drawer  for  raised 
amount  but  only  for  the  amount  for  which 
he  drew  check.  {Inquiry  from  Md.,  May, 
1911,  Jl.) 

316.  A  check  drawn  on  bank  A  was  paid 
by  it,  and  it  was  afterwards  discovered  that 
it  had  been  raised.  Must  the  bank  stand 
the  loss?  Opinion:  The  check  having  been 
raised,  bank  A  can  only  charge  its  depositor 
the  original  amount  and  must  stand  the  loss 
of  the  difference  unless  it  is  able  to  recover 
same  from  the  person  who  received  payment. 
If  the  check  was  paid  directly  to  the  forger, 
its  chance  of  recovery  would  be  hopeless, 


but  if  it  was  first  cashed  by  some  merchant 
and  then  collected  from  the  bank,  bank  A 
would  have  recourse  upon  the  person  receiv- 
ing payment.  {Inquiry  from  N.  D.,  Oct., 
1917. 

Drawer's  liability  to  purchaser 

317.  A  customer  of  bank  A,  by  name  of 
L,  authorized  one  of  his  employees,  W,  to 
write  a  check  on  his  account  in  favor 
of  H,  for  $10.10.  The  check  was  indorsed 
by  H,  and  was  cashed  by  one  of  the  mer- 
chants, for  a  brother  of  H,  but  the  check  had 
been  raised  from  $10.10  to  $50.10  by  one  of 
the  H  brothers.  Bank  A  had  refused  pay- 
ment on  check,  as  signature  of  L's  employee 
did  not  appear  on  its  books,  and  they  had 
received  no  authority  to  honor  the  signature 
of  the  employee.  The  merchant  is  now 
holding  the  check  and  is  out  $40.00.  Does 
the  merchant  or  L  have  to  suffer  the  loss? 
Opinion:  Where  a  check  executed  for  $10.10 
is  fraudulently  raised  to  $50.10  and  ne- 
gotiated to  a  merchant  for  the  increased 
amount,  the  latter  can  only  hold  the  drawer 
liable  for  the  original  amount  of  the  check, 
in  the  absence  of  negligence  on  part  of 
drawer  in  carelessly  executing  the  check 
with  blank  spaces  unfilled.  Merritt  v. 
Boyden,  (111.)  60  N.  E.  907.  In  Yocum  v. 
Smith,  63  111.  321,  and  Hackett  v.  First  Nat. 
Bank  (Ky.)  70  S.  W.  664,  drawer  was  held 
hable  for  full  amount  for  carelessness  in 
execution  of  check.  In  the  absence  of  facts 
showing  such  careless  execution  as  would 
make  the  drawer  responsible,  the  merchant 
and  not  L  would  be  the  loser.  {Inquiry  from 
Mo.,  July,  1919,  Jl.) 

Negotiation  between  drawer  and  payee 
for  settlement 

318.  A  drew  a  check  in  favor  of  B  on 
bank  C.  Bearing  the  indorsement  of  the 
payee,  it  was  deposited  in  bank  D  which 
collected  from  drawee.  It  was  afterwards 
found  that  the  check  had  been  raised,  and 
A  negotiated  with  B  for  a  settlement.  Is 
bank  D  liable?  Opinion:  Ordinarily  a  l)ank 
which  receives  payment  of  a  raised  check 
must  refund  and  can  recover  the  amount 
from  its  depositor  and  such  would  be  the 
result  in  this  case  unless  it  is  possible  for 
bank  D  to  successfully  contend  that  by 
negotiating  with  B  for  the  return  of  the 
money,  A  ratified  the  payment.  If  A  had 
actually  received  from  B  the  increased 
amount  paid  on  his  check,  the  full  amount 
would  of  course  be  chargeable  to  his  account 
and  bank  C  would  have  no  right  of  recovery 


63 


319-324] 


DIGEST  OF  LEGAL  OPINIONS 


from  D;  but  in  strict  law  B  did  not  owe  A 
anything  but  owed  bank  D  from  which  he 
received  money  to  which  he  was  not  entitled. 
As  A  opened  up  negotiations  with  B  for  the 
return  of  the  money  it  might  be  contended 
that  such  negotiation  operated  as  a  ratifica- 
tion of  the  payment  of  the  raised  amount 
and  that  as  A  had  chosen  to  look  to  B  rather 
than  to  his  own  bank  C  for  the  money  he 
would  be  barred  from  recovery  in  any  action 
against  that  bank  for  reimbursement,  in 
which  event  bank  C  would  have  no  claim 
against  Bank  D.  But  it  is  very  doubtful  if 
such  negotiation  would  be  held  a  ratification 
or  an  estoppel  in  which  event  bank  C  would 
be  liable  to  A  and  D  would  be  Hable  to  bank 
C  and  would  in  turn  have  recourse  upon  B; 
and  even  though  A  understood  that  B  was 
to  reimburse  him,  that  would  not  affect  B's 
habihty  to  bank  D  because  his  indebtedness 
would  be  to  that  bank  and  not  to  A. 
{Inquiry  from  N.   Y.,  March,  1914.) 

Check  on  blank  form  of  another  bank 

Use  by  drawer 

319.  In  Kansas  it  has  been  held  not 
neghgent  for  a  bank  to  pay  a  check 
wherein  the  name  of  the  drawee  has  been 
changed  in  a  handwriting  other  than  the 
drawer's;  but  the  safer  practice  is  to  refuse 
payment  of  such  a  check  until  the  bank 
receives  satisfactory  evidence  that  the 
alteration  has  been  authorized.  First  St. 
Bk.  of  Scott  City  v.  Vogeli,  96  Pac.  490. 
Morris  v.  Beaumont  Nat.  Bk.,  83  S.  W.  36. 
(Inquiry  from  Mass.,  July,  1913.) 

320.  A,  who  was  a  depositor  in  bank 
B  and  also  in  bank  C,  issued  a  check 
on  bank  C  using  one  of  bank  B's  forms  with 
its  name  scratched  out  and  bank  C's  written. 
B  through  error  paid  the  check  and  charged 
it  to  A's  account.  The  latter  did  not  examine 
his  paid  vouchers  for  over  a  year,  and  then 
admitted  his  fault  in  not  checking  statement 
sooner.  Bank  C  refused  to  take  the  check. 
Is  bank  B  in  any  way  liable  to  A?  Opinion: 
The  check  is  properly  chargeable  under  the 
circurnstances,  by  bank  B  to  A,  because  his 
retention  of  the  paid  check  so  long  without 
objection  estops  him  from  claiming  that  the 
payment  was  not  by  the  right  bank.  It  is 
simply  a  case  where  bank  B  paid  the  check 
instead  of  bank  C  paying  it.  The  payee  has 
received  the  money  for  which  the  check  was 
given.  A  is  not  a  loser  in  the  transaction, 
for  as  bank  C  has  not  paid  the  check,  the 
money  must  still  be  in  that  bank  to  his 
credit,  or  if  he  has  since  drawn  it  out,  then 


he,  having  received  it,  would  have  no  claim 
on  bank  B.  {Inquiry  from  Miss., Feb.,  1920) 

321.  A  check  was  drawn  payable  to 
John  Doe  only,  upon  the  blank  form  of 
another  bank,  whose  name  was  erased  and 
the  drawee  bank's  name  substituted.  Opin- 
ion: A  check  to  the  payee  only  is  not  nego- 
tiable. The  fact  that  the  check  was  drawn 
on  the  blank  form  of  another  bank  did  not 
render  the  instrument  invalid,  but  places  an 
additional  burden  on  the  drawee  bank  to 
safeguard  itself  against  fraud.  {Inquiry 
from  N.  J.,  Oct.,  1911,  Jl.) 

322.  It  is  legal  but  somewhat  unsafe 
for  a  bank  to  pay  a  check  drawn  on 
the  check  form  of  another  bank,  with  name 
substituted  as  drawee.  Inquiry  from 
N.  J.,  Sept.,  1912,  Jl.) 

Alteration    by    payee    of   drawee    upon 
check  a  forgery 

323  A  merchant  sells  to  a  number 
of  negroes  in  the  spring  months,  and, 
instead  of  giving  them  credit,  he  has 
them  give  him  checks  on  various  local  and 
other  banks  in  which  they  have  no  account 
at  the  time,  and  in  the  autumn,  when  these 
people  sell  their  cotton,  he  ascertains  where 
they  bank,  and  then  alters  the  checks  to 
make  them  payable  at  the  banks  where  his 
customers  have  opened  their  respective 
accounts.  Is  this  legal?  Opinion:  The 
payee  clearly  has  no  right  to  alter  these 
checks  by  changing  the  name  of  the  bank  on 
which  they  are  drawn,  without  the  authority 
of  the  drawers.  Such  unauthorized  altera- 
tion would  be  forgery.  The  drawee  bank 
should  refuse  to  pay  these  altered  checks. 
The  merchant  should  take  notes  from  cus- 
tomers to  whom  he  sells  goods,  made  payable 
at  any  bank  in  the  place;  then  any  bank 
would  have  authority  to  pay  them  out  of  the 
account  of  the  maker.  {Inquiry  from  S.  C ., 
Oct.,  1920.) 

324.  A  gave  his  check  to  B  drawn 
on  bank  C.  On  presentation  by  B  pay- 
ment was  refused  because  of  insufficient 
funds.  B  then  scratched  out  the  printed 
name  of  the  drawee  bank  C  on  the  check  and 
substituted  that  of  bank  D  where  A  also  had 
an  account,  and  that  bank  paid  the  check  on 
presentation.  Did  bank  D  incur  any  lia- 
bility in  so  doing?  Opinion:  It  has  been 
held  that  a  drawee  bank  is  not  guilty  of 
negligence  in  paying  a  check  merely  because 
the  check  is  drawn  on  the  blank  form  of 
another  bank.  First  State  Bank  v.  Vogeli, 
78  Kan.  264,  96  Pac.  490.    But  it  has  been 


64 


ALTERED  AND  RAISED  PAPER 


[325-329 


held  in  Texas  in  a  case  very  similar  to  the 
present  one,  that  where  the  payee  wrong- 
fully makes  the  alteration  by  striking  out  the 
printed  name  of  the  bank  on  which  the  check 
is  drawn  and  inserting  another  bank,  and  the 
latter  bank  pays  the  check,  it  would  be  liable 
to  the  drawer.  See  Morris  v.  Beaumont 
Nat.  Bank,  37  Tex.  Civ.  App.  97,  83  S.  W. 
36.  In  the  present  case  A  drew  a  check  upon 
bank  C  which  was  refused  payment  because 
of  insufficient  funds.  The  payee,  B,  knowing 
that  A,  the  drawer,  had  an  account  with 
bank  D,  changed  the  name  of  the  drawee  to 
that  of  that  bank  which  paid  the  check. 
This  under  the  Texas  decision  would  be  a 
fraudulent  alteration  or  forgery  and  bank 
D's  payment  was  without  authority  of  A, 
and  he  is  not  chargeable  with  the  amount. 
{Inquiry  from  Tex.,  Sept.,  1917.) 

Where  check  hears  forgery  of  drawer's 
signature 

325.  On  April  3rd  a  bank's  customer 
deposited  with  it  a  check  on  the  F  bank, 
which  was  returned  "No  account."  Know- 
ing the  maker  of  the  check  and  that  he 
kept  his  account  in  the  G  bank,  the  cashier  of 
the  inquiring  bank  changed  the  name  of 
drawee  therein  to  the  G  bank,  and  the  check 
was  paid.  Thirty  days  later  it  was  dis- 
covered that  the  drawer's  signature  had 
been  forged.  Opinion:  If  the  check  had 
been  drawn  on  the  G  bank  and  had  been  paid 
on  a  forgery  of  the  drawer's  signature,  it  is 
doubtful  if  they  would  have  the  right  to 
recover  the  money.  But  in  this  case,  the 
inquiring  bank  having  changed  the  name  of 
the  drawee  from  the  F  bank  to  the  G  bank, 
it  would  be  clearly  liable  to  refund  the 
money  received.  It  seems  a  word  of  caution 
in  this  connection  may  not  be  inappropri- 
ate. The  bank  doubtless  changed  the  name 
from  the  best  of  motives,  but  by  so  doing 
it  might  lay  itself  open  to  the  charge  of 
making  an  unauthorized  alteration  in  an 
apparent  negotiable  instrument,  by  reason 
of  which  the  G  bank  was  misled  into  pay- 
ing a  forged  check.  Under  the  circumstances 
it  would  be  best  to  pay  back  the  money  and 
not  enter  into  a  controversy  about  it. 
{Inquiry  from  Tex.,  May,  1916.) 

Specific  cases  of  alteration 

Striking  out  attorney  fee  clause 

326.  A  bank  submits  a  check  with  the 
following  clause  erased  from  its  face: 
"And  further  hereby  agrees  that  if  this 
note  is  not  paid  when  due,  to  pay  all  costs 
necessary  for  collection,  including  ten  per 


cent,  for  attorney  fee."  Would  such  erasure 
constitute  a  material  alteration  under  the 
New  Jersey  Negotiable  Instruments  Law? 
Opinion:  The  striking  out  the  clause  pro- 
viding for  attorney's  fees,  by  the  holder 
without  the  consent  of  the  maker,  would 
constitute  a  material  alteration  under  said 
law.  It  changes  the  legal  effect  of  the  in- 
strument as  to  the  amount  payable.  There 
are  numerous  decisions  that  an  alteration 
in  the  amount  of  principal  or  rate  of  interest 
is  material.  {Inquiry  from  N.  J.,  Nov., 
1916.) 

Counter  check — Alteration  of  form 

327.  A  form  of  check  whereon  was 
printed  "Counter  check  not  negotiable"; 
pay  to  "Myself  only  and  without  any  in- 
dorsement hereof,"  and  "This  check  is  for 
use  only  at  the  counter  of  the  X  National 
Bank  by  the  drawer  personally,"  had  the 
quoted  words  crossed  out,  and  the  drawer 
then  made  out  the  check  to  B.  Would  the 
drawee  bank  be  held  harmless  for  the  refusal 
of  this  check  when  presented  other  than  over 
the  counter,  even  though  the  alteration  was 
in  the  handwriting  of  the  maker?  Opinion: 
The  rule  is  that  a  bank  is  obliged  to  honor 
the  check  of  its  customer  when  it  has  suffi- 
cient funds  and  is  liable  in  damages  to  him 
if  it  refuses,  because  of  injury  to  his  credit. 
At  the  same  time  it  would  seem  that  a  bank 
is  entitled  to  insist  that  the  check  be  drawn 
with  reasonable  care  so  as  not  to  burden  it 
with  the  risk  of  paying  an  altered  check,  and 
while  the  point  has  not  been  specifically  de- 
cided, a  bank  would  probably  not  be  mulcted 
in  damages  where  it  refused  to  pay  a  check 
so  carelessly  drawn  as  was  this  one,  as  to 
make  it  uncertain  whether  the  check  as  pre- 
sented was  the  genuine  unaltered  order  of 
its  depositor  or  not.  In  this  case,  if  the 
drawee  bank  is  sure  of  the  depositor's  signa- 
ture and  of  the  identy  of  B,  the  payee,  it 
would  probably  be  safe  in  paying  the 
amount,  although  the  use  of  such  a  form  is 
objectionable.  {Inquiry  from  Wash.,  Sept., 
1917.) 

Alteration  of  date 

328.  The  alteration  of  the  date  by  the 
maker  of  a  note  before  defivery  does  not 
affect  its  vafidity.  If  the  change  in  date 
were  made  by  the  holder  without  the 
maker's  consent,  the  note  would  be  avoided 
as  to  him.  Neg.  Inst.  A.,  Sec.  184  (Comsr's 
dft.)     {Inquiry  from  N.  J.,  Nov.,  1911,  JL) 

329.  A  check  after  indorsement  by  the 
payee  was  stolen,   the   date    altered,    and 


65 


330-334] 


DIGEST  OF  LEGAL  OPINIONS 


then  negotiated  to  a  bona  fide  holder. 
It  was  presented  through  the  exchanges  and 
paid  by  the  drawee  bank.  Opinion:  Bank 
is  not  liable  for  payment  of  check,  it  having 
been  negotiated  after  the  alteration  to  a 
holder  in  due  course,  who,  under  the  Nego- 
tiable Instruments  Law,  was  entitled  to  pay- 
ment according  to  its  original  tenor.  Neg. 
Inst.  A.,  Sec.  124  (Comsr's.  dft.)  {Inquiry 
from  N.  J.,  June,  1911,  Jl.) 

330.  The  payee  altered  the  date  of  a 
check  drawn  by  A  to  six  months  later 
and  then  negotiated  it.  The  bank  cashing 
the  check  forwarded  it  to  A's  bank,  where  it 
was  protested.  The  payee  could  not  be 
found.  Opinion:  The  casliing  bank  cannot 
recover  from  the  drawer  if  the  alteration  was 
apparent;  but  if  not  apparent,  the  check  is 
enforceable  according  to  its  original  tenor 
and  the  purchaser's  right  of  recovery  de- 
pends on  whether  the  check  was  negotiated 
within  a  reasonable  time  after  issue.  Neg. 
Inst.  A.,  Sees.  124,  52,  53  (Comsr's.  dft.). 
Ehas  v.  Whitney,  98  N.  Y.  S.  667.  Mosko- 
witz  V.  Deutsch,  92  N.  Y.  S.  721.  Matlock 
V.  Scheuerman,  51  Ore.  49.  Mfg.  Co.  v. 
Summers,  143  N.  C.  102.  Bull  v.  Bk.  of 
Kasson,  123  U.  S.  105.  Cowing  v.  Altman, 
71  N.  Y.  435.  Lancaster  Bk.  v.  Woodward, 
18  Pa.  357.  (Inquiry  from  Pa.,  July,  1914, 
Jl) 

Erasure  of  words  "for  account  indebtedness 
Doe  to  Roe" 

331.  A  check  in  the  ordinary  form 
contained  above  the  signature  of  drawer 
the  words  "For  account  indebtedness  Doe 
to  Roe."  These  words  were  scratched  out  or 
partially  erased  by  the  payee.  The  drawee 
refused  payment  on  the  ground  that  it  was 
an  altered  check.  Opinion:  The  bank  should 
not  pay  because  (1)  alteration  of  the  state- 
ment of  consideration  would  probably  be 
held  material  and  avoid  check,  and  (2)  bank 
as  paying  agent  of  depositor  would  not 
properly  protect  his  interests  in  making 
payment.  Richardson  v.  Fillner,  9  Okla. 
513,  60  Pac.  270  {Inquiry  from  Conn., 
April,  1912,  Jl.) 

Statement  of  consideration  altered 

332.  In  a  number  of  cases  where  a 
creditor  taking  a  check  for  a  disputed 
account  containing  a  condition  that  it  is 
in  full  has,  without  the  knowledge  or 
authority  of  the  debtor,  erased  the  condition 
and  collected  the  check  and  then  sued  the 
debtor  for  the  balance  claimed  to  be  due, 
it  has  been  held  that  his  acceptance  and 


collection  of  the  check  binds  him  to  the 
condition  and  he  can  recover  nothing  fur- 
ther. Hussey  v.  Crass,  53  S.  W.  (Tenn.)  986; 
Worcester  Color  Co.  v.  Henry  Woods'  Sons 
Co.  95  N.  E.  (Mass.)  392.  Hull  v.  Johnson, 
46  Atl.  (R.  I.)  182.  Kerr  v.  Sanders,  29 
S.  E.  (N.  C.)  943.  Smith  v.  Bronstein,  107 
N.  Y.  Supp.  765.  Gribble  v.  Raymond  Van 
Praag  Supply  Co.  109  N.  Y.  Supp.  242.  Ac- 
cording to  the  view  of  these  cases  as  the 
alteration  is  unauthorized,  it  does  not  affect 
the  rights  of  the  debtor  and  is  therefore  im- 
material. None  of  these  cases,  however, 
involved  the  right  of  the  drawer  to  refuse 
to  be  charged  with  the  amount  by  the  bank 
on  the  ground  that  payment  of  the  altered 
check  was  without  authority.  Should  such 
a  case  arise  there  is  fair  ground  to  conclude 
that  the  payment  would  be  held  unau- 
thorized and  non-chargeable.  {Inquiry 
from  N.   Y.,     June,  1919.) 

Erasure  of  words  "in  full  of  account  to  date" 

333.  A  gives  a  check  to  B  and  indorses 
on  back  thereof:  "This  check  is  given 
in  full  of  account  to  date."  B  draws  his 
pen  through  this  indorsement  and  writes 
underneath  same:  "Balance  due  on  this 
account  $10.",  and  then  cashes  check.  Is  a 
bank  justified  in  refusing  payment  of  this 
check  in  view  of  the  altered  indorsement. 
Opinion:  There  is  some  authority  to  the 
effect  that  an  erasure  of  the  words  "in  full 
of  account  to  date"  by  the  payee  is  imma- 
terial as  when  he  accepts  the  check  with  that 
condition  on  and  receives  payment  of  it,  he 
takes  it  subject  to  the  condition  although  he 
erases  it.  But  it  seems  that,  if  a  bank  upon 
which  such  a  check  was  drawn  should  pay 
the  check  to  the  payee  with  such  indorse- 
ment erased  and  a  different  condition  sub- 
stituted, the  customer  might  well  complain 
and  say  that  he  intended  the  check  as  a 
voucher  showing  the  receipt  in  full  and  that 
where  the  payee  has  tampered  with  such 
voucher  and  changed  its  character,  it  was 
the  bank's  duty  as  his  paying  agent,  to 
refuse  payment  of  the  check  altered  as  to 
the  condition  upon  which  he  made  payment. 
It  would  probably  be  safer  for  the  bank  to 
refuse  payment  of  a  check  so  altered. 
{Inquiry  from  Mont.,  Feb.,  1919.) 

Erasure  of  words  "in  full  payment,"  etc. 

334.  A  drawee  bank  paid  its  customer's 
check  in  wliich  the  words  "for  full  pay- 
ment of  account"  were  erased  by  the 
payee.  Opinion:  The  bank  should  not  have 
paid  the  check  as  the  erasure  of  the  words 


66 


ALTERED  AND  RAISED  PAPER 


[335-338 


was  a  material  alteration  and  the  check  could 
not  be  charged  to  the  customer's  account. 
(Inquiry  from  N.  J.,  April,  1911,  Jl.) 

335.  The  erasure  by  the  payee  of  the 
words  "in  full  of  all  accounts  or  claims" 
is  probably  a  material  alteration,  which 
would  avoid  the  instrument.  Bank  should 
not  pay  check  containing  such  erasure. 
{Inquiry  from  Ohio,  June,  1913,   Jl.) 

336.  A  bank  should  not  pay  a  check 
which  shows  alteration  in  the  statement 
of  consideration,  and  should  obey  the  request 
of  a  customer  to  refuse  payment  of  checks 
thus  altered.  {Inquiry  from  Pa.,  Aug., 
1912,  JL) 

Alteration  of  check  "in  full" — Right  of  bank 
to  pay  where  indorser  signs  "not  in  full" 

337.  There  is  dispute  between  the  drawer 
and  drawee  as  to  amount  of  a  debt.  The 
drawer  made  a  check  for  the  amount  he 
was  wilhng  to  pay,  and  put  on  the  corner 
thereof  the  words,  "In  full  pa;>Tnent,"  and 
the  payee  struck  out  such  words  and 
received  payment  from  bank.  The  bank 
asks  whether  it  incurred  any  Uability  in 
paying  same.  Opinion:  There  are  certain 
decided  cases  upon  the  precise  facts  now 
presented  wherein  the  court  held  that,  in  an 
action  by  the  payee  against  the  drawer,  the 
payee's  acceptance  and  collection  of  the  check 
constituted  an  accord  and  satisfaction  and 
barred  him  from  recovering  anything  more 
and  that  the  cancellation  of  the  words  "In 
full  payment"  did  not  affect  the  rights  of  the 
parties  and  was  immaterial.  Gribble  v. 
Raymond,  etc.,  Co.,  109  N.  Y.  Supp.  (N.  Y.) 
242.  Hussey  V.  Crass,  53  S.  W.  (Tenn.) 
986.  If  the  above  decisions  can  be  taken  as 
a  sound  expression  of  the  law,  a  drawee  bank 
might  safely  pay  such  a  check,  notwith- 
standing the  erasure  or  cancellation  of  the 
words  "In  full"  as  the  drawer  would  not  be 
damaged.  And  yet,  notwithstanding  the 
above,  it  would  seem  not  quite  the  proper 
thing  for  the  drawee  bank  to  pay  its  cus- 
tomer's check  when  presented  with  the 
words  "In  full"  erased.  The  customer  rehes 
upon  the  cancelled  check  as  a  receipt  for  the 
payment  and  such  receipt  "In  full"  for  a 
disputed  debt  would  be  evidence  in  the 
customer's  hands  of  a  satisfaction  of  the 
debt.  True,  these  courts  have  held  that  the 
erasure  is  immaterial  and  the  payee  who  has 
accepted  the  check  is  bound  by  the  condi- 
tion notwithstanding  he  has  erased  it;  and 
yet  the  customer,  in  an  action  against  him 
by  the  payee,  must  have  rehed  on  evidence 


outside  the  check  itself  to  estabhsh  the 
condition.  There  might  be  cases  where, 
after  a  customer  had  died  it  would  be  diffi- 
cult to  prove  the  erasure  of  the  words  "In 
full"  had  been  made  by  the  customer  before 
he  dehvered  the  check  or  by  the  payee  after 
he  received  it.  Certainly  it  seems  clear  that 
the  customer  is  entitled  to  receive  back  his 
paid  check  as  a  receipt  in  full  without  being 
compelled  to  resort  to  outside  evidence  and 
the  bank  as  his  paying  agent  should  protect 
his  interest  in  the  matter.  The  necessary 
conclusion,  therefore,  seems  to  be  that  it  is 
better  practice  for  the  bank  to  refuse  to  pay 
a  check  where  the  words  "In  full"  have  been 
erased  before  presentation.  In  the  instant 
case,  the  payee  did  not  erase  the  amount  but 
writes  the  words  "I  do  not  accept  the 
amount  as  payment  in  full"  over  his  in- 
dorsement. This  equally,  it  seems,  nullifies 
the  receipt  in  full  in  the  form  that  the  cus- 
tomer desires  it,  and,  as  above  stated,  it 
seems  the  better  practice  would  be  to  refuse 
to  pay  the  check  under  the  circumstances. 
{Inquiry  from  Wyo.,  Aug.,  1918.) 

Striking  out  indorser's  name 

338.  A  corporation  note  was  duly  exe- 
cuted, signed  by  the  proper  officers,  and  in- 
dorsed by  the  directors  individually.  The 
indorsement  of  one  director  (now  deceased) 
has  been  stricken  out  with  pen  and  ink,  and 
the  name  of  another  substituted.  All 
this  was  done  before  deUvery  of  the  note. 
Does  the  striking  out  of  the  deceased  in- 
dorser's name  release  the  others?  Opinion: 
Where  a  corporation  note,  indorsed  by 
several  directors  individually,  is  altered 
before  dehvery  to  the  payee,  by  striking  out 
the  name  of  one  indorser  (since  deceased), 
and  substituting  another  indorser,  such 
alteration  is  material  and,  if  done  without 
the  consent  of  the  other  indorsers,  reheves 
them  from  habihty,  except  to  a  holder  in  due 
course  who  can  enforce  the  instrument  ac- 
cording to  its  original  tenor.  (Schwartz  v. 
Wilmer,  90  Md.  136.  Thorpe  v.  White,  188 
Mass.  333,  74  N.  E.  592.  Bothell  v.  Sche- 
witzer,  84  Nebr.  271,  120  N.  W.  1129. 
Colonial  Nat.  Bank  v.  Duerr,  95  N.  Y.  S. 
810.  Heche  v.  Shenners,  126  Wis.  27,  105 
N.W.  309.  Burns'  Anno.  Ind.  St.,  1914,  Sec. 
9089t-4-124.  As  to  what  amounts  to  ma- 
terial alteration  of  an  instrument,  see  Bab- 
cock  V.  Henkle,  117  111.  App.  640.  State  v. 
Blair,  32  Ind.  App.  79, 84  N.  E.  1908.  Sheri- 
dan V.  Carpenter,  61  Me.  83.  Springfield 
First  Nat.  Bank  v.  Fricke,  75  N.  W.  178. 
Davis  v.  Coleman,  29  N.  C.  424.    Smith  v. 


67 


339-343] 


DIGEST  OF  LEGAL  OPINIONS 


Weld,  2  Pa.  St.  54.  Nashville  First  Nat. 
Bank  v.  Shook,  100  Tenn.  436.  North  v. 
Henneberry,  44  Wis.  306).  Whether  the 
payee  discounting  such  note  for  the  cor- 
poration would  have  the  status  of  a  holder 
in  due  course  is  doubtful  under  the  decisions. 
(Vander  Ploeg  v.  Van  Zunk,  135  Iowa  350. 
Long  V.  Shafer,  185  Mo.  App.  641.  St. 
Charles  Sav.  Bank  v.  Edwards,  243  Mo.  553. 
Contra:  Thorpe  v.  White,  (Mass.)  74  N.  E. 
592,  and  Ehas  v.  Whitney,  98  N.  Y.  S.  667). 
(Inquiry  from  Ind.,  March,  1920,  Jl.) 

Alteration  of  rate  of  interest  and  marginal 
figures 

339.  A  demand  note  for  ten  dollars, 
having  in  the  upper  margin  on  the  left  the 
figures  SIO.OO,  which  note  reads  "with 
interest  at  the  rate  of  eight  per  cent,  per 
annum  from  maturity"  has  a  credit  of  $5.00 
on  account  shown  by  a  line  drawn  through 
the  figures  $10.00,  and  the  figures  $5.00  sub- 
stituted, leaving  the  written  amount  "Ten 
dollars"  in  the  body  of  the  note.  At  the 
time  the  credit  was  so  shown,  the  words 
"eight"  and  "maturity"  were  stricken  out 
and  the  words  "six"  and  "date"  substituted, 
making  the  note  read  "with  interest  at 
the  rate  of  six  per  cent  from  date."  Does 
this  constitute  an  alteration  and  make  the 
note  void?  Opinion:  The  alteration  of 
the  marginal  figure  "$10.00"  to  "$5.00," 
leaving  the  written  amount  "Ten,"  so  that 
the  marginal  figures  would  indicate  the 
amount  still  due  on  the  instrument,  would 
not  constitute  a  material  alteration  such  as 
would  avoid  the  note,  as  it  would  not 
change  its  legal  effect.  See  opinion  No.  340. 
But  the  changing  of  the  rate  of  interest  by 
strildng  out  "eight"  and  inserting  "six"  per 
cent.,  and  changing  "from  maturity"  to 
"from  date,"  would  constitute  a  material 
alteration  and  avoid  the  note  as  to  non- 
consenting  parties.  (Inqtiiry  from  Mo.,  Oct., 
1915.) 

Insertion  of  interest  clause  in  trade  acceptance 

340.  May  a  seller  insert  an  interest 
clause  in  trade  acceptances  received  from 
his  customers?  Opinion:  Section  125  of 
the  Negotiable  Instruments  Act  (Sec. 
1679-6  Wisconsin  Act)  provides  that  "any 
alteration  which  changes  ....  the  sum 
payable,  either  for  principal  or  interest  .... 
is  a  material  alteration."  The  effect  of  a 
material  alteration  without  the  assent  of  all 
parties  liable  thereon  is  to  avoid  the  instru- 
ment except  as  against  a  consenting  party 
and  subsequent  indorsers.     But  when  an 


instrument  has  been  materially  altered  and 
is  in  the  hands  of  a  holder  in  due  course,  not 
a  party  to  the  alteration,  he  may  enforce 
payment  thereof,  according  to  its  original 
tenor.  Sec.  124.  Neg.  Insts.  Act  (Sec. 
1679-5  Wisconsin  Act).  Where  a  merchant 
receives  a  trade  acceptance  which  contains 
no  provision  for  interest,  the  insertion  of  an 
interest  clause  without  the  consent  of  the 
acceptor  is  a  material  alteration  which 
avoids  the  acceptance  in  his  hands.  {Inquiry 
from  Wis.,  July,  1919.) 

Alteration  of  marginal  figures  on  check 

341.  A  check  was  accepted  by  a  bank 
from  one  of  its  customers  and  sent  through 
the  day's  clearings  to  the  bank  on  which 
it  was  drawn,  and  latter  refused  payment 
for  reason  stated  on  the  back,  "Figures 
altered"  (amount  written  in  body  of  check 
"Seven  hundred  thirty  99/100."  The  figures 
are  "$330.99,"  with  a  "7"  written  over  the 
first  "3").  What  is  position  of  holder  in  due 
course,  and  would  collecting  bank  be  justi- 
fied in  protesting  the  check  under  such  cir- 
cumstances? Opinion:  Where  the  body  of 
a  check  is  written  in  words  for  $730,  and  the 
marginal  figures  are  first  inserted  $330,  and 
then  changed  by  the  drawer  to  $730,  by 
writing  the  figure  "7"  over  the  first  figure 
"3",  the  check  is  vahd  for  the  amount 
written  in  the  body,  and  the  purchaser  can 
enforce  payment  from  the  drawer,  if  refused 
by  the  bank.  Even  where  the  change  in 
figures  is  made  by  the  holder,  the  alteration 
is  immaterial  as  the  words  control  the  figures 
and  denote  the  sum  payable;  and  the  check 
is  protestable  upon  refusal  of  payment,  al- 
though the  drawee  bank  is  justified  in  de- 
laying payment  a  brief  period  to  make 
inquiry  of  the  drawer.  See  opinion  No.  338 
Bryant  v.  Ga.  Fertihzer  &  Oil  Co.,  (Ga.)  79 
S.  E.  236.  People  v.  Lewinger,  (111.)  96 
N.  E.  837.  Sec.  17  Neg.  Inst.  Law,  and  see 
Ehas  V.  Whitney,  98  N.  Y.  Suppl.  667. 
{Inquiry  from  La.,  July,  1920,  Jl.) 

342.  Where  the  amount  of  a  note  is 
written  in  the  body  and  also  given  in  figures 
in  the  margin,  the  deduction  from  such 
marginal  figures  of  the  amount  of  a  par- 
tial payment  is  not  a  material  alteration  of 
the  note.  Neg.  Inst.  A.  of  Mass.  Sees.  141, 
142.  Smith  v.  Smith,  1  R.  I.  398.  Prim  v. 
Hammel,  134  Ala.  652.  {Inquiry  from 
Mass.,  Nov.,  1916,  Jl.) 

Erasure  of  name  of  joint  payee 

343.  A  check,  made  payable  to  two 
joint  payees,   was  altered  by  one  of   the 


68 


ALTERED  AND  RAISED  PAPER 


[344-346 


payees  by  erasing  the  name  of  the  other.  It 
was  then  negotiated  to  a  local  merchant  who 
deposited  it  in  his  bank  which  collected  the 
amount  from  the  drawee.  The  drawee  having 
been  apprised  of  the  alteration  demands  re- 
imbursement from  the  depository  bank. 
Opinion:  The  check  was  avoided  by  the  al- 
teration; the  local  merchant  took  no  title  and 
the  drawee  bank  is  entitled  to  recover  the 
amount  from  the  depository  bank,  which,  in 
turn,  has  recourse  upon  the  merchant.  Neg. 
Inst.  A.,  of  Colo.,  Sees.  5174,  5175,  5091. 
{Inquiry  from  Colo.,  Oct.,  1917,  Jl.) 

Erasure  of  payee^s  name 

344.  A  customer  of  a  bank  sent  a 
check  to  the  payee  named  in  an  unregis- 
tered letter  which  was  stolen  from  a  mail 
box.  The  customer  notified  the  bank  of 
the  loss,  and  issued  a  stop-payment,  but 
this  was  not  received  by  the  bank  before  it 
had  paid  the  check  at  its  window,  the  payee's 
name  having  been  erased  and  the  word 
"Bearer"  very  skillfully  substituted.  The 
bank  charged  the  check  to  the  customer's 
account,  and  objection  is  made.  Opinion: 
Where  a  bank  pays  a  check  which  has  been 
altered,  it  will  not  be  permitted  in  the  ab- 
sence of  special  circumstances  to  charge  the 
amount  of  the  check  against  the  drawer's 
account.  Even  where  the  alteration  is  so 
skillfully  made  that  it  is  not  discernable  by 
ordinary  inspection,  the  bank  is  neverthe- 
less responsible  to  its  depositor.  Crawford 
V.  West  Side  Bank,  100  N.  Y.  50,  2  N.  E. 
881,  53  Am.  Rep.  152.  The  maihng  of  the 
check  in  an  unregistered  letter  would  not  be 
held  negligence.  (Inquiry  from  N.  Y.,  Oct., 
1918.) 

345.  Miss  A  desiring  to  buy  50  shares 
of  D — Oil  Co.  Stock,  at  $6.50  per  share, 
drew  her  check  on  bank  B  for  S325,  pay- 
able to  the  D — Oil  Co.,  and  sent  same 
to  C,  in  Tex.,  where  the  Company  is  located, 
requesting  him  to  procure  the  stock  for  her. 
C,  having  50  shares  of  this  stock,  had  same 
transferred  to  A  and  sent  same  to  her.  C 
then  changed  the  name  of  the  payee  on  the 
check,  making  same  payable  to  him.  C, 
instead  of  the  D — Oil  Co.,  indorsed  same 
and  deposited  it  for  collection.  The  drawee 
bank,  B,  noting  the  alteration  when  check 
was  presented,  refused  to  honor  same,  and 
turned  it.  The  check  was  again  presented 
to  drawee  in  same  condition,  except  that  in 
addition  to  the  indorsement  of  B,  and  under 
that  indorsement,  was  indorsed  the  name  of 
"D — Oil  Co,"  the  original  payee  of  the 
check.    The  drawee  then  paid  the  check  on 


November  11th,  1919,  and  on  November 
30th  mailed  same  to  Miss  A  with  her  month- 
ly statement  of  account.  On  the  last  of 
January,  1920,  the  bank  received  a  letter 
from  Miss  A's  attorney,  dated  January  26th, 
1920,  demanding  the  immediate  reimburse- 
ment of  S325  to  Miss  A,  on  account  of  pay- 
ment of  altered  check.  B  bank  declines  to 
pay,  and  wishes  opinion  as  to  what  defenses 
it  has  in  premises.  Opinion:  The  rule  is 
well  settled  that  the  drawee  bank  must  bear 
the  loss  where  it  pays  out  money  on  a  check 
which  has  been  altered,  (Bank  v.  Arden, 
177  Ky.  520,  197  S.  W.  951.  First  State 
Bank  v.  VigeH,  78  Kan.  264.  Morris  v. 
Beaumont  Nat.  Bank,  37  Tex.  Civ.  App. 
97)  as  by  making  a  check  drawn  to  a  desig- 
nated person  payable  to  another  person  or 
to  bearer.  (Nat.  Dredging  Co.  v.  Farmers 
Bank,  (Del.  1908)  69  Atl.  607.  Belknap  v. 
Nat.  Bank,  100  Mass.  376.  Critten  v. 
Chemical  Nat.  Bank,  171  N.  Y.  219).  In 
instant  case  bank  is  prima  facie  Hable,  in 
that  it  charged  to  drawer's  account  a  check 
not  as  made  by  her,  the  alteration  of  the 
name  of  payee  being  a  material  alteration, 
a  forgery,  which  vitiated  it  as  a  genuine 
order  to  pay  from  the  deposit  of  Miss  A. 
The  fact  that  Miss  A  has  received  50  shares 
of  oil  stock  would  be  no  defense  to  the  bank, 
for  it  might  well  be  that  the  D —  Oil  Co.,  the 
original  payee  of  the  check,  still  holds  her 
liable  for  the  price  of  such  shares.  {In- 
quiry from  Va.,  March,  1920.) 

346.  A  check  drawn  on  a  Boston  bank, 
from  which  the  name  of  the  payee  and  the 
amount  were  washed  by  acid,  was  altered 
by  having  different  payee  and  an  increased 
amount  inserted.  After  indorsement  by 
the  purported  payee,  the  check  was  cashed 
by  a  customer  of  a  Philadelphia  bank, 
but  only  after  he  had  deposited  the 
same  for  collection  and  had  received  advice 
that  it  had  been  paid.  Opinion:  Irrespec- 
tive of  the  Philadelphia  bank's  guaranty  of 
indorsement  there  is  a  clear  right  of  recovery 
by  the  Boston  bank  either  against  the  for- 
mer bank  as  apparent  owner  of  the  check, 
or  if  the  check  was  indorsed  "for  collection," 
against  the  customer.  Park  Bk.  v.  Seaboard 
Bk.,  114  N.  Y.  28.  Park  Bk.  v.  Eldred  Bk., 
90  Hun  (N.  Y.)  285.  Houser  v.  Nat.  Bk. 
of  Chambersburg,  27  Pa.  Super.  619.  Leos 
V.  Walls,  161  Pa.  57.  Robb  v.  Pa.  Co.  3  Pa. 
Supper.  254.  Critten  v.  Chemical  Nat.  Bk., 
171  N.  Y.  219.  Crocker-Woolworth  Bk.  v. 
Nevada  Bk.,  139  Cal.  564.  Second  Nat.  Bk. 
V.  Guarantv  Tr.  &  Safe  Dep.  Co.,  206  Pa. 
616.     {Inquiry  from  Pa.,  July,  1908,  Jl.) 


69 


347-352] 


DIGEST  OF  LEGAL  OPINIONS 


Place  of  payment  altered 

347.  A  was  the  holder  of  a  check 
drawn  by  B  on  a  bank  which  returned 
it  to  A  indorsed  "not  sufficient  funds." 
Thereupon  A  changed  the  name  of  the 
drawee  to  the  bank  of  C,  where  B  also  had 
an  account,  and  obtained  the  money.  Later 
a  subsequent  good  check,  drawn  by  B  on  the 
bank  of  C  was  presented,  and  dishonored 
because  of  a  shortage  created  by  payment 
of  the  altered  check.  Opinion:  As  to  the 
altered  check,  the  alteration  constituted 
forgery  and  rendered  A  criminally  hable, 
and  as  between  B  and  bank  of  C,  the  bank 
must  bear  the  loss.  The  alteration  by  A 
would  also  avoid  any  possible  liability  on 
the  part  of  B  to  A.  As  to  the  good  check, 
the  bank  is  answerable  in  damages  should 
B  prove  injury  to  his  credit  arising  out  of  the 
bank's  failure  to  honor  his  check  in  the 
hands  of  a  third  party.  {Inquiry  from 
Miss.,  Aug.,  1910,  Jl.) 

348.  A  note  was  altered  by  drawing 
lines  through  the  place  of  pajonent. 
Opinion:  The  note  was  materially  altered 
and  avoided,  except  that  a  holder  in 
due  course  may  enforce  it  according  to  its 
original  tenor.  In  this  case  the  purchaser 
could  not  be  a  holder  in  due  course,  when  a 
mere  inspection  of  the  note  shows  the  altera- 
tion. First  Nat.  Bk.  v.  Barnum,  160  Fed. 
245.  Elias  v.  Whitney,  50  Misc.  (N.  Y.) 
326.    {Inquiry  from  N.  Y.,  June,  1916,  Jl.) 

Erasure  of  words  "Payable  in    New    York 
exchange^' 

349.  A  drawee  bank  had  presented 
to  it  a  check  coming  through  regular 
channels,  that,  when  originally  issued  had 
thereon  the  words  "Payable  in  New  York 
exchange"  but  which  words  had  been  erased. 
Opinion:  The  proper  procedure  for  the 
drawee  bank  would  have  been  to  have  re- 
fused to  pay  the  check  on  the  ground  that 
it  had  been  materially  altered,  and  was  not 
the  order  issued  by  the  drawer.  Such  a 
check  would  be  returnable  without  protest. 
{Inquiry  from  N,  Y.,  Feb.,  1917.) 

Time  of  payment  altered 

350.  Where  payee  of  note  changes  time 
of  payment  without  assent  of  maker,  this 
constitutes  a  material  alteration  and 
avoids  instrument  unless  change  is  made 
to  make  instrument  conform  to  intent  and 
agreement  of  parties.  Where  note  avoided 
by  material  alteration,  original  consideration 
generally  held  recoverable  unless  alteration 


fraudulently  made,  in  which  case  considera- 
tion is  forfeited.  Neg.  Inst.  A.,  of  Okla., 
Sec.  9089  t.,  4,  9089  u.,  4.  Busjahn  v. 
McLean  29  N.  E.  (Ind.)  494.  Osborn  v. 
Hall,  66  N.  E.  (Ind.)  457.  Hayes  v.  Wagner, 
89  111.  App.  390.  Savage  v.  Savage,  59  Pac. 
(Ore.)  461.  Bigelow  v.  Stephens,  35  Vt. 
525.  Tate  v.  Fletcher,  77  Ind.  102.  {Inquiry 
from  Ind.,  July,  1917,  Jl.) 

Check  with  partly  erased  figures 

351.  A  check  was  presented  and  pay- 
ment refused  by  the  bank  because  the 
instrument  written  in  indelible  pencil 
contained  partly  erased  figures  and  the  writ- 
ing was  obscure.  The  bank  telephoned  the 
maker,  who  stated  that  he  had  not  drawn  the 
check.  The  check  was  protested  and  sub- 
sequently the  maker  notified  the  bank  that 
he  had  drawn  the  check.  Opinion:  A  bank 
is  under  obhgation  to  its  depositor  to  pay  his 
properly  drawn  check  when  duly  presented, 
if  the  funds  are  sufficient,  but  where  the 
check  when  presented  bears  a  suspicious 
appearance,  it  is  the  bank's  duty  to  refuse  to 
pay  until  it  has  had  opportunity  to  make 
inquiry  and  satisfy  itself  as  to  its  genuine- 
ness. The  description  of  the  check  would 
certainly  indicate  a  suspicious  appearance 
sufficient  to  put  the  bank  on  inquiry  and 
having  made  inquiry,  payment  was  properly 
refused.  Scholey  v.  Ramsbottom,  2  Comp. 
(Eng.)  485.  Ingham  v.  Primrose,  7  C.  B. 
N.  S.  (Eng.)  82.  First  St.  Bk.  of  Scott  City 
V.  Vogeh,  96  Pac.  (Kan.)  490.  Israel  v.  St. 
Nat.  Bk.  of  New  Orleans,  50  So.  (La.)  783. 
{Inquiry  from  N.   Y.,  Jan.,  1918,  Jl.) 

'Vollection^'  rubber  stamped  on  note  not  a 
material  alteration 

352.  It  is  a  general  custom  of  bankers 
to  place  a  collection  stamp  on  notes  and 
the  inquiring  bank  uses  a  rubber  stamp 
with  name  of  bank  and  the  word  "collection" 
followed  with  blank  space  for  their  collection 
number,  placing  same  on  face  of  the  note  in 
the  margin,  or  any  other  blank  space  thereon. 
A  local  attorney  cautions  the  bank  not  to 
place  the  collection  stamp  on  any  part  of  the 
notes  received  for  collection,  stating  that  in 
suit  on  the  note,  it  mught  be  used  by  the 
maker  as  a  defense  in  refusing  pa3Tnent. 
Opinion:  The  word  "collection"  rubber 
stamped  on  the  face  of  an  instrument,  as  de- 
scribed, does  not  constitute  a  material  al- 
teration and  does  not  affect  the  vaHdity 
thereof.  Bachellor  v.  Priest,  12  Pick  (Mass.) 
399.  Pitt  V.  Little,  108  Pac.  (Wash.)  940. 
{Inquiry  from  Ore.,  Sept.,  1915,  Jl.) 


70 


ALTERED  AND  RAISED  PAPER 


[353-358 


Rights  of  holder  in  due  course 

353.  A  drew  a  check  on  his  bank, 
written  in  pencil,  in  favor  of  B  for  $15. 
B  gave  the  check  to  C  to  cash  for  him, 
who  failed  to  return  with  the  money;  then 
B  notified  A,  who  stopped  payment  on  the 
check.  When  check  was  presented  to  drawee 
bank  it  had  been  raised  from  $15  to  $55,  and 
was  held  by  D,  a  local  merchant.  Payment 
was  refused.  Has  D  any  recourse  against 
A?  Opinion:  D,  the  innocent  purchaser, 
could  recover  from  A,  the  drawer,  the  origi- 
nal amount  of  the  check,  $15,  but  would 
be  the  loser  to  the  extent  of  $40,  unless  his 
right  of  recovery  from  C  would  avail.  This, 
assuming  that  the  check  was  indorsed  in 
blank  by  B,  so  as  to  pass  by  dehvery.  (Sec. 
124  Neg.  Inst.  Law,  which  provides  that 
material  alteration  avoids  the  instrument, 
"but  when  an  instrument  has  been  ma- 
terially altered  and  is  in  the  hands  of  a 
holder  in  due  course,  not  a  party  to  the 
alteration,  he  may  enforce  payment  thereof 
according  to  its  original  tenor.")  (Inquiry 
from  Wyo.,  Feb,,  1917.) 

354.  A  bank  held  A's  note  of  $1,300 
for  several  years,  which  indebtedness  was 
renewed  from  time  to  time.  B,  a  third 
person,  came  into  the  bank  and  indorsed  the 
note  as  surety,  at  the  same  time  paying  $350 
on  the  principal.  B  never  received  any  con- 
sideration for  his  indorsement  which  was 
made  without  the  knowledge  or  consent  of 
the  maker.  The  maker  disclaims  liability  on 
the  note  because  of  material  alteration. 
Opinion:  The  fact  that  after  a  note  is  de- 
livered, another  person  without  the  knowl- 
edge or  consent  of  the  maker  adds  his  name 
as  surety,  does  not  release  the  maker  from 
liability  on  the  ground  of  material  alteration. 
Miller  v.  Finley,  26  Mich.  249.  Muir  v. 
Demaree,  12  Wend.  (N.  Y.)  468.  Mc- 
Coughey  v.  Smith,  27  N.  Y.  39.  Brownell 
V.  Winnie,  29  N.  Y.  400.  {Inquiry  from 
Kan.,  June,  1919,  Jl.) 

355.  A  bank  through  inadvertence 
cashed  a  check  raised  from  $8.75  to  $80, 
notwithstanding  the  fact  that  the  check 
bore  evidence  of  alteration  on  its  face,  by 
reason  of  the  words  stamped  thereon  "not 
over  ten  dollars."  Opinion:  If  bank  is  a 
holder  in  due  course,  it  can  recover  for 
amount  of  check  as  originally  drawn,  but 
from  the  facts  stated,  it  is  doubtful  that 
bank  is  such  holder  in  due  course.  Ncg. 
Inst.  A.,  Sec.  124  (Comsr's.  dft.).  Elias  v. 
Whitney,  98  N.  Y.  S.  667.  {Inquiry  from 
Okla.,  Feb.,  1914.  Jl.,) 


Duty  to  report  alteration  within 
reasonable  time 

356.  A  check  drawn  on  bank  A  was 
cashed  by  bank  B  and  paid  by  bank 
A.  A  little  over  a  month  later  bank  A  re- 
turned the  check  to  bank  B  with  statement 
that  check  had  been  raised  from  $1.15  to 
$91.15,  and  requesting  reimbursement  for 
over-payment.  Is  B  released  by  the  lapse 
of  time  in  returning  the  item.  Opinion: 
The  drawee  is  entitled  to  a  reasonable  time 
in  which  to  discover  the  forgerj^  and  demand 
restitution,  and  the  question  as  to  what  is 
a  reasonable  time  is  usually  a  question  of 
fact  to  be  determined  under  the  circum- 
stances of  each  particular  case.  Third  Nat. 
Bank  v.  Allen,  59  Mo.  310.  There  does  not 
seem  to  have  been  any  unreasonable  delay 
on  drawee's  part  in  this  case,  and  it  was  no 
more  bound  than  was  the  holder  to  know 
that  the  check  had  been  raised.  B  would 
undoubtedly  be  liable  to  refund  to  A  and 
would  be  the  loser  unless  it  could  obtain 
recourse  upon  the  person  for  whom  it  cashed 
the  check.  {Inquiry  from  Ark.,  Sept.,  1918.) 

Delay  in  notice  after  discovery 

357.  A  bank  cashed  a  check  for  the 
payee  upon  which  the  amount  had  been 
raised  from  $18.02  to  $81.02,  and  the  check 
was  subsequently  honored  by  the  drawee 
bank.  The  drawer  discovered  the  fraud 
upon  receiving  his  monthly  statement  from 
his  bank,  and  upon  demand  upon  it  the 
drawee  bank  refunded  him  $63,  the  differ- 
ence between  the  original  and  the  raised 
amount  in  the  check.  Some  weeks  after  this 
adjustment  the  drawee  bank  called  upon  the 
collecting  bank  to  make  restitution  to  it. 
Is  the  collecting  bank  liable?  Opinion: 
Money  paid  by  the  drawee  upon  a  raised 
check  is  recoverable,  but  the  bank  is  obh- 
gated  to  give  reasonably  prompt  notice 
after  discovery  of  the  forgery,  and  if  it 
delays  for  several  weeks  to  give  such  notice, 
and  as  a  result  of  such  delay  the  collecting 
bank  is  deprived  of  opportunity  to  obtain 
reimbursement,  which  a  prompt  notice 
would  have  afforded,  such  delay  would  prob- 
ablv  estop  the  drawee  bank  from  recovery. 
Redington  v.  Woods,  45  Cal.  406.  Nat. 
Bank  v.  Met.  Nat.  Bank,  107  111.  App.  455. 
Third  Nat.  Bank  v.  Allen,  59  Mo.  310. 
Oppenheim  v.  West  Side  Bank,  22  Misc. 
(N.  Y.)  722.  {Inquiry  from  Ore.,  Aug., 
1920,  Jl.) 

358.  A  drawee  who  pays  a  raised  check 
is  entitledito  'recover  the  money  paid  from 


71 


359-362] 


DIGEST  OF  LEGAL  OPINIONS 


the  person  receiving  payment,  in  the  ab- 
sence of  negHgence  in  giving  notice  after 
discovery  of  the  forgery.  {Inquiry  from 
Pa.,  Oct.,  1908,  Jl.) 

359.  Draw^ee  bank  D  made  demand 
on  bank  A  more  than  six  months  after 
payment  of  a  raised  check,  bank  A's  cus- 
tomer having  waited  that  length  of  time 
before  advising  bank  D  that  check  had  been 
raised.  Immediately  upon  receipt  of  such 
advice  bank  D  reported  the  same  to  bank 
A.  Opinion:  The  rule  is  that  the  drawee 
which  has  paid  a  raised  check  is  under  duty 
to  give  reasonably  prompt  notice  to  the 
person  to  whom  payment  was  made  upon 
discovering  the  forgery.  Some  cases  hold, 
however,  that,  even  although  there  is  neg- 
lect in  giving  prompt  notice  of  such  dis- 
covery, the  person  or  bank  receiving  pay- 
ment cannot  avoid  responsibility  to  refund 
by  showing  that  he  did  not  receive  notice 
unless  he  shows  that  he  was  damaged  as  a 
result  of  the  delay.  Cont'l  Nat.  Bk.  v.  Met. 
Nat.  Bk.,  107  111.  App.  455.  Third  Nat.  Bk. 
V.  Allen,  59  Mo.  310.  Oppenheim  v.  West 
Side  Bk.,  22  Misc.  Rep.  (N.  Y.)  722.  Where 
the  forgery  was  not  immediately  discovered 
but  prompt  notice  was  given  by  the  deposi- 
tor to  bank  D  upon  discovery,  the  latter 
having  given  prompt  notice  to  bank  A, 
A  would  be  entitled  to  recover.  (Inquiry 
from  Tenn.,  Nov.,  1919.) 

Duty  of  depositor  to  examine  pass  book 

360.  What  is  the  obhgation  of  a  deposi- 
tor in  examining  his  pass  book  and  returned 
vouchers  for  the  purpose  of  discovering 
unauthorized  pajmaents.  Opinion:  The  de- 
positor who  sends  his  pass  book  to  be 
written  up  and  receives  it  back  with  his  paid 
checks  as  vouchers,  is  bound  to  examine  the 
pass  book  and  vouchers  and  to  report  to  the 
bank  without  unreasonable  delay  any  errors 
which  may  be  discovered.  See  Leather 
Manufacturers'  Bank  v.  Morgan,  127  U.  S. 
96.  First  Nat.  Bank  v.  Allen,  100  Ala.  476, 
14  So.  335.  McLaughlin  v.  First  Nat.  Bank, 
71  111.  App.  329.  American  Nat.  Bank  v. 
Bushey,  45  Mich.  135,  7  N.  W.  725.  Scan- 
lon-Gipson  Limiber  Co.  v.  Germania  Bank, 


90  Minn.  478,  97  N.  W.  380.  Morgan  v. 
United  States  Mortgage  &  Trust  Co.,  208 
N.  Y.  218,  101  N.  E.  871.  Critten  v.  Chem- 
ical Nat.  Bank,  171  N.  Y.  219,  63  N.  E. 
969,  57  L.  R.  A.  529.  Frank  v.  Chemical 
Nat.  Bank,  84  N.  Y.  209,  38  Am.  Rep.  531. 
Clark  V.  National  Shoe  &  Leather  Bank,  32 
App.  Div.  (N.  Y.)  316.  Myers  v.  South- 
western Nat.  Bank,  193  Pa.  1,  44  Atl.  280, 
74  Am.  St.  Rep.  672.  Weinstein  v.  Bank, 
69  Tex.  38.  First  Nat.  Bank  v.  Richmond 
Electric  Co.,  106  Va.  347,  56  S.  E.  152,  7 
L.  R.  A.  (U.  S.)  744.  {Inquiry  from  Ohio, 
Oct.,  1917.) 

Alteration  of  deed — Rights  of 
purchaser 

361.  A  trust  deed  was  altered  in  a 
material  respect  while  in  the  hands  of  a 
trust  company,  the  trustee  named  therein, 
and  an  opinion  is  requested  as  to  whether 
the  deed  was  destroyed  by  the  alteration. 
Opinion:  The  deed  was  avoided  by  the 
alteration  or  forgery  if  done  by  a  responsible 
official  of  the  trust  company.  The  rule  is 
well  recognized  that  any  change  in  an  instru- 
ment which  causes  it  to  speak  a  different 
language  in  legal  effect  from  that  which  it 
originally  spoke — which  changes  the  legal 
identity  or  character  of  the  instrument 
either  in  its  terms  or  the  relation  of  the 
parties  to  it — is  a  material  change  or  techni- 
cal alteration  and  such  a  change  will  invali- 
date the  instnmient  as  to  all  parties  not 
consenting  to  the  change.  In  the  case  of 
Baldwin  v.  Haskell  Nat.  Bk.,  Tex.  (1911) 
133  S.  W.  864,  the  court  used  this  language: 
"That  a  material  alteration  in  an  instru- 
ment, without  the  consent  of  the  maker,  will 
avoid  all  recovery  on  same,  is  no  longer  an 
open  question  in  this  state.  Otto  v.  Halff 
&  Bro.,  89  Tex.  384."  See  also  Bogarth  v. 
Breedlove,  39  Tex.  561.  Park  v.  Glover,  23 
Tex.  469.  Heath  v.  State,  14  Tex.  App. 
213.  Bowser  v.  Cole,  74  Tex.  222.  But  if 
the  alteration  was  by  a  stranger,  it  would  be 
a  "spoliation"  and  the  deed  would  not  be 
avoided.  Daniel  Neg.  Inst.  1373a.  {Inquiry 
from  Tex.,  Oct.,  1915.) 


ATTACHMENT  AND  GARNISHMENT 


Garnishment  by  creditor  of  B  of  bank 

account  subject  to  checks  signed 

"A  by  B" 

362.     A  bank  has  a  notice  of    garnish- 
ment in  which  the  following  question   is 


asked:  "At  the  time  of  the  service  of  this 
garnishment,  did  you  have  any  money  in 
your  possession,  or  any  bank  account  on 
which  the  said  defendant  is  authorized  to 
write  checks,  either  in  his  name  or  in  the 
name  of  any  other  person,  persons,  firm  or 


72 


ATTACHMENT  AND  GARNISHMENT 


[363-367 


corporation,  by  himself?"  The  plaintiff,  a 
mercantile  co-partnership,  in  this  action  is 
trying  to  recover  debt  alleged  to  be  owing 
from  one  Col.  W.  T.,  defendant.  It  is  true 
that  Col.  T.  is  authorized  to  draw  checks  on 
a  certain  account  in  the  name  of  F.  T.  L., 
which  he  signs  "F.  T.  L.  by  Col.  W.  T." 
What  is  required  by  law  in  the  way  of  an 
answer  from  the  bank?  Is  the  account  sub- 
ject to  attachment?  Opinion:  Where  a 
bank  which  carries  an  account  for  A,  upon 
which  B  is  authorized  to  draw,  signing 
checks  "A  by  B,"  is  served  with  a  notice  of 
garnisliment  in  an  action  against  B,  the 
bank  is  not  liable  as  garnishee,  where  the 
account  does  not  belong  to  B,  and  the  bank 
should  make  answer  setting  up  the  title  of 
A.  Donald  v.  Nelson,  95  Ala.  111.  Smith 
V.  Taylor,  9  Ala.  633.  Cox  v.  Reeves,  78 
Ga.  543.  McKittrick  v.  Clemens,  52  Mo. 
160.  Phoenix  Ins.  Co.  v.  Angel  (Ky.)  38 
S.  W.  1067.  Chase  v.  Bradley,  26  Me.  531. 
Baltimore,  etc.,  Bank  v.  Jaggers,  3  Md.  38. 
Johnson  v.  Carhn,  123  Minn.  444.  Provi- 
dence Brew.  Co.  v.  Maxwell,  222  Mass.  123, 
109  N.  E.  916.  Chick  v.  Ventrees,  32  Mo. 
431.  Pundt  V.  Clary,  13  Neb.  406.  Eckels 
V.  Smyser,  180  Pa.  St.  66.  Balliet  v.  Brown, 
103  Pa.  St.  546.  Montidonico  v.  Page,  10 
Husk.  (Tenn.)  443.  Miller  v.  State,  (Tex. 
1905)  84  S.  W.  844.  Chesapeake,  etc.,  R.  Co. 
v.  Paine,  29  Gratt.  (Va.)  502.  Lehigh  Coal, 
etc.,  Co.  V.  West  Superior,  etc.,  Co.,  91  Wis. 
221.  Idaho,  Rev.  Codes,  Ch.  4,  Sees.  4309, 
4310-b,  4310-h.  {Inquiry  from  Idaho,  Sept., 
1919,  Jl.) 

Account  owned  by  one  person  in  name 
of  another 

363  A  customer  carries  his  account  in 
his  father's  name  which  is  subject  to  checks 
drawn  by  him  in  father's  name.  The  bank 
is  served  with  garnishment  writ  against 
the  customer  in  his  own  name  and  asks 
whether  it  will  affect  the  balance.  Opinion: 
The  bank  knowing  that  the  deposit  be- 
longs to  the  customer  and  not  to  his  father, 
the  account  is  subject  to  garnishment  al- 
though carried  in  the  father's  name.  Head 
V.  Cole,  53  Ark.  523.  {Inquiry  from  Ark., 
Nov.,  1911,  Jl.) 

Attachment  of  insufficient  deposit  by 
two  creditors 

364.  A  bank  is  served  simultaneously 
with  two  writs  of  trustee  process  against 
the  account  of  the  same  depositor  in  behalf 
of  different  creditors.  Each  writ  called 
for    $7,000,     and    the    deposit    amounted 


to  $13,000.  The  deposit  being  insujQBlcient 
for  both,  the  bank  asks  which  writ  is  given 
the  preference.  Opinion:  The  rule  in  Massa- 
chusetts and  probably  in  Maine  is  that  the 
respective  plaintiffs  are  entitled  to  recover 
an  aliquot  part  of  the  deposit,  each  being  en- 
titled to  one-half  the  fund,  although  their 
claims  are  for  unequal  amounts.  In  Penn- 
sylvania the  rule  appears  to  be  that  each 
would  share  in  the  deposit  pro  rata,  accord- 
ing to  their  respective  claims.  In  the  instant 
case,  the  claims  being  of  equal  amount,  each 
would  take  one-half  in  any  event.  Rock- 
wood  V.  Varnum  17  Pick  (Mass.)  289.  Davis 
V.  Davis,  2  Cush.  (Mass.)  111.  Baldwm's 
Appeal,  86  Pa.  483.  {Inquiry  from  Me., 
Oct.,  1917,  Jl.) 

Bank  garnished  for  debt  of  check  holder 

365.  A,  having  an  account  with  a  bank, 
gave  his  check  to  B  who  indorsed  it  over 
to  C.  Before  presentment  C  was  sued  by 
creditors  and  a  writ  of  garnishment  was 
served  on  A's  bank  against  "Anything  in 
your  possession  belonging  to  C."  Opinion: 
The  garnishment  will  not  hold  good  be- 
cause it  is  incorrect  to  assume  that  the  bank 
was  indebted  to  C  before  the  check  was 
presented.  Even  if  the  bank  were  indebted 
to  C,  the  order  should  require  the  surrender 
of  the  check  as  a  condition  of  making  pay- 
ment. Head  v.  Cole,  53  Ark.  523.  Nelson 
V.  Blank,  67  Ark.  347.  {Inquiry  from  Ark., 
Oct.,  1908,  Jl.) 

366.  Certain  creditors  of  A  learned  that 
he  was  to  receive  commissions  in  a  land 
deal.  A  bank  in  the  same  town  was  served 
with  a  writ  of  garnishment  for  any  funds 
that  might  pass  through  its  hands  be- 
longing to  A.  A's  attorney  gave  his  check 
to  A,  drawn  on  the  said  bank,  and  the  bank 
asks  if  it  is  proper  to  pay  the  same.  Opin- 
ion: Check  is  not  an  assignment  of  deposit 
and  drawee  bank  is  not  indebted  to  payee, 
who  is  defendant  in  garnishment  proceed- 
ings, and  not  hable  where  check  is  paid  to 
payee  after  service  of  writ.  Nor  is  bank  held 
for  funds  of  defendant  received  after  service 
of  writ.  Neg.  Inst.  A.,  Sec.  187  (Comsr's. 
dft.).  Turner  v.  Hot  Springs  Nat.  Bk.,  101 
N.  W.  348.  Stone  v.  Dowling,  78  N.  W. 
(Mich.)  549.  Cogswell  v.  Mitts,  51  N.  W. 
(Mich.)  514.  {Inquiry  from  S,  D.,  April, 
1917,  Jl.) 

Bank  not  indebted  at  time  writ  is  served 

367.  A  customer  purchased  drafts  from 
a  bank.  The  bank  is  served  with  garnish- 
ment writ  against  the  customer.    At  time 


73 


368-374] 


DIGEST  OF  LEGAL  OPINIONS 


of  service  the  customer  has  not  cashed 
the  drafts.  Opinion:  Judgment  will  not  be 
rendered  against  the  garnishee  bank  unless 
the  drafts  are  delivered  into  court  or  until 
they  mature  and  it  is  shown  the  customer 
still  holds  them.  Head  v.  Cole.  53  Ark.  523. 
{Inquiry  from  Ark.,  Nov.,  1911,  Jl.) 

368.  A  bank  received  a  telegraphic  re- 
quest from  its  correspondent  to  pay  a 
specified  person  a  certain  sum.  A  creditor 
of  such  person  served  a  writ  of  garnish- 
ment upon  the  bank  before  it  received  a  re- 
mittance from  its  correspondent.  Opinion: 
The  garnishment  would  not  hold,  because 
the  bank  was  not  indebted  to  the  person  at 
the  time  the  writ  was  served.  20  Cyc. 
1005-6.    {Inquiry  from  Wash.,  April,  1913, 

V  I/.) 

Note:  Now  by  judicial  construction  of 
the  Washington  Code,  a  writ  of  garnishment 
holds  the  moneys  or  goods  of  defendant  in 
hands  of  garnishee  at  the  time  of  the  service 
of  the  writ,  or  at  any  time  thereafter  until 
the  service  of  the  answer  of  the  garnishee, 
but  not  debts  created  between  time  of  ser- 
vice of  the  answer  of  the  garnishee  and  the 
time  of  the  trial  of  the  issue. 

Bank's   obligation   to   disclose  balance 

369.  A  bank  is  under  obUgation  to  dis- 
close the  amount  of  the  balance  where  it 
is  garnished  by  a  creditor  of  the  customer. 
{Inquiry  from  Mich.,  July,  1911,  Jl.) 

Attachment   of  funds    represented   by 
certificate  of  deposit 

370.  Can  money  left  on  deposit  with 
a  bank,  for  which  a  certificate  of  deposit 
has  been  issued,  be  attached?  Opinion: 
Money  left  on  deposit  for  which  a  negoti- 
able certificate  of  deposit  has  been  issued 
and  is  outstanding  is  not  subject  to  at- 
tachment by  a  creditor  of  the  depositor. 
Cottingham  v.  Greeley  &  Co.,  129  Ala.  200. 
Auten  V.  Crahan,  81  111.  App.  502.  Den- 
ham  V.  Pogue,  20  La.  Ann.  105.  Diefendorf 
V.  Oliver,  8  Kan.  365.  Woodman  v.  Caster, 
90  Me.  302.  Cishman  v.  Haines,  20  Pick. 
(Mass.)  132.  Stone  v.  Dean,  5  N.  H.  502. 
Howe  V.  Harkness,  11  Ohio  St.  449.  Kim- 
brough  V.  Hornsby,  (Tenn.)  84  S.  W.  613. 
Bassett  v.  Garthwaite,  22  Tex.  230.  Davis 
V.  Pawletto,  3  Wis.  300.  See  also  Enos  v. 
Tuttle,  3  Conn.  27.  Gen.  Stat.  Conn.,  1918, 
Ch.  230,  Sec.  4705.  {Inquiry  from  Conn., 
Feb.,  1920,  Jl.) 

Certificate   payable   "in  current  funds" 

371.  Is  a  certificate  payable  in  current 
funds  subject  to  garnishment?    A    certain 


bank  was  informed  that  an  instrument 
payable  in  current  funds  is  not  nego- 
tiable, and  can,  therefore,  be  garnished. 
Opinion:  There  is  a  conflict  of  authority 
whether  an  instrument  payable  "in  current 
funds"  is  negotiable,  and  in  jurisdictions 
such  as  Idaho  where  the  point  has  not  been 
decided,  where  a  bank  is  served  as  garnishee 
at  the  instance  of  a  creditor  of  the  paj/ee,  the 
safer  course  is  to  refuse  payment  to  the 
holder  until  the  point  is  settled.  The  cases 
which  hold  instruments  payable  "in  current 
funds"  non-negotiable  are,  generally  speak- 
ing, not  of  such  recent  date  as  those  which 
hold  the  contrary.  The  numerical  weight 
of  cases  is  in  favor  of  negotiability.  How- 
ever, a  recent  Iowa  decision  holds  such 
instruments  non-negotiable.  Dille  v.  White, 
(Iowa,  1906)  190  N.  W.  909.  Ida.  Rev. 
Codes,  1908,  Ch.  4,  Sec.  4310  K.  {Inquiry 
from  Idaho,   Nov.,  1919,  Jl.) 

Time  certificate  of  deposit 

372.  A  bank  is  in  doubt  regarding  the 
matter  of  reporting  time  certificates  of 
deposit  when  an  attachment  is  served 
upon  it.  Opinion:  A  bank  is  not  liable 
as  garnishee  upon  a  debt  due  upon  a 
negotiable  time  certificate  of  deposit  while 
same  is  outstanding,  but  it  is  incumbent 
upon  the  bank,  upon  being  served  as  gar- 
nishee, to  make  answer  concerning  its  in- 
debtedness upon  such  certificate.  Ida.  Rev. 
Codes,  1908,  Ch.  4,  Sec.  4310  K.  {Inquiry 
from  Idaho,  Nov.,  1919,  Jl.) 

373.  Under  the  law  of  IlUnois  a  bank, 
national  or  state,  is  not  liable  to  gar- 
nishment by  a  creditor  of  its  depositor  for 
funds  represented  by  an  outstanding  nego- 
tiable certificate  of  deposit.  Hurd's  Rev. 
Stat.  111.  (1911),  Chap.  62,  Sec.  15.  Waine 
V.  Kendall,  78  111.  598.  Auten  v.  Crahan,  81 
111.  App.  502,  505.  Starr  &  Curtis'  Ann. 
Stat.,  Chap.  62,  Par.  15.  {Inquiry  from  III., 
Sept.,  1913,  Jl.) 

374.  A  bank  submits  the  following 
form  of  certificate  of  deposit  and  asks 
whether  it  is  subject  to  attachment  by  cred- 
itors of  the  payee. 

"The  Blank  National  Bank, 

Blank,  Iowa,  Dec.  1,  1917. 
John  Doe  has  deposited  in  this  bank  One 
Hundred  Dollars  payable  to  the  order  of 
himself  in  current  funds  on  the  return  of  this 
certificate  properly  indorsed  three  months 
after  date  with  interest  at  the  rate  of  4  per 
cent,  per  annum.  No  interest  after  maturity. 
Certificate  of  Deposit 


74 


ATTACHMENT  AND  GARNISHMENT 


[375-378 


Not  subject  to  check     Cashier" 

Opinion:  A  certificate  of  deposit  in  the  hands 
of  the  payee  is  property  subject  to  attach- 
ment but  where  a  bank  is  garnished  for  funds 
represented  by  an  outstanding  negotiable 
certificate  it  is  entitled,  under  the  law  of 
Iowa,  to  complete  indemnity  before  suffering 
judgment;  if,  however,  the  certificate  is  non- 
negotiable  paper,  the  bank  can  be  charged  as 
garnishee  of  the  payee  before  notice  of 
assignment.  The  above  certificate  being 
payable  "in  current  funds"  has  been  held 
according  to  Iowa  decisions  a  non-negotiable 
instrument.  Nordyke  v.  Charlton,  108 
Iowa  414.  Code  of  Iowa,  Sec.  3950.  Mc- 
Phail  V.  Hyatt,  29  Iowa  137.  Dille  v.  White, 
109  N.  W.  (Iowa)  909.  Huse  v.  Hamblin, 
29  Iowa  591.  Dore  v.  Dawson,  6  Ala.  712. 
Robinson  v.  Mitchell,  1  Harr.  (Del.)  365. 
Elston  V.  Gillis,  69  Ind.  128.  Marrett  v. 
Equitable  Ins.  Co.,  54  Me.  537.  Scott  v. 
Hawkins,  99  Mass.  550.  Walter  v.  Wash- 
ington Ins.  Co.,  1  Iowa  404.  McCoid  v. 
Beatty,  12  Iowa  299.  Yocum  v.  White,  36 
Iowa  288.  Seals  v.  Wright,  37  Iowa  171. 
{Inquiry  from  Iowa,  Jan.,  1918,  Jl.) 

375.  A  deposited  funds  in  a  national 
bank  in  Rhode  Island  and  received  there- 
for a  negotiable  certificate  of  deposit 
payable  to  himself.  A  creditor  of  A  seeks  to 
attach  the  deposit.  Opinion:  The  deposit  is 
exempt  from  attachment  under  the  provi- 
sions of  the  Rhode  Island  statute  exempting 
debts  secured  by  bills  of  exchange  or  nego- 
tiable promissory  notes.  Gen.  Laws  R.  I. 
(1909),  Chap.  302.  Sec.  5.  Subdiv.  11. 
Littlefield  v.  Hodge,  6  Mich.  326.  Bills  v. 
Bk.,  N.  Y.  343.  McMillan  v.  Richards,  9 
Cal.  365.  (Inquiry  from  R.  I.,  Aug., 
1916,   Jl.) 

376.  B,  the  wife  of  A,  deposits  money 
with  a  bank  as  collateral  security  on  a 
note  discounted  by  A  for  his  business.  B 
wants  the  fund  free  from  attachment  and  the 
bank  advises  her  to  indorse  a  certificate  of 
deposit  in  blank  and  leave  it  with  the  bank 
accompanied  by  a  letter  stating  the  desired 
purpose.  Opinion:  A  creditor  of  the  hus- 
band would  have  no  right  to  attach  a  fund 
belonging  to  the  wife  specially  pledged  by 
her  as  security  for  her  husband's  debt.  In 
Rhode  Island  a  deposit  represented  by  an 
outstanding  negotiable  certificate  is  exempt 
from  attachment;  but  the  certificate  itself 
is  subject  to  seizure  by  creditors  of  the 
owner.  Com.  v.  Abbott,  168  Mass.  471. 
Gen.  Laws  R.  I.  (1909),  Chap.  302,  Sec.  5. 
Nichols  v.  Schofield,  2  R.  I.  123.  (inquiry 
from  R.  I.,  April,  1913,  Jl.) 


Maker  of  note  not  subject  to  garnish- 
ment in  suit  against  payee 

377.  A  bought  a  pair  of  mules  from  B 
giving  his  note  in  payment,  payable  to 
B's  wife.  C  had  judgment  against  B  and 
served  a  writ  of  garnishment  on  A  for  the 
amount.  Later  D  bought  the  note  with  no 
notice  of  the  garnishment  and  C  claims  the 
amount  of  the  garnishment  out  of  the  note. 
Opinion:  In  Alabama,  while  a  negotiable 
note  is  current  as  negotiable  paper  and  sub- 
ject to  transfer  to  a  bona  fide  purchaser  with- 
out notice  and  before  maturity,  the  maker  of 
the  note  is  not  subject  to  garnishment,  nor 
chargeable  as  a  garnishee  of  the  original 
payee  of  the  note.  A's  answer  shows  his  only 
indebtedness  was  to  B  on  a  note  not  yet  ma- 
tured made  payable  to  B's  wife,  in  which 
case  A  would  not  be  chargeable  as  garnishee. 
Wohl  V.  First  Nat.  Bk.,  154  Ala.  332.  Ala. 
Code  (1896),  Sec.  2191.  Gatchell  v.  Foster, 
94  Ala.  624.  10  South  434.  Mayberry  v. 
Morris,  62  Ala.  115.  (Inquiry  from  Ala., 
Dec,  1918,  Jl.) 

Drawer  of  draft  not  subject  to  garnish- 
ment   in    suit    against    payee 

378.  A  purchased  a  draft  issued  by  a 
bank  in  favor  of  B.  A  claimed  that  B 
lost  the  draft  and  requested  a  duplicate.  Be- 
fore the  dupHcate  was  issued,  a  creditor  of  B 
serves  a  writ  of  attachment  upon  the  maker 
of  the  draft.  Opinion:  Where  a  negotiable 
draft  has  been  issued  by  a  bank  and  it  is  out- 
standing, the  drawer  is  not  hable  to  garnish- 
ment in  suit  of  a  creditor  against  the  payee, 
under  the  law  of  Illinois,  unless  it  can  be 
shown  that  the  draft  has  matured  and  is  still 
in  the  hands  of  the  payee.  The  bank  should 
not  issue  a  duplicate  draft  unless  indemnified 
against  loss.  Wohl  v.  First  Nat.  Bk.,  151 
Ala.  332.  Gregory  v.  Higgins,  10  Cal.  339. 
Wilson  V.  McEachern,  9  Ga.  App.  584. 
Littlefield  v.  Hodge,  6  Mich.  326.  Hubbard 
V.  WiUiams,  1  Minn.  54.  Fisher  v.  O'Han- 
lon,  93  Neb.  529.  First  State  Bk.  v.  Latti- 
mer,  149  Pac.  (Okla.)  1099.  Oakdale  Mfg. 
Co.  V.  Clarke,  29  R.  I.  192.  Willis  v.  Heath, 
75  Tex.  124.  Guillot  v.  Wallace.  168  S.  W. 
(Tex.)  978.  Timm  v.  Stegman,  6  Wash.  13. 
Carson  v.  Allen,  2  Finn.  (Wis.)  457.  W.  A. 
Smith  &  Bro.  v.  Spinnen,  170  S.  W.  (Ark.) 
84  Enos  V.  Tuttle,  3  Conn.  27.  Kmg  v. 
Vance,  46  Ind.  246.  Knight  v.  Bowley,  117 
Mass.  451.  Bills  v.  Nat.  Park  Bk.,  89  N.  Y. 
343.  Secor  V.  Witter,  39  Ohio  St.  218.  Day 
V.  Zimmerman,  68  Pa.  72.  Prout  v.  Grant, 
72  111.  456.  Rev.  Stat.  Ill,  Chap.  62,  Sec. 
15.  Wright  v.  McCarty,  92  111.  App.  120. 


75 


379-383] 


DIGEST  OF  LEGAL  OPINIONS 


WeUs  V.  Binner,  170  lU.  App.  (1912)  412. 
{Inquiry  from  III.,  July,  1916,  Jl.) 

Garnishment  of  deposit  represented  by 
cashier's  check 

379.  A  bank  issued  a  cashier's  check  to 
A  for  $3,390  which  A  indorsed  to  one  W — . 
Later  the  sheriff  levied  under  execution 
of  ahmony  judgment  obtained  by  Mrs.  W — 
against  W —  attaching  all  moneys  in  the 
hands  of  the  bank  owing  W —  and  partic- 
ularly all  money  represented  by  the  cash- 
ier's check.  Subsequent  to  the  levy  upon 
the  issuing  bank,  the  check  was  attached 
by  sheriff  while  in  the  hands  of  the  clerk 
of  court  where  it  had  been  deposited  as  se- 
curity in  a  litigation  foreign  to  divorce  pro- 
ceedings. The  bank  wishes  to  be  advised  on 
all  phases  of  the  case.  Opinion:  In  Mc- 
Millan v.  Richards,  9  Ca.  365,  it  was  held 
that  deposit  represented  by  outstanding 
negotiable  certificate  is  not  attachable  in  the 
hands  of  bank  as  it  is  not  indebted  to  the 
depositor,  but  to  holder  of  certificate.  Tliis 
case  was  cited  with  approval  in  Walters  v. 
Rossi,  6  Cal.  (Unoff.  pages)  266,  272.  It 
would  be  proper  for  the  bank  as  garnishee 
to  pay  the  money  into  court  thereby  re- 
lieving itself  of  all  responsibility  and  the 
court  may  order  an  action  to  be  brought 
under  Sec.  720  of  the  Code  of  Civil  Proce- 
dure and  that  all  persons  claiming  to  be 
interested  be  made  parties  thereto.  See 
Deering  v.  Richardson-Kimball  Co.,  103 
Cal.  73.  High  v.  Bank  of  Commerce,  103 
Cal.  525.  With  respect  of  attachment  of 
check  in  hands  of  clerk  of  court  the  rule  is 
that  such  course  is  not  allowable.  See 
Clymer  v.  Willis,  3  Cal.  363.  (Inquiry  from 
Cal.,  Jan.,  1920.) 

380.  A  bank,  when  called  on  under 
attachment  proceedings  to  respond  to  the 
extent  of  its  indebtedness  to  a  customer, 
asks  whether  it  should  include  any  cash- 
ier's checks  outstanding  in  the  name  of  its 
customer.  Opinion:  In  most  jurisdictions 
the  rule  is  that  a  debt  owing  upon  a  negoti- 
able security,  such  as  a  cashier's  check, 
is  not  subject  to  garnishment,  because 
the  indebtedness  of  the  maker  is  to  the 
holder  of  the  instrument,  whoever  he  may 
be.  In  a  few  jurisdictions  it  is  held  that 
where  a  note  is  overdue  and  is  still  in  the 
hands  of  the  payee  it  is  subject  to  garnish- 
ment and  in  a  few  others,  that  debt  repre- 
sented by  a  negotiable  instrument  is  subject 
to  garnishment  which  will,  however,  be 
defeated  by  proof  that  the  instrument  has 
been  transferred  to  a  bona  fide  holder.    It 


seems  there  are  no  decisions  in  Mississippi 
on  the  point,  but  probably  the  prevailing 
rule  would  apply  in  that  state,  that  the  bank 
would  not  have  to  include  in  its  return 
cashier's  checks  issued  to  the  customer  and 
outstanding.  {Inquiry  from  Miss.,  Aug., 
1919.) 

381.  A  depositor  procured  from  the  bank 
a  cashier's  check  for  the  amount  of  his 
balance.  After  he  had  left  the  bank  with 
the  same  in  his  possession,  the  account  was 
garnished.  Is  the  account  subject  to 
garnishment?  Opinion:  Where,  as  in  the 
present  case,  the  bank  has  issued  a  cashier's 
check  which  is  outstanding  and  unpaid,  it 
is  not  liable  as  garnishee  at  suit  of  creditor 
of  the  payee,  or  indorsee,  unless  the  check 
is  shown  to  be  in  the  hands  of  such  payee 
or  indorsee  after  maturity;  that  is  to  say, 
after  such  time  as  it  would  be  presumed 
overdue  so  that  its  transfer  thereafter  would 
subject  the  subsequent  taker  to  equities. 
And  such  is  the  rule  in  Texas,  made  appli- 
cable to  all  negotiable  instruments.  Willis 
V.  Heath,  (Tex.  1914)  168  S.  W.  198. 
Thompson  v.  Findhter  H.  Co.,  (Tex.  1913) 
156  S.  W.  300.  Kapp  v.  Teel,  33  Tex.  811. 
Price  V.  Brady,  21  Tex.  614.  Inglehart  v. 
Moore,  21  Tex.  501.  Bassett  v.  Farthwaite, 
22  Tex.  230.  Thompson  v.  Bank,  66  Tex. 
156.     {Inquiry  from  Tex.,  June,  1920.) 

Garnishment  notice  with  incorrect 
name 

382.  A  bank  having  funds  only  of  "John 
Jones,  Agent"  is  served  with  a  writ  of 
garnishment  against  the  funds  of  "John 
Jones."  The  bank  disregarded  the  writ  and 
was  threatened  with  a  damage  suit  because 
the  funds  in  fact  belonged  to  John  Jones. 
Opinion:  The  bank,  not  knowing  the  real 
owner  of  the  funds,should  not  have  taken  the 
risk  of  answering  that  it  was  not  indebted 
to  Jones  and  then  subsequently  paying  him 
the  money  on  his  check  as  agent.  Silsbee 
St.  Bk.  V.  French  Market  Grocery  Co.,  132 
S.  W.  465.  Ala.  Civ.  Code  (1907)  Chap.  91, 
Art.  2,  Sec.  4317  (2188).  Curtis  v.  Parker, 
136  Ala.  217.  Kimbraugh  v.  Davis,  34  Ala. 
583.  Myatt  v.  Lockshort,  9  Ala.  91.  Foster 
V.  Walker,  2  Ala.  177.  Nat.  Com.Bk.  v. 
Miller,  77  Ala.  168.  Sailer's  Case,  62  Ala. 
221.  Wicks  v.  Branch  Bk.,  12  Ala.  594. 
Security  Loan  Assn.  v.  Wems,  69  Ala.  584. 
Edwards  v.  Levishon,  80  Ala.  477.  Crayton 
V.  Clark,  11  Ala.  787.  {Inquiry  from  Ala., 
March,  1913,  Jl.) 

383.  A  garnishment  notice  was  served 
on  a  bank  charging  funds  of  Mary  Smith, 


76 


ATTACHMENT  AND  GARNISHMENT 


[384-388 


and  bank  carries  an  account  in  the  name 
of  Mrs.  James  Smith,  and  subsequently  pays 
without  knowledge  or  notice  of  the  iden- 
tity of  the  two.  Opinion:  The  bank 
is  not  Hable  for  the  amount  of  Mrs.  James 
Smith's  deposit,  as  it  has  no  knowledge  or 
notice  of  its  depositor's  identity,  and  there 
were  no  circumstances  which  would  charge  it 
with  the  duty  of  making  inquiry  as  to  such 
identity.  German  Nat.  Bk.  v.  Nat.  St.  Bk., 
31  Pac.  (Colo.)  122,  39  Pac.  71.  Terry  v. 
Sisson,  125  Mass.  560.  Paul  v.  Johnson,  9 
Phila.  (Pa.)  32.  White  v.  Springfield  Sav. 
Institution,  134  Mass.  232.  O'Neil  v.  New 
England  Tr.  Co.,  67  Atl.  (R.  I.)  63.  (In- 
quiry from  Minn.,  April,  1917.) 

Garnishment  takes  precedence  over 

checks    not    presented    before 

service  of  writ 


384.  A  depositor  had  a  balance  of 
which  amount  was  garnished  on  Jan,  10, 
1912.  Two  checks  of  S5  and  $10,  drawn 
prior  to  Jan.  10,  were  presented  after  the  ser- 
vice of  the  writ.  Opinion:  The  garnishment 
takes  precedence  over  the  checks  dated  be- 
fore but  not  presented  until  after  the  service 
of  the  writ.  Deposits  made  after  the  service 
of  the  writ  are  not  covered  by  it.  Neg.  Inst. 
A.,  Sec.  189  (Comsr's  dft.).  Old  Second  Nat. 
Bk.  V.  WilUams,  112  Mich.  564.  {Inquiry 
from  III.,  Feb.,  1912,  Jl.) 

385.  The  check  of  a  depositor  was 
presented  after  a  writ  of  garnishment 
was  served  attaching  the  deposit.  The  check 
was  issued  before  the  service  of  the  writ. 
Opinion:  The  writ  of  garnishment  takes  pre- 
cedence over  the  outstanding  check  because 
the  check  of  itself  is  not  an  assignment  of 
the  deposit,  and  the  bank  is  not  hable  to  the 
holder  unless  and  until  it  accepts  or  certifies 
the  check.  Neg.  Inst.  A.,  Sec.  189  (Comsr's 
dft.)    {Inquiry  from   Mo.,  Aug.,  1916,  Jl.) 

386.  A  check  comes  to  a  bank  for  pay- 
ment through  its  correspondent,  arriving  at 
8.30  A.  M.,  and  is  charged  to  the  cus- 
tomer's account  between  11  and  12  o'clock. 
At  9.01  A.  M.  the  account  is  attached.  The 
bank  asks  which  takes  precedence.  Opinion : 
A  writ  of  garnishment  served  against  a  de- 
posit account  at  9.01  A.  M.  takes  precedence 
over  the  debtor's  check  received  through  the 
mail  at  8.30  A.  M.  but  not  charged  against 
his  account  until  11  A.  M.  There  appears 
to  be  no  reason  why  a  writ  of  attachment 
against  a  bank  served  upon  the  proper  officer 
at  the  bank  cannot  be  just  as  effective  when 
Served  during  non-banking  hours  as  it  would 


be  when  served  during  banking  hours.  Al- 
bers  V.  Commercial  Bk.,  85  Mo.  173.  Amer- 
ican Nat.  Bk.  V.  MiUer,  229  U.  S.  517.  St. 
Nat.  Bk.  V.  Boettcher,  5  Colo.  185.  Liggett 
V.  Weed,  7  Kan.  273.  Western  Wheeled 
Scraper  Co.  v.  Sadilek,  50  Neb.  105.  Boyd 
V.  Emerson,  2  Adol.  &  El.  184.  Gen.  Laws 
R.  I.,  Chap.  299,  Sec.  14.  Chap.  300,  Sec. 22. 
See  also  cases  cited  under  Opinion  301. 
{Inquiry  from  R.  I.,  Aug.,  1918,  Jl.) 

Garnishment  of  proceeds  of  bill  of 
lading  draft 

387.  A  draft  with  bill  of  lading  attached 
was  received  by  a  bank  from  its  customer 
for  collection.  It  was  forwarded  to  a 
collecting  bank  and  the  payor  after  pay- 
ing the  draft  immediately  garnished  the  pro- 
ceeds for  an  indebtedness  of  the  customer. 
The  customer  was  obhged  to  settle  on  the 
payor's  terms  and  it  is  claimed  that  the  col- 
lecting bank  wrongfully  withheld  the  funds, 
and  that  they  could  not  legally  be  reached  by 
garnishment  proceedings.  Opinion:  Where 
the  proceeds  of  a  bill  of  lading  draft  are  gar- 
nished in  the  hands  of  collecting  bank  for  in- 
debtedness of  the  shipper,  the  garnishing 
creditor  is  not  entitled  to  the  proceeds  if  the 
draft  has  been  sold  by  the  shipper  prior  to 
collection.  But  if  the  bank  was  merely  an 
agent  for  collection,  and  the  proceeds  be- 
longed to  the  customer,  the  amount  would  be 
subject  to  garnishment  proceedings.  The 
duty  of  the  collecting  bank  when  served  with 
process  of  garnishment  is  to  advise  the  for- 
warding bank  of  the  service  of  the  writ.  If 
the  forwarding  bank  claimed  the  funds  as  its 
property,  the  collecting  bank  should  make 
due  answer,  naming  the  bank  as  owner,  and 
pay  funds  into  court  talcing  receipt  therefor. 
If  the  customer  owned  proceeds,  he  should 
have  opportunity  to  contest  proceedings  to 
release  the  funds  under  bond.  Seward  Co. 
V.  Miller,  55  S.  E.  (Va.)  681.  Mather  v. 
Gordon,  77  Conn.  341.  American  Nat.  Bk. 
V.  Henderson,  123  Ala.  612.  Neil  v.  Rogers ' 
41  W.  Va.  37.  First  Nat.  Bk.  v.  Milling  Co.' 
103  Iowa  518.^  Nat.  Bk.  v.  Everett,  71  S- 
E.  (Ga.)  669.  Howell's  Mich.  Stat.  (1913)- 
Chap.  355.  Sec.  13463,  13482.  Marx  v 
Wayne  Circuit  Judge,  119  Mich.  19.  Ste- 
phens V.  Pa.  Casualty  Co.,  135  Mich.  189. 
{Inquiry  from  Mich.,  Oct.,  1917,  Jl.) 

388.  A  bank  forwarded  for  collection 
a  draft  with  a  bill  of  lading  attached. 
The  proceeds  were  garnished  in  the  hands  of 
the  drawee  bank  because  of  a  claimed  short- 
age, but  the  prosecution  of  the  garnishment 
proceedings  has  been  delayed  three  years. 


77 


389-393] 


DIGEST  OF  LEGAL  OPINIONS 


Opinion:  Application  for  dismissal  of  the 
proceedings  because  of  undue  delay  should 
be  made;  if  the  proceeds  belonged  to  the  dis- 
counting bank  they  are  not  subject  in  any 
event  to  garnishment  by  a  creditor  of  the 
shipper.  Noble  v.  Bourke,  44  Mich.  193. 
Dunham  v.  Murphy  (Tex.  Civ.  App.  1894) ; 
28  S.  W.  132.  England  Bros.  v.  Young,  26 
Okla.  494.  Whitaker  v.  Coleman,  25  Ind. 
374.  Meigs  v.  Weller,  90  Mich.  629.  Kily 
V.  Bertrand,  67  Mich.  332.  Vincent  v. 
Wellington,  18  Wis.  159.  Comp.  Laws, 
Okla.  (1909),  Sec.  5918.  {Inquiry  from  Mo., 
March,  1916,  Jl.) 

389.  A  bank  purchased  from  its  customer 
a  draft  with  a  bill  of  lading  attached, 
and  forwarded  it  for  collection  to  a 
neighboring  bank.  The  latter  bank,  being  a 
creditor  of  the  shipper,  attached  the  pro- 
ceeds in  its  hands  and  refused  to  transmit 
the  amount  to  the  purchaser  of  the  draft. 
Opinion:  Bank  purchasing  draft  with  bill  of 
lading  attached  has  a  right  to  the  goods,  or 
to  the  proceeds  of  the  draft  when  paid,  su- 
perior to  an  attaching  creditor  of  the  shipper. 
Seward  v.  Miller,  55  S.  E.  (Va.)  681.  Tem- 
ple Nat.  Bk.  V.  Louisville  Cotton  Oil  Co., 
82  S.  W.  (Ky.)  253.  Webb  City  Nat.  Bk. 
V.  Everett,  71  S.  E.  (Ga.)  660.  Kansas  City 
First  Nat.  Bk.  v.  Mt.  Pleasant  Milhng  Co., 
72  N.  W.  (la.)  689.  Walsh  v.  Hiawatha 
First  Nat.  Bk.,  81  N.  E.  (111.)  1067.  (Inquiry 
from  Tex.,  June,  1918,  Jl.) 

Garnishment  proceedings  may  be  insti- 
tuted before  judgment 

390.  A  customer  overdrew  his  account 
in  a  bank  and  opened  up  a  new  ac- 
count in  another  bank  in  Oklahoma.  The 
creditor  bank  wishes  to  garnish  the  new  ac- 
count. Opinion:  The  creditor  bank  should 
bring  an  action  against  its  debtor  and  after 
the  action  is  brought,  proceed  at  once  by 
writ  of  garnishment  against  the  other  bank. 
Garnishment  proceedings  may  be  instituted 
before  judgment  against  the  principal  debtor 
under  the  laws  of  Oklahoma  but  the  plaintiff 
must  have  judgment  in  the  principal  action 
before  trial  can  be  had  in  the  garnishee  ac- 
tion. Comp.  Laws  Okla.  (1909),  Sec.  5711 
(S.  1893,  Sec.  4078).  {Inquiry  from  Okla., 
May,  1913,  Jl.) 

391.  A  bank's  customer  came  to  the 
bank  and  withdrew  the  balance  of  his 
account.  In  determining  the  balance,  the 
bank  overlooked  a  check  for  $25  which  had 
not  been  posted  to  his  account;  the  customer 
consequently  overdrawing  his  account  $25. 


The  bank  asks  whether  it  can  garnishee  its 
former  customer's  account  in  another  bank. 
Opinion:  The  Oklahoma  statute  provides 
that  any  creditor  shall  be  entitled  to  proceed 
by  garnishment  in  the  district  court  of  the 
proper  county  against  any  person  (excepting 
a  municipal  corporation)  who  shall  be  in- 
debted to,  or  have  any  property,  real  or 
personal,  in  his  possession,  or  under  his 
control  belonging  to  such  creditor's  debtor. 
(Rev.  Laws  Okla.  1910,  Chap.  60,  Sec. 4822.) 
According  to  this  law  the  bank  can  garnishee 
its  former  customer's  account  in  the  other 
bank  and  institute  such  proceedings  before 
judgment.    Inquiry  from  Okla.,  June,  1920.) 

Garnishment  of  bank  stock 

392.  A  stockholder  of  a  Texas  bank  has 
been  sued,  and  the  bank  garnisheed.  Can 
his  stock  be  levied  upon  and  sold?  In  case 
it  can,  what  is  the  liability  of  the  bank  to 
the  holder  of  the  original  stock  certificates 
in  case  they  have  been  pledged  to  a  third 
party,  and  would  the  bank  be  required  to 
issue  new  certificates  to  the  purchasers  at 
the  sheriff's  sale?  Opinion:  In  Texas  bank 
stock  is  subject  to  garnishment  by  a  creditor 
of  the  stockholder,  and  may  be  sold  under 
execution  mthout  the  original  certificates 
being  first  delivered  to  the  court,  which  may 
compel  the  bank  to  issue  new  certificates  to 
the  purchaser  at  sheriff's  sale.  (HoUoway 
Seed  Co.  v.  City  Nat.  Bank,  [Tex.  Civ.  App. 
1898]  47  S.  W.  77.  Marble  Falls  Ferry  Co. 
V.  Spitler,  7  Tex.  Civ.  App.  82.  McEachin's 
Tex.  Civ.  St.,  Arts.  273,  296,  297,  298). 
But  where  the  stock  has  been  sold  or  pledged 
to  a  third  person,  although  not  transferred 
on  the  bank's  books,  before  notice  of  the 
attachment,  the  rights  of  the  pledgee  or 
purchaser  are  paramount  to  those  of  the 
attaching  creditor.  (SeeHgson  v.  Brown, 
61  Tex.  114.  Twombler  v.  Palestine  Ice  Co., 
17  Tex.  Civ.  App.  596  [citing  in  support 
Smith  V.  Bank,  74  Tex.  457.  Strange  v. 
Railway,  53  Tex.  162.  Baker  v.  Wasson, 
53  Tex.  150.]  Cook  on  Stock  &  Stock- 
holders, Sec.  487.)  {Inquiry  from  Tex., 
Sept.,  1920,  Jl.) 

Garnishment  of  contents  of  safe  deposit 
box 

393.  A  bank  rented  a  safe  deposit  box 
to  a  holder,  giving  him  two  keys  and 
keeping  a  master  key  for  all  of  the  boxes 
held.  A  creditor  of  the  box  holder  desires 
to  attach  the  contents  of  the  box.  Opinion: 
The  contents  of  the  safe  deposit  box  belong- 
ing to  a  box  renter  are  subject  to  attach- 


78 


ATTACHMENT  AND  GARNISHMENT 


[394-400 


ment,  and  according  to  the  weight  of  more 
recent  authority  the  bank  may  also  be 
garnished  for  such  contents.  Jennings  v. 
McElroy,  42  Ark.  236.  State  v.  Lawson,  7 
Ark.  391.  Gay  v.  South  worth,  113  Mass. 
52.  McCullough  V.  Carragan,  24  Hun 
(N.  Y.)  157.  U.  S.  V.  Graff,  67  Barb.  (N.  Y.) 
304.  Tilhnghast  v.  Johnson,  82  Atl.  (R.  I.) 
788.  Bhven  v.  Hudson  R.  Co.,  35  Barb. 
(N.  Y.)  188.  Roberts  v.  Stuyvesant  Safe 
Dep.  Co.,  123  N.  Y.  57.  Bottom  v.  Clark, 
7  Cush.  (Mass.)  487.  Gregg  v.  Hilson,  8 
Phila.  (Pa.)  91.  Wood  v.  Edgar,  13  Mo. 
451.  Case  v.  Dewey,  55  Mich.  116.  Glea- 
son  V.  South  Milwaukee  Bk.,  8  Wis.  534. 
Trowbridge  v.  Spinning,  23  Wash.  48. 
Washington,  etc.,  Co.  v.  Susquehanna  Coal 
Co.,  26  App.  D.  C.  149.  {Inquiry  from  Cat., 
Jan.,  1914,  Jl') 

394.  A  bank  asks  whether  garnishment 
proceedings  attach  property  belonging  to 
the  defendant  which  is  in  a  safe-deposit 
box  in  its  vaults,  to  which  box  only  the 
defendant  has  access.  The  bank  holds  the 
master  key  to  the  vaults,  while  the 
defendant  holds  a  private  key  to  the  box. 
To  open  the  box  it  is  necessary  first  for  the 
master  key  to  be  used  and  second  for  the 
private  key  to  be  used.  Opinion:  In  Wash- 
ington, where  a  bank  leases  to  a  customer  a 
safe-deposit  box,  and  is  summoned  as 
garnishee  by  a  creditor  of  the  lessee,  it 
must  retain  exclusive  control  of  the  box  until 
discharged  by  the  court,  and  should  not  in 
the  meantime  allow  the  depositor  access 
thereto.  Trowbridge  v.  Spinning.  (Wash.) 
62  Pac.  125.  {Inquiry  from  Wash.,  Sept., 
1919,  Jl.) 

Garnishment  of  hank  deposit  and  safe  deposit 
box 

395.  Bank  has  been  informed  that  where 
a  bank  account  has  been  attached,  and 
the  depositor  also  rents  a  safe  deposit 
box  from  the  bank,  and  the  amount  of  the 
garnishment  is  in  excess  of  the  deposit,  the 
bank  lays  itself  liable  in  allowing  the  deposi- 
tor access  to  his  safe  deposit  box;  and, 
further,  that  the  attaching  party  will  have  a 
right  to  break  into  the  box,  if  he  deems  it 
necessary  to  protect  his  claim.  Opinion: 
Where  a  bank  which  carries  a  general  ac- 
count for  a  depositor,  and  also  leases  him  a 
safe  deposit  box,  is  summoned  as  garnishee  of 
such  depositor,  it  cannot  safely  allow  the  de- 
positor access  to  the  safe  deposit  l^ox,  where 
the  depositor's  account  is  insufficient  to  sat- 
isfy the  writ  of  garnishment,  because  being  in 
control  of  the  contents  of  the  box,  it  is  its 


duty  as  garnishee  to  retain  exclusive  control 
until  discharged  by  the  court.  Nat.  Safe 
Deposit  Co.  V.  Stead,  (111.)  95  N.  E.  973. 
Washington  Loan  &  Trust  Co.  v.  Susque- 
hanna Coal  Co.,  26  App.  D.  C.  149.  Tilhng- 
hast V.  Johnson,  (R.  I.)  82  Atl.  788.  Trow- 
bridge V.  Spinning,  23  Wash.  48,  62  Pac. 
125.  Jones  &  Add.  111.  St.  Anno.,  Par. 
5936.  But  see  Wood  v.  Edgar,  7  Cush. 
(Mass.)  487.  Gregg  v.  Hilson,  8  Phila. 
(Pa.)  91.  {Inquiry  from  III,  Bee,  1919,  Jl.) 

Savings  account  is  subject  to  garnish- 
ment 

396.  A  savings  account  is  subject  to 
garnishment,  and  it  is  doubtful  if  the  gar- 
nishee bank  can  require  return  of  the  book, 
as  it  is  the  property  of  the  depositor 
and  is  not  negotiable.  The  difference  be- 
tween a  negotiable  certificate  of  deposit  and 
a  savings  bank  book  with  respect  to  attach- 
ment or  garnishment  proceedings  is  that  in 
case  of  a  negotiable  certificate  the  debt  of 
the  bank  runs  to  the  holder  of  the  certificate 
and  not  to  the  original  depositor.  Wagner 
V.  Second  Ward  Sav.  Bk.,  76  Wis.  242. 
{Inquiry  from  Ida.,  Nov.,  1917,  Jl.) 

397.  An  account  represented  by  a  sav- 
ings bank  pass  book  is  subject  to  garnish- 
ment.   {Inquiry  from  Mich.,  Oct.,  1911,  Jl.) 

Effect  of  assignment  before  service  of  writ 

398.  A  savings  account  is  subject  to 
attachment,  but  if  the  account  has  been 
assigned  before  the  service  of  the  writ  of 
attachment  on  the  bank,  the  assignee  is  pro- 
tected, whether  or  not  the  bank  has  been  no- 
tified of  the  assignment.  Caldwell  Banking 
&  Tr.  Co.  V.  Porter,  52  Ore.,  318,  323. 
Amarillo  Nat.  Bk.  v.  Panhandle  Tel.  & 
Teleg.  Co.  (Tex.  Civ.  App.  1914),  169  S.  W. 
1091.    {Inquiry  from  Ore.,  April,  1917,  Jl.) 

399.  An  account  in  a  savings  bank 
equally  as  in  a  commercial  bank  is  subject  to 
garnishment  by  a  creditor  of  the  depositor 
in  the  absence  of  a  statute  exempting 
such  an  account  from  garnishment.  Mur- 
phree  v.  Mobile,  108  Ala.  663.  INIaloney  v. 
Casey,  164  Mass.  124.  Farmers,  etc.,  Nat. 
Bk.  V.  Ryan,  64  Pa.  236.  Kaesemeyer  v. 
Smith  (Ida.  1912),  123  Pac.  943.  Washing- 
ton, etc..  Brick  Co.  v.  Traders  Nat.  Bk.,46 
Wash.  23.  Allen  v.  Woodruff,  2  Ala.  App. 
415.    {Inquiry  from  Wash.,  Nov.,  1914,  Jl.) 

Partnership  account  or  trust  fund  can- 
not be  garnished  to  pay  an  individ- 
ual debt 

400.  Parties  engaged  in  real  estate  bus- 
iness placed  with  bank  an  account  known  as 


79 


401-403] 


DIGEST  OF  LEGAL  OPINIONS 


"X-Y  Trust  Fund,"  advising  bank  that 
nothing  would  appear  in  it  but  funds  re- 
ceived by  the  firm  for  use  in  paying  in- 
surance premiums,  rentals,  etc.,  in  the 
general  course  of  business  and  earnest 
payments  that  might  be  made  in  connection 
with  real  estate  deals.  The  personal  ac- 
count of  one  of  the  partners  was  garnished. 
In  order  to  be  on  the  safe  side,  the  bank  re- 
fused payment  of  checks  drawn  by  the  firm 
on  the  trust  account,  and  thus  gained  the 
displeasure  of  its  customer,  and  a  possible 
suit  for  damages.  Bank  wishes  advice  as  to 
what  its  action  in  the  premises  should  have 
been.  Opinion:  Where  a  bank  holds  the 
deposit  account  of  a  firm  consisting  of 
trust  funds,  and  is  summoned  as  garnishee 
in  an  action  against  a  customer  who 
carries  a  personal  account,  and  who  is 
a  member  of  such  firm,  no  return  should 
be  made  of  the  trust  fund,  but  the  bank 
should  continue  to  honor  checks  against 
such  account,  because,  (1)  a  partnership 
account  cannot  be  garnished  to  pay  an 
individual  debt.  (Scott  v.  Scheldt.  [N.  D.] 
160  N.  W.  502.  See  Moore  v.  Giknore,  16 
Wash.  123,  47  Pac.  239),  and  (2)  a  trust 
fund  cannot  be  garnished  for  the  individual 
debt  of  the  trustee.  (Home  Land,  etc.,  Co. 
V.  Routh,  123  Ark.  360.  Morrill  v.  Ray- 
mond, 28  Kan.  415.  Marx  v.  Parker,  9 
Wash.  473).  {Inquiry  from  Wash.,  Sept., 
1919,  Jl.) 

Attachment  of  proceeds  in  hands  of 
collecting  bank 
401.  A  draft  drawn  payable  to  the  order 
of  bank  A  for  value  received  is  indorsed 
by  it,  "Pay  any  bank  or  banker  for  collec- 
tion," and  sent  to  bank  B  which  collects 
it  from  drawee;  afterwards  the  money 
in  B's  hands  is  attached  by  a  creditor 
of  drawer  and  B  opposes  action  brought. 
Opinion:  The  attaching  creditor  is  not 
entitled  to  the  proceeds.  The  draft  ex- 
pressly states  that  it  is  given  for  value  re- 
ceived. The  indorsement  of  bank  A  payee 
to  B  is,  of  course,  an  indorsement  for  collec- 
tion, the  effect  of  which  was  to  notify  the 
drawee  or  any  subsequent  partj^  that  B  held 
<  the  draft  simply  as  A's  agent  for  collection 
and  had  no  title  to  the  draft  or  its  proceeds. 
The  fact  that  the  payee  bank  A  indorsed  the 
draft  for  collection,  does  not  indicate  that  it 
was  not  owner,  but  the  form  and  the  in- 
dorsement do  indicate  that  A  owned  the 
draft  and  gave  value  for  it  to  the  drawer  and 
appointed  B  its  agent  to  collect.  The  draft 
carries  no  notice  that  bank  A  was  not  a 
holder  for  value  and  the  fact  that  it  used  a 


form  of  indorsement  creating  merely  an 
agency  to  collect,  instead  of  a  straight  title- 
conveying  form,  carries  no  notice  that  it  is 
not  owner.  See  First  Nat.  Bank  v.  City  Nat. 
Bank,  182  Mass.  130,  65  N.  E.  24,  94  Am. 
St.  Rep.  637.  Gregory  v.  Sturgis,  71  S.  W. 
66  (Tex.).  Nat.  Park  Bank  v.  Seaboard 
Bank,  114  N.  Y.  28,  20  N.  E.  632,  11  Am. 
St.  Rep.  612.  Kuder  v.  Greene,  72  Ark. 
504,  82  S.  W.  836.  (Inquiry  from  Ark.,  May, 
1912.) 

Liability    of    bank    as    garnishee    for 
subsequent  deposits 

402.  In  Montana,  where  a  bank  is 
served  with  a  writ  of  attachment  of  moneys 
owing  its  depositor,  it  is  only  liable  for  the 
amount  of  the  balance  to  the  credit  of 
the  depositor  at  the  time  the  writ  is  served. 
This  rule  also  holds  in  California,  Connecti- 
cut, Georgia,  Iowa,  Kansas,  Maine,  Michi- 
gan, Minnesota,  Texas  and  Wisconsin.  The 
statutes  in  Alabama,  Arkansas,  Ilhnois, 
Maryland,  Massachusetts,  Missouri,  New 
Hampshire,  North  Carolina,  Pennsylvania, 
Vermont,  West  Virginia  and  Washington, 
hold  the  bank  liable  for  subsequent  deposits. 
Norris  v.  Burgoyne,  4  Cal.  409.  Coyne  v. 
Plume,  90  Conn.  293.  Burrus  v.  Moore,  63 
Ga.  405.  Thomas  v.  Gibbons,  61  Iowa  50. 
Gillette  v.  Cooper,  48  Kan.  632.  Ormsby  v. 
Anson,  21  Me.  23.  Cogswell  v.  Mitts,  90 
Mich.  353,  51  N.  W.  514.  Nash  v.  Gale,  2 
Minn.  310.  Arrington  v.  Screws,  31  N.  C. 
42.  Eikel  v.  Frehch,  1  Tex.  Civ.  App.  Cas., 
Sec.  1117.  Wood  v.  Wall,  24  Wis.  647. 
Loewe  v.  Sav.  Bk.,  236  Fed.  444.  Lady 
Ensley  Furnace  Co.  v.  Rogan,  95  Ala.  594, 
11  So.  188.  Dunnegan  V.  Byers,  17  Ark.  492. 
Young  V.  Cairo  First  Nat.  Bk.,  51  111.  73. 
Glenn  v.  Boston,  etc..  Glass  Co.,  7  Md.  287. 
Capen  v.  Duggan,  136  Mass.  501.  Dinkins 
V.  Crunden-Martin  Woodenware  Co.,  99 
Mo.  App.  310,  73  S.  W.  246.  Pahner  v. 
Noyes,  45  N.  H.  174.  Goodwin  v.  Claytor, 
137  N.  C.  224,  49  S.  E.  173.  Glazier  v. 
Jacobs,  250  Pa.  357,  95  Atl.  532.  Seymour  v. 
Cooper,  25  Vt.  141.  Ringold  v.  Suiter,  35 
W.  Va.  186,  13  S.  E.  46.  Frieze  v.  Powell, 
79  Wash.  483.  Rev.  Codes  Mont.  1907, 
Chap.  4,  Sees.  66,  67.  Cowell  v.  May,  26 
Mont.  163.  {Inquiry  from  Mont.,  June, 
1919,  Jl.) 

Set  off  by  bank  to  defeat  attachment 

403.  A  bank  makes  a  loan  to  a  customer 
and  credits  him  with  the  proceeds.  Before 
the  proceeds  are  checked  out,  the  ac- 
count is  garnished  and  the  bank  desires  to 


80 


ATTORNEY'S  FEES 


[404-408 


cancel  the  credit.  Opinion:  The  mere  fact 
that  the  account  is  garnished  before  the  pro- 
ceeds are  checked  out  will  not  entitle  the 
bank  to  cancel  the  credit.  But  if  the  loan 
was  obtained  by  fraud,  the  credit  may  be 
cancelled  or  if  the  customer  has  become 
insolvent  the  bank  may,  according  to  the 
law  of  some  states  (Ga.,  Iowa,  Ky.,  Mass., 
Minn.,  Tenn.,  N.  J.,  Ohio,  N.  C.  and  Texas) 
a  contrary  rule  obtaining  in  other  states 
(Ala.,  Miss.,  N.  Y.,  Pa.,  R.  I.,  S.  C.  and  Wis.) 
set  off  the  insolvent  customer's  deposit 
against  his  unmatured  indebtedness.  Bk. 
V.  Union  Tr.  Co.,  50  111.  App.  434.  Kling  v. 
Irving  Nat.  Bk.,  21  App.  Div.  373.  Affirmed 
160  N.  Y.  698.  Presnall  v.  Stock  Yards  Nat. 
Bk.,  151  S.  W.  (Tex.)  (Inquiry  from  Kan., 
Dec,  1916,  Jl.) 

404.  A  creditor,  learning  that  its  debtor 
had  a  deposit  in  a  certain  bank,  attached 
the  funds.  The  bank  that  owned  a  past 
due  note  of  the  same  debtor  set  off  his 
deposit  against  the  note  so  as  to  defeat  the 
attachment  and  made  a  return  to  the  sheriff 
on  the  balance  remaining  after  its  note  was 
paid.  Opinion:  The  bank  had  the  right  to 
make  such  set-off,  and  such  right,  although 
subsequently  exercised,  existed  prior  to  the 
attachment  and  enabled  the  bank  to 
take  priority  over  the  attaching  creditor. 
{Inquiry  from  Mont.,  Aug.,  1911,  Jl.) 

405.  A  customer  having  a  balance 
with   his  bank   of  $500  was  indebted    to 


the  bank  on  a  matured  note  of  $2,500.  A 
writ  of  garnishment  was  served  upon  the 
bank  by  a  creditor  of  the  customer  on  the 
same  day  the  note  was  due.  Opinion:  The 
bank  owning  the  note  had  a  right  to  set  off 
the  deposit  against  the  note  and  make  reply 
that  it  was  not  indebted  to  its  depositor. 
Marble  Co.  v.  Merchants  Nat.  Bk.,  115  Pac. 
(Cal.)  59.  Schuler  v.  Laclede  Bk.,  27  Fed. 
424.  {Inquiry  from  W.  Va.,  May,  1914,  Jl.) 

Set-off  of  unmatured   mortgage   note  against 
garnisheed  account 

406.  A  bank  account  subject  to  check 
has  been  garnisheed.  The  bank  owns  a 
mortgage  note  of  the  depositor,  which 
matured  three  days  after  service  of 
the  writ.  Can  the  bank  charge  the  note 
against  the  garnisheed  account?  Opinion: 
Where  the  account  of  a  depositor  is  gar- 
nisheed, the  bank  has  no  right  to  set  off  an 
unmatured  note  of  the  depositor  against  the 
account  so  as  to  defeat  the  garnishment; 
except  that  in  some  states  (but  not  in 
Wisconsin)  insolvency  of  a  depositor  gives 
the  bank  a  right  to  set  off  his  unmatured 
paper  against  his  deposit.  County  v. 
Pfeffer,  236  Fed.  183.  Bank  v.  Crayter 
(Ala.)  75  So  7.  Bank  v.  Presnall,  (Tex.) 
194  S.  W.  384.  Oatman  v.  Batavian  Bank, 
77  Wis.  501,  46  N.  W.  881.  {Inquiry  from 
Wis.,  Jan.,  1921,  Jl.) 


ATTORNEY'S  FEES 


Attorney's  fee  note  payable  at  bank 

407.  A  local  attorney  presented  a  past 
due  note  payable  at  a  bank  for  payment, 
adding  thereto  ten  per  cent,  for  his  fees,  in 
accordance  with  clause  expressed  in  the 
note:  "If  this  note  is  not  paid  when  due 
and  is  collected  by  attorney  or  legal  proceed- 
ings, we  promise  to  pay  an  additional  sum  of 
10  per  cent,  of  the  amount  of  this  note  as  at- 
torney's fees."  The  bank  asks  (1)  whether 
it  should  pay  without  the  special  authoriza- 
tion of  the  maker,  and  (2)  was  the  amount 
collectible  on  the  note  merely  its  face  value 
or  the  protest  fees  in  addition.  Opinion: 
Where  a  note  providing  for  attorney's  fees  if 
not  paid  when  due  and  collected  by  an  at- 
torney is  made  payable  at  a  bank  in  which 
the  maker  has  sufficient  funds  at  maturity 
and  the  note  is  not  presented  until  after  ma- 
turity and  then  by  an  attorney,  it  is  (1) 
doubtful  whether  the  bank  has  authority  to 
pay  the  overdue  note  without  express  author- 


ization from  the  maker,  and  (2)  in  any  event 
the  amount  collectible  is  the  face  of  the  note, 
without  attorney's  fees.  The  safest  course 
for  the  bank  is  to  obtain  an  express  instruc- 
tion from  the  maker  of  the  note.  Neg.  Inst. 
A.,  Sees.  87,  70  (Comsr's.  dft.).  Rev.  Stat. 
Ariz.,  1913,  Sees.  4215,  4232.  Armistead 
V.  Armistead,  10  Leigh,  (Va.)  525.  Florence 
Oil,  etc.,  Co.  V.  First  Nat.  Bk.,  38  Colo.  119. 
{Inquiry  from  Ariz.,  Feb.,  1919,  Jl.) 

Claim  of  attorney's  fee  in  bankruptcy 

408.  The  maker  of  a  note,  containing  a 
provision  for  the  payment  of  an  attorney's 
fee  of  fifteen  per  cent,  if  not  paidatmaturity, 
became  a  bankrupt  before  the  note  fell  due. 
The  receivers  of  the  bankrupt  estate 
refused  to  pay  the  additional  attorney's  fee. 
Opinion:  The  claim  for  the  attorney's  fee 
upon  the  note  which  did  not  mature  until 
after  the  maker  became  bankrupt  was  not 
provable  against  his  estate,  because  such 


81 


409-414] 


DIGEST  OF  LEGAL  OPINIONS 


claim  is  not  "a  fixed  liability  absolutely  owing 
at  the  time  of  the  filing  of  the  petition  in 
bankruptcy."  In  re  Gorhngton,  115  Fed. 
(Tex.)  199.  Merchants  Bk.  v.  Thomas,  121 
Fed.  306  (Ga.  &  Miss.).  In  re  Keeton, 
Stell  &  Co.,  126  Fed.  (Tex.)  426.  In  re 
Gebbard,  140  Fed.  (Pa.)  571.  British  & 
American  Mortgage  Co.  v.  Stuart,  210  Fed. 
425  (Ga,  &  Miss.).  {Inquiry  from  Miss., 
Aug.,  1915,  Jl.) 

Reasonable  attorney's  fee 

409.  A  bank,  contemplating  the  inser- 
tion of  a  clause  in  a  printed  note  respecting 
attorney's  fees,  desires  to  ascertain  whether 
it  would  be  better  to  insert  the  words 
"reasonable  attorney's  fees"  instead  of 
filling  in  a  definite  amount.  Opinion: 
The  courts  have  held  that  where  a  reason- 
able attorney's  fee  is  specified,  the  provision 
is  enforceable  for  a  reasonable  amount 
charged  by  the  attorney,  when  this  is 
pleaded  and  proved.  When  the  note 
provides  for  ten  per  cent,  attorney's  fee,  it 
would  be  enforceable  for  that  amount,  in 
the  absence  of  a  plea  or  proof  by  the  maker 
that  such  amount  was  unreasonable.  The 
trend  of  authority  and  the  best  considered 
judicial  decisions  are  in  favor  of  the  up- 
holding and  enforcement  of  a  stipulation 
for  a  reasonable  attorney's  fee  in  case  of 
default  at  maturity  of  the  note.  See 
Matthews  v.  Norman,  42  Ind.  176.  Fort 
Dodge  Natl.  Bk.  v.  Breese,  39  Iowa,  640. 
Peyser  v.  Cole,  11  Oregon,  39F  A  specified 
percentage,  Wood  v.  Wiship,  83  Ala.  424. 
Dorsey  v.  Wolff,  142  111.  589.  Smiley  v. 
Meir,  47  Ind.  559.  Brahan  v.  Clarksville 
First  Natl.  Bk.,  72  Miss.  266.  {Inquinjfrom 
Wyo.,  Nov.,  1916.) 

Negotiability  of  notes  with  attorney's 
fee  clause 

410.  A  bank  uses  a  note  which  it 
thinks  of  doubtful  negotiability  on  account 
of  the  statement  in  the  body  of  the  note: 
"In  case  the  holder  shall  place  this  note  in 
the  hands  of  an  attorney  for  collection,  I 
promise  to  pay  10  per  cent,  of  the  indebted- 
ness as  attorney's  fees  for  making  such 
collection."  It  wishes  advice  regarding 
this.  Opinion:  Stipulation  in  note  prom- 
ising to  pay  certain  per  cent,  in  case 
holder  shall  place  note  in  hands  of  attorney 
for  collection,  can  only  reasonably  be 
construed  to  mean  that  in  case  of  default  at 
maturity,  note  will  be  placed  in  hands  of 
attorney  and  therefore  does  not  destroy 
negotiability  of  note.     Idaho  Rev.  Codes, 


1908,  Sec.  3459.  Morrison  v.  Ornbaun 
(Mont.)  75  Pac.  953.  First  Nat.  Bank  of 
Shawano  v.  Miller  (Wis.)  120  N.  W.  820. 
(Inquiry  from  Idaho,  Aug.,  1919,  Jl.) 

411.  The  Negotiable  Instruments  Act 
provides  that  the  instrument  shall  be  negoti- 
able although  it  is  payable  "with  costs  of 
collection  or  an  attorney's  fee  in  case  pay- 
ment shall  not  be  made  at  maturity,"  and 
any  clause  which  sufficiently  conforms  to 
such  provision  will  not  affect  the  negotia- 
bility of  the  instrument.  A  note  containing 
a  clause  providing  for  the  payment  of  an 
attorney's  fee  in  case  payment  is  not  made 
at  maturity  is  valid  in  Missouri  and  nego- 
tiable under  the  provisions  of  the  Negotiable 
Instruments  Act.  Neg.  Inst.  A.,  Sec.  2 
(Comsr's.  dft.).  German  American  Bk.  v. 
Martin,  129  Mo.  App.  485.  (Inquiry  from 
Mo.,  March,  1914,  Jl.) 

412.  Under  the  law  of  New  Jersey  a 
note  containing  a  provision  for  attorney's 
fee  if  not  paid  at  maturity  is  both  valid  and 
negotiable.  The  following  clause  if  inserted 
in  a  note  is  valid  and  the  note  negotiable: 
"I  further  agree  that  if  this  note  is  not  paid 
when  due  to  pay  all  cost  necessary  for  collec- 
tion, including  ten  per  cent,  for  attorney's 
fees."  Mackintosh  v.  Gibbs,  80  Atl. 
(N.  J.)  554.  Neg.  Inst.  A.,  Sec.  2  (Comsr's. 
dft.).    (Inquiry  from  N.J.,  Nov.,  1915,  Jl.) 

Trade  acceptances 

413.  Does  a  provision  in  a  trade  accept- 
ance for  the  payment  of  an  attorney's 
fee  in  case  payment  is  not  made  at  maturity 
affect  its  negotiability?  Opinion:  Negoti- 
ability is  not  affected.  Neg.  Inst.  Act,  Sec.  2 
(5).  (Inquiry  from  N.  Y.,June,  1918.) 

414.  The  face  of  a  note  contains  the 
following  statement:  "The  maker  of  this 
note  hereby  agrees  in  the  event  of  non- 
payment of  the  note  when  due  to  pay  an 
amount  equal  to  10  per  cent,  of  the  face  of 
the  note  as  attorney's  fees,  if  such  an  amount 
shall  be  charged  as  attorney's  fees  for  the  col- 
lection of  the  note."  Question  is  raised  as 
to  the  validity  of  this  clause  and  negotiabihty 
of  note  under  the  law  of  New  York.  Opinion: 
The  note  is  negotiable  under  the  Negotiable 
Instruments  Law,  and  the  clause  providing 
for  attorney's  fees  although  not  specifically 
passed  upon  by  a  New  York  Court  would 
undoubtedly  be  held  to  be  valid  and  .en- 
forceable. Neg.  Inst.  A.,  Sec.  2  (Comsr's. 
dft.).  Oglesby  v.  Bk.  of  N.  Y.,  77  S.  E. 
(Va.)  468.  (Inquiry  from  N.  Y.,  April,  1917, 
Jl.) 


82 


ATTORNEY'S  FEES 


[415-419 


415.  Negotiable  Instruments  Act  makes 
note  negotiable  although  it  is  payable 
"with  costs  of  collection  or  an  attorney's 
fee  in  case  payment  shall  not  be  made  at  ma- 
turity." Opinion:  A  note  containing  clause 
promising  to  pay  ''as  collection  fees,  the  ad- 
ditional sum  of  10  per  centum  of  principal 
then  due,  if  collection  be  made  through  at- 
torney" is  negotiable  under  Act.  Farmers 
Nat.  Bk.  V.  McCall,  106  Pac.  (Okla.)  866. 
Neg.  Inst.  A.,  Sec.  2  (Comsr's,  dft.). 
(Clevenger  v.  Lewis,  20  Okla.  837.  Cotton 
V.  Deere  Plow  Co.,  12  Okla.  516— Cases 
decided  before  passage  of  Neg.  Inst.  A.) 
First  Nat.  Bk.  v.  Miller,  120  N.  W.  (Wis.) 
820.    {Inquiry  from  Okla.,  March,  1914,  Jl) 

416.  A  bank  asks  comment  upon  a 
proposed  clause  in  note  reading  as  follows: 
"And  we  further  promise  and  agree  that 
in  case  suit  should  be  instituted  on  this  note 
to  collect  same,  we  will  pay,  in  addition, 
attorney's  fees,  and  all  expenses  incurred  in 
collecting  the  same  to  be  taxed  as  part  of 
the  costs  in  case  this  instrument  shall  be  the 
cause  of  action.  Negotiable  and  payable 
without  defalcation  or  discount,  and  without 
rehef  of  Homestead  or  Exemption  Laws." 
Opinion:  This  clause  will  not  affect  the 
negotiability  of  the  note.  Before  the 
Negotiable  Instruments  Act,  it  was  held  in 
Pennsylvania  (see  Woods  v.  North,  84  Pa. 
St.  407)  that  insertion  in  a  promissory  note 
of  the  clause  "and  five  per  cent,  collection 
fee,  if  not  paid  when  due"  renders  the  note 
uncertain,  destroys  its  negotiability,  and 
relieves  the  indorser  from  liability  thereon, 
and  (Johnson  v.  Speer,  92  Pa.  St.  227)  that 
a  promissory  note  containing  a  provision 
to  pay  attorney's  commissions  if  collected 
by  legal  process,  although  the  amount  to  be 
so  paid  is  left  in  blank  in  the  note,  is  not 
negotiable.  But  the  Negotiable  Instruments 
Act  has  changed  this  rule  and  one  of  its 
express  provisions  is  that  "the  sum  payable 
is  a  sum  certain"  within  the  meaning  of  the 
Act  "although  it  is  to  be  paid  *  *  *  with 
costs  of  collection  or  an  attorney's  fee  in 
case  payment  shall  not  be  made  at  maturity." 
The  Negotiable  Instruments  Act  further 
provides  that  the  negotiable  character  of 
the  instrument  is  not  affected  by  a  provision 
which  "waives  the  benefit  of  any  law 
intended  for  the  advantage  or  protection 
of  the  obligor."  Under  the  Act,  therefore, 
neither  the  attorney's  fee  provision  nor  the 
waiver  of  Homestead  Exemption  Laws 
affects  the  negotiabihty  of  the  note.  {In- 
quiry from  Pa.,  June,  1914-) 


417.  A  promissory  note  has  printed  on 
its  face  a  clause  "All  expenses  in  collecting 
this  note,  including  ten  per  cent,  of  amount 
due  as  attorney's  fees,  in  case  this  note  is 
collected  by  attorney  by  suit  or  through 
court,"  and  it  is  asked  whether  clause  is 
sufiiciently  definite  and  does  not  insure 
negotiability.  Opinion:  The  clause  is 
sufficiently  definite  and  does  not  affect 
negotiability.  It  has  been  held  that  the 
clause,  "if  collected  by  attorney  or  if  suit  is 
brought  on  this  note,"  is  a  promise  to  pay 
attorney's  fee  for  collection,  only  after  dis- 
honor, and  does  not  impair  the  negotiability 
of  the  note.  The  Negotiable  Instruments 
Act  provides  that  "the  sum  payable  is  a 
sum  certain  within  the  meaning  of  this  Act, 
although  it  is  to  be  paid  *  *  *  with 
cost  of  collection  or  an  attorney's  fee  in 
case  payment  shall  not  be  made  at  maturity." 
First  Nat.  Bank  of  Shawano  v.  Miller,  139 
Wis.  126,  120  N.  W.  820.  {Inquiry  from 
S.  C,  Feb.,  1918.) 

418.  Is  a  clause  in  a  promissory  note 
that  the  maker  agrees  to  pay  all  costs  of 
collection  including  reasonable  attorney's 
fees  if  not  paid,  valid  and  enforceable  in 
South  Dakota?  Opinion:  The  legislature 
of  South  Dakota  which  passed  the  Negoti- 
able Instruments  Act  in  1913,  struck  out 
the  provision  of  the  Uniform  Act  which 
makes  the  instrument  negotiable  although 
it  is  to  be  paid  "with  costs  of  collection  or  an 
attorney's  fee  in  case  payment  shall  not  be 
made  at  maturity"  and  inserted  in  heu 
thereof  "provided  that  nothing  herein 
contained  shall  be  construed  to  authorize 
any  court  to  include  in  any  judgment  on  an 
instrument  made  in  this  state  any  sum  for 
attorney's  fees  or  other  costs  not  now 
taxable  by  law,"  and  the  courts  have  held 
that  the  negotiability  of  an  instrument  is 
not  affected  by  a  provision  for  attorney's 
fee,  but  that  the  provision  is  void  and  unen- 
forceable. Baird  v.  Vines,  18  S.  D.  52,  99 
N.  W.  89.  Chandler  v.  Kennedy,  8  S.  Dak., 
56,  65  N.  W.  439.  {Inquiry  from  S.  D., 
March,  1915.) 

Validity  of  attorney's  fee  clause 

419.  In  Arkansas  the  courts  have  held 
that  the  stipulation  for  an  attorney's  fee 
does  not  affect  the  negotiabihty  of  a  note, 
but  that  the  stipulation  is  itself  void  and 
unenforcoal)le.  The  subsequent  passage  of 
the  Negotiable  Instrument  Act  may  or 
may  not  validate  such  stipulation,  (/n- 
quiry  from  Ark.,  April,  1916,  Jl.) 


83 


420-423] 


DIGEST  OF  LEGAL  OPINIONS 


420.  Upon  the  question  of  the  effect  of  a 
stipulation  for  attorney's  fees  in  promissory 
notes,  the  four  following  conflicting  views 
before  the  Negotiable  Instruments  Act 
were  held  in  the  various  states:  (1)  that 
which  sustains  both  the  validity  of  the 
provision  and  the  negotiability  of  the  instru- 
ment; (2)  that  which  holds  that  the  provision 
is  valid  and  enforceable  but  that  it  destroys 
negotiability;  (3)  that  which  holds  that 
negotiability  is  not  affected  but  the  pro- 
vision is  void  and  unenforceable,  and  (4) 
that  which  holds  that  the  provision  for  an  ad- 
ditional amount  as  attorney  fee  above  the 
highest  rate  of  interest  allowable  renders  the 
transaction  usurious.  The  Negotiable  In- 
struments Act  which  declares  that  the  nego- 
tiabiUty  is  unaffected  by  a  provision  for  at- 
torney's fee  "in  case  payment  shall  not  be 
made  at  maturity"  leaves  uncertain  the 
question  whether  such  provision  is  valid  and 
enforceable  in  those  states  which  held  it  void 
before  the  Act  was  passed.  In  Ohio  and 
West  Virginia  the  Act  does  not  vahdate  the 
attorney  fee  provision;  but  in  Virginia  and 
Colorado  such  provision  under  the  Act  is 
held  vahd.  In  Nebraska,  North  Carolina 
and  South  Dakota  the  Negotiable  Instru- 
ments Act  itseff  expressly  provides  that 
nothing  in  the  Act  shall  be  construed  to 
authorize  the  enforcement  of  the  stipulation 
for  the  attorney's  fee.  Neg.  Inst.  A.,  Sec.  2 
(Comsr's.  dft.).  Miller  v.  Kyle,  93  N.  E. 
(Ohio)  372.  Raleigh  County  Bk.  v.  Poteet, 
82  S.  E.  (W.  Va.)  332.  Oglesby  Co.  v. 
Bk.  of  N.  Y.,  77  S.  E.  (Va.)  468.  Florence 
Oil  Refining  Co.  v.  Hiawatha  Oil,  Gas  & 
Refining  Co.,  135  Pac.  (Colo.)  454.  Boozer 
V.  Anderson,  42  Ark.  167.  {Inquiry  from 
Ark.,  April,  1918,  Jl.) 

421.  In  Ohio,  stipulations  in  promissory 
notes  providing  for  attorney's  fees  are  againt 
pubhc  pohcy,  void  and  unenforceable,  and 
the  Supreme  Court  of  Ohio  has  held  that  the 
provision  of  the  Negotiable  Instruments  Act 
providing  that  such  stipulations  do  not 
affect  negotiability,  does  not  make  them 
vahd.  Neg.  Inst.  A.,  Sec.  2  (Comsr's  dft.). 
Tvliller  v.  Kyle,  97  N.  E.  (Ohio)  372.  {In- 
auiry  from  Ind.,  May,  1914,  Jl-) 

422.  A  note  in  Michigan  contained  the 
following  provision:  'T  further  agree  to 
pay  ten  per  cent,  additional  as  attorney 
fee,  if  this  note  is  not  paid  when  due,  and  is 
collected  by  or  through  an  attorney  at  law." 
Opinion:  Prior  to  the  passage  of  the 
Negotiable  Instruments  Act  in  Michigan 
the  attorney  fee  provision  was  void  and  un- 
enforceable but  under  the  Act  which  makes 


a  note  containing  such  a  clause  negotiable  it 
has  not  been  decided  in  Michigan  whether  or 
not  such  provision  is  thereby  vaUdated  and 
the  few  decisions  upon  the  point  in  other 
states  conflict.  Neg.  Inst.  A.,  Sec.  2 
(Comsr's.  dft.).  Miller  v.  Kyle,  93  N.  E. 
(Ohio)  372.  Raleigh  County  Bk.  v.  Poteet, 
82  S.  E.  (W.  Va.)  332.  Bk.  of  Holly  Grove 
V.  Sudbury,  180  S.  W.  470.  W.  H.  Casey  & 
Co.  V.  Swan  &  James,  150  S.  W.  (Ky.)  534. 
Oglesby  Co.  v.  Bk.  of  N.  Y.,  77  S.  E.  468. 
Florence  Oil  Refining  Co.  v.  Hiawatha  Oil, 
Gas  &  Refining  Co.,  135  Pac.  (Colo.)  454. 
The  following  cases  were  decided  prior  to 
passage  of  the  Neg.  Inst.  A.  in  Michigan: 
Bullock  V.  Taylor,  39  Mich.  137.  Van 
Marten  v.  McMillan,  39  Mich.  304.  Meyer 
V.  Hart,  40  Mich.  517.  Vosburg  v.  Lay, 
45  Mich.  455.  Louder  v.  Burch,  47  Mich. 
109.  Wright  v.  Traver,  73  Mich.  493. 
Bk.  V.  Purdy,  56  Mich.  6.  Bk.  v.  Wheeler, 
75  Mich.  546.  Brewing  Co.  v.  McKittrick, 
86  Mich.  191.  Kittermaster  v.  Bressard, 
105  Mich.  220.  Bendley  v.  Townsend,  109 
U.  S.  665.  People  v.  Bennett,  122  Mich. 
283.  Shrewsberry  Point  Bk.  v.  Lee,  117 
Mich.  123.  {Inquiry  from  Mich.,  Feb., 
1916,  Jl.) 

Note  executed  in  Missouri  and  sued  on 
in  South  Dakota 

423.  A  note  for  S3,000,  dated  in  Missouri, 
and  made  payable  at  a  bank  in  that  state, 
promises  to  pay  the  amount  "with  costs  of 
collection  and  reasonable  attorney's  fees  in 
case  payment  shall  not  be  made  at  maturity". 
Opinion  is  desired  as  to  legahty  and  en-  * 
forceabihty  of  this  clause  in  note  in  South 
Dakota.  Opinion:  Where  a  note,  executed 
in  Missouri,  containing  a  provision  for 
reasonable  attorney's  fees,  valid  imder  the 
laws  of  that  state,  is  sued  on  in  the  courts 
of  South  Dakota,  where  such  provisions  are 
prohibited  and  held  to  be  void,  the  principles 
of  comity  by  which  the  courts  of  one  state 
enforce  contracts  valid  by  the  laws  of 
another  state,  though  invalid  according  to 
the  laws  of  the  state  of  enforcements,  does 
not  extend  to  stipulations  of  this  nature, 
and  the  contract  for  attorney's  fees  is 
probably  not  enforceable  in  the  courts  of 
South  Dakota.  Chandler  v.  Kennedy 
(S.  D.)  65  N.  W.  439.  Sec.  1706  S.  D.  Rev. 
Codes.  Arden  Lumber  Co.  v.  Henderson 
Iron  Works,  (Ark.)  103  S.  W.  185.  Rogers 
V.  Raines  (Ky.)  38  S.  W.  483.  Exch.  Bank 
V.  Appalachian  Land,  etc.,  Co.,  (N.  C.) 
38  S.  E.  813.  Security  Co.  v.  Eyer  (Neb.) 
54  N.  W.  838.    See  Martin  v.  Berry  (Ind. 


84 


BANKING  HOURS 


[424-429 


Ter.)  37  S.  W.  399,  and  Robinson  v.  Queen, 
87  Tenn.  446.  See  Opinion  No.  426.  {In- 
quiry from  Mo.,  Feb.,  1921,  Jl.) 

424.  Under  the  present  law  of  Nebraska, 
a  provision  in  a  mortgage  that  in  the 
event  of  foreclosure  the  defendant  shall 
pay  a  reasonable  attorney's  fee,  to  be  deter- 
mined by  the  court  and  taxed  as  costs  in  the 
case,  is  invalid  and  not  enforceable.  Such  a 
stipulation  would  not  affect  the  negotiabiliy 
of  a  note.  For  the  history  of  the  law  of  the 
state  on  the  subject,  see  8  A.  B.  A.,  Jl.,  249. 
Rev.  Stat.  Neb.  1913,  Chap.  54,  Art.  1,  Sec. 
5320.  The  following  cases  show  history  of 
the  law  of  Nebraska  on  the  subject  of  at- 
torney's fee  clauses:  Laws  1879,  p.  78.  Rich 
V.  Stretch,  4  Neb.  186.  Hendrix  v.  Rieman, 
6  Neb.  516.  Heard  v.  Bk.,  8  Neb.  10.  Dow  v. 
Updike,  11  Neb.  95.  Moore  v.  Gregory,  13 
Neb.  563.  Aultman  <fe  Co.  v.  Stout,  15  Neb. 
586.  Hand  v.  Philhps,  18  Neb.  850.  Stark  v. 
Olsen,  44  Neb.  646.  Chambers  v.  Cham- 
bers, 75  Neb.  850.  Hardy  v.  Miller,  11 
Neb.  395.  Otoe  Co.  v.  Brown,  16  Neb.  395. 
Winkler  v.  Roeder,  23  Neb.  706.  Nat.  Bk.  v. 
Thompson,  90  Neb.  223.  Hallam  v.  Teller-, 
en,  55  Neb.  255.  {Inquiry  from  Neb.,  Sept., 
1916,  Jl.) 

425.  In  Oklahoma  a  note  providing  for 
"a  reasonable  amount"  as  attorney's  fee  if 
not  paid  at  maturity  is  negotiable,  and 
should  suit  be  commenced  would  be  en- 
forceable for  a  reasonable  amount  charged 
by  the  attorney  when  pleaded  and  proved; 
and  a  note  providing  for  "ten  per  cent." 
attorneys  fee  would  be  enforceable  for  that 
amount,  in  the  absence  of  plea  or  proof  that 
such  fee  was  unreasonable.  Baker  Gin  Co. 
v.  U.  S.  Sherman  Mach.  &  Iron  W'ks.,  122 
Pac.  (Okla.)  235.  Colton  v.  Deere  Plow  Co. 
14  Okla.  605.  Clevenger  v.  Lewis,  20  Okla. 
837.  Glowers  v.  Snowder,  21  Okla.  476. 
Farmers  Nat.  Bk.  v.  McCall,  106  Pac. 
(Okla.)  866.  Childs  v.  Jungcr,  162  S.  W. 
(Tex.)  474.  First  Nat.  Bk.  v.  Stow,  171 
S.  W.  (Mo.)  567.  Florence,  etc.,  Co.  v. 
Hiawatha,  etc.,  Co.,  135  Pac.  (Colo.)  454. 
{Inquiry  from  Okla.,  July,  1915,  Jl.) 

426.  In  South  Dakota  the  provision 
for  an  attorney's  fee  in  a  promissory  note 


has  been  held  void  and  unenforceable,  but 
does  not  affect  its  negotiability.  In  pass- 
ing the  Negotiable  Instruments  Act,  the  leg- 
islature eliminated  the  provision  that  nego- 
tiabihty  is  not  affected  by  the  attorney  fee 
clause  and  substituted  a  provision  that 
nothing  in  the  Act  should  authorize  inclu- 
sion in  a  judgment  on  an  instrument  a  sum 
for  attorney's  fees  or  any  other  costs  not 
now  taxable  by  law.  See  opinion  No.  423. 
Baird  v.  Vines,  18  S.  Dak.  52.  Chandler  v. 
Kennedy,  8  S.  Dak.  56.  Neg.  Inst  A.,  Sec. 
2  (Comsr's  dft.).  {Inquiry  from  S.  D., 
April,  1915,  Jl.) 

427.  There  has  been  some  doubt  in 
Virginia  as  to  whether  a  provision  in  a 
promissory  note  for  payment  of  collection 
fee  was  legal  or  enforceable  in  the  state,  the 
lower  courts  of  the  state  not  having  ruled 
in  agreement  on  this  point;  but  unless  a 
change  is  made  by  legislative  action,  the 
question  seems  to  have  been  settled  once 
and  for  all  by  its  highest  court,  as  the  Su- 
preme Court  in  a  late  case  (Colley  v.  Sum- 
mers Parrott  Hardware  Co.,  12  Va.  App. 
463)  has  held  that  an  attorney's  fee  of  ten 
per  cent,  provided  for  in  a  promissory  note 
could  be  collected  in  addition  to  the  face  of 
the  note.  See  Colley  v.  Summers  Parrott 
Hardware  Co.,  119  Va.  439.  {Inquiry 
from  Va.,  Oct.,  1916.) 

428.  While  in  the  far  greater  number  of 
states  attorney's  fee  notes  are  both  nego- 
tiable and  valid  as  to  attorney's  fees,  the 
question  remains  undecided  in  those  states, 
such  as  Virginia*,  where  the  courts  have 
held  such  stipulations  to  be  penalties  and 
against  public  policy  and  void,  and  the 
legislature  has  later  enacted  the  Negotiable 
Instruments  Act  whether  such  Act  abrogates 
the  decisions  and  validates  such  stipulations. 
The  probabihty  is  that  the  Act  would  be 
held  to  vaUdate  such  provisions.  Rixy  v. 
Pearre,  89  Va.  113.  Ronald  v.  Bk.  of 
Princeton,  80  Va.  813.  Chestertown  Bk.  v. 
Walker,  163  Fed.  (W.  Va.)  510.  Toole  v. 
Stephen,  4  Leigh  (Va.)  581.  Inquiry  from 
W.  Va.,  Oct.,  1911,  Jl.) 

*Note:  Point  decided  in  Virginia.  See 
opinion  No.  427. 


BANKING  HOURS 


Payment  of  check  after  banking  hours 

Payment  with  funds  borrowed  by  assistant 
cashier 

429.     A  gave  B  his  check  for  $500  in 
payment  for  an  automobile.  B,  knowing  the 


assistant  cashier  of  A's  bank  very  well,  re- 
quested him  to  cash  the  check  on  Saturday 
after  banking  hours,  stating  that  he  was 
going  to  leave  on  a  night  train.  The  assist- 
ant casliier,  desiring  to  accommodate  him, 
secured  the  money  by  borrowing  from  differ- 


85 


430-434] 


DIGEST  OF  LEGAL  OPINIONS 


ent  merchants  of  the  neighborhood,  and 
turned  it  over  to  the  payee.  On  Monday 
morning  A  stops  payment.  Was  the  act  of 
the  assistant  cashier  done  in  his  official 
capacity  on  behalf  of  the  bank,  and  was  pay- 
ment after  banking  hours  valid?  Opinion: 
Payment  of  a  check  after  banking  hours 
out  of  the  funds  of  the  bank  has  been  held 
vaUd.  Assuming  the  assistant  cashier  had 
authority  to  borrow  money  in  the  ordinary 
courseof  business,  the  chances  are  it  would  be 
held  that  here  the  money  was  not  borrowed 
on  behalf  of  the  bank,  but  by  the  officer 
individually,  in  which  case  payment  would 
not  be  out  of  the  bank's  funds  and  the  stop 
payment  order  came  in  time.  Morse  on 
Banks  and  Banking,  Vol.  1,  Sec.  168d. 
Bolles  Mod.  Law  of  Banking,  p.  343.  Bul- 
lard  V.  Randall,  1  Gray  (Mass.)  605.  {In- 
quiry from  Del.,  Sept.,  1918.) 

Refusal  to  pay  or  certify  justified 

430.  The  by-laws  of  a  bank  provide  for 
the  hours  of  business  from  9  A,  M.  to  4  P.M. 
During  the  busy  season  the  teller's  cage  is 
sometimes  kept  open  until  5  P.  M.  At  5 
o'clock  on  Saturday  afternoon  A  presented 
for  payment  a  check  for  $685.  The  cash 
being  in  the  safe,  the  teller  refused  his  re- 
quest. A  then  asked  that  the  check  be 
certified,  which  request  was  also  refused. 
Opinion:  A  bank  is  not  liable  for  refusing 
to  pay  a  check  when  presented  out  of  the 
usual  hours  which  it  has  established  for 
doing  business  with  the  public.  See  Jones 
v.  Coos  Bank,  Smith  (N.  H.)  249.  First  Nat. 
Bank  v.  Payne,  85  Va.  890.  Marshall  v. 
Wells,  7  Wis.  1.  There  is  no  legal  obligation 
to  certify  in  any  event.  {Inquiry  from  Neb., 
Feb.,  1920.) 

Deposit  of  check  of  another  depositor 

431.  A  check  of  another  depositor  on  the 
same  bank  was  received  by  the  teller,  and  a 
deposit  ticket  issued  after  banking  hours. 
The  teller  stated  at  the  time  that  the  deposit 
would  be  handled  in  the  next  day's  business. 
The  drawer  stopped  payment  at  the  opening 
of  business  on  the  next  day.  Opinion:  The 
giving  of  the  deposit  ticket  would  be  equiv- 
alent to  payment  of  the  check  unless  the 
teller's  statement  made  the  transaction 
provisional  and  made  the  check  subject  to 
such  condition.  {Inquiry  from  N.  C,  April, 
1920.) 

Validity  of  payment 

432.  Is  a  check  cashed  outside  of  regular 
banking  hours  at  the  risk  of  the  bank  making 


the  payment?  Opinion:  The  Appellate 
Division  of  the  New  York  Supreme  Court 
in  Butler  v.  Broadway  Savings  Institution, 
157  N.  Y.  Supp.  has  upheld  the  validity  of 
a  payment  outside  the  usual  banking  hours. 
The  by-law  of  a  savings  bank  which  pro- 
vided that  the  bank  should  be  open  for 
business  daily  from  lOA.  M.  to3P.  M.  was 
held  not  to  render  illegal  the  payment  of  a 
draft  without  the  fixed  hours.  It  would 
seem  that  the  cashing  of  the  check  outside 
the  regular  banking  hours  is  proper.  {In- 
quiry from  Pa.,  April,  1917.) 

433.  Can  a  bank  which  has  banking 
hours  from  9  A.M.  to  3  P.M.  pay  its  custom- 
er's check  after  banking  hours,  or  is  there 
an  implied  contract  between  the  bank  and 
its  customer  that  it  will  pay  his  check  only 
when  presented  during  banking  hours? 
Opinion:  The  proper  view  is  that  payment 
or  certification  by  a  bank  after  banking 
hours  is  valid.  The  bank  has  a  right  to  re- 
fuse but  it  may  pay  or  certify.  If  it  refuses 
upon  presentment  after  banking  hours  to 
pay  a  customer's  check,  having  sufficient 
funds,  such  a  refusal  is  not  a  dishonor  be- 
cause there  has  been  no  due  presentment; 
but  if  it  chooses  to  payor  certify,  it  is  obeying 
the  order  of  its  customer  on  a  business  day, 
waiving  in  a  particular  case  the  banking 
hour  limit  fixed  for  its  own  convenience.  Of 
course,  if  payment  or  certification  was  made 
on  a  holiday,  a  different  question  would  be 
presented.     {Inquiry  from  Va.,  July,  1919.) 

Payment   of  note   during    evening 
banking  hours 

434.  A  bank  advertises  that  it  will  be 
open  from  five  until  eight-thirty  o'clock, 
Monday  afternoons  and  evenings,  and  in- 
quires whether  the  makers  of  notes,  payable 
at  its  bank  have  until  eight- thirty  to  make 
payments  or  should  a  note  maturing  on 
Monday  be  protested  at  the  regular  closing 
time,  at  three  o'clock.  Opinion:  The  rule 
is  well  established,  that  the  maker  has  the 
whole  of  the  day  on  which  the  instrument 
falls  due  in  which  to  pay  the  same.  Sut- 
chffe  V.  Humphreys,  58  N.  J.  L.  442.  When 
the  bank  establishes  banking  hours  from 
five  to  eight-thirty  P.M.,  Monday  afternoon 
and  evening,  the  makers  of  notes  payable 
at  the  bank  would  have  until  eight-thirty 
in  which  to  make  payment.  Protest  be- 
fore that  time  would  either  be  wholly  bad 
or  conditionally  good  if  the  maker  before  the 
close  of  banking  hours  did  not  make  his 
account  good.    German  American  Bank  v. 


86 


BANKING  HOURS 


[435-438 


O'Nelliman,  65  N.  Y.  Supp.  242.     {Inquiry 
from  N.  J.,  May,  1917.) 

Receiving  deposits  after  banking  hours 

and    entering    as    deposits    of    the 

following  day 

435.  On  account  of  inexperienced  help, 
particularly  among  the  women  who  are  not 
allowed  by  law  to  work  more  than  eight 
hours  a  day,  a  bank  is  forced  to  receive  de- 
posits after  banking  hours.  In  view  of  the 
rule  requiring  presentment  of  checks  on 
the  day  following  delivery  in  order  to  hold 
the  drawer  should  bank  fail,  the  bank  asks 

,t  if  it  would  be  liable  to  its  depositor  in  such 
'  contingency  for  delay  in  presenting  the  de- 
'•  posited  paper  received  after  banking  hours 
on  one  day  and  handled  as  if  received  the 
next  day.  Opinion:  The  authorities  conflict 
on  the  question  of  the  bank's  liability,  and 
,  it  might  be  that  the  bank  could  relieve  it- 
self from  liability  for  any  possible  negligence 
,  growing  out  of  delay,  by  an  agreement  with 
depositor,  evidenced  by  a  clause  on  the 
deposit  slip,  that  "items  deposited  after 
3  o'clock  are  received  for  the  convenience  of 
the  depositor  and  are  held  for  deposit  on 
the  following  business  day."  See  First  Nat. 
Bk.  V.  Payne  &  Co.,  85  Va.  890.  Marshall  v. 
American  Express  Co.,  7  Wis.  1.  Columbian 
Bk.  Co.  V.  Bowen,  134  Wis.  218.  Calisherv. 
Forbes,  41  L.  J.  Ch.  56.  Lowry  Nat.  Bk.  v. 
Seymour,  91  S.  C.  305.  Salt  Springs  Nat. 
Bk.  v.  Burton,  58  N.  Y.  430.  Averill  v. 
Second  Nat.  Bk.  17  D.  C.  358.  Simpson  v. 
Pemigewasset  Nat.  Bk.,  68  N.  H.  289. 
Ex  Parte  Clutton,  Fonbl.  167.  Sadler  v. 
Belcher,  2  Moody  &  Rob.,  489.  (Inquiry 
from  Minn.,  Jan.,  1918.) 

Delivery  of  express  package  of  money 
after  hours 

436.  An  express  company  tendered  a 
package  of  money  to  a  bank  in  North 
Carolina  at  7  o'clock  in  the  evening  upon  the 
arrival  of  the  train.  The  bank  refused  to 
accept  the  shipment  at  that  time  of  the  night 
while  the  company  claimed  that  it  had  no 
safe  place  to  store  the  money  over  night  and 
refused  to  make  further  shipments  unless  the 
bank  keeps  open  to  receive  them  at  7  P.  M. 
Opinion:  A  tender  of  delivery  of  an  express 
package  of  money  to  a  bank  is  sufficient  if 
made  within  the  reasonalile  business  hours 
general  to  the  place,  although  such  tender  is 
made  after  the  close  of  banking  hours.  What 
is  a  reasonable  time  for  delivery  is  a  question 
for  the  jury  and  in  this  case  7  o'clock  at 
night  in  the  winter  time  might  be  held  an  un- 


reasonable time.  In  no  event  can  the  express 
company,  being  a  common  carrier,  discon- 
tinue handling  shipments  to  the  bank. 
Young  V.  Smith,  33  Ky.  (3  Dana)  91,  28 
Am.  Dec.  57.  Marshall  v.  American  Exp. 
Co.,  7  Wis.  1,  73  Am.  Dec.  381.  Merwin  v. 
Butler,  17  Conn.  138.  Pate  v.  Henry,  5 
Stew.  &  P.  (Ala.)  101.  [Inquiry  from  N.  C, 
March,  1915,  Jl.) 

Payment  of  check  on  Saturday  evening 

437.  For  the  convenience  of  its  patrons, 
a  bank  is  opened  on  Saturday  evening  from 
7  to  9  P.M.  All  deposits  received  during 
these  hours  are  entered  on  the  following 
Monday's  business.  The  bank  asks  what 
would  be  its  liability  where  a  customer  noti- 
fied it  to  stop  payment  on  his  check  which 
was  cashed  over  the  window  on  Saturday 
night.  Opinion:  The  question  has  never 
been  decided  as  far  as  known,  but  in  view  of 
the  fact  that  in  some  states  Saturday  is  a 
half  holiday  from  12  o'clock  noon  to  12 
o'clock  midnight,  and  the  further  fact  that 
the  Negotiable  Instruments  Act  contains  a 
provision  that  "instruments  falling  due  or 
becoming  payable  on  Saturday  are  to  be 
presented  for  payment  on  the  next  succeed- 
ing business  day,  except  that  instruments 
payable  on  demand  may,  at  the  option  of  the 
holder,  be  presented  for  payment  before 
12  o'clock  noon  on  Saturday,  when  that 
entire  day  is  not  a  holiday,"  it  would  seem 
that  the  bank  is  taking  a  risk  in  paying  or 
certifying  a  check  on  Saturday  afternoon  or 
evening,  or  on  any  holiday,  except,  of  course, 
to  the  depositor  himself.  {Inquiry  from  N. 
Y.,  June,  1920.) 

Right  to  fix  banking  hours 

438.  The  banks  in  a  city  in  Missouri 
agreed  to  change  their  banking  hours  by 
closing  Thursday  afternoon  during  July  and 
August.  The  banks  question  the  legal  right 
to  close  and  what  would  be  their  liability  in 
case  a  check  was  presented  on  Thursday 
afternoon  and  payment  refused.  Opinion: 
Banking  hours  are  not  established  by  law, 
but  b}^  the  banks  themselves.  The  courts 
hold  that  banks  may  establish  reasonable 
hours  for  transaction  of  business.  It  is  com- 
petent for  the  banks  in  question  to  change 
the  banking  hours  as  indicated,  and  the 
changed  banking  hours  having  been  an- 
nounced to  the  public  by  advertisement,  a 
check  afterwards  presented  on  Thursday 
afternoon  will  not  be  subject  to  protest. 
Jones  V.  Coos  Bk.,  (N.  H.)  Smith  249. 
Marshall,  Isley  &  Elhs  v.  WeUs,  7  Wis.  1. 


87 


439-445] 


DIGEST  OF  LEGAL  OPINIONS 


First  Nat.  Bk.  v.  Payne,  85  Va.  890.     {In- 
quiry from  Mo.,  June,  1917,  Jl.) 

439.  Is  there  any  statute  in  New  Jersey 
regulating  banking  hours,  and  if  not,  what 
would  be  reasonable  notice  to  the  public 
should  a  bank  desire  to  make  a  change  in 
hours  from  3  to  2  P.M.?  Opinion:  There  is 
no  statute  in  New  Jersey  regulating  banking 
hours.  If  banks  decide  to  change  their 
closing  hours  from  3  to  2  P.  M.,  it 
would  seem  a  reasonable  notice  to  the  public 
would  be  by  printing  the  announcement  in 
the  local  newspaper  for,  say,  two  or  three 
weeks,  and  also  posting  the  announcement 
in  the  office  of  the  bank  and  mailing  a 
printed  notice  also  to  the  bank's  customers. 
{Inquiry  from  N.  J.,  Sept.,  1918.) 

Right  to  close  on  Saturday  afternoon 

440.  Legal  banking  hours  in  Pennsyl- 
vania are  from  9  A.M.  to  3  P.M.,  except  on 
holidays.  By  a  law  passed  in  1897  "Every 
Saturday  after  12  o'clock  noon  until  12 
o'clock  midnight  is  hereby  designated  a 
half  holiday."  By  order  of  the  fuel  adminis- 
trator the  banks  of  a  certain  locality  close  at 
1  o'clock  on  Saturday.  One  of  the  banks  de- 
sires to  close  at  12  noon.  Opinion:  There 
seems  to  be  no  legal  reason  why  the  banks 
should  not  close  at  12  o'clock  ^on  Saturday 
afternoon  and  confine  their  hours  to  the  legal 
banking  hours  of  Pennsylvania.  There  is  a 
statute  in  Pennsylvania  which  permits  a  bank 
by  vote  of  its  directors  to  keep  its  doors  open 
and  transact  business  on  Saturday  after- 
noon. But  this  statute  is  permissive  and  if 
a  bank  chooses  to  close  on  Saturday  after- 
noons it  has  a  legal  right  to  do  so.  {Inquiry 
from  Pa.,  March,  1918.) 

441.  Is  there  anything  in  the  banking 
law  regulating  the  hours  of  opening  and 
closing  of  a  national  bank  each  day?  Opin- 
ion: There  is  apparently  nothing  in  the 
Pennsylvania  Banking  Law  (aside  from 
what  is  provided  in  the  holiday  law  as  to 
Saturday)  nor  in  the  National  Banking  Law 
which  regulates  the  hour  of  opening  and 
closing  of  a  bank  on  a  secular  or  business 
day.  Banks  fix  their  own  hours  for  doing 
business  and  these  become  customary  but 
it  would  seem  that  the  bank  has  a  right,  if 
it  chooses,  to  do  business  in  other  hours. 
{Inquiry  from  Pa.,  April,  1917.) 

442.  The  banks  in  a  certain  locality  fix 
two  instead  of  three  o'clock  as  the  closing 
hour,  and  notify  the  public  to  that  effect. 
As  the  usual  and  customary  hour  of  closing 
has  been  three  o'clock  the  bank  beheves  that 


it  would  be  dangerous  to  protest  a  check 
before  that  hour  or  decline  to  receive  a  de- 
posit tendered  up  to  three  o'clock  to  protect 
such  check.  Opinion:  A  check  may  be 
protested  immediately  upon  dishonor  and 
a  bank  is  not  obliged  to  wait  until  the  close 
of  banking  hours.  The  pubhc  having  been 
notified,  two  o'clock  becomes  the  established 
banking  hour.  Banks  would  have  a  right  to 
refuse  payment  of  a  check  presented  after 
two  and  before  three  o'clock  without  in- 
curring damages  to  their  depositor  for 
wrongfully  dishonoring  the  check.  {Inquiry 
from  Wash.,  D.  C,  July,  1918.) 

Right  of  bank  to  close  for  funeral 

443.  A  bank  asks  whether  it  has  a  legal 
right  to  close  for  funerals.  The  bank  held 
a  note  for  collection  and  the  maker  appeared 
at  the  bank  with  funds  ready  to  pay,  but 
afterwards  became  bankrupt  so  that  the 
amount  was  lost.  Would  the  bank  be  re- 
sponsible to  the  payee?  Opinion:  A  bank 
would  have  no  right  to  close  during  banking 
hours  of  a  business  day  to  enable  its  officers 
to  attend  a  funeral.  It  is  quite  likely  the 
bank  would  be  held  liable  for  negligence  in 
failing  to  collect  the  note.  {Inquiry  from 
III,  Feb.,  1918.) 

Right   of  bank   to   close   on   non-legal 
holiday 

444.  All  the  banks  of  a  community 
except  Bank  A  closed  their  doors  on  a  non- 
legal  hohday.  Bank  A  asks  if  it  had  the 
right  to  present  checks  drawn  on  the  other 
banks  thus  closed  and  have  them  protested 
for  non-payment.  Opinion:  Banking  hours 
are  estabhshed  by  custom  and  sometimes  by 
statute  and  during  legal  banking  hours 
on  a  business  day  a  bank  would  have  no 
right  to  close.  Checks  presented  at  the 
banks  thus  closed  without  right  would  be 
legally  protestable  for  non-payment.  {In- 
quiry from  III.,  March,  1918.) 

Daylight  Saving 

When  is  12  o'clock  noonf 

445.  Section  4551  of  the  Connecticut 
statutes  provides  that  "On  Saturday  of  each 
week  banking  hours  shall  end  at  twelve 
o'clock  noon."  Nearly  all  of  the  banks  and 
merchants  of  Connecticut  are  conducting 
business  on  the  Daylight  Saving  Plan — 
which  is  one  hour  later  than  the  Standard 
time.  The  bank  protests  a  check  at  eleven 
o'clock  (Standard  time)  on  Saturday  and 
the  customer  appears  at  the  bank  during  the 
next  hour  with  funds  to  make  the  check    '■ 


88 


BANKS  AND  BANKING 


[446-450 


good.  Is  the  bank  liable  for  its  action  in  pro- 
testing? Opinion:  It  seems  reasonable  that 
a  court  would  hold  that  12  o'clock  noon 
referred  to  in  the  statute  was  the  12  o'clock 
noon  recognized  by  the  merchants  and 
banks  of  the  community  in  the  conduct  of 
their  daily  business,  although  it  would  only 
be  11  o'clock  according  to  Standard  Eastern 
time;  and  that  the  protest  of  a  check  for 
insufficient  funds  at  1 1  o'clock  Eastern  time, 
but  12  o'clock  local  time,  would  not  be 
premature.  As  a  matter  of  fact,  a  check  can 
be  protested  as  soon  as  dishonored  at  any 
time  of  the  day,  so  that  this  question  would 
not  arise  in  reference  to  a  check.  (Inquiry 
from  Conn.,  May,  1920.) 

446.  A  bank  asks  whether  it  would  be 
fuljSlhng  the  legal  requirements  if  it  observed 
the  usual  local  changed  hours,  opening  one 
hour  earlier,  but  allowing  an  extra  hour, 
i.  e.,  until  four  o'clock  local  time  instead  of 
three  for  the  payment  of  all  notes.  Opinion: 
Where  an  ordinance  or  regulation  of  a  city 


or  town  changes  the  hour  for  local  purposes 
and  the  newly  fixed  hour  is  generally  con- 
formed to  by  the  people,  including  pubUc 
service  and  other  corporations,  the  banks 
would  have  to  fix  their  own  hours  for  doing 
local  business  with  reference  to  such  local 
standard,  although  the  hour  has  not  been 
changed  iDy  the  law  of  the  state.  Of  course,  if 
a  bank  wanted  to  allow  an  extra  hour,  until 
four  o'clock  local  time,  it  would  be  within 
its  power  to  fix  that  as  its  closing  time. 
{Inquiry  from  Conn.,  March,  1920.) 

447.  A  bank  inquires  as  to  the  effect  of 
the  local  daylight  savings  ordinance  upon 
the  opening  and  closing  of  national  banks. 
Opinion:  Banking  hours  are  fixed  by  the 
banks  themselves,  and  it  is  consistent  for  a 
bank  to  adjust  its  banking  hours  to  conform 
to  a  local  daylight  savings  ordinance.  There 
is  nothing  in  the  National  Bank  Law  which 
would  affect  the  right  of  a  national  bank  to 
fix  its  own  banking  hours.  {Inquiry  from 
N.  Y.,  May,  1920.) 


BANKS  AND   BANKING 


Contracts  and  dealings  in  general 

Charge  for  checking  accounts 

448.  Is  there  any  legal  objection  to  a 
bank  making  a  charge  for  checking  accounts, 
where  the  balances  are  not  sufficient  to  re- 
munerate the  bank  for  the  expense  entailed? 
Opinion:  There  is  no  legal  objection  to  such 
charge  where  it  is  done  by  prearrangement 
with  the  customer.  Banks  have  the  power 
to  make  contracts,  and  this  would  simply 
be  a  matter  of  contract  between  bank  and 
customer  as  to  the  terms  upon  which  the 
account  will  be  carried.  {Inquiry  from  N. 
Y.,  Aug.,  1917.) 

Sale  of  foreign  exchange 

449.  The  larger  banks  in  certain  centres 
make  an  arrangement  with  smaller  banks 
throughout  the  country  by  which  the  small 
bank  as  agent  of  the  large  bank  will  sell  their 
draft  upon  a  foreign  correspondent  of  the 
large  bank,  advising  and  remitting  the  large 
bank  in  payment,  the  large  bank  in  return 
arranging  with  the  foreign  correspondent 
to  pay  the  draft.  Opinion:  In  case  of  the 
failure  of  the  foreign  correspondent  without 
paying  the  draft,  the  small  bank  would  un- 
doubtedly be  liable  to  the  purchaser  as 
drawer.  Upon  the  question  of  the  liability 
of  the  large  bank  to  the  small  bank,  pre- 
sumably the  latter  acting  as  agent  for  the 
former,  there  would  be  a  UabiUty  over;  at 


the  same  time,  this  would  depend  probably 
upon  the  nature  of  the  agreement  between 
the  two  banks,  and  it  is  believed  in  cases  of 
this  kind  it  would  be  wise  that  there  should 
be  a  specific  written  agreement  between  the 
two  to  the  effect  that,  in  the  event  the  small 
bank  is  held  liable  to  the  purchaser  for  non- 
payment of  the  draft,  there  being  no  negli- 
gence on  its  part,  the  large  bank  will  hold 
it  harmless  and  reimburse  it.  (Inquiry 
from  Mont.,  Nov.,  1920.) 

450.  Have  state  banks  the  right  to  draw 
bills  upon  foreign  correspondent  and  issue 
drafts  on  an  order  similar  to  that  of  the 
American  Express  Company  money  order? 
Opinion:  The  Banking  Law  of  New  York 
gives  state  banks  the  power  to  negotiate 
drafts  and  bills  of  exchange;  also  to  buy  and 
sell  exchange.  There  is  no  restriction  as  to 
locality  or  country  upon  which  the  exchange 
shall  be  sold.  It  would  seem,  therefore,  that 
state  banks  have  power  to  issue  foreign  bills 
of  exchange  in  the  form  and  style  of  those 
issued  by  the  American  Express  Company 
(New  York  Banking  Law,  Sec.  106).  How- 
ever, such  bills  could  probably  not  be  issued 
payable  in  foreign  money.  Sec.  142  of  the 
Act  provides  no  person  shall  give,  pay  or 
receive  in  payment,  or  in  any  way  circulate 
or  attempt  to  circulate,  any  bank  bill, 
promissory  note,  bill,  check,  draft  or  other 
evidence  of  debt  issued  by  any  bank,  indi- 
vidual banker  or  private  banker  which  shall 


89 


451-453] 


DIGEST  OF  LEGAL  OPINIONS 


be  made  payable  otherwise  than  in  lawful 
money  of  the  United  States.  {Inquiry  from 
N.  Y.,  Sept.,  1917.) 

Creation  of  contingent  fund 

451.  A  bank  states  that,  at  a  recent 
examination  of  its  affairs  by  the  State 
Banking  Department,  exception  was  taken 
to  its  practice  of  carrying  a  Contingent  Fund 
Account,  and  the  bank  was  requested  to 
transfer  the  fund  to  either  the  Surplus  Fund 
or  Undivided  Profits  Account.  The  bank 
desires  to  ascertain  what  objection  there  can 
be  to  such  a  fund.  Opinion:  It  seems  there 
is  no  legal  obstacle  against  the  bank  main- 
taining such  a  fund.  There  is  nothing  in  the 
Banking  Law  of  Ohio  to  prevent  it,  and  the 
extent  of  power  of  the  Superintendent  of 
Banks  is  to  "execute  the  laws."  A  question 
of  this  kind  very  rarely  gets  into  court. 
There  was  a  case  in  California  where  the 
statute  required  banking  corporations  hav- 
ing no  capital  to  retain  a  portion  of  each 
dividend  to  constitute  a  reserve  fund  of 
$100,000  to  be  used  in  paying  losses.  The 
corporation  acquired  a  much  larger  fund  and 
it  was  held  that  the  discretion  of  the  di- 
rectors as  to  the  maximum  would  not  be 
controlled  by  the  courts  unless  unfairly  or 
wantonly  exercised.  Mulcahy  v.  Hibernia 
Sav.  Society,  144  Cal.  219.  This  case  at 
least  illustrates  that  the  bank  has  power  to 
create  a  contingent  fund  of  the  kind  sug- 
gested.   {Inquiry  from  Ohio,  June,  1916.) 

Purchase  of  notes 

452.  A  bank  calls  attention  to  an  opinion 
of  an  Oklahoma  attorney  wherein  it  is  stated 
that  a  state  bank  in  Oklahoma  could  not  be 
a  holder  of  a  note  in  due  course;  that  the 
state  statute  enumerates  the  rights  of  a 
state  bank  and  the  power  to  purchase  notes 
is  not  one  of  them ;  that  a  note  purchased  by 
an  Oklahoma  State  Bank,  negotiable  in 
form,  purchased  before  maturity,  is  subject 
to  all  equitable  defenses,  the  same  as  if  in 
the  hands  of  the  original  holder.  The  bank 
asks  an  opinion  thereon.  Opinion:  The 
Oklahoma  Banking  Act  enumerates  among 
other  powers  "To  buy  and  sell  exchange, 
gold  *  *  *  uncurrent  money  *  *  *."  It 
might  be  contended  that  the  phrase  "un- 
current money"  included  negotiable  promis- 
sory notes.  No  attempt  will  be  made  to 
discuss  just  what  this  phrase  means.  The 
Act  includes  the  power  "To  lend  money  on 
chattel  and  personal  security"  *  *  *  Un- 
der this  last  stated  grant  of  power  a  bank 
might  by  way  of  loan  become  the  holder  in 


due  course  not  only  of  the  negotiable  promis- 
sory note  made  by  A  payable  directly  to  the 
bank  for  a  loan  but  also  the  holder  of  a 
negotiable  promissory  note  made  payable  by 
A  to  B  and  discounted  by  the  bank  for  B. 
Most  banldng  statutes  grant  the  express 
power  to  discount,  and  it  has  been  held  the 
term  discount  includes  purchase  as  well  as 
loan.  Pape  v.  Bank,  20  Kan.  40.  But  the 
Oklahoma  statute  does  not  expressly  include 
the  power  to  discount;  it  simply  confers  the 
power  to  loan.  Even  so,  it  seems  this 
would  be  held  to  include  the  purchase  as 
well  as  the  discount  of  negotiable  paper.  In 
Smith  V.  Bank,  26  Ohio  St.  141,  the  court 
said:  "In  the  business  of  banking,  the  pur- 
chasing and  discounting  paper  is  only  a 
mode  of  loaning  money."  It  is  the  consen- 
sus of  modern  judicial  opinion  that  a  bank 
has  authority  to  purchase  promissory  notes 
and  thereby  become  a  bona  fide  holder  of 
same,  in  the  absence  of  express  statutory 
prohibition.  State  Bank  v.  Criswell,  15 
Ark.  230.  Pape  v.  Capitol  Bk.  20  Kan.  440. 
U.  S.  Bk.  V.  Norton,  3  A.  K.  Marsh 
(Ky.)  422.  Taft  v.  Quinsigamond  Nat.  Bk., 
172  Mass.  363.  Salmon  Falls  Nat.  Bk.  v. 
Leyser,  116  Mo.  51.  Smith  v.  Exch.  Bk., 
26  Ohio  St.  141.  Com.  v.  Com'l  Bk.,  28  Pa. 
St.  383.  In  re  Ontario  Bk.,  21  Ont.  Law  1. 
The  Oklahoma  statute  contains  no  express 
prohibition  of  purchasing  negotiable  promis- 
sory notes,  and  it  is  quite  certain  Oklahoma 
banks  would  be  held  to  have  that  power. 
{Inquiry  from  Okla.,  Aug.,  1916.) 

Purchase  of  bonds  for  customer 

453.  What  is  the  liability  of  a  bank  as  a 
purchasing  agent  of  government  bonds  for 
a  customer,  where  the  bonds  turn  out  to  be 
stolen  and  the  circumstances  are  such  that 
the  customer  suffers  loss?  Opinion:  The 
case  is  governed  by  the  rule  that  since  the 
agent  is  required  to  exercise  only  ordinary 
care,  skill  and  diligence,  he  is  not,  in  the 
absence  of  an  express  agreement,  an  insurer 
of  the  success  of  the  undertaking,  (Louisville 
&  R.  Co.  V.  Buffington,  131  Ala.  620.  Loeb 
V.  Hellman,  83  N.  Y.  601.  Ins.  Co.  v.  Lau- 
benstein  162  Wis.  165,  155  N.  W.  918)  and 
does  not  guarantee  the  principal  against 
incidental  losses,  or  undertake  that  he  will 
commit  no  errors  or  mistakes,  (Richardson 
V.  Taylor,  136  Mass.  143.  Page  v.  Wells,  37 
Mich.  415.  Lake  City  Flouring-Mills  Co.  . 
V.  McVean,  32  Minn.  301)  and  so  will  not  be  | 
liable  for  losses  occurring  without  any  fault 
or  negligence  on  his  part.  Smallhouse  v. 
Keller,  142  Ky.  432,  134  S.  W.  493.    Furber 


90 


i 


BANKS  AND  BANKING 


[454-457 


V.  Barnes,  32  Minn.   105.     {Inquiry  from 
Ark.,  Feb.,  1921.) 

Purchase  of  stock  for  customer 

454.  The  question  presented  is  whether 
a  trust  company  or  bank  in  New  York  which 
gives  an  order  on  behalf  of  a  customer  to  a 
broker  to  buy  stock  is  Uable  to  the  customer 
where  a  loss  results  because  of  failure  of  the 
broker.  Opinion:  The  question  will  de- 
pend upon  whether  the  trust  company  or 
bank  is  to  be  regarded  as  an  independent 
contractor  or  whether  the  broker  is  a  sub- 
agent  of  the  customer,  in  which  latter  event 
the  trust  company  would  not  be  liable  to  its 
customer  for  the  loss.  The  general  rule  is 
that  where  the  employment  of  a  sub-agent 
is  authorized,  he  becomes  the  agent  of  the 
principal  and  the  original  agent  is  not  re- 
sponsible for  his  acts  or  omissions.  Davis 
V.  King,  66  Conn.  465.  Morris  v.  Warhck, 
118  Ga.  421.  Whitlock  v.  Hicks,  75  111. 
460.  Loomis  v.  Simpson,  13  Iowa,  532. 
Joor  V.  Sulhvan,  5  La.  Ann.  177.  Wilhams- 
burg  City  F.  Ins.  Co.  v.  Frothingham,  122 
Mass.  391.  Hoag  v.  Graves,  81  Mich.  628. 
Many  other  cases  might  be  cited,  but  there 
seem  to  be  no  decisions  in  New  York  on  the 
question  presented.  An  authority  to  ap- 
point a  sub-agent  may  be  implied  from  the 
conduct  of  the  parties  or  the  usage  of  trade. 
Thus,  the  appointment  of  a  sub-agent  may 
be  justified  by  a  known  and  established 
usage  or  course  of  dealing.  If  the  principal 
constitutes  an  agent  to  do  business  as  to 
which  there  is  a  known  and  established  usage 
of  substitution,  the  principal  must  l^e  held 
to  have  expected  and  authorized  such  sub- 
stitution. Darhng  v.  Stanwood,  14  Allen 
(Mass.)  504.  Planters  Nat.  Bk.  v.  First 
Nat.  Bk.,  75  N.  C.  534.  Lausatt  v.  Lippin- 
cott,  6  Serg.  &  R.  (Pa.)  386.  {Inquiry  from 
N.  Y.,  March,  1919.) 

Sale  of  foreign  lottery  bonds  on  commission 

455.  A  bank  states  that  a  number  of 
foreign  internal  bonds  having  lottery  pro- 
visions are  being  sold  in  this  country,  and 
the  bank  asks  whether  there  is  any  reason 
why  it  should  not  sell  Swedish  lottery  bonds. 
Opinion:  The  decision  of  the  Supreme 
Court  of  the  United  States  in  Horner  v. 
United  States,  147  U.  S.  449,  seems  to 
establish  that  where  foreign  bonds  which 
have  lottery  provisions  are  sold  in  this 
country,  it  constitutes  an  offense  against 
Section  3894  U.  S.  Revised  Statutes  when- 
ever the  United  States  mail  is  used  in  con- 
nection therewith.    If,  as  stated,  banks  are 


seUing  such  bonds  on  commission,  there 
must  be  some  laxity  in  the  enforcement  of 
the  law.    {Inquiry  from  III.,  April,  1920,) 

Bank  as  agent  to  procure  loan 

456.  Bank  A  offered  to  procure  a  loan 
for  Bank  B  which  proposition  was  ac- 
cepted. Thereupon  Bank  A  sent  a  note  it 
has  discounted  to  Bank  B,  which  was  taken 
by  the  latter  thinking  it  was  an  outside  loan. 
The  note  owned  by  Bank  A  was  worthless. 
Opinion:  Bank  A  would  be  liable  to  Bank 
B.  It  is  a  breach  of  duty  for  an  agent  em- 
ployed to  make  an  investment  for  his  prin- 
cipal to  supply  investments  out  of  his  own 
property  unless  done  with  knowledge  and 
consent  of  the  principal.  Sikes  v.  Inhab- 
itants of  Hatfield,  79  Mass.  347.  Meek  v. 
Hurst,  122  S.  W.  1022.  {Inquiry  from  Mo., 
June,  1912,  Jl.) 

Sale  of  notes  with  agreement  to  repurchase 

457.  An  investment  company  submits 
a  note  list  of  paper  which  it  buj^s  from 
national  and  state  banks,  at  the  foot  of  which 
is  a  repurchase  agreement  signed  by  the 
bank  which  recites:  "In  consideration  of 
the  purchase  by  you  from  us  of  the  notes 
above  described  we  hereby  agree  to  repur- 
chase from  you  or  your  assigns  each  or  all 
of  said  notes  on  their  respective  maturity 
dates  or  at  any  time  thereafter  upon  demand, 
paying  therefor  the  face  value  with  inter- 
est," etc.  The  investment  company  asks 
whether  a  bank,  either  national  or  state, 
would  be  legally  bound  by  such  repurchase 
agreement.  Opinion:  The  courts  quite 
generally  hold  at  the  present  day  that  a 
bank,  whether  State  or  National,  has  power 
to  buy  and  sell  notes.  The  power  to  pur- 
chase was  at  one  time  denied  by  the  Supreme 
Court  of  Minnesota  on  the  theory  that  the 
power  to  purchase  was  not  included  within 
the  power  to  discount.  Rochester  First 
Nat.  Bk  V.  Pierson,  24  Minn.  140.  Farmers, 
etc.,  Bank  v.  Baldwin,  23  Minn.  198.  But 
now,  bj^  statute,  authority  has  been  given 
to  banks  in  that  state  to  purchase  bills  and 
notes.  Minn.  Gen.  St.  1886,  Ch.  33,  Sec.  15. 
Merchants  Nat.  Bk.  v.  Hanson,  33  Minn. 
40,  overruling  24  Minn.  140.  See,  also, 
Becker's  Invest.  Agency  v.  Rea,  63  Minn. 
459,  recognizing  the  latter  statutory  rule. 
In  the  present  case  the  bank  sells  notes 
with  an  agreement  to  repurchase.  Such  an 
agreement  would  be  within  the  power  of  the 
bank  and  binding  on  it.  {Inquiry  from 
Minn.,  Jan.,  1919.) 


91 


458-462] 


DIGEST  OF  LEGAL  OPINIONS 


Payment  on  order  by  wire  prior  to  remittance 

458.  A  bank  receives  a  request  by  tele- 
gram from  another  bank  to  notify  and  pay 
a  certain  party  an  amount  of  money,  the 
bank  sending  the  wire  promising  to  remit. 
Would  the  bank  receiving  the  wire  be  under 
any  obligation  to  advance  the  money  prior 
to  receipt  of  the  remittance?  Opinion: 
Generally  where  wires  are  so  forwarded,  the 
sending  bank  has  an  account  or  credit  with 
the  receiving  bank  and  it  is  contemplated 
that  the  money  will  be  immediately  paid. 
But  if  the  receiving  bank  is  not  wilHng  to 
trust  the  responsibility  of  the  sending  bank 
and  advance  the  money  prior  to  remittance, 
it  having  no  funds  in  possession  to  the  credit 
of  the  sending  bank,  thers  is  no  law  which 
would  compel  it  to  do  so.  (Inquiry  from 
N.  Dak.,  Jan.,  1918.) 

Pledge  of  assets  to  secure  deposits 

459.  The  City  of  D  deposited  with  an 
Ohio  bank  $30,000.  The  bank  directors 
signed  a  bond  to  the  city  and  to  secure 
themselves  deposited  $36,000  of  the  bank's 
assets  with  a  trustee.  Opinion:  In  the  ab- 
sence of  statutory  prohibition  there  is  no 
reason  of  public  policy  or  otherwise  why  the 
bank  has  not  the  right  to  pledge  its  assets  to 
secure  the  sureties  on  the  bond.  Page  & 
Adams,  Ohio  Gen.  Code,  Sees.  2715  et  seq.; 
Sees.  4295  et  seq.;  Sees.  4515  et  seq..  Sees. 
324  et  seq.  (Inquiry  from  Ohio,  Aug.,  1919, 
Jl.) 

460.  The  law  of  Wisconsin  prohibits 
a  bank  from  pledging  its  assets  as  security 
for  deposits.  It  is  somewhat  doubtful 
whether  bonds  borrowed  by  the  bank  could 
be  lawfully  pledged  as  security  for  postal 
savings  deposits.  (Inquiry  from  Wis.,  Sept., 
1911,  Jl.) 

Cancellation  of  contract  for  purchase 
of  supplies 

461.  On  September  14th  a  bank  ordered 
from  a  cake  and  feed  company  a  car  of 
"cake",  and  signed  a  contract  therefor 
containing  this  clause:  "No  contract  will 
be  cancelled  unless  we  are  notified  and  agree 
thereto."  On  September  15th  an  officer  of 
the  bank  saw  the  salesman  of  the  company, 
and  endeavored  to  cancel  the  contract,  on 
the  ground  that  they  could  buy  "cake"  for 
$2.50  per  ton  less  than  he  quoted.  The 
salesman  protested,  as  he  had  already  sent 
the  signed  contract  into  the  company,  but 
offered,  if  the  bank  would  buy  two  more 
cars  at  a  price  of  $2.50  per  ton  less  than  the 


price  of  the  first  car,  they  could  have  the 
three  cars  at  the  reduced  price.  The  bank 
acceded  to  this,  but  the  company  refused  to 
ratify  the  modified  contract,  and,  as  the 
bank  refused  to  accept  the  first  car  at  the 
contract  price,  the  company  now  seeks  to 
collect  the  difference  between  the  market 
price  on  day  of  sale  and  present  price  of 
"cake"  per  ton.  Is  the  bank  liable?  Opin- 
ion: It  is  elementary  that  one  party  to  a 
contract  cannot  alter  its  terms  without  the 
assent  of  the  other;  (Trowbridge  v.  Auto 
Co.  [Conn.]  103  Atl.  843.  Bearden  Merc. 
Co.  V.  Madison  Oil  Co.,  128  Ga.  695.  Port- 
land, etc.,  R.  Co.  V.  Boston,  etc.,  R.  Co.,  101 
Mass.  269.  Sperry  &  Co.  v.  Hertzberg,  69 
N.  J.  Eq.  264.  Paine  v.  Lautz,  168  N.  Y. 
Supp.  369)  the  minds  of  the  parties  must 
meet  as  to  the  proposed  modification.  (The 
Sappho,  69  Fed.  366.  Smith  v.  Miller,  79 
Conn.  624.  Carnahan  Mfg.  Co.  v.  Bebee 
Bowles  Co.,  80  Ore.  124,  156  Pac.  584. 
Molostowsky  v.  Grauer,  113  N.  Y.  Supp. 
679).  So,  while  the  parties  to  an  executory 
contract  may  rescind  it  by  mutual  agree- 
ment (Dunaway  v.  Roden,  14  Ala.  App. 
501.  Syphend  v.  Myers,  80  N.  J.  L.  521. 
Mcintosh  V.  Minor,  55  N.  Y.  Supp.  1074) 
yet  one  party  to  a  contract  cannot  rescind 
it  by  merely  giving  notice  to  the  other  of  its 
intention  to  do  so.  (Gillespie  v.  U.  S.,  47 
Ct.  Claims  167.  C.  R.  of  Ga.  v.  Goratow- 
sky,  123  Ga.  366.  Flynn  v.  Finch,  137  Iowa 
378)  the  offer  on  one  side  being  accepted  on 
the  other,  such  offer  and  acceptance  are 
governed  by  the  same  rules  which  govern  the 
inception  of  contracts  generally.  (Adams  v. 
Giraud  [Colo.]  169  Pac.  580.  Parks  v. 
Ehnore,  59  Wash.  584,  110  Pac.  381).  Con- 
clusion reached  that  in  the  instant  case  the 
bank  would  have  no  right  to  cancel  the 
contract,  or  to  modify  same,  without  con- 
sent of  Cake  &  Feed  Co.,  and,  they  not  hav- 
ing consented  to  cancel  the  contract,  the 
bank  would  be  liable  for  its  breach.  (In- 
quiry from  Okla.,  Oct.,  1920.) 

Borrower's  financial  statement  coupled  with 
collateral  agreement 

462.  A  bank  encloses  statement  of  finan- 
cial condition  of  a  borrower  for  the  purpose 
of  procuring  credit  and  has  added  to  this 
statement  a  form  of  agreement  of  a  character 
usual  in  collateral  notes  maturing  the  note 
or  other  obligations  upon  the  borrower  be- 
coming insolvent,  making  an  untrue  state- 
ment and  various  other  contingencies;  au- 
thorizing set-off  of  the  entire  amount  due 
against  the  deposit  balance  of  the  borrower; 


92 


BANKS  AND  BANKING 


[463-465 


and  giving  the  bank  a  continuing  lien  there- 
on. The  statement  also  contains  a  further 
agreement  giving  the  bank  permission  to 
examine  the  books  of  the  borrower  and  pro- 
viding that  failure  to  exercise  any  option  at 
any  time  shall  not  be  a  waiver  of  the  right 
thereto.  The  question  upon  which  the  bank 
desires  an  opinion  is  whether  it  is  legal  and 
vahd  to  incorporate  in  the  statement  for 
credit  such  an  agreement  relating  to  the 
right  to  mature  notes  in  the  events  specified 
and  containing  the  other  agreements.  Opin- 
ion: There  seems  to  be  no  reason  why  such 
an  agreement  would  not  be  valid  and  en- 
forceable. As  to  the  statement  for  credit 
and  added  agreement,  it  seems  both  legal 
and  valid  and  provides  a  better  method  than 
by  incorporating  such  agreements  in  the 
notes  given  for  the  loan.  This  method  takes 
the  agreement  out  of  the  note,  leaving  the 
latter  fully  negotiable,  and  couples  it  with 
the  statement  for  credit.  It  appears  that 
such  combined  form  of  financial  statement 
and  collateral  agreement  has  advantages 
which  make  it  preferable  as  well  as  being 
valid  and  enforceable.  {Inquiry  from  Pa., 
Dec,  1914) 

Threatening  debtor  with  criminal  prosecution 

463.  Is  there  any  law  covering  an  at- 
tempt to  collect  a  debt  by  threat  of  prosecu- 
tion of  suit?  Would  a  bank  or  an  individual 
be  liable  for  sending  such  a  letter  to  a  de- 
linquent customer?  Opinion:  (a)  With 
regard  to  sending  a  letter  threatening  to 
bring  civil  suit  if  a  debt  is  not  paid  there 
would,  of  course,  be  no  liabilitj'',  except, 
possibly,  in  a  case  where  the  letter  was 
published  and  contained  injurious  imputa- 
tions. (Apolinaire  v.  Roca,  43  La.  Ann. 
842) .  (b)  Concerning  the  sending  of  a  letter 
threatening  criminal  prosecution  for  ob- 
taining money  by  false  pretenses,  in  some 
jurisdictions  the  courts  hold  that  the  sending 
of  a  letter  threatening  to  accuse  another  of 
a  crime  in  connection  with  the  attempt  to 
collect  a  debt,  is  not  within  the  statute,  for 
a  creditor  is  entitled  to  demand  payment  of 
honest  debts,  and  a  threat  to  charge  the 
debtor  with  an  offense  committed  in  con- 
nection with  the  debt  or  obligation  is  not 
punishable.  (State  v.  Hammond,  80  Ind. 
80.  State  v.  Ricks,  [Miss.  1914]  66  So.  281. 
People  V.  Griffin,  2  Barb.  [N.  Y.]  427.  U. 
S.  V.  Mena,  11  Phihppine  Islands  543.  Reg. 
V.  Johnson,  14  U.  C.  2  B.  566.  And  see 
Mann  v.  State,  47  Ohio  St.  566,  and  Rev. 
Laws  Okla.,  1910,  Oh.  23,  Sec.  2687).  In 
other  jurisdictions,  however,  the  threaten- 


ing, for  the  purpose  of  obtaining  money,  to 
prosecute  for  a  crime,  is  punishable.  (People 
V.  Choynski,  95  Cal.  640.  State  v.  De  Bolt, 
104  Iowa  105.  State  v.  Waite,  101  Iowa 
377.  State  v.  Goodwin,  37  La.  Ann.  713. 
Com.  V.  Buckley,  148  Mass.  27.  People  v. 
Whittemore,  102  Mich.  519.  State  v.  Cole- 
man, 99  Minn.  487).  {Inquiry  from  Okla., 
April,  1917.) 

Agency  of  private  hank  for  transmission  of 
money  to  foreign  countries 

464.  A  firm  of  private  bankers  ask  an 
interpretation  of  Section  153^  of  the  lUinois 
Banking  Act  which  goes  into  effect  "after 
January  21,  1921,"  as  to  whether  or  not  a 
person  or  persons,  firm  or  partnership,  can 
under  any  circumstances  transmit  money 
to  foreign  countries  by  acting  as  agent,  or 
otherwise,  to  express,  steamship,  telegraph 
companies  or  banks.  Opinion:  Under  the 
amendment  of  the  Banking  Act  of  Illinois 
it  is  apparent  that  the  transmitting  of 
money  to  foreign  countries  is  part  of  the 
business  of  banking  which  natural  persons, 
firms  or  partnerships  are  forbidden  to  trans- 
act, except  that  express,  steamship  and 
telegraph  companies  may  continue  their 
business  of  transmitting  money  and  receiv- 
ing money  to  be  transferred.  Natural  per- 
sons, therefore,  cannot  continue  to  transact 
this  business  independently,  but  it  is  im- 
possible to  see  why  it  would  not  be  compe- 
tent for  express,  steamship  and  telegraph 
companies  to  have  natural  persons  or  firms, 
formerly  engaged  in  such  business,  act  as 
their  agents  in  its  conduct  by  special  ar- 
rangement with  such  companies.  These 
companies  transact  business  through  agents, 
and  it  would  seem  competent  for  them  to 
authorize  a  private  firm  to  receive  and 
transmit  money  to  foreign  countries  for 
them,  as  their  agents.  {Inquiry  from  III., 
Oct.,  1920.) 

Use  of  word  "savings"  by  state  banks 

Cross  reference — For  savings  departments  of 
national  hanks — see  National  hanks 

Use   of  word   "savings''   hy  state   hank   in 
New  York 

465.  May  a  state  bank  use  the  word 
"savings"  in  connection  with  its  interest 
department?  Opinion:  Under  the  exphcit 
provision  of  section  279  of  the  Banking  Law 
of  New  York,  the  Attorney-General  of  this 
state  has  ruled  (Attorney-General  Rep. 
Feb.  6,  1908)  that  anj^  use  in  business  by 
banks  of  the  word  "savings"  is  prohibited 


93 


466-470] 


DIGEST  OF  LEGAL  OPINIONS 


except  in  the  case  of  savings  banks,  building 
and  loan  associations,  organized  under  the 
laws  of  this  state,  or,  in  certain  cases,  public 
school  authorities.  It  seems  clear  that  a 
state  bank  may  not  use  the  word  "savings" 
in  connection  with  its  business.  (Inquiry 
from  N.  Y.,  May,  1914.) 

Use  of  word  "savings^'  by   commercial  hank 
in  Kentucky 

466.  A  commercial  bank  in  Kentucky 
is  not  prohibited  by  statute  from  carry- 
ing savings  accounts  and  from  having  a  sav- 
ings department,  but  in  that  connection  it 
must  keep  separate  books  for  savings  busi- 
ness and  post  the  rate  of  interest  allowed 
depositors  and  other  regulations  prescribed 
by  the  directors.  There  is  no  statute  in 
Kentucky  prohibiting  the  use  or  advertise- 
ment of  the  word  "savings"  by  a  commercial 
bank.     (Inquiry  from  Ky.,  April,  1917,  Jl.) 

Right   of  private  bank   to   advertise   a 
savings  department  in  Iowa 

467.  May  a  private  bank  in  Iowa  ad- 
vertise a  savings  department?  Opinion: 
The  Iowa  statute  (Code  Iowa  Anno.  1897, 
Chap.  11,  Sec.  1859)  prohibits  a  private  bank 
from  advertising  or  exhibiting  any  sign  "as 
a  savings  bank  or  savings  institution." 
Advertising  "a  savings  department"  would 
seem  to  violate  this  law.  (Inquiry  from 
Iowa,  June,  1915.) 

Distribution    of    surplus    upon 

liquidation  of  mutual 

savings  bank 

468.  On  dissolution  of  a  mutual  savings 
bank  to  whom  does  the  surplus  belong? 
Are  the  former  depositors  entitled  to  any 
portion?  Opinion:  Only  those  who  are 
depositors  at  the  time  a  savings  bank  is 
being  wound  up  are  entitled  to  share  in  the 
surplus.  Morristown  Inst,  for  Savings  v. 
Roberts,  42  N.  J.  Eq.  496,  8  Atl.  315.  See 
also  People  v.  Peck,  157  N.  Y.  51,  citing 
New  York  Banking  Act,  section  123.  It 
would  seem  that  depositors  who  have  closed 
out  their  accounts  prior  to  the  beginning  of 
winding  up  proceedings  have  no  claim  to 
any  portion  of  the  surplus.  (Inquiry  from 
Ind.,  Nov.,  1919.) 

Suggested  exercise  of  trust   powers  of 
state  bank  in  New  Mexico 

Cross  references — For  trust  powers  of  national 
bank — see  National  Banks 

469.  A  sparsely  settled  country  cannot 
have  the  benefits  of  trust  companies  in  the 


way  they  usually  operate  and  as  private 
parties  are  continually  called  upon  to  act  in 
various  capacities  of  the  sort  generally 
undertaken  by  such  companies,  why  could 
not  any  bank  be  authorized  to  act  by  giving 
security  for  each  individual  case  as  it  comes 
up?  Can  you  suggest  a  form  of  statute? 
Opinion:  The  suggestion  is  that  the  power 
to  act  in  a  fiduciary  capacity  be  thrown  open 
to  all  state  banks  in  New  Mexico,  irrespec- 
tive of  capital,  upon  their  giving  security  in 
each  individual  trust.  There  is  no  apparent 
reason  why  such  suggestion  is  not  a  good  one 
as  the  men  running  a  bank,  no  matter  how 
small,  are  probably  more  competent  to 
execute  trusts  of  which  their  bank  is  trustee 
than  would  the  ordinary  individual  or  even, 
certain  lawyers.  It  might  be  well  to  take 
the  New  Jersey  law  giving  state  banks 
power  to  act  in  fiduciary  capacities  as  a 
model,  amend  it  by  striking  out  the  provi- 
sion as  to  amount  of  capital  required,  make 
a  more  definite  provision  as  to  the  giving  of 
security,  to  be  fixed  by  the  appropriate 
court  having  jurisdiction  of  trusts  in  each 
particular  case;  making,  of  course,  amend- 
ments in  such  provisions  as  are  not  appUca- 
ble  to  New  Mexico.  (Inquiry  from  N.M., 
Nov.,  1920.) 

Bank  as  borrower 

Loan  to  bank  on  personal  note  of  executive 
officer 

470.  The  cashier  and  manager  of  a 
bank  desiring  to  procure  a  loan  for  the 
bank,  gave  his  personal  note  secured  by  his 
bank  stock.  The  money  passed  to  the  bank, 
but  the  loan  did  not  appear  on  the  books  or 
reports  of  the  bank  as  a  habiUty.  There 
was  no  written  disclaimer  from  the  lender 
bank  that  they  did  not  in  any  wary  hold  the 
borrowing  bank.  Opinion:  The  circum- 
stances would  probably  be  held  to  evidence  a 
loan  and  benefit  to  the  bank  and  that  the 
cashier  pledged  his  personal  stock  as  security 
and  therefore  the  bank  would  be  liable. 
Whether  the  loan  is  to  the  cashier  or  to  the 
bank  is  tested  by  the  inquiry  for  whose  bene- 
fit the  loan  is  made,  which  is  based  upon  the 
entire  circumstances  constituting  the  con- 
tract and  not  on  the  form  of  the  note  alone, 
and  sometimes  on  the  ratification  of  the  loan 
by  the  bank.  Merrell  v.  Witherby,  120 
Ala.  418.  Bush  v.  Devine,  5  Harr.  (Del.) 
375.  Hazelhurst  Lumber  Co.  v.  Carhsle 
Mfg.  Co.,  112  S.  W.  (Ky.)  934.  Lambert 
V.  Phillips  &  Son,  64  S.  E.  (Va.)  945.  An- 
drews Co.  V.  Nat.  Bk.,  129  Ga.  53.  Paige  v. 
Stone,  10  Mete.  (Mass.)  160.    Western  Nat. 


94 


BANKS  AND  BANKING 


[471-475 


Bk.  V.  Armstrong,  152  U.  S.  346.  Cherry 
V.  City  Nat.  Bk.,  144  Fed.  587  affi'd  as 
Rankin  v.  City  Nat.  Bk.,  208  U.  S.  541. 
Hanover  Nat.  Bk.  v.  First  Nat.  Bk.,  109 
Fed.  421.  American  Exch.  Nat.  Bk.  v. 
First  Nat.  Bk.,  82  Fed.  961.  (Inquiry  from 
Neb.,  Aug.,  1915,  Jl.) 

471.  A  bank  discounted  the  personal 
note  of  the  cashier  of  another  bank  and  the 
proceeds  were  placed  to  the  credit  of  the 
bank  sending  the  note.  The  lender  bank 
also  accepted  as  collateral,  notes  with  the 
payee  blank  unfilled.  Opinion:  The  dis- 
counting of  the  personal  note  of  the  cashier 
of  another  bank  and  crediting  such  bank 

i  with  the  proceeds  would  probably  be  held  a 
transaction   with   the   bank,    which   would 

'  make  it  liable  on  the  note.  Where  collateral 
consists  of  notes  with  the  payee  blank  un- 
filled, the  lender  bank  is  put  on  inquiry  and 
takes  subject  to  the  maker's  defenses. 
Guerrant  v.  Guerrant,  7  Va.  Law  Reg.  639. 
Chrystie  v.  Foster,  61  Fed.  551.    Pensacola 

,  Bk.  &  Tr.  Co.  V.  Nat.  Bk.  of  St.  Petersburg, 
52  So.  (Fla.)  294.  {Inquiry  from  Neh.,  Feb., 
1914,  Jl.) 

Bonds  borrowed  by  bank 

472.  A  bank  states  that  there  is  fre- 
quently mentioned  in  bank  statements  the 
item  "Bonds  borrov/ed,"  and  asks  the  posi- 

i  tion  of  the  one  loaning  the  bonds  to  the  bank 
in  case  of  failure  of  the  bank.  Opinion: 
Where  money  is  loaned  to  a  bank,  the  bank 
becomes  the  debtor  and  upon  its  failure  the 
lender  is  simply  a  general  creditor,  unless 
secured  in  some  manner.  But  where  bonds 
are  loaned  to  a  bank,  these  are  not  money, 
and  it  seems  that  the  lender  would  not  be  a 
creditor,  but  would  retain  title  to  the  bonds 
and  could  recover  them  or  their  equivalent 
amount  in  full  as  a  full  preferred  claim.  It 
is  quite  clear  where  anything  but  money  is 
loaned,  that  the  title  to  the  thing  loaned 
does  not  pass,  but  simply  the  possession; 
therefore,  on  failure  of  the  borrower,  his 
relation  is  not  debtor,  but  bailee,  and  there 
is  an  obligation  to  return  the  thing  bailed 
or  its  equivalent.  It  seems  this  would  apply 
to  bonds  borrowed  the  same  as  to  a  horse 
borrowed.  {Inquiry  from  W.  Va.,  Oct., 
1919.) 

Loans  in  general 

Loan  on  Canadian  farm  land 

473.  Can  a  state  bank  in  Montana  make 
"farm  loans"  to  Canadian  farmers?  Opin- 
ion: By  the  Montana  Bank  Act  (Mont. 
Bank  Act  1915,  Sec.  4),  commercial  banks 


are  authorized  to  loan  money  upon  real 
property  with  certain  limitations,  but  there 
is  no  provision  restricting  the  real  estate 
security  to  that  located  in  the  state  of 
Montana.  In  the  absence  of  such  restric- 
tion, it  would  seem  reasonable  to  construe 
the  law  as  allowing  loans  upon  the  security 
of  real  estate  wherever  located.  {Inquiry 
from  Mont.,  June.,  1917.) 

Loan  by  New  York  to  Wisconsin  bank 

474.  A  bank  inquires  whether  under  the 
Wisconsin  law  a  bank  in  New  York  City 
could  legally  loan  money  to  a  Wisconsin 
bank  without  first  filing  power  of  attorney 
with  the  Secretary  of  State  designating  him 
to  receive  service  of  process.  Opinion:  This 
would  depend  upon  whether  the  loaning 
of  money  constituted  doing  business  in  the 
state.  If  it  was  a  contract  entered  into  in 
Wisconsin,  to  be  performed  there  and 
subject  to  its  laws,  the  transaction  would 
doubtless  constitute  doing  business  in  Wis- ' 
consin;  on  the  other  hand,  if  the  loan  was 
made  in  New  York  and  constituted  a  New 
York  transaction,  the  law  would  not  apply. 
{Inquiry  from  Wis.,  Oct.,  1915.) 

Loan  to   contractor — Rights    against    surety 
company 

475.  Bank  is  informed  of  recent  decision 
by  which  a  surety  company  bonding  a 
contractor  was  held  liable  to  a  bank  for  a 
loan  made  by  the  bank  to  the  contractor, 
the  bank  proving  that  the  money  thus 
loaned  was  used  for  material  and  labor  in  the 
construction  of  the  building;  and  asks  for 
report  on  the  case.  Opinion:  The  case 
probably  referred  to  is  Fidelity  &  Deposit 
Co.  of  Marvland  v.  City  of  Stafford,  (Kan. 
1917)  165  Pac.  837,  144  Pac.  852.  In  that 
case  a  contractor  began  the  construction  of 
a  plant  for  a  city,  and  later  abandoned  the 
work,  which  was  taken  up  and  completed 
by  his  surety,  who  paid  out  more  than  the 
unpaid  portion  of  the  contract  price.  Be- 
fore such  abandonment,  but  after  the  execu- 
tion and  filing  of  the  building  contract  and 
the  bond,  the  contractor  arranged  with  the 
bank  to  lend  S2,000  by  paying  that  amount 
of  labor  and  material  claims  as  they  accrued, 
and  he  gave  the  bank  an  order  on  the  city 
for  that  sum,  the  l^ank  making  no  payment 
except  for  receipted  claims  attached  to  the 
checks.  The  bond  provided  that  upon 
completion  of  work  by  the  surety  company 
it  would  be  entitled  to  all  sums  which  would 
have  been  due  or  become  due  the  contractor 
had  he  performed  the  contract.    The  city, 


95 


476-479] 


DIGEST  OF  LEGAL  OPINIONS 


over  the  protest  of  the  surety,  paid  the  bank 
in  full.  The  court  held  that  equity  required 
the  bank  and  the  city  to  account  to  the 
surety  for  the  difference  between  such  sum 
and  the  pro  rata  portion  thereof  for  which 
the  original  labor  and  material  men  would 
have  been  entitled  to  look  to  the  city  had 
they  retained  such  claims.  {Inquiry  from 
Mass.,  Dec,  1917.) 

Loan  to  hank  official 

476.  Opinion:  Section  12  of  New  Jersey 
Banldng  Act  which  prohibits  a  bank  from 
making  a  loan  to  an  officer  or  director  or 
clerk  until  certain  requirements  are  complied 
with  might  be  construed  to  apply  to  a  loan 
to  an  executor,  trustee  or  receiver  who  is  an 
officer  or  director  but  not  to  a  loan  to  a 
corporation  of  which  a  director  or  officer  of 
the  bank  was  an  officer  unless,  in  reality,  the 
officer  was  chief  beneficiary  of  such  loan. 
N.  J.  Banking  Act,  Sec.  12.  People  v. 
Knapp,  99  N.  E.  841.  {Inquiry  from  N.  J., 
Nov.,  1913,  Jl.) 

Custody  of  U.  S.  bonds  securing  15-day  loan 

477.  A  member  bank  received  advances 
from  a  Federal  Reserve  Bank  on  its  fifteen- 
day  notes,  secured  by  customers'  notes 
which  were  themselves  secured  by  Liberty 
Loan  bonds.  The  member  bank  asks 
whether  it  is  properly  the  custodian  of  the 
bonds.  Opinion:  The  Federal  Reserve 
Act  provides  for  advances  by  Federal  Re- 
serve Banks  to  member  banks  on  their 
fifteen-day  notes  secured  "by  the  deposit 
or  pledge  of  bonds  or  notes  of  the  United 
States."  When,  therefore,  a  Federal  Re- 
serve Bank  makes  advances  to  a  member 
bank  upon  its  fifteen-day  note  secured  by 
customers'  notes  which  are  themselves 
secured  bj^  Liberty  Bonds,  the  law  contem- 
plates that  the  bonds  shall  be  deposited  with 
the  Federal  Reserve  Bank  as  well  as  the 
customers'  notes  for  which  they  are  security, 
and  not  retained  by  the  member  bank. 
{Inquiry  from  N.  Y.,  May,  1918.) 

Limitation  on  loans  to  single  borrower 

Discount  of  trade  acceptance  in  Connecticut 

478.  A  bank  asks  what  amount  a  bank 
can  invest  in  trade  acceptances,  and  whether 
it  counts  against  a  man's  line  of  discount. 
Opinion:  The  Connecticut  statute  hmits 
loans  of  a  state  bank  or  trust  company  to 
any  one  borrower  to  10%  of  capital,  surplus 
and  undivided  profits;  except  that  loans 
secured  by  collateral  worth  20%  more  than 
the  loan  can  be  made  to  any  one  borrower 


up  to  20%.  The  Connecticut  law  contains 
no  provision  so  far  as  can  be  seen,  similar  to 
that  in  the  National  Bank  Act,  which  ex- 
cludes from  the  10%  limit  the  discount  of 
bills  of  exchange  drawn  against  actual 
existing  values  and  the  discount  of  commer- 
cial or  business  paper  actually  owned  by  the 
person  negotiating  the  same,  and  under 
which  the  holder  of  a  bona  fide  trade  accept- 
ance might  procure  its  discount  irrespective 
of  the  10%  limit  on  loans.  It  seems  under 
the  Connecticut  law  the  trade  acceptance 
of  A  held  by  B  and  offered  as  security  by  B 
for  a  loan,  might  be  discounted  for  B  up  to 
the  20%  limit.  If  in  any  case  the  acquiring 
of  a  trade  acceptance  by  a  bank  might  be 
deemed  a  purchase  thereof  as  an  investment 
and  not  a  loan  to  the  holder  then  it  would 
not  come  within  the  limitation  upon  money 
borrowed.  But  when  trade  acceptances  are 
discounted  by  a  bank  for  the  holder,  it 
appears  that  the  transaction  is  regarded  as 
a  loan  and  that  it  would  come  within  the 
limitations  imposed  by  law  upon  money 
borrowed  by  any  one  person.  {Inquiry 
from  Conn.,  June,  1920.) 

Interpretation  of  Idaho  20%  limit 

479.  A  bank  requests  an  interpretation 
of  Sec.  5260  of  the  Idaho  act,  respecting  the 
20%  limitation  on  loans  to  a  single  borrower. 
Opinion:  There  is  a  similar  provision  of  the 
National  Bank  Act  excluding  from  the  10% 
hmit  of  that  Act  "The  discount  of  bills  of 
exchange  drawn  in  good  faith  against  ac- 
tually existing  values  and  the  discount  of 
commercial  or  business  paper  actually 
owned  by  the  person  negotiating  the  same." 
It  has  been  ruled  that  a  bank  may  discount 
without  limit,  bills  of  exchange  drawn  by  the 
seller  of  commodities  upon  the  buyer  to 
which  are  attached  bills  of  lading  or  ware- 
house receipts  representing  the  goods,  or  the 
bank  may  make  advances  without  limit 
upon  "commercial  or  business  paper"  by 
discounting  notes  given  in  payment  for 
cotton,  grain  or  other  productions.  The 
Idaho  act  expressly  provides  that  the  20% 
limit,  (see,  also,  Sec.  13  of  Fed.  Reserve  Act) 
shall  not  apply  to  loans  made  on  warehouse 
receipts  and  bills  of  lading.  The  ruling 
above  referred  to  might  be  taken  as  a  guide 
to  what  may  be  considered  commercial 
paper  under  the  Idaho  law;  but  it  would 
seem  preferable  that  the  official  view  of  the 
Bank  Department  be  obtained.  {Inquiry 
from  Idaho,  July,  1920.) 


96 


BANKS  AND  BANKING 


[480-483 


Loan  limit  in  Illinois 

480.  A  bank  has  a  capital  and  surplus 
of  $450,000.  If  a  customer  is  maker  on  a 
S40,000  note,  secured  by  500  shares  of  high 
grade  stock,  is  maker  on  a  $15,000  note  with 
surety,  and  is  indorser  on  a  $15,000  note, 
would  this  paper  be  considered  an  excessive 
loan  according  to  Sec.  10  of  the  Banking 
Act?  Opinion:  Section  10  of  the  Illinois 
Banking  Act  fixes  a  loan  limit  to  a  single 
borrower  of  15%  of  capital  and  surplus  and 
the  loan  limit  of  the  bank  in  this  case  is 
$67,500.  The  aggregate  of  the  three  notes, 
on  two  of  which  the  bank's  customer  is 
maker  and  on  the  other  of  which  he  is  in- 
dorser, is  $70,000  and  this  would  exceed  the 
loan  limit  by  $2,500  unless  one  of  these 
notes  comes  within  the  exceptions  provided 
by  Section  10,  namely;  (1)  discount  of  bills 
of  exchange  drawn  against  actually  existing 
values.  None  of  the  notes  fall  within  this 
exception.  (2)  Discount  of  commercial  or 
business  paper  actually  owned  by  the  person 
negotiating  the  same.  If  the  note  on  which 
the  customer  is  indorser  falls  within  this 
class,  having  been  received  in  due  course  of 
business  and  indorsed  over  to  the  bank,  the 
loan  limit  would  not  apply  and  the  total 
of  loans  would  not  be  excessive.  The  charac- 
ter of  this  note  is  not  stated  and  if  the  cus- 
tomer is  accommodation  indorser  it  would  be 
within  the  loan  limit.  None  of  the  notes 
come  within  exceptions  (3)  and  (4)  to  Sec- 
tion 10  covering  evidences  of  debt  secured  by 
mortgage  or  by  live  stock.  There  is  also 
excluded  from  the  15%  limit  habihty  of  a 
borrower  secured  by  collateral  approved  by 
and  deposited  with  the  auditor  of  pubhc 
accounts  or  by  bond;  and  the  law  allows  a 
bank  to  file  a  bond  with  the  state  auditor  and 
obtain  a  permit  to  obtain  excessive  loans. 
The  conclusion  in  the  present  case  is  that 
the  loan  limit  would  be  exceeded  by  $2,500 
unless  the  note  upon  which  the  customer  is 
indorser  is  commercial  or  business  paper 
actually  owned  by  him,  or  unless  the  provi- 
sions as  to  collateral  security  or  bond  filed 
with  the  auditor  are  availed  of,  or  unless  the 
bank  is  granted  a  permit  to  exceed  the  loan 
limit.     {Inquiry  from  III.,  Aug.,  1919,  Jl.) 

Loan  limit  of  Kentucky  banks 

481.  If  a  customer  is  indebted  to  a  bank 
up  to  the  legal  hmit  under  Sec.  583,  Ken- 
tucky Statutes,  would  a  rediscount  of  his 
paper,  reducing  his  direct  indebtedness  to 
the  bank,  permit  the  bank  to  loan  the  cus- 
tomer additional  funds?  Neither  the  orig- 
inal debt  nor  the  proposed  increase  comes 


under  the  exceptions  in  the  last  clause  of 
the  Amendment  of  1918  to  Sec.  583.  Opin- 
ion: The  20  per  cent,  loan  limit  to  a  single 
borrower  provided  by  the  Kentucky  sta- 
tutes does  not  permit  a  bank,  after  loaning 
the  limit  to  a  borrower  and  rediscounting 
his  paper,  to  make  a  further  loan  to  the  same 
borrower  while  the  original  paper  remains 
unpaid.  The  fact  that  the  borrower's  paper 
has  been  rediscounted  does  not  extinguish 
his  liability  to  the  bank  thereon,  which 
exists  until  the  paper  is  paid.  See  Cunning- 
ham V.  Shellman,  (Ky.)  175  S.  W.  1045. 
Wickliffe  v.  Turner,  (Ky.)  157  S.  W.  1125. 
{Inquiry  from  Ky.,  Nov.,  1919,  Jl.) 

Guaranty  by  bank 

Guaranty  of  draft  of  third  person 

482.  A  state  bank  in  Kansas  wired  that 
it  would  guarantee  to  pay  a  draft  by  a 
drawer  in  Texas  upon  the  Blank  Produce 
Co.  in  Kansas  for  a  car  of  lemons.  Opinion: 
In  the  absence  of  express  authority  conferred 
by  statute,  a  l^ank  has  no  power  to  guarantee 
to  pay  the  draft,  it  being  a  transaction  in 
which  it  has  no  interest  and  from  which  it 
derives  no  substantial  benefit,  and  the  bank 
would  not  be  Hable  upon  the  draft.  First 
Nat.  Bk.  of  Moscow  v.  American  Nat.  Bk. 
of  Kansas  City,  173  Mo.  153.  Mine  & 
Smelter  Supply  Co.  v.  Stockgrowers  Bk., 
173  Fed.  859,  865.  Ayer  v.  Hughes,  69 
S.  E.  57.  Bacon  Farmers  Bk.,  79  Mo.  App. 
407.  Merchants  Bk.  of  Valdosta  v.  Baird, 
160  Fed.  642,  645.  {Inquiry  from  Kan., 
Aug.,  1913,  Jl.) 

483.  A  bill  of  lading  draft  was  drawn 
on  a  party  in  Mississippi  and  pa>Tnent  was 
guaranteed  by  a  Mississippi  bank.  The 
draft  was  marked  paid  and  the  bank  claimed 
to  have  fulfilled  its  guarantee,  but  the  pro- 
ceeds were  afterwards  attached  by  the  con- 
signee. Opinion:  The  draft  in  question 
was  a  bill  of  lading  draft  within  the  meaning 
of  the  Mississippi  statute,  which  requires 
the  collecting  bank  to  hold  the  proceeds  96 
hours  after  delivery  of  the  bill  of  lading  and 
not  an  ordinary  sight  draft  as  to  which  it 
should  have  remitted  immediately.  The 
bank  which  guaranteed  payment  fulfilled  its 
guarantee,  as  it  did  not  go  to  the  extent  of 
insuring  that  after  payment  the  proceeds 
would  be  paid  over  free  from  attachment; 
but  it  is  the  prevailing  theory  of  the  law  that 
it  is  not  competent  for  a  bank  to  bind  itself 
by  such  a  guarantee.  {Inquiry  from  Fla., 
Aug.,  1919,  JL) 


97 


484-488] 


DIGEST  OF  LEGAL  OPINIONS 


Guaranty  of  signature  to  stock  assignment 

484.  A  bank  guaranteed  the  signature 
to  an  assignment  of  a  stock  certificate  by 
using  the  words  "signature  guaranteed." 
duly  signed  by  a  quahfied  officer.  The  ques- 
tion concerns  the  extent  of  habihty  incurred 
by  a,  guaranty  of  signature.  Opinion:  As- 
suming a  case  where  the  bank  has  power  and 
the  officer  authority  to  make  the  guaranty,  it 
binds  the  bank  for  the  genuineness  of  the  sig- 
nature as  well  as  for  the  authority  of  the 
person  signing  when  the  signature  is  made 
by  a  representative;  but  does  not  extend  to 
warranting  the  validity  of  the  acts  of  the 
person  whose  signature  is  guaranteed  with 
reference  to  the  use  of  the  certificate.  Mc- 
Kinnon  v.  Boardman,  170  Fed.  920.  John- 
ston V,  Schnabaum,  86  Ark.  82.  Second 
Nat.  Bk.  V.  Curtiss,  153  N.  Y.  681.  {In- 
quiry from  N.  Y.,  June,  1915,  Jl.) 

Bank  as  bondsman  for  non-resident 
correspondent 

485.  It  is  asked  whether  it  is  usual  for  a 
bank  to  furnish  bond  for  costs  of  suit  in 
collecting  note  when  requested  by  another 
bank  and  whether  there  is  any  breach  of 
courtesy  in  refusing.  Opinion:  The  giving 
of  bonds  in  attachment  or  replevin  suits 
or  the  like  is  often  done  by  a  bank  for 
another  bank,  especially  where  banks  have 
reciprocal  correspondence  relations.  At  the 
same  time,  where  one  bank  is  stranger  to 
another,  there  is  no  breach  of  courtesy  in 
refusing  to  furnish  bond,  and  such  refusals 
are  often  made,  especially  since  the  advent 
of  surety  companies,  part  of  whose  business 
it  is  for  a  stipulated  premium  to  furnish 
bonds  in  cases  of  this  kind.  A  further  con- 
sideration is  that  national  and  state  banks 
are  without  power  to  bind  themselves  by  the 
execution  of  such  bonds  in  suits  in  which 
they  have  no  pecuniar^'-  interest  and,  if  the 
bond  is  to  be  worth  anything,  it  must  be 
executed  by  the  bank  officer  individually, 
which  is  undersirable.  See  "Power  of  na- 
tional bank  to  go  on  bond  in  attachment 
suit  and  personal  hability  of  cashier."  2 
Bank.  L.  J.  88;  "Cashier's  Risks  in  Execution 
of  Indemnity  Bonds"  4  B.  L.  J.  69.  {In- 
quiry from  Wyo.,  Oct.,  1914') 

Guaranty  of  payment  of  post-dated  check 

486.  A  gives  B  a  post-dated  check.  B 
writes  the  bank  in  regard  thereto  and  the 
cashier  mails  a  written  guarantee  to  B  that 
the  check  will  be  paid  when  due.  Opinion: 
The  cashier  by  virtue  of  his  office  had  no 
authority  to  bind  the  bank  by  guaranteeing 


payment  of  the  check  before  its  due  date 
and  the  bank  is  not  bound.  Clarke  Nat.  Bk. 
Bk.  of  Albion,  52  Barb.  (N.  Y.)  592.  {Inquiry 
from  Okla.,  Oct.,  1915,  Jl.) 

Indemnity  hand  covering  risk  of  unauthorized 
indorsements 

487.  A  bank  receives  a  large  volume  of 
checks  and  drafts  payable  to  certain  clients 
of  an  attorney,  who  indorses  them  for  de- 
posit in  his  personal  account.  A  bond  of 
indemnity  will  secure  the  bank  against  loss 
by  reason  of  a  possible  unauthorized  in- 
dorsement by  the  attorney.  For  suggested 
form  of  bond  see  5  A.  B.  A.  Jl.  445.  {Inquiry 
from  Minn.,  Jan.,  1913,  Jl.) 

Banks  as  depositaries 

Funds  of  county 

488.  A  bank  states  that  at  the  May  term 
of  the  County  Court,  1913,  it  was  the  suc- 
cessful bidder  for  the  county  funds,  for  a 
term  of  two  years;  that  the  statute  provides 
that  the  clerk  of  the  court  shall  advertise 
for  the  letting  of  the  county  funds  at  least 
20  days  prior  to  the  time  of  selecting  such 
depositary,  in  a  newspaper  published  in  the 
county;  that  the  clerk  failed  to  cause  such 
publication  to  be  made.  The  bank  asks 
whether  in  view  of  such  failure  the  court  has 
power  to  compel  the  bank  to  continue  to 
pay  interest  on  the  fund;  and  also  asks 
whether  said  court  could,  without  adver- 
tisement for  bids  as  provided  by  statute 
take  the  funds  out  of  its  hands  and  give 
them  to  a  new  depositary  who  might  bid  for 
same.  Opinion:  It  seems  notwithstanding 
the  expiration  of  the  bank's  two  year  term 
as  county  depositary,  if  it  continued  to  use 
and  hold  the  county  funds  there  would  be  a 
liability  for  interest.  True,  the  bank's  bid 
or  promise  to  pay  interest  was  only  for  two 
years  and  at  the  date  of  expiration  the  bank 
was  ready  to  pay  over  the  money  to  its 
successor,  there  being  no  successor  owing  to 
the  failure  of  the  clerk  to  advertise  for  bids. 
But  the  statute  would  seem  to  contemplate 
that  the  depositary  shall  so  remain  until  a 
successor  is  duly  appointed.  It  seems  that 
if  the  bank  continued  to  hold  the  funds  and 
act  as  depositary,  the  liability  for  interest 
would  continue,  but  possibly  the  interest 
might  be  stopped  by  a  tender  of  the  funds  to 
the  proper  county  officer  or  a  notice  that 
funds  were  held  ready  to  be  turned  over  at 
any  time.  Concerning  the  further  question, 
whether  the  County  Court  could,  without 
advertisement  for  bids  as  provided  by  the 
statute,  take  the  funds  out  of  the  bank's 


98 


BANKS  AND  BANKING 


[489-495 


hands  and  give  them  to  a  new  depositary, 
etc.,  the  answer  cannot  be  positively  stated 
until  the  Missouri  Supreme  Court  shall 
construe  the  same  upon  the  points  involved. 
{Inquiry  from  Mo.,  July,  1915.) 

Postal  savings 

4S9.  State  banks  which  are  non- 
members  of  the  Federal  reserve  system  may 
be  depositories  of  postal  savings  funds  under 
certain  specified  conditions,  namely,  if  mem- 
ber banks  fail  to  qualify  to  receive  such  de- 
posits or  in  the  event  there  are  no  member 
banks  in  the  same  city;  otherwise,  where 
there  are  one  or  more  member  banks  in  the 
city  where  postal  savings  deposits  are  made, 
the  law  provides  that  such  deposits  shall  be 
placed  in  such  qualified  member  banks. 
Fed.  Res.  Act,  Sec.  15.  Postal  Sav.  Act, 
Sec.  2.     {Inquiry  from  III.,  Nov.,  1917.) 

Note:  The  law  at  the  present  time  re- 
mains unchanged. 

Deposits  of  state  tnemher  with  non-memher 
state  bank 

490.  A  bank,  not  a  member  of  the  Fed- 
eral Reserve  System,  states  that  the  Federal 
Reserve  Bank  has  notified  state  bank  mem- 
bers that  they  will  not  be  permitted  to 
carry  balances  with  the  non-member  bank 
in  excess  of  10  per  cent,  of  capital  and  sur- 
plus. Is  this  ruling  correct?  Opinion: 
It  seems  that,  in  view  of  the  provisions  of  the 
Federal  Reserve  Act  (Sees.  9  and  19),  the 
ruling  is  clearly  supported  by  the  law  and 
is  not  an  arbitrary  or  unwarranted  ruling 
of  the  Federal  Reserve  Board  or  the  Federal 
Reserve  Bank.  {Inquiry  from  Texas,  Oct., 
1919.) 

State  member  banks  as  government  depositaries 

491.  Is  it  possible  for  a  state  bank,  being 
a  member  of  the  Federal  Reserve  System,  to 
become  a  United  States  depositary?  Opin- 
ion: The  Federal  statutes,  as  officially 
interpreted,  do  not  confer  the  power  upon 
the  Secretary  of  the  Treasury  to  designate 
state  banks  members  of  the  Federal  Reserve 
System  as  Government  depositaries,  except 
for  postal  savings  funds,  the  proviso  to  Sec. 
15  of  the  Federal  Reserve  Act  that  nothing 
in  the  Act  "shall  be  construed  to  deny  the 
right  of  the  Secretary  of  the  Treasury  to  use 
member  banks  as  depositaries"  not  being 
construed  as  affirmatively  vesting  such 
right  in  the  Secretary.  Legislation  recom- 
mended by  the  A.  B.  A.  was  introduced  in 
the  66th  Congress  (H.  R.  11918)  to  make 
state   bank  and   trust   company  members 


eligible.    {Inquiry  from  W.  Va.,  Dec.,  1920, 
Jl.) 

Duty  as  between  customer  and  public 

General  duty  of  secrecy  as  to  customer's  affairs 

492.  The  banking  law  of  Connecticut 
does  not  prohibit  a  bank  official  from  giving 
information  that  a  certain  person  has  an 
account  in  the  bank,  whether  it  be  a  savings 
or  commercial  account,  and  provides  no 
penalty  for  the  giving  of  such  informa- 
tion. Relation  of  banker  aad  customer 
creates  duty  of  secrecy,  and  banker  should 
not  disclose  information  as  to  account  or 
affairs  of  customer,  except  under  legal  com- 
pulsion; but  in  absence  of  statute,  no  legal 
consequences  would  follow  breach  of  this 
duty  by  banker  except  a  possiljle  liability 
in  damages  in  case  customer  could  prove 
injury.  Hardy  v.  Veasey,  3  L.  R.  Exch.  107 
(Eng.).  Foster  v.  Bk.  of  London,  3  Falc.  & 
F.  214  (Eng.)  In  re  Davies,  68  Kan.  791. 
{Inquiry  from  Conn.,  Sept.,  1914,  JI-) 

Compulsory  disclosure  of  customer's  balance 
for  tax  purposes,  etc. 

493.  The  Collector  of  Internal  Revenue, 
who  is  authorized  "to  take  evidence  touching 
any  part  of  the  administration  of  Internal 
Revenue  Laws,"  would  presumably  be 
acting  within  the  scope  of  his  authority  if 
in  a  given  case  he  required  a  bank  officer  to 
give  information  whether  or  not  a  depositor's 
check  was  paid.  {Inquiry  from  La.,  July, 
1910,  Jl.) 

494.  A  tax  assessor  being  a  director 
in  a  rival  concern  demanded  of  a  bank 
that  it  furnish  a  statement  of  the  names  of 
its  stockholders  with  the  number  of  shares 
held  by  each,  under  penalty,  the  information 
probably  to  be  used  by  the  assessor  to  an  un- 
fair advantage.  Opinion:  The  bank  was 
obliged  to  make  the  required  statement,  and 
the  assessor  could  be  removed  if  found 
guilty  of  using  the  information  in  an  im- 
proper way.  People  v.  Feltner,  191  N.  Y. 
188.     (Inquiry  from  N.  Y.,  July,  1912,  Jl.) 

495.  The  depositor  of  a  bank  made  re- 
turns to  a  tax  assessor  which  did  not  suit  the 
officer.  The  assessor  attempted  to  get 
information  from  the  bank  concerning  the 
depositor's  balance.  Opinion:  Decisions 
protect  bank  officers  from  being  compelled  to 
make  disclosure  of  names  of  depositors  in 
gross  and  amounts  of  their  deposits  for  pur- 
poses of  taxation — but  in  a  proper  proceed- 
ing against  one  or  more  depositors,  specified 
by  name,  a  l)ank  officer  is  not  privileged  to 


99 


496-500] 


DIGEST  OF  LEGAL  OPINIONS 


refuse  to  produce  books  and  testify  as  to  bal- 
ances of  such  depositors.  First  Nat.  Bk.  v. 
Hughes,  6  Fed.  737.  U.  S.  Rev.  Stat.,  Sec. 
5241.  First  &  Second  Nat.  Bks.  v.  Auditor 
of  Mahoning  Co.,  5  Cin.  Law  Bui.  515. 
Decher  v.  Langenberg — Superior  Ct., 
Marion  Co.,  Ind.,  Oct.  1891.  In  re  Davis, 
68  Kan.  791.  Loyd  v.  Freshfield,  2  C.  &  P. 
325  (Eng.),  Interstate  Commerce  Com- 
mission V,  Harriman,  157  Fed.  432.  In  re 
Lathrop,  Haskins  &  Co.,  184  Fed.  534. 
{Inquiry  from  Pa.,  Feb.,  1913,  Jl.) 

496.  In  a  proper  legal  proceeding  against 
a  customer,  the  bank's  ofl&cer  can  be  com- 
pelled to  state  the  amount  of  his  balance, 
the  information  not  being  privileged  in  a 
legal  sense.  This  case  is  differentiated  from 
those  where  the  wholesale  disclosure  of 
all  of  the  depositors'  balances  is  sought  for 
tax  purposes,  wherein  the  right  to  compel 
disclosure  has  been  denied.  Loyd  v.  Fresh- 
field,  2  C.  &  P.  325  (Eng.).  Morse  on  Bank- 
ing, Sec.  294  a.  In  re  Davies,  68  Kan.  791. 
{Inquiry  from  Va.,  Dec,  1913,  Jl.) 

Disclosure    of   customer's   balance   to   check- 
holder 

497.  Where  a  check  was  presented  and 
refused  for  insufficient  funds,  the  bank  is 
not  obliged  to  disclose  the  amount  to  the 
credit  of  the  customer  by  making  part 
payment  nor  to  receive  from  the  holder  or 
anyone  other  than  the  drawer  or  his  agent,  a 
deposit  sufficient  to  make  the  check  good. 
Hardy  v.  Veasey,  3  L.  R.  Ex.  107.  Fos- 
ter V.  Bk.  of  London,  3  F.  &  F.  214.  Dana 
V.  Third  Nat.  Bk.,  13  Allen  (Mass.)  445. 
Harrington  v.  First  Nat.  Bk.,  85  111.  212. 
Bromely  v.  Commercial  Nat.  Bk.,  9  Phila. 
522.    {Inquiry  from  La.,  May,  1915,  Jl.) 

Investigation  of  private  affairs  by 
Congressional  Committee 

498.  The  Committee  on  Banking  and 
Currency  of  the  House  of  Representatives 
required  the  state  banks  and  trust  com- 
panies to  fill  out  certain  blanks  in  answer  to 
various  questions  concerning  the  private  af- 
fairs of  the  institution.  For  example,  the  in- 
vestigation called  for  a  list  of  the  oflicers, 
directors  and  stockholders,  their  stock- 
holdings and  loans,  description  of  securities 
held,  the  dates  and  amounts  of  paper  in- 
dorsed for  others,  a  list  of  borrowers,  etc. 
Opinion:  Grave  doubt  as  to  jurisdiction 
of  House  of  Representatives  or  power  of  com- 
mittee to  investigate  private  affairs  of  state 
banks  and  trust  companies — questions  of  ju- 
risdiction considered  in  light  of  Federal  deci- 


sions and  4th  and  5th  Amendments — further 
question  as  to  invasion  of  state  rights — con- 
clusion that  general  inquiry  by  a  Congres- 
sional Committee  into  the  affairs  of  all  banks 
of  a  state  is  probably  beyond  jurisdiction  of 
House  of  Representatives  to  authorize,  and 
that  national  banks  are  not  subject  to  pro- 
posed investigation  in  view  of  provision  of 
National  Bank  Act  hmiting  visitorial  powers. 
Kilbourne  v.  Thompson,  103  U.  S.  168.  An- 
derson V.  Dunn,  6  Wheat.  204.  Interstate 
Commerce  Commission  v.  Brimson,  154 
U.  S.  447.  U.  S.  Constitution,  4th  and  5th 
amendments.  Boyd  v.  U.  S.,  116  U.  S.  616. 
U.  S.  Rev.  Stat.,  Sec.  102.  {Inquiry  from 
Ky.,  June,  1912,  Jl.) 

Liability  for  misrepresentation  of 
customer's  financial  condition 

Mistaken  statement  that  drawer  has  no  account 

499.  The  holder  of  a  check  makes 
inquiry  of  drawee  over  the  telephone  as  to 
drawer's  account,  and  because  of  defective 
wire  the  inquiry  is  understood  to  refer  to  a 
different  person  and  answer  is  made  that  the 
party  has  no  account,  which  leads  to  appre- 
hension of  drawer  whose  check  is  good. 
Opinion:  The  drawee  is  not  liable  to  deposi- 
tor in  action  for  slander,  nor  to  inquiring 
bank,  in  case  the  latter  is  held  liable  in 
damages  to  the  drawer.  Cal.  Civ.  Code, 
Sec.  46,  Subdiv.  3.  Swan  v.  Thompson, 
124  Cal.  193.  Rea.  v.  Wood,  105  Cal.  314. 
{Inquiry  from  Cal.,  Dec,  1916,  Jl.) 

False  overstatement  of  assets 

500.  In  response  to  an  inquiry  by  an 
Iowa  bank  concerning  the  financial  condition 
of  its  customer,  a  Georgia  bank  by  its 
officer  returned  words  of  general  and 
pointed  praise  and  specifically  stated  that  the 
customer  "is  worth  approximately  $20,000 
and  we  are  sure  a  note  for  $600  on  him  is 
perfectly  good  and  collectible."  These  state- 
ments, which  proved  false,  were  rehed  upon 
to  the  injury  of  the  Iowa  bank  in  extending 
credit  to  its  customer.  Opinion:  The 
Georgia  bank  was  not  liable  for  the  unauthor- 
ized act  of  its  officer,  unless  the  bank  derived 
some  benefit,  but  the  officer  is  personally 
Hable  for  damages  in  an  action  for  deceit. 
The  authorities  generally  support  the  view 
that  the  making  of  statements  as  to  the 
financial  responsibility  of  customers  is  no 
part  of  the  banking  business  and  that  a  bank 
officer  has  no  authority  to  make  such  state- 
ments on  behalf  of  the  bank  and  does  not 
bind  the  bank  thereby,  except  that  where 
the  bank  has  profited  by  the  false  statement 


100 


BANKS  AND  BANKING 


[501-503 


it  will  be  held  liable,  although  such  Hability 
has  been  denied  in  some  cases.  For  a  review 
of  the  law  applicable  to  the  recovery  of 
damages  for  false  statements,  see  6  A.  B.  A. 
Jl.  204.  Henry  V.  Allen,  93  Ala.  197.  Einstein 
V.  Marshall,  58  Ala.  153.  Goodale  v.  Mid- 
daugh,  8  Colo.  App.  223.  Endsley  v.  Johns, 
120  111.  469.  Bowen  v.  Carter,  124  Mass. 
426.  Beebe  v.  Knapp,  28  Mich.  53.  Hamhn 
v.  Abell,  120  Mo.  188.  Hancock  v.  Osmer, 
153  N.  Y.  604.  Weeks  v.  Burton,  7  Vt.  67. 
Shaw  V.  Gilbert,  111  Wis.  165.  Bush  v.  Wil- 
cox, 82  Mich.  315.  Holcomb  v.  Noble,  69 
Mich.  396.  Bauer  v.  Taylor,  98  N.  W.  (Neb.) 
29.  Watson  v.  Baker,  71  Tex.  739.  Krouse  v. 
Busacker,  105  Wis.  350.  1  Cooley,  Torts  501. 
J  Brooks  V.  Hamilton,  15  Minn.  31.  Lynch 
:  V.  Tr.  Co.,  18  Fed.  486.  Caldwell  v.  Henry, 
i  76  Mo.  254.  Cooper  v.  Schlesinger,  1 1 1  U.  S. 
148.  Montgomery  So.  R.  R.  Co.  v.  Mat- 
thews, 77  Ala.  357.  Thompson  v.  Phenix 
Ins.  Co.,  75  Me.  55.  Birdsey  v.  Butterfield, 
34  Wis.  52.  Crawford  v.  Boston  Store 
Mercantile  Co.,  67  Mo.  App.  39.  Horrigan 
v.  First  Nat.  Bk.,  56  Tenn.  137.  First  Nat. 
Bk.  V.  Marshall  &  Ilsley  Bk.,  83  Fed.  725. 
Taylor  v.  Commercial  Bk.,  174  N.  Y.  181. 
Nevada  Bk.  v.  Portland  Nat.  Bk.,  59 
Fed.  338.  Liggett  v.  Levy,  136  S.  W. 
(Mo.)  299.  Binghamton  Tr.  Co.  v.  Auten, 
68  Ark.  299.  American  Nat.  Bk.  v.  Ham- 
mond, 25  Colo.  367.  {Inquiry  from  Iowa, 
Sept.,  1913.) 

Publication  of  debtors  in  delinquent 
book  of  collection  agency 

501.  A  collection  agency  which  publishes 
in  a  "dehnquent  book"  the  names  of 
debtors  against  whom  it  holds  claims  for 
collection  would  be  subject  to  action  for  libel, 
and  a  bank  furnishing  to  such  agency  the 
names  of  certain  of  its  debtors,  with  author- 
ity and  intention,  if  the  debts  are  not  paid, 
that  such  names  be  so  published,  would  be 
likewise  responsible.  Nettles  v.  Somerville, 
6  Tex.  Civ.  App.  627.  White  v.  Parks,  93 
Ga.  633.  Masters  v.  Lee,  39  Neb.  374. 
Muetze  v.  Tutner,  77  Wis.  236.  Cleveland 
Retail  Grocers'  Assn.  v.  Exton,  18  Ohio  Civ, 
Ct.  145.  Patterson  v.  Evans,  134  S.  W. 
(Mo.)  1030.  {Inquiry  from  Iowa,  Dec, 
1916,  Jl.) 

Circulation  of  unofficial  statement 
of  condition 

502.  Two  banks  are  located  in  the 
same  town,  and  the  State  Bank  Department 
called  for  reports  for  March  4,  1919.  Both 
banks     filed     reports     as    requested    and 


published  same  in  the  local  paper.  The 
other  local  bank  distributed  condensed 
statements  to  the  public  as  late  as  March 
20,  1919.  The  bank  asks  whether  these 
statements  so  distributed  by  the  other  bank 
should  not  have  been  sent  out  on  March  4, 
1919,  the  date  fixed  for  filing.  Opinion:  It 
is  impossible  to  see  how  the  second  bank  can 
be  prevented  from  circulating  a  statement 
showing  its  condition  at  a  later  date  than 
that  on  which  its  official  report  called  for 
by  the  Department  was  made  and  pubfished, 
provided  there  was  no  misrepresentation 
to  the  public  in  so  doing.  The  injury  to  the 
first  bank  comes  from  the  unequal  com- 
parison, the  first  bank  pubHshing  and 
circulating  its  report  as  of  the  official  date 
when  resources  were  lower  than  at  the 
later  date,  while  the  second  bank  takes 
advantage  of  an  increase  of  resources  and 
makes  an  additional  report  of  its  condition 
at  a  later  date.  It  seems  the  only  way  for 
the  first  bank  to  counteract  this  is  to  do  the 
same  thing.  {Inquiry  from  Ark.,  April, 
1919.) 

Injury  to  customer  on  premises 
503.  An  elderly  lady,  a  patron  of  the 
bank,  went  to  the  rear  of  the  bank  and 
asked  an  employee  for  a  drink  of  water. 
She  was  asked  to  wait  in  the  safe-deposit 
room  while  the  employee  went  for  a  drinking 
cup.  In  the  interim  the  old  lady  opened  a 
door  leading  from  the  safe  deposit  room  to  a 
darkened  wash  room,  used  only  by  em- 
ployees of  the  bank.  She  apparently  was 
searching  for  an  electric  light  switch  to  turn 
on  the  light,  and  in  so  doing  fell  down  a 
flight  of  stairs  leading  to  the  basement,  and 
was  injured.  Bank  desires  to  know  if  it  is 
hable  for  damages  for  any  injuries  sustained 
by  this  old  woman.  Opinion:  Where  a 
customer  of  a  bank  was  injured  in  the 
manner  related  above,  having  gone  into  the 
wash  room  without  invitation,  either  ex- 
press or  implied,  she  was  not  an  invitee  but 
a  mere  hcensee  (N.  W.  El.  R.  Co.  v.  O'Malley, 
107  111.  App.  599)  as  to  whom  the  owner  of 
the  premises  owed  no  duty  as  to  the  condi- 
tion of  the  premises,  unless  imposed  by 
statute  (Rhode  v.  Duff,  208  Fed.  115. 
Scoggins  V.  Cement  Co.,  179  Ala.  213,  60 
So.  175.  Purtell  v.  Coal,  etc.,  Co.,  256  111. 
110,  99  N.  E.  899.  Wilnas  v.  R.  Co.,  175 
Iowa  101.  Austin  v.  Baker,  112  Me.  267. 
Dickie  v.  Davis,  217  Mass.  25,  104  N.  E. 
567.  Bryant  v.  R.  Co.,  181  Mo.  App.  189. 
Barry  v.  Calvary,  etc.,  Assn.,  65  N.  J.  L. 
378.  Larmore  v.  Crown  Point  Iron  Co., 
101  N.  Y.  391.    Schiffer  v.  Sauer  Co.,  238 


101 


504-506] 


DIGEST  OF  LEGAL  OPINIONS 


Pa.  St.  550.  Machine  Co.  v.  Fryar,  132 
Tenn.  612.  Lumber  Co.  v.  Gresham 
[Tex.]  151  S.  W.  847)  save  that  he  should 
not  knowingly  let  her  run  upon  a  hidden 
peril  (Vanderbeck  v.  Hendry,  34  N.  J.  L. 
467.  Cosgrove  v.  Hay,  54  Pa.  Super.  Ct., 
175.  Buhler  v.  Daniels,  18  R.  I.  563),  or 
wantonly  or  wilfully  to  cause  her  harm 
(Gibson  v.  Leonard,  143  111.  182.  Patnode  v. 
Foote,  138  N.  Y.  S.  221.  R.  Co.  v.  Little- 
john,  44  Okla.  8,  143  Pac.  1.  Kay  v.  Penn. 
R.  Co.,  65  Pa.  St.  269.  Cameron  v.  Polk 
[Tex.]  177  S.  W.  1178.  Kroeger  v.  Const. 
Co.,  83  Wash.  68,  145  Pac.  63.  Strough  v. 
R.  R.  Co.,  209  Fed.  23),  and  as  to  whom  the 
bank  is  not  liable  in  damages  for  the 
injuries  sustained.  (Louisville  etc.  R.  Co.  v. 
Sides,  129  Ala.  399.  Robinson  v.  Md. 
Coal  &  Coke  Co.  [Ala.  1916],  72  So.  161. 
Etheridge  v.  Ga.  R.  Co.,  122  Ga.  853. 
Graham  v.  Pocasset  Mfg.  Co.,  220  Mass. 
195.  Hutchinson  v.  Cleveland,  etc..  Works, 
141  Mich.  346.  Mazey  v.  Loveland,  133 
Miam.  210,  158  N.  W.  44.  PhilHps  v. 
Burlington  Library  Co.,  55  N.  J.  L.  307. 
Flannagan  v.  Atlantic  etc.  Co.,  56  N.  Y.  S. 
18.  Quantz  v.  South  Ry.  Co.,  137  N.  C. 
136.  Nashville,  etc.,  R.  Co.  v.  Lovejoy,  138 
Tenn.  492.  198  S.  W.  61.  Slough  v.  Ragley 
Lumber  Co.  [Tex.]  76  S.  W.  779.  Pierce  v. 
Whitcomb,  48  Vt.  127.  Peake  v.  Buell, 
90  Wis.  508.  Rhode  v.  Duff,  208  Fed.  115). 
{Inquiry  from  Ariz.,  April,  1920,  Jl.) 

Savings  bank  and  commercial  bank 
in  same  room 

504.  New  York  legislation  prohibits  the 
doing  of  business  in  the  same  room  by  a 
bank  and  a  savings  bank.  Massachusetts 
legislation  includes  the  foregoing  and  further 
prohibits  officers  of  savings  bank  from  being 
officers  of  other  banks.  N.  Y.  Banking 
Law,  Sec.  26,  Subdiv.  7.  Mass.  Acts  of 
1908,  Sees.  19  and  20,  Ch.  590.  {Inquiry 
from  Ind.,  Feb.,  1911,  Jl.) 

By-laws  and  resolutions 

505.  A  bank  submits  several  questions 
as  to  the  meaning  of  by-laws  and  resolutions, 
the  purport  of  which  clearly  appears  below. 
Opinion:  1.  A  by-law  is  a  rule  or  regula- 
tion established  by  a  corporation  as  one  of 
the  incidents  of  its  existence,  for  its  internal 
government  or  for  the  government  of  its 
affairs  as  among  themselves.  (1  Thomp. 
Corp.  Sec.  935.)  It  is  distinguished  from 
a  resolution  which  is  directed  to  the  attain- 
ment of  a  particular  object  in  a  given  cause. 
A  resolution,  it  has  been  said,  is  not  necessa- 


rily a  by-law,  although  a  by-law  may  be  in 
the  form  of  a  resolution.  Drake  v.  Hud. 
R.  R.  Co.,  7  Barb.  (N.  Y.)  508.  2.  By  the 
principles  of  the  common  law  every  cor- 
poration aggregate  possesses  the  inherent 
power  to  make  all  necessary  rules  and 
regulations  for  its  government  and  opera- 
tion, although  such  power  may  not  be 
expressly  conferred  in  its  charter,  in  the 
statute  of  its  creation,  or  in  any  other 
statute.  (Bornstein  v.  I,  0.  0.  B.,  2  Cal. 
App.  624.  People  v.  Erie  Co.  Med.  Soc, 
24  N.  Y.  570  and  there  are  similar  decisions 
in  various  states.  3.  The  rule  is  well 
recognized  that  by-laws  which  are  contrary 
to  the  charter  or  governing  statute  of  the 
corporation  are  void.  (Brewster  v.  Hartley, 
37  Cal.  15.  New  Orleans  v.  PhiHppi,  9 
La.  Ann.  44  and  other  cases).  4.  The 
by-laws  or  regulations  authorizing  com- 
mittees of  a  bank,  generally  prescribe  their 
personnel.  The  inherent  powers  of  the 
president  of  a  bank  are  very  limited  and 
most  of  the  powers  are  conferred  on  him  by 
the  directors  or  usage  of  the  bank.  It  is 
doubtful  that  it  would  be  held  that  the 
president,  ex  officio,  is  a  member  of  all 
standing  committees  of  the  bank.  {Inquiry 
from  La.,  Sept.,  1916.) 

Reserve  against  savings  deposits 

506.  Under  the  banking  law  of  Wash- 
ington (Rem.,  Bal.  Annot.  Codes  &,  Stat., 
1910,  sec.  3343)  all  banks  are  required  to 
maintain  a  reserve  of  twenty  per  cent,  of 
their  demand  liabilities.  The  state  examiner 
holds  savings  deposits  to  be  demand  liabilities 
and  the  banks  carrying  savings  deposits 
question  this  ruling,  for  while  savings  de- 
posits are  in  a  sense  demand  liabilities,  they 
can  be  held  subject  to  notice  of  withdrawal. 
Opinion:  A  construction  of  the  law  that  a 
savings  deposit  subject  to  notice  is  not  a 
demand  liabihty  is  not  unreasonable  in  view 
of  the  purpose  for  which  reserve  is  required. 
The  opinion  of  the  Attorney  General  should 
be  requested  construing  the  law,  or,  in  the 
event  of  an  unfavorable  opinion,  the  banking 
law  should  be  amend-ed  expressly  providing  a 
separate  and  smaller  reserve  against  savings 
deposits.  The  ordinary  demand  for  such 
deposits  does  not  warrant  such  a  high 
percentage  of  reserve,  and  the  bank  is 
protected  by  its  right  to  require  notice  of 
withdrawal.  Wash.  Code  (Rem-Bal),  Sec. 
3343.    {Inquiry  from  Wash.,  April,  1912,  Jl.) 

Note:  The  banking  law  of  Washington 
has  been  amended  (1915)  so  as  to  read: 
"Every    bank    and    trust    company    doing 


102 


BANKS  AND  BANKING 


[507-510 


business  under  this  act,  shall  have  on  hand 
at  all  times  in  available  funds,  not  less  than 
fifteen  per  cent.  (15%)  of  its  total  de- 
posits." (Chap.  35,  Sec.  6.)  By  Chapter 
80  Laws  1917  this  section  is  made  inapplica- 
ble to  banks  and  trust  companies  which  are 
members  of  the  Federal  Reserve  System. 
Chapter  175,  Sec.  20,  Laws  of  1915  as  to 
reserves  of  mutual  savings  banks  provides 
that  every  mutual  savings  bank  "may  keep 
on  hand  or  on  deposit  with  any  bank  or 
trust  company"  in  Washington  "not  ex- 
ceeding 20%  of  the  aggregate  amount 
credited  to  its  depositors." 

Maturity   of  certificates   of  deposit   of 
liquidated  bank 

507.  Does  the  dissolution  or  absorption 
of  one  bank  by  another  cause  its  outstanding 
certificates  of  deposit  to  mature?  Is  the 
state  bank  commissioner  liable  under  his 
bond  for  allowing  the  surrender  of  the 
charter  before  payment  of  an  unmatured 
certificate  of  deposit?  Opinion:  The  status 
of  a  hquidated  bank  is  illustrated  by  Wilson 
V.  First  State  Bank,  95  Pac.  404,  decided 
under  the  Kansas  statute.  It  was  held  that, 
notwithstanding  a  bank  had  gone  into 
voluntary  liquidation,  paid  off  its  depositors 
surrendered  its  certificate  of  authority  and 
ceased  to  transact  any  business  except  to 
collect  debts  and  distribute  the  proceeds 
among  its  stockholders,  it  nevertheless 
continued  to  exist  as  a  banking  corporation, 
authorized  to  sue  on  a  note  due  it. 

Whether  voluntary  liquidation  and  ab- 
sorption matures  the  bank's  outstanding 
unmatured  certificates  of  deposit  has  not 
been  decided.  It  is  doubtful  if  this  result 
follows  where  there  is  no  question  of  set-off 
of  mutual  debts.  Suppose,  for  instance, 
the  unmatured  certificate  carried  a  high  rate 
of  interest  which  the  holder  desired,  continued 
until  maturity,  it  is  doubtful  if  the  bank  by 
its  voluntary  action  could  hasten  the 
maturity  of  the  certificate.  And  equally,  it 
would  seem  the  holder  cannot  call  for 
payment  before  the  date  of  maturity, 
where,  however,  there  is  danger  that  before 
maturity  the  assets  will  be  distributed  and 
ultimate  payment  endangered,  equity  will 
preserve  the  assets  by  appointment  of  a 
receiver.  In  assets  Realization  Co.  v. 
Howard,  127  N.  Y.  Supp.  798,  it  is  held 
that  where  one  bank  agrees  to  liquidate 
another  and  guarantees  the  liquidated  bank 
from  loss,  the  latter  is  not  released  from 
Uability.  See  Overstreet  v.  Citz.  Bank,  12 
Okla.  383,  holding  that  a  bank  desiring  to 
go  out  of  business  may  transfer  its  accounts 


to  another  bank  and  pay  its  depositors  with 
borrowed  money  and  pledge  its  assets  for 
that  purpose. 

Where  bank  commissioner  acts  in  good 
faith  on  suflScient  prima  facie  affidavits  in 
allowing  a  surrender  of  the  charter,  he  is  not 
liable  on  his  bond.  {Inquiry  from  Okla., 
July,  1913.) 

Books  and  records 

Production  of  books  and  records  in  court 

508.  In  a  suit  by  a  bank  against  a 
depositor,  the  defense  requested  the  bank 
to  produce  its  books  and  records  from  1890 
to  date  for  the  use  of  the  defendant's  at- 
torney for  such  time  as  he  may  take  to  pre- 
pare his  defense.  Upon  the  bank's  refusal 
the  defendant  proposes  to  serve  the  process 
of  subpoena  duces  tecum.  Opinion:  In  suit 
by  bank  against  depositor,  bank  officerserved 
with  subpoena  duces  tecum  must  produce 
books  called  for  containing  evidence  relating 
to  transaction,  in  absence  of  statute  permit- 
ting authenticated  copy — but  if  subpoena  is 
unreasonable  in  its  requirements  bank  may 
be  protected  under  the  search  and  seizure 
clause  of  the  Fourth  Amendment  to  the 
Federal  Constitution.  Murphy  v.  Russell, 
8  Ida.  133.  In  re  Sheppard,  3  Fed.  12. 
Beebe  v.  Equitable  Mutual  Life  Ins.  Co., 
76  Iowa  129.  U.  S.  v.  St.  Louis  Terminal, 
etc.,  Assn.,  148  Fed.  486.  Hale  v.  Henkel, 
201  U.  S.  43.  Amey  v.  Long,  9  East.  473. 
Bull  V.  Loveland,  10  Pick.  (Mass.)  9.  U.  S. 
Exp.  Co.  V.  Henderson,  69  Iowa  40,  28 
N.  W.  426.  Greenleaf  Evid.  469  a.  (/n- 
quiry  from  Mich.,  Dec,  1918,  Jl.) 

509.  In  a  suit  by  a  depositor  against  a 
bank,  an  officer  served  with  a  subpoena 
duces  tecum  must  produce  the  books  called 
for  containing  evidence  relating  to  the 
transaction  in  the  absence  of  a  statute  per- 
mitting an  authenticated  copy.  Inconve- 
nience to  the  bank  or  to  the  officer  does  not 
justify  his  refusal  to  obey  the  court  order. 

{Inquiry  from  Okla.,  March,  1915,  Jl.) 

Use  of  loose  leaf  books 

510.  The  Wisconsin  legislature  requires 
the  books  of  original  entry  used  in  banks  to 
be  permanently  bound  and  prohibits  the 
card  system  as  a  substitute  for  a  bank  ledger. 
This  is  probably  the  only  state  legislation 
which  prohibits  the  use  of  loose-leaf  books 
in  banks.  Wis.  Laws,  Sec.  2024-1.  {In- 
quiry frot?i  Wis.,  Dec,  1914,  Jl-) 


103 


511-513] 


DIGEST  OF  LEGAL  OPINIONS 


Bound  books  vs.  card  system  in 
Wisconsin 

511.  It  is  stated  that  many  state  banks 
of  Wisconsin  do  not  regard  with  favor  the 
provisions  of  Chapter  94,  Wisconsin  Statutes 
(Sec.  2024-2)  relating  to  "original  entry 
books  bound."  Suggestions  are  asked  as  to 
the  proper  course  to  pursue  to  bring  about 
an  amendment  of  the  present  law  eliminating 
the  bound  journal  requirement.  Opinion: 
The  statute  in  question  seems  to  be  peculiar 
to  Wisconsin,  The  remedy  would  be  to 
procure  a  repeal  by  the  legislature  of  the 
provision  in  question.  The  Committee  on 
Legislation  of  the  Wisconsin  Bankers' 
Association  in  conjunction  with  the  Secre- 
tary would  probably  be  the  best  agency  to 
procure  this  repeal,  filing  a  memorandum  in 
support  of  a  bill  to  repeal  same,  in  which 
could  be  stated  the  reasons  why  the  statute 
is  unjust  and  impracticable  and  the  indorse- 
ment of  the  state  bank  department  of  such 
legislation  would,  of  course,  carry  very 
great  weight.  (Inquiry  from  Wis.,  Dec, 
1916.) 

Preservation  and  destruction  of  old  records 

512.  What  should  be  the  policy  of  a 
bank  with  respect  to  the  retention  of  re- 
cords for  possible  use  in  legal  proceedings? 
What  is  the  practice  of  the  larger  banks? 
Opinion:  The  subject  of  inquiry  has 
apparently  not  been  discussed  or  con- 
sidered by  an}'-  of  the  text  writers  on  banking 
and  not  been  considered  judicially. 

The  test,  would  seem  to  be  whether  the 
further  preservation  of  old  documents  and 
papers  would  be  needed  by  the  bank  in  the 
future  for  the  assertion  of  any  right  or 
defense.  It  is  better  to  be  on  the  safe  side 
and  to  retain  old  books,  papers  and  records, 
unless  the  bank  is  asbolutely  certain  that 
they  are  no  longer  needed  in  any  particular 
case  to  maintain  a  right  or  defend  against  a 
claim. 

A  canvass  of  a  number  of  New  York 
institutions  develops  a  tendency  to  preserve 
permanently  all  records,  documents  and 
vouchers,  such  as  deposit  ledgers,  cancelled 
vouchers,  deposits  slips,  etc.  A  majority 
of  the  officials  interviewed  stated  that  they 
have  separate  storage  warerooms,  vaults  or 
lofts  for  the  special  storage,  filing  by 
classification,  and  preservation  of  such  old 
books,  records,  etc.  Thus  a  large  trust 
company,  acting  on  advice  of  counsel,  has, 
through  its  board  of  directors,  formulated 
a  set  of  rules  with  respect  to  the  preservation 
of  the  different  classes  of  books,  records, 


correspondence,  etc.  For  instance,  deposit 
ledgers,  and  customers'  cancelled  vouchers 
are  to  be  preserved  indefinitely;  deposit 
slips  and  correspondence  relative  to  cus- 
tomers' accounts,  indefinitely;  own  cancelled 
checks  and  drafts,  6  years;  sealed  instru- 
ments, such  as  bonds,  trust  agreements,  etc., 
20  years. 

A  large  national  bank  has  special  vaults  in 
warehouse  for  storage  and  preservation  of 
bank  records  and  documents;  and,  under 
advice  of  counsel,  never  destroys  any 
records  or  documents  relating  to  customers' 
accounts,  such  as  deposit  ledgers,  customers' 
cancelled  vouchers,  deposit  slips  etc. 

Another  large  national  bank  destroyed  a 
lot  of  old  miscellaneous  correspondence  and 
deposit  slips  over  ten  years  old,  about  five 
years  ago;  but  now  has  special  warehouse 
storage  space  and  will  henceforth  preserve 
practically  all  records  indefinitely. 

Another  large  national  bank  destroyed  a 
lot  of  miscellaneous  correspondence,  books, 
etc.,  over  fifteen  years  old,  when  it  moved 
into  new  quarters,  but  nothing  relating  to 
customers'  accounts,  and  the  general  policy 
is  to  preserve  permanently  everything 
relating  to  customers'  accounts. 

Still  another  large  national  bank  has 
never  taken  any  formal  action  through  its 
board  of  directors,  but  its  fixed  policy  is  to 
preserve  permanently  all  records,  documents 
vouchers  and  vital  correspondence  in  special 
loft  space  set  apart  for  the  purpose,  in 
charge  of  a  special  file  clerk. 

A  large  trust  company  has  adopted 
practically  the  same  as  the  last  stated 
national  bank.  {Inquiry  from  Wis.,  June, 
1920.) 

Destruction  of  old  checks  and  drafts 

513.  A  bank  which  is  about  to  consoli- 
date with  another  and  go  out  of  existence 
asks  how  long  it  should  keep  its  record 
books,  deposit  tickets,  cancelled  checks  of 
customers,  the  bank's  own  cancelled  checks, 
certificates  of  deposit,  drafts  on  its  reserve 
accounts,  letters,  etc.  Opinion:  Because  of 
the  thorough  discussion  in  opinion  No.  512 
it  will  be  necessary  only  to  add  a  statement 
as  to  cancelled  checks  of  customers.  A 
bank  has  a  temporary  right  to  the  possession 
of  paid  checks  of  its  customers  as  its  evidence 
that  their  amounts  have  been  paid,  but  the 
ultimate  right  of  possession  and  property  is 
in  the  depositor.  The  cancelled  checks, 
the  subject  of  inquiry,  are  presumably  those 
not  returned  because  the  depositors  have 
removed  from  the  locaUty,  or  because  of 


104 


BANKS,  ETC —NATIONAL  BANKS 


[514-515 


similar  reasons.  The  statute  of  limitations 
does  not  run  against  a  general  deposit  until 
the  depositor  makes  a  demand.  Suppose  the 
last  balancing  of  the  account  of  John  Smith 
indicates  a  balance  of  $1,000,  and  that  he 
moves  away  after  having  drawn  checks  to 
nearly  exhaust  this  balance,  which  checks 
remain  in  the  possession  of  the  bank. 
Suppose  after  the  cancelled  checks  are 
destroyed  Smith  claims  a  balance  of  SI, 000, 
and  produces  the  pass  book  as  evidence  of 
his  claim.  Might  there  not  be  some 
possibility  of  liability,  the  bank  having 
destroyed  its  evidence  of  payment?  Of 
course,  where  a  pass  book  is  balanced,  or  a 
statement  of  account  is  rendered,  there  is 
in  the  course  of  reasonable  time,  an  account 
stated,  which  would  protect  the  bank; 
but  it  would  seem  safer  to  retain  such 
cancelled  checks  of  customers  indefinitely. 
{Inquiry  from  Conn.,  Nov.,  1917.) 

Length  of  time  of  'preservation 

514.  How  long  is  it  necessary  to  retain 
cancelled  checks,  deposit  tickets,  daybooks, 
teller's    cashbooks,    deposit    ledgers,   etc.? 


Opinion:  It  is  the  practice  of  a  number  of 
banks  to  make  a  general  cleaning  out  every 
seven  years,  and  some  wait  for  a  period  of 
ten  years  or  longer.  They  act  on  the 
supposition  that  the  six-year  statute  of 
limitations  protects  the  bank.  But  the 
statute  would  not  apply  to  checks  held  on 
inactive  accounts  where  there  has  been  no 
account  rendered,  and  no  return  of  cancelled 
checks.  A  deposit  is  not  due  until  demanded, 
and  the  statute  only  begins  to  run  from 
demand.  So  that  destruction  of  such  checks 
would  be  destruction  of  the  evidence  of 
payment  of  such  deposits,  and  cases  might 
arise  in  which  there  would  be  a  liabihty. 
Probably  the  question  resolves  itseK  into 
whether  the  inconvenience  of  retaining  old 
papers  and  documents  does  not  outweigh 
the  possible  risk  of  some  particular  depositor 
turning  up  and  enforcing  some  claim  which 
had  been  discharged,  but  the  evidence  of 
which  had  been  destroyed.  Many  banks 
seem  to  proceed  on  the  theory  that  this 
risk  is  negligible.  {Inquiry  from  Conn., 
March,  1919.) 


BANKS,  ETC.— NATIONAL  BANKS 


Control  and  supervision 

Power  of  comptroller  to  require  publica- 
tion of  salaries 

515.  What  is  the  construction  of  U.  S. 
Rev.  St.  Sec.  5211,  with  reference  to  the 
questions  whether  a  report  of  aggregate 
compensation  paid  to  officers  and  employees 
is  a  report  of  any  part  of  the  assets  or 
liabilities  of  national  banks  and  whether  the 
comptroller  of  the  currency  has  power  to 
force  the  reporting  banks  to  publish  this 
confidential  information?  The  grounds  of 
objection  to  the  puV)lishing  of  amount  of 
salaries  are  that  in  many  sections  of  the 
country  there  is  only  one  paid  official  in  a 
national  bank  and  the  publication  would 
reveal  his  salary,  and  in  other  instances 
information  might  be  given  to  competing 
banks  detrimental  to  the  welfare  of  the 
reporting  bank.  Opinion:  Sec.  5211  re- 
quires reports  to  the  comptroller  "according 
to  the  form  which  may  be  prescribed  by 
him"  and  "each  such  report  shall  exhibit 
in  detail  and  under  appropriate  heads,  the 
resources  and  liabilities  of  the  Association 
etc."  The  report  must  be  published  "in  the 
same  form  in  which  it  is  made  to  the 
comptroller."  Cochran  v.  U.  S.,  15  U.  S. 
Sup.  Ct.  Rep.,   declares  that  the  object  of 


the  section  is  "to  apprise  the  comptroller 
of  the  currency  and  the  pubHc  of  the  condi- 
tion of  each  national  bank  at  stated  periods." 
A  statement  of  salaries  paid  does  not  come 
within  the  spirit  and  meaning  of  the  section; 
it  is  not  the  character  of  the  information 
which  the  law  requires  shall  be  reported 
and  published.  It  is  not  a  statement  of 
what  the  bank  owns  or  owes — its  resources 
and  liabihties — and  a  report  and  publication 
of  such  salaries  would  in  no  way  fulfill  the 
object  of  the  section  as  declared  by  the 
United  States  supreme  court,  quoted  supra. 
The  comptroller's  authority  is  measured 
by  law.  A  demand  for  the  pubhcation  of 
additional  information  of  a  confidential 
character  is  without  authority  of  law. 
Although  Sec.  5211  also  provides  for  special 
reports  to  enable  the  comptroller  to  acquire 
"a  full  and  complete  knowledge  of  its  (the 
bank's)  condition,"  and  assuming  the  au- 
thority to  require  these  special  reports 
covers  a  wider  latitude  of  information, 
there  is  no  requirement  for  pubhcation  in 
such  case.  It  would  seem  that  the  comp- 
troller has  not  the  power  to  force  the  pubhca- 
tion of  compensation  paid  to  officers  and 
employees.  Concerning  the  penalty  for 
failure  to  publish  reports,  U.  S.  Rev.  St., 
Sec.  5213,  imposing  a  penalty  of  $100  a  day 


105 


516-519] 


DIGEST  OF  LEGAL  OPINIONS 


for  failure  to  make  and  transmit  the  report, 
contains  no  penalty  for  failure  to  comply 
with  the  provision  of  the  act  that  the  report 
must  be  pubhshed  in  the  same  form  in 
which  it  is  made  to  the  comptroller.  The 
only  penalty  for  non-publication  to  the 
pubhc  (should  the  comptroller  be  held  to 
have  the  disputed  power)  would  be  the 
general  penalty  provided  by  U.  S.  Rev.  St., 
Sec.  5329  of  forfeiture  of  the  franchise,  but  a 
prerequisite  to  such  forfeiture  is  a  judicial 
decree  in  a  suit  brought  for  that  purpose  by 
the  comptroller.  {Inquiry  from  D.  C, 
Feb.,  1921.) 

Reports  to  comptroller 

516.  A  bank  inquires  as  to  how  many 
reports  are  required  to  be  made  to  the 
comptroller  each  year.  Opinion:  The  law 
requires  five  reports  "according  to  the 
form"  prescribed  by  the  comptroller,  which 
must  exhibit  resources  and  liabilities  in 
detail  and  ''in  the  same  form"  shall  be 
pubhshed  in  a  newspaper.  The  comptroller 
also  has  power  to  call  for  special  reports, 
with  penalty  for  non-comphance  and  it 
might  be  held  that  tliis  power  to  call  for 
special  reports,  might  be  exercised  at  the 
same  time  and  as  part  of  his  call  for  general 
reports.  Nobody  is  able  to  tell  what 
Umitations  the  courts  would  place  upon  the 
comptroller's  powers  in  regard  to  special 
reports,  and  the  same  can  only  be  determined 
through  a  case  brought  for  a  violation 
thereof.     {Inquiry  from  Ind.,  April,  1916.) 

Reports  of  member  banks  to  Federal  reserve 
board 

517.  A  bank  which  does  not  object  to 
the  Federal  Reserve  Bank  knowing  its 
reserve  percentage  but  regards  it  a  nuisance 
to  furnish  a  report  each  month  inquires 
whether  it  is  compelled  to  comply  with  the 
requirement  of  the  Federal  Reserve  Bank 
that  it  furnish  a  monthly  report  of  such 
percentage.  It  also  asks  what  is  the 
penalty  for  failure  to  comply.  Opinion: 
Federal  Reserve  Act,  Section  11a,  authorizes 
and  empowers  the  Federal  Reserve  Board 
"to  require  such  statements  and  reports  as 
it  may  deem  necessary"  from  each  Federal 
Reserve  Bank  and  each  member  bank. 
Under  this  the  Federal  Reserve  Board 
would  have  power  to  call  for  reports  of  the 
kind  mentioned.  The  act  does  not  give 
Federal  Reserve  Banks  express  power  to  call 
for  reports  from  member  banks.  Whether 
the  Federal  Reserve  Board  can  confer  upon 
a  Federal  Reserve  Bank  the  power  to  call 


for  reports  from  a  member  bank  is  question- 
able. It  might  be  held  that  the  Board  could 
call  for  such  reports  through  the  Federal 
Reserve  Bank.  There  appears  to  be  no 
specific  penalty,  however,  for  violation  of 
the  requirement  of  the  Federal  Reserve 
Board  of  such  reports  as  it  may  deem 
necessary.  {Inquiry  from  Tenn.,  April, 
1916.) 

Examination  by  revenue  officer 

518.  The  Collector  of  Internal  Revenue 
of  a  certain  district  in  New  Jersey  sent  a 
man  to  examine  the  notes  of  a  national 
bank  to  see  if  they  were  properly  stamped. 
The  bank  officer  refused  him  permission. 
Opinion :  According  to  the  decision  of  a  Fed- 
eral district  court  in  Pennsylvania  (contrary 
to  the  decision  of  another  Federal  district 
court),  a  national  bank  officer  has  no  right  to 
refuse  permission  to  an  internal  revenue 
officer  or  agent,  acting  under  Section  3177, 
Rev.  Stat.,  to  examine  the  notes  in  its  pos- 
session to  see  if  properly  stamped,  and  the 
bank  is  not  exempted  because  of  Section 
5241,  Rev.  Stat.,  limiting  visitorial  powers  to 
the  Comptroller  and  the  courts,  but  only  an 
officer  or  agent  authorized  by  the  statute  has 
such  power  of  examination,  which  cannot  be 
delegated  to  a  clerk  or  other  person.  Section 
21  of  the  Federal  Reserve  Act  has  ampHfied 
Section  5241,  Revised  Statutes,  and  provides 
"No  bank  shall  be  subject  to  any  visitorial 
powers  other  than  such  as  are  authorized  by 
law,  or  vested  in  the  courts  of  justice  or  such 
as  shall  be  or  shall  have  been  exercised  or  di- 
rected by  Congress,  or  by  either  House  there- 
of, or  by  any  committee  of  Congress,  or  of 
either  house  duly  authorized."  U.  S.  Rev. 
St.,  Sees.  3152,  3163,  3177,  5241.  U.  S.  v. 
Rhawn,  Fed.  Cas.  No.  16150.  U.  S.  v. 
Parkliill,  Fed.  Cas.  No.  15994.  U.  S.  v. 
Mann,  5  Otto  (U.  S.)  580.  Fed.  Reserve 
Act,  Sec.  21.  {Inquiry  from  N.  J.,  Jan., 
1919,  Jl.) 

Federal  jurisdiction 

519.  The  United  States  courts  had 
jurisdiction  in  cases  brought  by  and  against 
the  Second  United  States  Bank  but  not  in 
cases  by  and  against  the  First  United 
States  Bank.  The  Federal  statutes  formerly 
conferred  jurisdiction  upon  the  circuit  court 
in  all  suits  brought  by  or  against  national 
banks  in  the  district,  but  this  was  repealed 
in  1882  and  the  statute  now  provides  that  the 
jurisdiction  of  suits  by  and  against  national 
banks,  except  suits  between  them  and  the 
United  States  or  its  officers  and  agents,  shall 


106 


BANKS,  ETC.— NATIONAL  BANKS 


[520-522 


be  the  same  as  and  not  other  than  the  juris- 
diction of  suits  by  or  against  banks  not  or- 
ganized under  any  law  of  the  United  States. 
Bk.  of  U.  S.  V.  Deveaux,  5  Cranch  (U.  S.) 
61,  85.  Osborn  v.  Bk.  of  U.  S.,  9  Wheat. 
(U.  S.)  738,  816.  Bk.  of  U.  S.  v.  Northum- 
berland Bk.,  2  Fed.  Cas.  No.  931.  U.  S. 
Rev.  St.,  Sec.  629,  subd.  10.  (Inquiry 
from  N.  F.,  Jan.,  1914,  Jl.) 

Extension  of  corporate  existence 

Time  of  shareholder's  notice  of  withdrawal 

520.  A  bank's  charter  was  expiring  on 
August  14,  1917,  on  which  date  it  received 
a  certificate  of  approval  bearing  date  on 
that  day,  as  required  by  the  National 
Bank  Act.  On  the  morning  of  September 
14th  the  bank  received  a  letter  from  a 
stockholder,  dated  August  14th,  giving 
notice  to  the  board  of  directors  of  his 
intention  to  withdraw  from  the  association. 
The  bank  asks  whether  the  notice  so  given 
was  a  compliance  with  the  act.  Opinion: 
The  Act  of  July  12,  1882,  provides  that 
"when  any  national  banking  association 
has  amended  its  articles  of  association  as 
provided  *  *  *  any  shareholder  not 
assenting  to  such  amendment  may  give 
notice  in  writing  to  the  directors  within 
thirty  days  from  the  date  of  the  certificate 
of  approval  of  his  desire  to  withdraw  from 
such  association,  in  which  case  he  shall  be 
entitled,"  to  receive  the  appraised  value  of 
his  shares.  The  certificate  of  approval  in 
this  case  was  dated  August  14th,  and  the 
stockholder  mailed  the  bank  a  letter  giving 
notice  of  his  desire  to  withdraw,  which 
reached  the  bank  on  the  morning  of  Septem- 
ber 14th,  the  31st  day  from  the  date  of  the 
certificate  of  approval.  This  was  not 
"within  thirty  days"  unless  it  should  be 
held  that  the  maihng  of  the  notice,  which 
was  doubtless  on  the  thirtieth  day,  con- 
stituted a  giving  of  the  notice  although  not 
received  by  the  bank  until  the  thirty-first. 
See  for  example,  Deimel  v.  Obert,  20  111. 
App.  557.  Batman  v.  Megowan,  58  Ky. 
(Mete.)  533.  It  appears,  therefore,  that  the 
bank  might  successfully  maintain  that  tliis 
notice  was  not  in  time  and,  therefore,  not 
valid.  Concerning  the  point  that  the 
notice  was  not  in  proper  form  because 
addressed  to  the  bank  and  not  "to  the 
directors,"  it  would  undoubtedly  be  held 
that  a  notice  to  the  bank  was  a  notice  to  the 
directors  who  are  the  managers  of  the  bank. 
{Inquiry  from  Ga.,  Oct.,  1917.) 


Liquidation  and  merger 

Change  of  national  into  state  hank 

521.  What  steps  are  necessary  to  change 
a  national  bank  into  a  state  bank?  Opinion: 
The  general  provisions  of  law  are:  that  the 
owners  of  two-thirds  of  the  stock  vote  to 
Hquidate;  that  the  action  be  taken  at  a 
meeting  of  shareholders  duly  assembled; 
that  the  notice  of  the  meeting  clearly 
indicate  the  business  to  be  transacted  and 
that  the  vote  in  favor  of  Uquidation  re- 
present two-thirds  of  all  the  stock.  The 
shareholders  should  adopt  a  resolution  at 
the  meeting  that  the  national  bank  be 
placed  in  voluntary  hquidation  under  the 
provisions  of  sections  2250  and  2251  of  the 
U.  S.  Rev.  St.  The  evidence  to  be  furnished 
the  comptroller  of  the  currency  of  the  fact  of 
liquidation  is  a  copy  of  the  resolution  of  the 
shareholders  certified  by  the  cashier  or 
president  under  seal  of  the  bank  that 
shareholders  owning  two-thirds  of  the  stock 
have  voted  to  place  the  bank  in  hquidation 
and  a  copy  of  the  notice  calhng  the  meeting 
showing  date  of  mailing  or  pubhcation. 
Notice  to  shareholders  and  other  creditors 
to  present  their  claims  for  payment  should 
be  published  as  is  required  by  Sec.  2251  of 
the  U.  S.  Rev.  St. 

Sec.  5  of  the  Federal  Reserve  Act  provides 
that  when  a  member  bank  voluntarily 
hquidates  it  shall  surrender  all  of  its  holdings 
of  the  capital  stock  of  the  Federal  Reserve 
Bank  and  can  be  released  from  its  stock 
subscriptions  not  previously  called.  The 
shares  surrendered  shall  be  cancelled  and 
the  member  bank  shall  receive  in  pajTiient 
therefor,  under  regulations  to  be  prescribed 
by  the  Federal  Reserve  Board,  a  sum  equal 
to  its  cash  paid  subscriptions  on  the  shares 
surrendered  and  one-half  per  cent,  per  month 
from  the  period  of  the  last  dividend,  not  to 
exceed  the  book  value  thereof  less  any 
liability  of  such  bank  to  the  Federal  Reserve 
Bank.    {Inquiry  from  Tenn.,  Jan.,  1916.) 

522.  (1)  In  case  of  a  national  bank 
relinquishing  its  national  charter,  two- 
thirds  of  stockholders  concurring,  for  the 
purpose  of  reorganizing  as  a  state  bank,  is 
the  national  bank  compelled  by  law  to 
hquidate  in  order  to  consummate  the 
conversion?  (2)  May  a  minority  stock- 
holder demand  the  value  of  his  stock  in 
cash  rather  than  take  an  equivalent,  in  the 
stock  of  the  succeeding  institution?  Opinion 
(1)  It  would  seem  that  the  national  bank  is 
compelled  by  law  to  liquidate  in  order  to 
reorganize  as  a  state  bank.     There  is  no 


107 


523-525] 


DIGEST  OF  LEGAL  OPINIONS 


provision  in  the  National  Bank  Act,  or  of 
the  Federal  Reserve  Act,  under  which  a 
national  bank  may  be  converted  into  a 
state  bank,  retaining  its  existing  organiza- 
tion. (2)  The  minority  stockholder  has  the 
right  to  demand  his  proportionate  share 
arising  from  the  sale  or  disposal  of  the  assets 
in  cash,  and  is  not  compelled  to  take  an 
equivalent  in  the  stock  of  the  succeeding 
institution.  {Inquiry  from  Md.,  May,  1915^ 
Note:  The  act  of  Nov.  7,  1918  provides 
a  method  by  which  two  or  more  national 
banks  may  consohdate  under  the  charter 
of  either  existing  bank;  but  consohdation 
of  a  national  bank  with  a  state  bank  cannot 
be  effected  thereunder. 

Conversion  of  state  into  national  hank 
without  cancellation  of  old  stock 

523.  The  president  of  a  South  Dakota 
State  Bank  pledged  stock  of  such  bank  as 
collateral  to  a  bank  in  Minnesota,  and 
subsequently,  without  the  knowledge  of 
pledgee,  the  bank  was  converted  into  a 
national  bank  and  new  stock  issued,  but 
stock  in  hands  of  pledgee  was  not  called  in 
for  cancellation.  Six  months  thereafter  the 
national  bank  failed,  and  the  pledgee  seeks 
to  hold  the  directors  and  officers  for  not 
recalling  the  stock.  What  liability,  if  any, 
attaches  to  these  old  officers  and  directors? 
Opinion:  Had  no  new  stock  been  issued,  no 
habihty  would  attach  to  the  directors  and 
officers,  as  the  law  does  not  require  the 
calling  in  of  the  old  and  the  issue  of  new 
stock,  although  such  procedure  is  preferable; 
(Casey  v.  Galh,  94  U.  S.  673.  U.  S.  Rev.  St. 
Sec.  5154.  Rev.  Code  So.  Dak.  1919, 
Sec.  8972)  but  new  stock  having  been 
issued  without  requiring  production  and 
surrender  of  an  outstanding  certificate  held 
in  pledge,  there  might  be  a  Hability  which 
might  depend  upon  whether  the  transaction 
constituted  a  conversion  of  the  pledgee's 
property  in  the  shares,  or  was  a  mere  ultra 
vires  issue  of  a  void  new  certificate,  the  old 
certificate  still  carrying  full  shareholder's 
rights.  (As  to  first  theory  see:  Allmon  v. 
Salem  Bid.  &  L.  Assn.  [lU.]  114  N.  E.  170. 
Joslyn  V.  St.  Paul  etc.  Co.  [Minn.]  46  N.  W. 
397.  Clark  v.  Edgar,  12  Mo.  App.  345. 
Bruff  V.  Mah,  36  N.  Y.  200.  First  Nat. 
Bank,  v.  Lanier,  11  Wall.  [U.  S.]  369.  As 
to  second  theorv,  see:  Parker  v.  Almy, 
[Mass.]  109  N.  E.  733.  Pratt  v.  Taunton 
Copper  Co.,  123  Mass.  110.  Machinists 
Nat.  Bank  v.  Field,  126  Mass.  345.  Litch- 
field V.  Henson  [Okla.]  157  Pac.  137.) 
(Inquiry  from  Minn.,  Feb.,  1920.) 


Federal  reserve  notes  as  reserve 

524.  A  national  bank  raises  the  question 
whether  Federal  Reserve  notes  can  be 
considered  legal  reserve  and  an  opinion 
respecting  same  is  requested.  Opinion: 
The  law  requires  the  reserve  to  be  "in  lawful 
money  of  the  United  States."  The  term 
"lawful  money"  is  understood  to  apply  to 
every  form  of  money  which  is  endowed  by 
law  with  the  legal-tender  quality.  (See 
opinions  of  Attorney-General  Vol.  17,  page 
123).  National  bank  notes  are  non-legal- 
tender  money  and  of  course  cannot  be 
counted  as  reserve.  It  seems  also  true  that 
Federal  Reserve  notes  cannot  be  counted 
as  part  of  the  legal  reserve.  After  the 
passage  of  the  Federal  Reserve  Act  a  bill 
was  introduced  by  Senator  Owen,  S.  6439, 
63rd  Congress  which  proposed  to  give  the 
Federal  Reserve  Board  power,  among  other 
things,  "to  permit  member  banks  to  count 
as  part  of  their  lawful  reserves.  Federal 
Reserve  notes  not  exceeding  5  per  centum 
of  their  net  demand  profits."  This  pro- 
vision, it  was  explained,  w^ould  have  the 
effect  of  releasing  additional  gold  which 
would  pass  into  the  Federal  Reserve  Banks 
and  become  more  efficient  there  for  banking 
purposes.  But  S.  6439  did  not  become  a 
law.  The  above  would  seem  to  indicate,  if 
there  was  any  doubt  on  the  subject,  that 
Federal  Reserve  notes  cannot  be  counted 
as  part  of  the  lawful  money  reserve  of 
national  banks  under  the  present  law. 
{Inquiry  from  N.  Y.,  April,  1915.) 

Retirement  of  circulation 

525.  Is  there  anything  in  the  Federal 
Reserve  Act  which  contemplates  taking 
away  the  circulation  privilege  from  national 
banks  at  a  future  date?  Opinion:  The 
Federal  Reserve  Act  (Sec.  18)  provides 
that  member  banks  desiring  to  retire  their 
circulation  may  apply  to  the  U.  S.  Treasury, 
which  will  hst  the  apphcations,  and  the 
Federal  Reserve  Board  may  at  its  discretion 
require  the  Federal  Reserve  banks  to  pur- 
chase bonds  from  the  applying  banks,  but 
cannot  purchase  more  than  S25, 000,000  in 
any  one  year  of  such  bonds,  including  bonds 
purchased  in  the  open  market.  This 
provision  contemplates  the  ultimate  taking 
away  of  the  circulation  privilege  from 
national  banks.  There  are  no  provisions  of 
law,  however,  which  prohibit  a  national 
bank  from  increasing  the  amount  of  its 
outstanding  circulating  notes  merely  be- 
cause it  has  withdrawn  circulation  under 


108 


BANKS,  ETC.— NATIONAL  BANKS 


[526-530 


the  provisions  of  Section  18.    (Inquiry  from 
Ohio,  July,  1917.) 

Application  of  workmen's  com- 
pensation law 

526.  A  bank  asks  whether  it  is  necessary 
under  the  Workmen's  Compensation  Act  of 
Idaho  for  banks  to  procure  insurance  there- 
under. Opinion:  Assuming  that  the  Act  re- 
ferred to  which  appHes  to  all  public  employ- 
ments and  to  employees  of  "public  corpora- 
tions" within  the  state,  would  be  held  to  include 
within  its  appUcation  banking  institutions, 
it  is  very  doubtful  if  the  provisions  of  law 
would  be  held  applicable  to  national  banks 
in  the  state,  because  these  banks  are 
created  by  Congress  and  are  instrumentah- 
ties  of  the  Federal  Government.  It  is  well 
established  that  the  states  cannot  tax 
national  banks,  except  as  Congress  permits 
and  it  seems  the  same  principle  or  reasoning 
would  apply  in  the  case  of  a  Workman's 
Compensation  Law  which  compels  the 
employer  or  his  siuety  to  pay  compensation 
to  the  injured  employee.  As  bearing  on 
this  question  see  Southern  Pacific  Co.  v. 
Jensen,  224  U.S.  205.  {Inquiry  from  Idaho, 
May,  1920.) 

Deposits 

Deposits  with  trust  company  permitted 

527.  The  Federal  Reserve  Act  permits  a 
national  bank  to  carry  on  deposit  with  a 
trust  company  to  the  extent  of  ten  per  cent, 
of  its  own  paid-up  capital  and  surplus. 
Fed.  Reserve  Act,  1913,  Sec.  19.  (Inquiry 
from  Ind.,  March,  1916,  Jl.) 

Substitution  of  bond  security  for  public 
deposits 

528.  A  national  bank  to  secure  public 
deposits  deposited  United  States  coupon 
bonds  with  the  Treasurer  of  the  United 
States.  The  Treasurer  without  the  consent 
of  the  national  bank  cancelled  the  coupon 
bonds  and  substituted  registered  bonds, 
thereby  causing  the  bank  an  actual  loss  of 
$350.  Opinion:  No  statutory  authority  ex- 
ists to  convert  the  coupon  bonds  into  reg- 
istered bonds  as  in  the  case  of  bonds  to  secure 
circulation.  In  the  absence  of  an  authorizing 
statute  or  the  express  consent  of  the  depos- 
itor of  the  bonds,  the  conversion  would, 
afford  a  basis  of  a  claim  for  damages. 
(Inquiry  from  Ky.,  May,  1916,  Jl.) 

Branches  and  agencies 

Distinction  between  branch  bank  and  agency 

529.  (a)  Is  a  national  bank  permitted  to 


operate  a  branch  bank  in  a  town  of  10,000 
inhabitants?  (b)  Under  what  conditions 
do  national  banks  in  towns  of  this  size 
operate  foreign  departments,  or  do  business 
in  buildings  other  than  their  main  banking 
room?  Opinion:  (a)  A  national  bank  is 
not  permitted  to  operate  a  branch  bank  in 
the  same  city  or  town,  whether  it  be  a 
large  city  or  a  city  with  10,000  population. 
National  banks  having  a  capital  and  surplus 
of  $1,000,000  or  more,  are  authorized  to 
establish  branches  in  foreign  countries 
(Sec.  25  F.  R.  Act),  or  to  invest  not  exceed- 
ing 10%  of  capital  and  surplus  in  stock  of 
one  or  more  banking  corporations  chartered 
to  do  foreign  banking.  (b)  While,  as 
shown  supra,  national  banks  are  not  per- 
mitted under  the  law  to  estabhsh  domestic 
branches,  there  is  an  opinion  of  the  U.  S. 
Attorney  General,  which  makes  a  distinction 
between  a  branch  bank  and  an  agency, 
(29  Op.  Atty.  Gen.  81)  and  is  to  the  effect 
that  a  national  bank  may  estabhsh  an 
agency  in  another  place  for  a  specific 
purpose  such  as  deaUng  in  bills  of  exchange. 
It  is  doubtful,  however,  if  the  comptroller 
of  the  currency  would  agree  to  this  view. 
(Inquiry  from  Pa.,  Aug.,  1920.) 

530.  Agency  to  receive  deposits  away 
from  bank.  Can  a  national  bank  accept 
deposits  in  any  place  other  than  its  banking 
room?  Opinion:  In  the  present  state  of  the 
law,  if  a  national  bank  should  establish  an 
agency  in  another  place  in  the  same  city  to 
receive  deposits,  it  is  probable  that  the 
Comptroller  of  the  Currency  would  hold 
such  agency  to  be  unlawful  and  beyond  the 
powers  of  the  bank,  although  the  point  is 
not  free  from  doubt.  Sec.  5134  U.  S.  Rev. 
St.  provides  that  the  certificate  of  organiza- 
tion must  specify  "the  place"  where  its 
operations  of  discount  and  deposit  are  to  be 
carried  on,  and  Section  5190  provides  that 
the  usual  business  of  such  national  banking 
association  shall  be  transacted  at  an  office 
or  banking  house  "located  in  the  place 
specified  in  its  organization  certificate." 
(See  Nat.  Bank  v.  Pierce,  18  Albany  Law 
Jl.  16,  [holding  that  it  is  unlawful  for  a 
national  bank  in  New  Jersey  to  have  an 
agent  receive  deposits  in  Philadelphia]. 
See  also  Cooke  v.  State  Nat.  Bank,  52  N.  Y. 
96.  Nat.  Bank  v.  Galland,  14  Wash.  502. 
Burton  v.  Burley,  12  Leg.  News  178, 
holding  that  the  place  named  in  the  organi- 
zation certificate  fixes  the  locality  of  a 
national  bank,  and  its  general  business 
must  be  done  there;  and  Nat.  Bank  v. 
Phoenix  Bank,  6  Hun.  [N.  Y.]  71,  [holding 


109 


531-533] 


DIGEST  OF  LEGAL  OPINIONS 


that  a  national  bank  in  another  state 
cannot  have  an  office  of  discount  or  deposit 
in  New  York];  and  Armstrong  v.  Second 
Nat.  Bank,  38  Fed.  886  [holding  that  a 
national  bank  cannot  make  a  valid  contract 
for  the  cashing  of  checks  upon  it  at  a 
different  place  from  that  of  its  residence 
through  the  agency  of  another  bank]) .  But  it 
has  also  been  held  that  a  large  and  important 
part  of  the  business  of  a  national  bank  is 
unavoidably  and  lawfully  done  away  from 
its  office  by  correspondents  or  other  agents. 
Thus,  where  a  cashier  bought  gold  and  paid 
for  it  by  certifying  checks  at  the  counter  of 
another  bank,  it  was  held  proper.  (Mer- 
chants Nat.  Bank  v.  State  Nat.  Bank,  10 
Wall.  [U.  S.]  604;  and  see  A.  B.  A.  Jl.,  April, 
1919,  p.  553,  citing  opinion  of  U.  S.  Attorney 
General,  drawing  a  vital  distinction  between 
estabUshment  of  a  branch  bank  wherein  is 
carried  on  a  general  banking  business,  and 
estabhshment  of  an  agency  for  transaction 
of  a  particular  part  of  its  business.  The 
Attorney  General  expressed  quite  Hberal 
views  as  to  the  power  of  a  national  bank,  or 
banks  generally,  to  estabhsh  agencies  for 
some  particular  class  of  business,  away  from 
the  banking  house,  and  criticizing  Arm- 
strong V.  Second  Nat.  Bank,  38  Fed.  886, 
quoted  supra.)  It  will  thus  be  seen  that  the 
question  is  not  entirely  free  from  doubt. 
It  would  be  desirable  to  obtain,  if  possible, 
an  official  opinion  from  the  Attorney  Gen- 
eral of  the  United  States  upon  the  whole 
question.    {Inquiry  from  Mo,,  March,  1920.) 

Acceptance  agency  of  National  Bank 
Note:  The  Federal  Reserve  Bulletin  for 
August,  1920,  contains  a  ruling  of  the 
comptroller  of  the  currency  under  date  of 
July  16,  1920,  to  the  effect  that  a  national 
bank  located  in  CaUfornia  should  not  be 
permitted  to  appoint  an  agent  in  New  York 
to  accept  in  behalf  of  the  bank  drafts 
drawn  on  it  payable  in  New  York  and  to 
pay  such  drafts  out  of  the  funds  deposited 
in  New  York  under  the  control  of  the  agent. 
The  ruhng  quotes  U.  S.  Rev.  St.,  Section 
5190,  providing  that  "the  usual  business  of 
each  national  banking  association  shall  be 
transacted  at  an  office  or  banking  house 
located  in  the  place  specified  in  its  organiza- 
tion certificate."  The  comptroller  states 
that  "this  has  been  construed  by  the 
Attorney  General  and  by  the  Sohcitor  of  the 
Treasury  to  mean  one  place  or  house." 

Agency  in  another  town  to  receive 
deposits  and  pay  checks 
531.     Opinion  desired  as  to  legahty  of 
national  bank  having  an  arrangement  with  a 


merchant  or  lawyer  in  another  town  whereby 
he  receives  deposits  and  makes  payments  on 
account  for  bank.  Opinion:  A  national 
bank  cannot  have  branches.  The  law  re- 
quires that  the  "place"  where  the  business  is 
to  be  carried  on  shall  be  stated  in  organiza- 
tion certificate.  Comptroller  of  the  Currency 
has  ruled  that  a  national  bank  cannot  have  a 
branch  office.  The  word  "place"  means 
the  local  domicile  of  the  corporation,  of 
which  it  can  have  but  one.  The  Sohcitor 
of  the  Treasury  rendered  an  opinion  on 
August  10,  1899,  on  question  of  the  right  of 
a  national  bank  to  estabhsh  an  auxihary 
cash  room  at  some  point  distant  from  its 
banking  house,  for  the  purpose  of  receiving 
deposits  and  paying  checks,  and  held  that 
this  could  not  be  done.  {Inquiry  from  Vt., 
June,  1918.) 

Right  to  establish  branches 

532.  Under  the  present  Federal  law, 
national  banks  are  not  permitted  to  estab- 
lish branches,  either  in  or  outside  of  the 
city  in  which  they  are  located.  Except 
that  Section  25  of  the  Federal  Reserve 
Act  authorizes  national  banks  having  capital 
of  $1,000,000  or  more,  upon  permission  of 
Federal  Reserve  Board,  to  estabhsh  branches 
in  foreign  countries  or  dependencies  or 
insular  possessions  of  the  United  States. 
Under  the  Massachusetts  law  a  savings 
bank  can  estabhsh  branches  for  deposit 
only  within  a  certain  area  and  under  certain 
restrictions.  Mass.  Savings  Bank  Act, 
Sec.  36.  {Inquiry  from  Mass.,  June,  1916, 
Jl.) 

Real  estate  transactions 

Mode  of  execution  of  real  estate  deed 

533.  The  laws  of  Wisconsin  prescribe 
that  all  conveyances  of  real  estate,  executed 
by  a  corporation  organized  under  the  laws 
of  Wisconsin  shall  be  signed  by  the  president 
or  vice-president  and  countersigned  by  the 
cashier  or  a  clerk.  Conveyances  ehgible  for 
record  are  those  executed  in  accordance 
with  the  state's  requirements.  Would  a 
national  bank  conveyance  signed  by  the 
president  or  cashier  convey  good  title? 
Would  it  be  eligible  for  record  in  Wisconsin? 
Opinion:  Where  the  by-laws  of  a  national 
bank  in  Wisconsin  provide  that  conveyances 
of  its  real  estate  shall  be  signed  by  the 
president  or  cashier,  and  the  statute  of 
Wisconsin  provides  that  conveyances  of 
land  owned  by  a  corporation  "organized 
under  any  law  of  this  state"  shall  be  signed 
by  the  president  or  other  authorized  officer 


110 


BANKS,  ETC.— NATIONAL  BANKS 


[534-537 


and  countersigned  by  the  secretary,  assist- 
ant secretary,  assistant  cashier  or  clerk 
thereof,  it  would  seem  that  such  statute 
would  not  be  held  to  apply  to  a  national 
bank,  and  that  a  deed  executed  in  accord- 
ance with  its  by-laws  would  be  eligible  for 
record.  (Wis.  Stat.  Sees.  2216,  2218; 
U.  S.  Rev.  St.  Sees.  5136,  5137).  {Inquiry 
from  Wis.,  Feb.,  1921,  Jl.) 

Loans  on  real  estate  security 

534.  A  bank  holds  notes  of  a  company 
secured  by  indorsers  and  the  company  has 
executed  a  trust  deed  to  secure  the  indorsers 
with  a  right  in  the  bank,  if  the  indorsers  do 
not  pay,  to  demand  that  the  trustees  fore- 
close the  trust  and  pay  the  notes.  The 
bank  asks  whether  the  transaction  is 
prohibited  by  the  National  Bank  Act. 
Opinion:  In  Union  National  Bank  v. 
Matthews,  98  U.  S.  621,  A  gave  his  note  to 
B  secured  by  deed  of  trust,  B  assigned  the 
note  and  deed  to  a  national  bank  to  secure 
a  loan  by  the  bank  to  him  thereon.  It  was 
contended  the  loan  was  prohibited  and  the 
security  unenforceable.  The  court  pointed 
out  that  the  loan  was  made  upon  the  note 
as  well  as  the  deed  and  that  the  bank  might 
have  deemed  the  maker  abundantly  suffici- 
ent without  the  security  and  it  said:  "We 
find  nothing  in  the  record  touching  the 
deed  of  trust  which  in  our  judgment  brings 
it  within  the  letter  or  the  meaning  of  the 
prohibitions  rehed  upon  by  the  counsel  for 
the  defendant  in  error."  But  even  assuming 
that  the  loan  was  made  upon  real  estate 
security  within  the  meaning  of  the  statute 
and  considering  the  case  in  that  aspect,  the 
court  held  that  the  security  was  nevertheless 
enforceable  and  that  a  private  person 
could  not  defend  on  the  ground  that  the 
loan  was  ultra  vires.  The  above  case  was 
followed  by  National  Bank  of  Genesee  v. 
Whitney,  103  U.  S.  99.  {Inquiry  from 
Tenn.,  June,  1918.) 

535.  Is  it  permissible  by  law  for  a 
national  bank,  and  member  of  the  Federal 
Reserve  System,  to  accept  an  assignment  of 
a  mortgage  as  secondary  collateral?  Opin- 
ion: Under  an  amendment  of  Sec.  24, 
Federal  Reserve  Act,  of  September  7,  1915, 
national  banks  not  situated  in  central 
reserve  cities  are  authorized  to  make  loans 
secured  by  improved  and  unincumbered 
farm  land  within  the  Federal  Reserve  Dis- 
trict, or  within  100  miles  of  the  bank;  also 
to  make  loans  secured  by  improved  and 
unincumbered  real  estate,  other  than  farm 
lands,  within  100  miles  of  the  location  of  the 


bank.  The  farm  land  loans  are  Umited  to 
five  years  duration,  and  the  real  estate 
loans  to  one  year.  Loans  in  either  case 
must  not  exceed  50%  of  the  real  estate 
security,  and  are  limited  in  amount  to  25% 
of  the  capital  and  surplus  of  the  bank  or 
one-third  of  its  time  deposits.  Although  a 
national  bank  can  only  make  a  loan  on  real 
estate  for  a  period  of  one  year,  it  has  been 
ruled  by  the  Federal  Reserve  Board  that 
at  the  end  of  the  year  it  may  make  a  new 
loan  upon  the  same  security  for  a  period  of 
not  exceeding  one  year.  The  old  note  must 
be  cancelled  and  a  new  note  taken,  but  the 
original  mortgage  may  be  so  drawn  as  to 
cover  possible  future  renewals.  The  bank 
cannot,  however,  obligate  itself  in  advance 
to  make  a  renewal.  Aside  from  the  above,  a 
national  bank  is  allowed  to  make  loans  to  an 
individual  borrower,  irrespective  of  security, 
up  to  10%  of  its  capital  and  surplus;  but  a 
loan  on  real  estate  security  would  be 
figured  as  part  of  the  10%.  Prior  to  the 
amendment  to  the  Federal  Reserve  Act,  it 
was  generally  held  that  a  national  bank  had 
no  power  to  take  real  estate  security  for 
contemporaneous  loans.  At  present,  how- 
ever, it  would  seem  that  where  a  bank 
makes  a  loan  to  a  borrower  there  would  be 
no  objection  to  accepting  an  assignment  of  a 
real  estate  mortgage  as  secondary  collateral. 
In  any  event,  the  security  would  be  vahd, 
and  only  the  Government  could  complain  if 
it  was  not  within  the  law.  {Inquiry  from 
N.  J.,  Dec,  1920.) 

536.  A  customer  borrowed  money  from 
a  national  bank,  and  executed  a  mortgage 
as  security.  The  customer  later  became 
bankrupt.  Opinion:  The  security  is  valid 
as  against  the  borrower  and  his  creditors 
and  only  the  Government  can  attack  the 
transaction  as  an  ultra  vires  act.  The  bank 
can  hold  the  security  as  against  the  trustee  in 
bankruptcy  of  the  borrower.  Nat.  Bk.  v. 
Whitney,  103  U.  S.  99.  Reynolds  v. 
Crawfordsville  Nat.  Bk.,  112  U.  S.  405. 
{Inquiry  from  W.  Va.,  June,  1912,  Jl.) 

Contracts  and  transactions  in  general 

Poicer  to  purchase  stock 

537.  Advice  is  asked  as  to  whether  a 
national  bank  has  power  to  purchase  for  its 
own  investment  high  class  marketable 
stock.  Opinion:  The  courts  have  held  in 
several  cases  that  a  national  bank  has  no 
power  to  purchase  or  deal  in  stocks  or  buy  or 
sell  them  on  commission.  See,  for  example, 
Barrow  v.  McKinnon,  196  Fed.  933.    But, 


111 


538-541] 


DIGEST  OF  LEGAL  OPINIONS 


while  national  banks  are  impliedly  pro- 
hibited from  deahng  in  stocks,  they  may 
accept  stock  in  corporations  when  trans- 
ferred to  them  in  satisfaction  or  payment  or 
by  way  of  compromise  of  debts  due  the 
bank,  in  which  case  there  is  a  duty  to 
dispose  of  the  stock  within  a  reasonable 
time.    {Inquiry  fr 0771  Pa.,  June,  1919.) 

Investment  in  stock  of  safe  deposit  company 

538.  A  national  bank  asks  whether  it 
can  hold  stock  in  a  safe  deposit  company 
located  in  its  own  building.  Opinion:  As 
a  general  proposition  it  is  unlawful  for  a 
national  bank  to  deal  in  stocks  or  to  invest 
in  stock  of  other  corporations.  This  is  held 
beyond  the  power  of  a  national  bank.  But 
in  Fourth  Nat.  Bank  v.  Stahlman,  178 
S.  W.  (Tenn.),  942,  it  was  held  that  where  a 
national  bank  acts  in  good  faith  with  a  view 
to  providing  suitable  quarters  for  the 
transaction  of  its  business,  it  may  acquire 
and  hold  stock  in  a  building  corporation. 
There  seems  to  be  no  judicial  precedent 
deahng  with  the  question  whether  a  national 
bank  can  hold  stock  in  a  safe  deposit  com- 
pany located  in  its  own  building,  but  upon 
the  same  principle  that  the  holding  of  stock 
in  a  building  corporation  to  provide  suitable 
quarters  is  permissible,  it  would  seem  that 
the  holding  of  stock  in  a  safe  deposit 
company  located  in  its  own  building,  being 
in  furtherance  of  the  transaction  of  its 
legitimate  business,  would  likewise  be 
permissible.  Concerning  the  matter  of 
investing  in  safe  deposit  vaults,  it  appears 
that  the  Comptroller  of  the  Currency  has 
held  that  investment  of  a  moderate  amount 
for  such  purpose  in  cities  where  companies 
cannot  be  properly  organized  for  the  sole 
purpose  of  conducting  this  line  of  business 
is  not  open  to  criticism.  The  Comptroller 
adopts  the  view  that  the  matter  is  one 
largely  in  the  discretion  of  the  directors  of 
the  bank.  {Inquiry  from  N.  Y.,  March, 
1919.) 

Purchase  of  stock  and  disposal  by 
trust  agreement 

539.  A  bank  is  seeking  some  means 
whereby  stock  purchased  by  it  as  an  invest- 
ment, may  be  held  under  a  trust  agreement 
for  the  benefit  of  stockholders,  and  cer- 
tificates issued  in  the  form  of  a  dividend  for 
stockholders.  Opinion:  It  seems  the  pur- 
pose desired  might  be  carried  out  by  a 
proper  form  of  conveyance  to  a  trustee  to 
hold  the  stock  in  trust  for  the  benefit  of 
certain   named   beneficiaries,    namely,    the 


holders  of  the  stock  of  the  bank  and  their 
assigns;  the  income  from  such  stock  and 
the  principal,  if  a  power  of  sale  was  to  be 
included,  to  be  paid  over  to  the  beneficiaries 
proportionately  to  their  stock  holdings, 
the  details  of  all  this  to  be  specified  in 
accordance  with  the  particular  intent  as  to 
the  disposition  of  the  income  and  principal 
of  the  trust  property.  Of  course,  while  a 
national  bank  has  no  power  to  invest  in 
bonds  but  only  to  loan  on  their  security, 
only  the  Government  can  complain.  It 
seems  safe  to  suppose  that,  if  the  bank  itself 
held  these  bonds,  the  Comptroller  would 
compel  it  to  sell  them.  But  if  it  should,  as 
suggested,  convey  the  bonds  to  a  trustee 
for  the  benefit  of  its  stockholders,  it  is 
doubtful  that  the  Comptroller  could  upset 
the  transfer  as  it  would  be  virtually  nothing 
more  than  the  bank  taking  so  much  money 
out  of  the  assets  and  distributing  it  among 
its  stockholders.  {Inquiry  from  Mass., 
Dec,  1914.) 

Syndicate  to  float  stock  of  industrial 
corporation 

540.  Is  there  any  restriction  in  the 
banking  law  prohibiting  a  national  bank 
from  joining  a  syndicate  formed  for  the 
purpose  of  floating  a  stock  issue  of  an  in- 
dustrial corporation?  Opinion:  The  Su- 
preme Court  of  the  United  States  has  re- 
peatedly held  that  it  is  beyond  the  power 
of  a  national  bank  to  deal  in  stocks.  (Bank 
V.  Kennedy,  167  U.  S.  362.  First  Nat. 
Bank  v.  Nat.  Exch.  Bank,  92  U.  S.  122. 
First  Nat.  Bank  v.  Hawkins,  19  Sup.  Ct. 
Rep.  739.)  From  these  cases  it  would 
appear  that  the  power  is  not  conferred  upon 
a  national  bank  to  join  with  others  in 
purchasing  stock  of  an  industrial  corporation, 
presumably  for  the  purpose  of  selling  or 
marketing  such  stock.  Such  a  transaction 
would,  it  would  seem,  be  a  deahng  in  stock, 
which  is  prohibited ;  it  would  not  be  making 
a  loan  on  the  security  of  stocks.  {Inquiry 
from  N.  Y.,  July,  1917.) 

Purchase  of  industrial  bonds 

541.  A  power  company  offers  for  sale 
fifteen  year  6%  first  mortgage  bonds  of  the 
company  secured  upon  entire  physical 
property  rights  and  franchises  of  the 
company.  Has  a  national  bank  power  to 
invest  in  such  bonds,  and  if  so,  how  much? 
Opinion:  There  are  early  cases  which  hold 
that  a  national  bank  has  no  power  to  deal 
in  stocks  and  bonds,  and  that  prohibition  is 
impUed  from  faihng  to  grant  the  power. 


112 


BANKS,  ETC.— NATIONAL  BANKS 


[542-545 


(Weckler  v.  First  Nat.  Bank,  42  Md.  581. 
First  Nat.  Bank  v.  Hock,  89  Pa.  St.  324. 
Cal.  Nat.  Bank  v.  Kennedy,  167  U.  S.  362) 
but  there  seems  to  be  a  broadening  of 
judicial  view  in  this  regard.  Thus,  it  has 
been  held  that  national  banks  may  deal  in 
Government  and  municipal  bonds.  (Leach 
V.  Hale,  31  Iowa  69.  Newport  Nat.  Bank 
V.  Board  of  Education,  114  Ky.  87.  Junc- 
tion City  V.  Bank,  96  Kan.  407.  Yerkes  v. 
First  Nat.  Bank,  69  N.  Y.  383.)  However, 
in  the  instant  case,  if  a  bank  should  purchase 
these  bonds  from  the  company,  it  would  be 
virtually  making  a  loan  to  the  company  for 
fifteen  years  upon  real  estate  security. 
This  would  not  be  permissible  as  a  loan,  even 
to  the  10%  limit  to  any  one  borrower.  But 
if  the  transaction  were  a  purchase  of  the 
bonds,  as  distinguished  from  a  loan,  as  in  a 
case  where  the  bonds  were  purchased  from 
a  third  person,  there  would  be  no  Umit  to 
the  amount  which  could  be  purchased,  if 
there  was  any  power  to  purchase  such 
bonds  at  all.  If  a  bank  should  purchase  a 
reasonable  amount  of  these  bonds,  subject 
to  the  disapproval  of  the  Comptroller  of  the 
Currency,  there  might  be  nothing  to  prevent 
their  purchase,  provided  they  could  be 
marketed  without  a  loss  should  the  Comp- 
troller compel  the  bank  to  get  rid  of  them. 
However,  it  is  doubtful,  under  the  present 
condition  of  the  law,  whether  a  national 
bank  can  purchase,  as  an  investment, 
bonds  of  an  industrial  corporation.  {In- 
quiry from  Iowa,  March.  1920.) 

542.     A  bank  asks  whether  " 


—  & 

Co.  Real  Estate  First  Mortgage  43^%  30- 
year  Gold  Bond"  is  legal  for  a  national 
bank  investment.  Opinion:  It  was  held  in 
a  number  of  earlier  cases  that  a  national 
bank  has  no  power  to  buy  and  sell  stocks  and 
bonds;  that  such  transactions  are  ultra 
vires.  See,  for  example,  Wickler  v.  First 
Nat.  Bank,  42  Md.  581.  This  rule,  however, 
did  not  apply  to  Government  bonds,  and 
in  some  of  the  more  recent  cases  the  power  of 
a  national  bank  to  purchase  municipal 
bonds  has  been  upheld.  See,  for  example, 
Newport  Nat.  Bank  v.  Board  of  Education, 
70  S.  W.  (Ky.)  186,  wherein  it  was  held  that 
a  national  bank  may  purchase  corporate 
bonds  issued  by  the  board  of  education  of  a 
city.  There  appears  to  be  no  reported  case, 
nevertheless,  where  the  question  at  issue  has 
been  the  power  of  a  national  bank  to  pur- 
chase industrial  bonds,  such  as  those 
referred  to  in  the  instant  case.  At  the 
same  time  if  the  power  given  in  the  National 
Bank  Act  to  discount  evidences  of  debt  is 


to  be  given  a  liberal  meaning,  industrial 
bonds  are  evidences  of  debt  and  as  "dis- 
counting" is  sufficiently  comprehensive  to 
include  acquisition  by  purchase,  (Morris  v. 
Third  Nat.  Bank,  142  Fed.  25)  it  might  be 
held  that  a  national  bank  has  this  power. 
It  would  be  well,  however,  to  obtain  a  ruling 
from  the  Comptroller  of  the  Currency  before 
making  such  a  purchase.  {Inquiry  from 
N.  Y.,  Oct.,  1917.) 

Power  to  act  as  broker  in  sale  of  securities 

543.  Has  a  national  bank  power  to  act 
as  broker  in  the  sale  of  securities?  Opinion: 
It  has  been  held  in  several  cases  that  a 
national  bank  has  no  power  to  deal  in 
stocks  and  bonds  or  buy  and  sell  them  upon 
commission;  that  such  operations  are  not 
incidental  to  the  business  of  banking  as 
defined  in  the  statute.  (Weckler  v.  First 
Nat.  Bank,  42  Md.  581.  First  Nat.  Bank 
V.  Hock,  89  Pa.  St.  324.  First  Nat.  Bank  v. 
Nat.  Exch.  Bank,  92  U.  S.  122.)  But  a 
different  rule  applies  to  Government  bonds, 
in  which  it  is  customary  for  national  banks 
to  deal.  (Yerkes  v.  Nat.  Bank,  69  N.  Y. 
383.  Van  Lenven  v.  First  Nat.  Bank,  54 
N.  Y.  671.  Leach  v.  Hale,  31  Iowa  69)  and 
it  has  likewise  been  held  that  a  national 
bank  has  power  to  deal  in  municipal  bonds. 
(Newport  Nat.  Bank  v.  Board  of  Education, 
114  Ky.  87.  Junction  City  v.  Bank,  96  Kan. 
407).    {Inquiry  from  Pa.,  March,  1920.) 

Increase  of  book  value  of  banking  house 

544.  A  bank  asks  whether,  in  view  of 
the  fact  that  its  banking  house  and  land 
have  greatly  increased  in  value  during  the 
past  ten  years,  it  would  be  proper  to  in- 
crease this  item  on  its  general  ledgers. 
Opinion:  It  would  seem  to  be  within  the 
power  of  the  board  of  directors  to  increase 
the  book  value  thereof  so  that  it  will  more 
nearly  conform  to  the  actual  market  value. 
It  does  not  seem  necessary-  to  obtain  the 
permission  of  the  Comptroller  of  the 
Currency;  in  any  case  of  over-valuation  of 
assets,  it  would  probably  be  reported  to  him 
by  the  examiner.  At  the  same  time  it  may 
not  be  out  of  place  to  write  the  Comptroller 
of  the  Currency,  stating  that  the  directors 
contemplate  taking  this  step  and  asking  if 
there  is  any  objection.  {Inquiry  from  Tenn., 
June,  1916.) 

Sale  of  foreign  exchange 

545.  Is  a  national  bank  authorized, 
under  existing  laws,  to  sell  foreign  exchange 
and  steamship  tickets?     Opinion:     A  na- 


113 


546-551] 


DIGEST  OF  LEGAL  OPINIONS 


tional  bank  has  power  to  sell  foreign  ex- 
change, but  not  the  power  to  engage  in  the 
business  of  selHng  steamship  tickets.  Au- 
gusta V.  Earle,  13  Pet.  (U.  S.)  60;  U.  S. 
Rev.  St.,  Sec.  5136;  U.  S.  Rev.  St.,  Sec. 
5197.    {Inquiry  from  Pa.,  June,  1920,  Jl.) 

Power  to  donate  services  of  clerk 

546.  The  right  and  power  of  a  national 
bank  to  furnish  such  gratuities  as  check 
books,  pass-books,  calendars  and  other 
articles  of  utility  has  never  been  brought  into 
question.  Should  a  dissatisfied  stockholder 
complain,  the  furnishing  of  such  gratuities 
to  a  reasonable  extent  would  probably  be 
held  within  the  implied  powers  of  the  bank, 
as  in  case  of  gratuitous  collections.  It  has 
been  held  an  executive  officer  has  no  power 
to  donate  the  bank's  funds  for  erection  of  a 
paper  mill.  The  donation  of  services  of  a 
clerk  to  assist  in  conduct  of  a  public  sale  as  a 
means  of  getting  business  for  the  bank 
might  be  within  its  implied  powers;  at  all 
events  not  a  serious  abuse  of  power.  Robert- 
son V.  Buffalo  County  Nat.  Bk.,  40  Neb.  235. 
{Inquiry  from  III.,  April,  1913,  Jl.) 

Power  to  give  cash  bonus  to  officers 
and  employees 

547.  It  is  the  practice  of  national  banks 
in  large  cities  to  give  cash  bonuses  to  their 
officers  and  employees?  Is  this  permissible 
under  the  National  Bank  Laws?  Opinion: 
(a)  It  is  quite  customary  for  many  national 
banks  in  the  larger  cities  to  give  cash 
bonuses  around  the  hohday  season  to  their 
employees.  In  the  case  of  officers  the  cus- 
tom does  not  seem  to  be  well  crystalized, 
though  in  some  banks  it  is  customary  to 
make  a  "special  payment"  to  officers,  as 
well  as  a  cash  bonus  to  employees,  (b) 
With  respect  to  the  legality  of  the  custom, 
it  would  seem  to  be  within  the  power  of  a 
national  bank,  and,  therefore,  legal,  to 
donate  a  percentage  of  their  salaries  to 
officers  and  clerks,  as  an  act  which  would 
fall  within  the  implied  powers  of  the  bank 
which  are  necessary  to  carry  into  effect  the 
powers  specifically  granted.  National  banks 
provide  a  number  of  facilities  gratuitously 
for  their  customers,  free  check  books,  pass 
books,  pocket  diaries,  calendars,  etc.,  as  well 
as  making  free  collections.  There  is  no 
specific  power  in  the  National  Bank  Act 
to  do  any  of  these  things,  but  they  fall 
witliin  the  implied  powers  of  the  bank. 
Equally,  it  would  seem,  the  making  of  a 
bonus  to  officers  and  clerks,  as  an  addition 
to  their  respective  salaries,  would  clearly 


fall  within  the  implied  powers  of  a  national 
bank.    {Inquiry  from  Mich.,  Nov.,  1919.) 

Payment  of  premium  on  bond  of  township 
treasurer 

548.  A  bank  inquires  whether  it  would 
be  beyond  its  power  to  pay  the  premium  to 
a  bonding  company  upon  the  bond  of  a 
township  treasurer;  and  also  asks  if  the  bank 
should  pay  the  premium  for  the  bond,  and 
pay  no  interest  on  the  account,  while  ad- 
vertising 2%  on  active  accounts,  would  it  be 
construed  as  being  an  illegal  bonus?  Opin- 
ion: It  does  not  appear  to  be  beyond  the 
power  of  a  national  bank  to  pay  the  premium 
to  a  bonding  company  upon  the  bond  of  a 
township  treasurer.  It  is  to  the  interest  of 
the  bank  to  secure  deposits  and  solicit  and 
obtain  all  desirable  deposit  accounts  possi- 
ble, and  if  to  this  end  it  pays  the  premium 
upon  the  bond,  as  an  inducement  for  him  to 
make  deposit  of  the  funds  of  the  township 
with  the  bank,  it  is  doubtful  that  it  would 
be  held  ultra  vires.  As  to  the  second  ques- 
tion: There  appears  to  be  no  law  in  Penn- 
sylvania which  requires  a  township  treasurer 
to  deposit  moneys  in  a  bank  which  pays 
interest  and  it  seems  the  bank  could  make 
such  contract  as  it  chose  with  reference  to 
paying  interest  or  not  paying  interest  upon 
any  particular  deposit.  {Inquiry  from  Pa., 
Nov.,  1917.) 

Loans  in  general 

Loan  on  certificates  of  deposit 

549.  There  is  nothing  in  the  National 
Bank  Act  to  prohibit  a  bank  from  loaning 
money  on  the  security  of  its  own  certificates 
of  deposit.  It  cannot,  however,  loan  on  the 
security  of  its  own  shares  of  stock.  Fisher 
V.  Continental  Bk.,  64  Fed.  707.  {Inquiry 
from  N.  J.,  March,  1910,  Jl.) 

Two-name  paper  of  directors 

550.  A  bank  inquires  whether  there  is 
any  law  providing  that  national  banks 
cannot  loan  to  their  directors  except  on 
two-named  paper.  Opinion:  The  National 
Bank  Act  contains  no  such  provision,  nor  is 
there  any  amendment  thereto  or  ruling 
whereby  national  banks  cannot  loan  to  their 
directors  except  on  two-name  paper.  {In- 
quiry from  Tex.,  Nov.,  1916.) 

Limitation  of  loans 

Overdraft  as  excess  loan 

551.  A  national  bank  with  a  capital 
and    surplus    of    $90,000,    having    loaning 


114 


BANKS,  ETC.— NATIONAL  BANKS 


1552-556 


capacity  of  $9,000  to  any  one  borrower,  dis- 
counted a  note  of  a  state  bank  for  S8,000  and 
allowed  such  bank  to  overdraw  its  account 
by  $2,500.  Opinion:  The  national  bank  ex- 
ceeded the  legal  limit  of  its  loaning  power. 
Sec.  Nat.  Bk.  v.  Burt,  93  N.  Y.  233.  {In- 
quiry from  Col.,  Nov.,  1916,  Jl.) 

Additional  loan  to  stockholder 

552.  When  the  limit  is  loaned  by  a 
national  bank  to  a  corporation,  an  addi- 
tional loan  to  a  stockholder  is  not  excessive 
unless  corporation  is  maker  or  indorser  on 
paper  or  loan  to  stockholder  is  for  its  benefit. 
The  National  Bank  Act  contemplates  that 
no  loan  in  excess  of  the  hmit  shall  be  granted 
to  any  one  interest.  {Inquiry  from  III., 
Aug.,  1912,  Jl.) 

Notes  signed  by  36  farmers 

553.  A  bank  states  that  its  loaning  hmit 
is  $3,750  to  any  one  individual  or  firm.  The 
bank  has  been  offered  two  notes  for  $3,000 
each,  signed  by  36  farmers.  The  same 
names  appear  on  each  note,  but  the  order  of 
signing  is  not  the  same.  The  bank  asks  if  it 
can  carry  both  of  these  notes  without  being 
charged  with  making  excessive  loans.  Opin- 
ion: Irrespective  of  the  order  of  names,  as 
each  farmer  would  be  hable  on  both  notes, 
it  seems  the  ten  per  cent,  hmit  would  be 
exceeded.  The  Act  provides  that  "the  total 
liabihties  to  any  association  or  any  person 
*  *  *  shall  at  no  time  exceed  one-tenth, 
etc."  In  this  case  each  farmer  would  be 
under  a  total  Uability,  exceeding  one-tenth. 
If  the  bank  could  arrange  to  have  eighteen 
farmers  sign  one  three  thousand  dollar  note 
and  the  other  eighteen  farmers  sign  the 
other  three  thousand  dollar  note,  that 
would  be  within  the  law,  if  the  security  was 
suflBicient.  {Inquiry  from  Minn.,  Dec,  1916.) 

Meat  packer's  notes 

554.  A  bank  has  a  capital  and  surplus 
of  $200,000  which  limits  it  in  loaning  to  one 
person  or  concern  to  $20,000.     The  bank 

purchased  &   Company's    notes, 

which  mature  in  1921.  The  Deputy  Comp- 
troller claims  that  this paper  is  not 

commercial  or  business  paper  within  the 
meaning  of  Section  5200  of  the  National 
Banking  Act.  The  bank  asks  to  be  advised 
respecting  same.  Opinion:  The  Act  provides 
that  "the  discount  of  commercial  or  business 
paper  actually  owned  by  the  person  nego- 
tiating the  same  shall  not  be  construed  as 
money  borrowed"  so  as  to  be  included  within 
the  ten  per  cent,  limit.     The  question  is 


whether   the 


&   Company's   notes 


purchased  by  the  bank  would  fall  within 
this  designation  of  commercial  or  business 
paper  actually  owned  by  the  person  nego- 
tiating the  same.  It  does  not  seem  that 
these  notes  are  given  in  payment  of  goods 
purchased  and  negotiated  by  the  payee,  in 
which  case  they  would  not  fall  within  the 
designation,  but  rather  that  thej''  are  notes 
issued  against  their  general  credit,  upon 
which  they  are  the  sole  parties  liable  and  the 
purchase  of  which  would  virtually  be  a  loan 

to &  Co.  upon  their  notes.    It  seems 

that  the  contention  of  the  Deputy  Comp- 
troller that  this paper  is  not  commer- 
cial or  business  paper  within  the  meaning 
of  Section  5200  is  correct.  {Inquiry  from 
Neb.,  July,  1919.) 

Collateral  security  for  excess  loans 

555.  A  bank  desires  to  know  if  the  only 
collateral  that  can  be  used  to  secure  excess 
loans  is  Government  securities?  Opinion: 
Sec.  5200  U.  S.  Rev.  St.  excludes  from  the 
10%  hmit  of  borrowed  money  (1)  the  dis- 
count of  bills  of  exchange  drawn  against 
actually  existing  values;  (2)  the  discount  of 
commercial  or  business  paper  actually  owned 
by  the  person  negotiating  the  same;  (3)  the 
discount  of  notes  secured  by  documents 
covering  non-perishable  staples,  including 
hve  stock;  (4)  the  discount  of  notes  secured 
by  bonds  or  notes  of  the  Government  issued 
since  April  24,  1917,  with  certain  limitations 
as  to  the  amount.  The  Comptroller's 
circular  of  October  25,  1919,  specifies  the 
amounts  loanable.  {Inquiry  from  Ohio, 
Jan.,  1921.) 

Unaccepted  drafts  with  b/l  attached 

556.  Certain  national  bank  examiners 
made  a  ruling  that  the  purchase  of  drafts 
with  bills  of  lading  attached  in  excess  of  ten 
per  cent,  of  the  capital  and  surplus  of  the 
bank  created  an  excess  loan  to  the  concern 
issuing  the  drafts;  that  such  excess  loan  was 
a  violation  of  Section  5200,  United  States 
Revised  Statutes,  unless  the  drafts  are  ac- 
cepted by  the  drawee  before  the  purchase  by 
the  bank.  Opinion:  Such  ruhng  is  not  war- 
ranted by  the  law  and  will  not  be  sustained 
by  the  courts.  The  Comptroller  of  the  Cur- 
rency concurs  in  the  opinion  that  Section 
5200,  U.  S.  Revised  Statutes,  excepting  from 
the  10  per  cent,  limit  of  indebtedness  of  any 
one  person  of  money  borrowed  "the  discount 
of  bills  of  exchange  drawn  in  good  faith 
against  actually  existing  values"  does  not  re- 
quire that  such  bills  of  exchange  must  be  first 


115 


557-561] 


DIGEST  OF  LEGAL  OPINIONS 


accepted  before  purchase.  U.  S.  Rev.  St., 
Sec.  5200.  Sec.  Nat.  Bk.  v.  Burt,  93  N.  Y. 
233.  Bk.  V.  Railroad  Co.,  20  Kan.  519. 
Ratzer  v.  Burlington  &  Co.,  64  Minn.  245. 
(Inquiry  from  N.  Y.,Feh.,  1909,  Jl.) 

Interest  not  included  in  fixing  limit 

557.  Section  5200  U.  S.  Rev.  Stat. 
limiting  loans  by  any  association  to  a 
single  borrower  to  ten  per  cent,  of  capital 
and  surplus,  although  not  judicially  passed 
upon  is  construed  as  not  including  liability  of 
the  borrower  for  the  interest  upon  the  prin- 
cipal simi  loaned.  (Inquiry  from  N.  Y., 
May,  1918,  Jl.) 

Loan  to  A  on  note  of  B  where  latter  has  full 
borrowing  limit 

558.  Where  one  party  has  his  lawful 
borrowing  limit  at  a  national  bank,  and  a 
second  party  discounts  a  note  of  the  first 
party  at  the  bank,  does  this  constitute  an 
excess  loan  to  the  first  party?  Opinion: 
U.  S.  Rev.  St.,  Sec.  5200,  provides  that  "the 
total  habihties  to  any  association  of  any 
person  *  *  *  for  money  borrowed,  *  *  * 
shall  at  no  time  exceed  10%  of  the  amount 
of  the  capital  stock  of  such  association,  ac- 
tually paid  in  and  unimpaired,  and  10%  of 
its  unimpaired  surplus  fund,"  with  specified 
exceptions.  In  the  instant  case  the  second 
customer  is  the  borrower  and  the  fact  that 
he  borrows  on  the  note  of  the  first  customer, 
instead  of  making  his  own  note,  would  not, 
it  would  seem,  make  the  loan  illegal  as  an 
excessive  loan.  The  first  customer,  whose 
note  is  discounted,  becomes  indebted  on 
such  note  to  the  bank,  but  not  for  money 
borrowed.  The  law  does  not  limit  the  total 
indebtedness  of  a  single  person  to  10%,  but 
only  the  total  indebtedness  for  money 
borrowed.  It  is  lawful  to  loan  A  10%  and  to 
loan  B  10%,  and,  if  after  A  has  been  loaned 
10%,  a  loan  is  made  to  B  within  liis  10% 
limit,  by  the  latter  discounting  the  note  of 
A,  there  seems  to  be  no  reason  why  B  should 
be  deprived  of  the  right  to  borrow  up  to  his 
10%  (whether  he  does  or  does  not  discount 
the  note  of  A),  provided  the  bank  is  willing 
to  loan  him  the  money.  (Inquiry  from  Ohio, 
Jan.,  1921.) 

Liability  of  firm  included  with  that  of  partner 

559.  A  national  bank  with  a  capital  and 
surplus  of  $50,000  loaned  A  and  B  as  individ- 
uals $1,500  and  $2,500  respectively.  A 
and  B  as  partners  want  to  borrow  in  ad- 
dition ten  per  cent,  of  the  capital  stock  and 
surplus.      Opinion:     The    National    Bank 


Act  limits  Hability  of  any  one  borrower  for 
money  borrowed  to  ten  per  cent,  of  capital 
and  surplus  and  includes  in  the  liability  of  a 
firm  the  habilities  of  the  several  members. 
The  proposed  loan  would  therefore  be  ex- 
cessive.    (Inquiry  from  Pa.,  Oct.,  1916,  Jl.) 

560.  A  national  bank  loaned  to  a  firm 
ten  per  cent,  of  its  capital  and  surplus. 
An  individual  member  of  the  firm  asked  for 
a  further  loan  of  ten  per  cent.  Opinion: 
The  further  loan  to  such  individual  member 
of  the  firm  would  be  excessive  and  violative 
of  the  National  Bank  Act.  (Inquiry  from 
Tex.,  June,  1912,  Jl.) 

Limit  of  loans  on  farm  land 

561.  Can  a  national  bank  loan  to  any 
person  money  secured  by  farm  lands 
when  he  has  already  borrowed  ten  per  cent, 
of  the  bank's  capital  and  surplus;  if  so,  how 
much?  Opinion:  The  National  Bank  Act 
provides  a  limit  of  loans  to  any  one  person  of 
10%  of  capital  and  surplus,  in  no  event  to 
exceed  30%  of  capital.  The  Federal  Re- 
serve Act  (Sec.  24)  provides  that  the  bank 
may  make  farm  land  loans  "in  an  aggregate 
sum  equal  to  twenty-five  per  centum  of  its 
capital  and  surplus  or  to  one-third  of  its  time 
deposits."  There  has  been  no  ruling  on  this 
question,  but  it  would  seem  that  the  provi- 
sion of  the  National  Bank  Act  would  apply, 
so  that  in  making  loans  to  any  person  upon 
farm  lands  up  to  the  hmit  allowed  by  the 
Federal  Reserve  Act,  the  10%  of  the  National 
Bank  Act  would  have  to  be  figured  in.  To 
illustrate,  take  a  national  bank  with  $25,000 
capital  and  $15,000  surplus,  a  total  of  $40,- 
000.  Assume  that  A  has  already  borrowed 
$4,000  on  his  note,  and  should  request  a 
further  loan  of  $10,000  on  farm  land.  It 
would  seem  that  the  $4,000  would  have  to 
be  figured  in  and  that  all  that  could  be 
loaned  in  addition  on  the  farm  land  would 
be  $6,000,  making  a  total  loan  of  $10,000, 
which  would  be  25%  of  the  bank's  capital 
and  surplus.  There  appears  to  be  a  tenden- 
cy to  construe  the  Act  to  keep  the  loanable 
limit  to  any  one  borrower  down,  and  it  is 
probable  that  when  a  person  appHed  for  a 
loan  up  to  the  limit  on  farm  land,  having 
already  borrowed  the  10%  hmit  on  his  per- 
sonal note,  the  Act  would  be  construed  as 
requiring  such  personal  loan  to  be  figured 
in.  This  is  simply  opinion,  however,  and  the 
law  may  be  construed  otherwise.  There 
would  seem  to  be  need  of  a  positive  executive 
or  judicial  ruhng  on  this  point.  (Inquiry 
from  W.  Va.,  July,  19U.) 


116 


BANKS,  ETC.— NATIONAL  BANKS 


[562-563 


Note:  On  March  23,  1916,  M.  C.  EUiott, 
General  Counsel  Federal  Reserve  Board, 
rendered  an  opinion  to  the  Board  holding 
that  loans  by  a  national  bank  on  farm  lands 
come  within  the  limitation  imposed  by- 
Section  5200  U.  S.  Rev.  Stat. 

562.  Section  24  of  the  Federal  Reserve 
Act  empowering  national  banks  to  make 
loans  on  farm  lands  in  an  aggregate  sum 
equal  to  25  per  centum  of  its  capital  and 
surplus  does  not  modify  Section  5200,  U.  S. 
Revised  Statutes,  limiting  loans  to  a  single 
borrower  to  10  per  cent,  of  capital  and  sur- 
plus and  no  national  bank  may  loan  to  any 
person  upon  real  estate  more  than  10  per 
cent,  of  its  capital  and  surplus.  Fed.  Re- 
serve Act,  1913,  Sec.  24.  U.  S.  Rev.  St.,  Sec. 
5200.  {Inquiry  from  W.  Va.,  April,  1919, 
Jl.) 

Accented  demand  draft  for  price  of  cotton 
delivered 

563.  A  purchaser  of  cotton  accepts 
drafts  on  him  by  various  sellers  to  their  own 
order,  payable  on  demand.  These  are  in- 
dorsed by  the  sellers  and  held  by  a  national 
bank  until  the  buyer  makes  a  shipment  of 
cotton,  at  which  time  demand  for  pajTnent  is 
made  and  the  drafts  are  taken  up.  May  a 
national  bank  carry  these  drafts,  with  the 
single  acceptor,  in  excess  of  10%  of  its 
unimpaired  capital  and  surplus?  Opinion: 
Sec.  5200,  U.  S.  Rev.  St.,  containing  the 
10%  loan  limit  on  national  banks,  as  amend- 
ed in  1919,  contains  this  proviso:  "Pro- 
vided, however,  that  (1)  the  discount  of  bills 
of  exchange  drawn  in  good  faith  against 
actually  existing  values,  including  drafts 
and  bills  of  exchange  secured  by  shipping 
documents  conveying  or  securing  title  to 
goods  shipped,  and  including  demand  obli- 
gations when  secured  by  documents  covering 
commodities  in  actual  process  of  shipment, 
and  also  including  bankers'  acceptances  of 
the  kinds  described  in  Section  13  of  the 
Federal  Reserve  Act,  (2)  the  discount  of 
commercial  or  business  paper  actually  owned 
by  the  person,  company,  corporation,  or 
firm  negotiating  the  same.  . .  .shall  not  be 
considered  as  money  borrowed .  . .  . " 

The  fact  that  the  paper  is  payable  "on 
demand"  does  not  take  from  its  character 
as  a  "bill  of  exchange."  Negotiable  Instru- 
ments Act,  Sec.  126.  It  is  questionable 
whether  such  drafts  constitute  loans  to  a 
single  borrower,  within  Sec.  5200,  where  the 
proceeds  of  the  discount  in  each  case  go  to  a 
different  seller  of  the  cotton  who  is  both 
drawer  and  payee  of  the  draft,  merely  be- 


cause all  such  drafts  are  accepted  by  one 
concern  in  excess  of  that  limitation.  As- 
suming, however,  that  section  5200  applies 
to  paper  accepted  by  one  person,  the  further 
question  arises  whether  the  drafts  come 
within  the  proviso  of  the  section  above 
quoted.  Before  amendment  in  1919  and 
when  the  law  simply  excepted  from  the  10% 
limit  "the  discount  of  bills  of  exchange 
drawn  in  good  faith  against  actually  existing 
values  and  the  discount  of  commercial  or 
business  paper  actually  owned  by  the  person 
negotiating  the  same,"  General  Counsel 
Elliott  of  the  Federal  Reserve  Board  ren- 
dered an  opinion  (Nov.  27,  1916)  to  the 
effect  that  a  bill  of  exchange  discounted 
after  acceptance  is  drawn  against  actually 
existing  values  where  it  is  drawn  against  a 
delivery  of  goods  sold  within  a  reasonable 
time  after  such  delivery.  But  section  13 
of  the  Federal  Reserve  Act  covering  redis- 
counts provides  among  other  things,  that 
the  aggregate  of  paper  of  any  one  borrower 
"rediscount ed  for  any  one  bank  shall  at  no 
time  exceed  ten  per  centum  of  the  unim- 
paired capital  and  surplus  of  said  bank;  but 
this  restriction  shall  not  apply  to  the  dis- 
count of  bills  of  exchange  drawn  in  good 
faith  against  actually  existing  values,"  and 
an  opinion  of  the  Federal  Reserve  Board, 
pul)lished  in  the  Federal  Reserve  Bulletin 
for  Nov.  1919,  holds  that  "accepted  demand 
bills  on  which  the  drawer  is  released  from 
liabihty  are  not  'bills  of  exchange'  within  the 
meaning  of  section  13,  and  must,  therefore, 
be  included  in  determining  the  limits  on  the 
amount  of  paper  of  any  one  borrower  which 
a  Federal  Reserve  Bank  may  discount  for 
any  member  bank."  Hence,  the  Federal 
Reserve  Board  does  not  regard  drafts,  such 
as  those  submitted,  as  "drawn  against 
actually  existing  values,"  so  far  as  an  analo- 
gous statute  is  concerned.  The  phrase 
added  to  Sec.  5200  in  1919:  "including  de- 
mand obhgations  when  secured  by  docu- 
ments covering  commodities  in  actual  pro- 
cess of  shipment,"  also  gives  force  to  the 
contention  that  only  those  demand  obliga- 
tions which  are  secured  by  documents 
covering  goods  in  process  of  shipment  come 
within  the  definition  of  bills  of  exchange 
drawn  "against  actually  existing  values." 
The  attitude  of  the  comptroller's  office 
seems  to  be  to  exclude  accepted  demand 
drafts,  from  the  class  of  bills  of  exchange 
outside  the  10%  hmit,  on  the  theory  that 
the  commodity  might  be  held  by  the 
acceptor  indefinitely  waiting  a  rise  in  price, 
by  consent  of  the  bank,  consequently  this  is 


117 


564-568] 


DIGEST  OF  LEGAL  OPINIONS 


not  the  character  of  obhgation  intended  to 
be  excluded  from  the  10%  hmit.  The 
official  rulings  and  interpretations  as  above 
indicated,  may  or  may  not  be  followed  by 
the  courts.    {Inquiry  from  S.  C,  Feb.,  1921.) 

Limit  of  borrowing  power  from  correspondent 

564.  A  national  bank  suggests  desira- 
bility of  amendment  to  Federal  Reserve  Act 
so  as  to  permit  national  banks  to  borrow 
reasonable  amounts,  or  such  amounts  as 
may  be  needed  to  carry  on  their  business, 
from  their  correspondents.  Opinion:  It 
is  the  consensus  of  opinion  of  the  Cormnittee 
on  Federal  Legislation  of  the  American 
Bankers  Association  that  no  amendment  of 
the  Federal  Reserve  Act  is  needed.  It  was 
stated  that  the  avenue  was  open  to  any 
national  bank  by  rediscounting  with  its 
correspondent,  instead  of  attaching  the 
paper  to  bills  payable,  to  obtain  any  needed 
amount  irrespective  of  capital;  that  there 
was  no  limit  upon  the  amount  of  paper 
which  could  be  rediscounted  with  corre- 
spondents. It  would  seem,  therefore,  that 
the  limitation  of  the  borrowing  power  of  a 
national  bank  from  its  correspondent  to 
Daid-in  capital  is  one  which  applies  more  to 
the  form  than  the  substance  of  the  transac- 
tion. If  a  bank  makes  its  own  note  and 
attaches  bills  receivable  thereto  as  collateral, 
it  is  incurring  indebtedness  which  is  limited 
to  the  amount  of  its  capital.  But  if,  on  the 
other  hand,  it  discounts  its  bills  receivable 
with  its  correspondent,  indorsing  them  over, 
this  is  not  an  incurring  of  indebtedness 
limited  in  amount  to  the  amount  of  its 
capital.    {Inquiry  from  Ark.,  Oct.,  1920.) 

Guaranty  and  suretyship 

Guaranty  of  draft  on  third  person 

565.  A  bank  received  a  telegram  asking 
if  it  would  pay  a  draft  on  John  Jones  "for 
costs  of  car,  cows  and  calves  shipped  to 
him,"  to  which  the  bank  replied  that  it 
would  pay  draft  for  carload  of  cattle  to  John 
Jones.  Opinion:  It  appears  that  the  bank's 
promise  to  pay  was  on  condition  that  the 
cattle  were  shipped  to  John  Jones,  and 
where  no  cattle  were  shipped,  the  condition 
on  which  the  bank  made  the  promise  was  not 
fulfilled.  However  this  may  be,  there  is 
considerable  doubt  whether  a  bank  can  be 
held  liable  at  all  for  a  promise  to  pay  a  draft 
drawn  on  a  third  person  in  which  it  has  no 
interest.  In  First  Natl.  Bk.  v.  Am.  Natl.  Bk. 
of  Kansas  City,  173  Mo.  153  the  court 
referred  to  and  quoted  the  Federal  rule 
"that  a  national  Bank  has  no  power,  either 


with  or  without  a  sufficient  consideration, 
to  bind  itself  that  a  draft  of  A  upon  B  will 
be  paid;  that  such  agreement  is  a  mere 
guarantee  and  is  not  within  the  powers 
conferred  upon  such  banks,  and  that  when 
sued  upon  such  a  contract,  the  bank  can 
successfully  interpose  defense  of  ultra  vires;" 
and  this  court  (Mo.)  said:  "it  will  be  of  no 
profit  in  this  case  to  consider  the  rules  of 
law  adopted  by  the  several  states  bearing 
upon  the  power  of  banks  organized  by 
authority  other  than  the  Federal  Govern- 
ment, to  enter  into  such  contracts,  or  to 
interpose  the  defense  of  ultra  vires  after  the 
other  party  has  fully  performed  it,  for  the 
decisions  of  the  Federal  courts  treat  all  such 
contracts  as  void  and  unenforceable  as  to 
national  banks  and  this  court  is  in  duty 
bound  to  defer  to  these  Federal  decisions." 
{Inquiry  from  Mo.,  March,  1920.) 

566.  Can  a  national  bank  lend  its  credit 
by  guaranteeing  the  debt  of  another  solely 
for  his  benefit?  Opinion:  By  the  weight  of 
authority,  a  national  bank  cannot  lend  its 
credit  by  guaranteeing  the  debt  of  another 
solely  for  his  benefit.  (Barron  v.  McKinnon, 
179  Fed.  759.  Flannagan  v.  Cal.  Nat.  Bank, 
56  Fed.  969.  Bank  v.  Pirie,  82  Fed.  799. 
Moscow  First  Nat.  Bank  v.  American  Nat. 
Bank,  173  Mo.  153,  72  S.  W.  1059.  Contra: 
Farmers  etc.  Nat.  Bank  v.  Illinois  Nat. 
Bank,  146  111.  App.  136.  Hutchins  v. 
Planters'  Nat.  Bank,  128  N.  C.  72.  Mer- 
chants National  Bank  v.  Dunn  Oil  Mill  Co. 
157  N.  C.  302.)  {Inquiry  from  Mo.,  May, 
1919.) 

567.  Has  a  national  bank  a  legal  right  to 
guarantee  a  draft  drawn  upon  one  of  its 
customers?  Opinion:  Notwithstanding  the 
contrary  decisions  of  a  few  state  courts, 
(see  Farmers,  etc.,  Nat.  Bank  v.  111.  Nat. 
Bank,  146  111.  App.  136.  Hutchins  v. 
Planters  Nat.  Bank,  128  N.  C.  72),  a  great 
majority  of  the  courts  hold,  and  the  Federal 
rule  is  to  the  effect  that  it  is  beyond  the 
power  of  a  bank  to  guarantee  to  pay  the 
draft  of  A  upon  B.  (Flannagan  v.  California 
Nat.  Bank,  56  Fed.  959) .  Under  the  Federal 
Reserve  Act,  (Sec.  13),  however,  member 
banks  are  given  the  power  to  accept  drafts 
drawn  upon  the  bank  growing  out  of  do- 
mestic or  foreign  shipments.  Instead  of  the 
bank  attempting  to  guarantee  the  payment 
of  a  draft  drawn  upon  its  customer,  the 
customer  should  arrange  with  the  bank  to 
have  the  draft  drawn  directly  upon  it. 
{Inquiry  from  Mo.,  Dec,  1917.) 

568.  A  bank  guaranteed  payment  of  a 


118 


BANKS,  ETC.— NATIONAL  BANKS 


[569-571 


draft  drawn  by  a  person  in  payment  of 
several  car  loads  of  potatoes.  Had  the  bank 
legal  power  to  do  so?  Opinion:  The  Feder- 
al courts  hold  that  it  is  beyond  the  power  of 
a  bank  to  guarantee  the  payment  of  a  draft 
drawn  upon  one  of  its  customers,  and  refuse 
to  enforce  such  contracts  of  guarantee.  First 
Nat.  Bk.  V.  Am.  Nat..  Bk.,  130  Mo.  153. 
Nat.  Bk.  of  Brunswick  v.  Sixth  Nat. 
Bank,  212  Pa.  236.  Some  of  the  state 
courts  vary  from  this  rule,  holding  that  a 
bank  promising  to  paj^  a  draft  on  its  cus- 
tomer is  estopped  to  deny  its  want  of  power 
and  is  liable.  Oil  etc.  Co.  v.  Penn.  Trans. 
Co.,  83  Pa.  160;  also  Hutchins  v.  Bank 
128  N.  C.  72.  {Inquiry  from  N.  C,  Sept., 
1.918.) 

569.  A  national  bank  sent  a  telegram  as 
follows:    "We  guarantee  payment  of  draft 

John  Doe  on  R.  Roe  Corn  Co.  for  $ 

dollars  National  Bank."     A  bank 

asks  whether  the  guarantor  bank  can  be 
held  liable  thereon.  Opinion:  While  a  few 
state  courts  hold  a  national  bank  liable  on 
its  promise  to  pay  draft  of  A  on  B  (Hutchins 
V.  Planters  Nat.  Bk.,  128  N.  C.  72.  Farm- 
ers &  Merc.  Nat.  Bk.  v.  111.  Nat.  Bk.,  146 
111.  App.  136)  the  Federal  Courts  and  a 
greater  number  of  state  courts  hold  that  a 
promise  or  guarantee  by  a  national  bank 
that  A's  draft  upon  B  will  be  paid,  is  ultra 
vires  and  unenforceal^le.  (See  for  example, 
First  Nat.  Bk.  v.  Am.  Nat.  Bk.,  173  Mo. 
153.  Nat.  Bk.  of  Brunswick  v.  6th  Nat. 
Bk.,  212  Pa.  238.  First  Nat.  Bk.  v.  Monroe, 
69  S.  E.  1123,  Ga.  Sup.  Court).  But  if  the 
bank  should  receive  a  sufficient  deposit 
from  or  for  the  use  of  B  for  the  specific 
purpose  of  paying  A's  draft  on  B,  there 
appears  to  be  no  reason  why  it  cannot 
obligate  itself  to  pay  such  draft.  The  bank 
is  every  day  receiving  deposits  from  B  for 
the  purpose  of  paying  his  checks.  The  bank 
is  debtor  to  B  for  such  deposits  and  is  his 
agent  to  pay  such  debt  to  the  holder  of  B's 
checks.  Equally,  it  may  act  as  B's  agent  to 
pay  B's  specific  deposit  upon  such  drafts 
drawn  by  A  on  B  as  B  may  authorize  and 
direct  and  its  promise  to  a  prospective  pur- 
chaser of  such  drafts  that  it  will  pay  the 
same  based  on  an  appropriation  of  the  de- 
posit to  such  purpose,  would  be  binding. 
{Inquiry  from  N'.  Y.,  July,  1912.) 

570.  B  in  Tennessee  drew  on  A  in  Ohio 
and  a  national  bank  in  Ohio  wired  a  bank 
in  Tennessee  that  it  would  guarantee  that 
B's  draft  would  be  paid.  The  Tennessee 
bank  paid  B  the  amount  of  the  draft,  but 


could  not  collect  from  the  national  bank 
which  was  enjoined  from  making  payment. 
Opinion :  The  national  bank  had  no  power  to 
guarantee  B's  draft  in  which  it  had  no  inter- 
est and  from  which  it  derived  no  substantial 
benefit.  The  guaranty  was  ultra  vires  and 
unenforceable.  The  same  underlying  prin- 
ciple applies  as  well  to  state  bank  and  trust 
companies.  First  Nat.  Bk.  v.  American 
Nat.  Bk.,  173  Mo.  153.  Nat.  Bk.  v.  Sixth 
Nat.  Bk.,  212  Pa.  238.  Supply  Co.  v. 
Stockgrowers  Bk.,  173  Fed.  859;  Ayer  v. 
Hughes,  69  S.  E.  657.  Bacon  v.  Farmers 
Bk.,  79  Mo.  App.  406.  Merchants  Bk.  v. 
Baird,  160  Fed.  642.  Contra:  Hutchins  v. 
Planters  Nat.  Bk.,  128  N.  C.  72.  {Inquiry 
from  Tenn.,  Sept.,  1911.  Jl.) 

Guaranty  of  loans  to  customer 
571.  A  National  Bank  has  insufficient 
capital  and  surplus  to  make  all  loans  re- 
quested by  its  customers  and  its  president 
makes  an  agreement  by  letter  with  the  offi- 
cers of  B  National  Bank  to  send  the  latter 
some  of  such  loans  which  he  states  are  Al 
and  will  be  paid  or  taken  off  the  hands  of  B 
bank  by  A  bank  at  maturity.  This  agree- 
ment is  kept  for  a  time  but  finally  A  bank 
fails  to  take  up  certain  notes  at  maturity 
and  is  closed  by  the  Comptroller.  The 
notes  were  not  handled  as  rediscounts. 
Some  of  them  were  selected  from  the  files  of 
A  bank;  others  were  outside  loans.  Can  B 
bank  hold  the  receiver  of  A  bank  on  these 
notes?  Opinion:  If  A  bank  had  originally 
made  a  loan  upon  or  discounted  the  paper 
and  then  indorsed  it  to  B  bank,  the  latter 
could  hold  A  bank  or  its  receiver  thereon; 
but  if  such  paper  was  not  originall}^  acquired 
by  A  bank  but  was  simply  an  outside  trans- 
action,  the  courts  are  quite  unanimous  in 
holding  that  a  bank  has  no  power  to  guaran- 
tee the  debts  of  third  persons  in  which  it  has 
no  interest  and  the  agreement  by  the  presi- 
dent that  the  paper  would  be  paid  and  taken 
off  the  hands  of  B  bank  at  maturitj'  would 
not  be  binding  upon  A  bank.  In  First  Nat. 
Bank  of  Tallapoosa  v.  Monroe,  69  S.  E. 
(Ga.)  1123,  a  national  bank  had  over-loaned 
to  a  private  corporation,  one  of  its  cus- 
tomers. To  procure  additional  accommoda- 
tion for  the  corporation  the  cashier  procured 
another  bank  to  make  a  further  loan  to  the 
corporation  upon  the  guarantee  of  the 
national  bank  through  the  cashier  and  also 
of  the  cashier  individually  of  the  amount 
borrowed.  It  was  held  that  a  national  bank 
in  negotiating  its  own  paper  can  bind  itself 
for  the  pajment  by  its  indorsement  thereon 
but  cannot  guarantee  the  pajTuent  of  paper 


119 


572-575a] 


DIGEST  OF  LEGAL  OPINIONS 


of  others  or  become  surety  solely  for  the 
benefit  of  another.  The  guarantee  trans- 
action in  question  was  therefore  ultra  vires. 
See  Aldrich  v.  Chemical  National  Bank,, 
176  U.  S.  618.  Hanover  National  Bank  v. 
First  National  Bank,  109  Fed.  421.  {In- 
quiry from  Pa.,  Jan.,  1913.) 

Guaranty  of  note  of  warehouse  company 

572.  A  bonded  warehouse  company  is- 
sued to  A  bank  a  six  months  note  bearing 
indorsements.  A  letter  from  B,  a  national 
bank  accompanied  the  note,  stating  that  it 
would  see  that  the  note  was  liquidated  or 
take  it  up.  B  bank  received  the  money  and 
credited  it  to  the  maker's  account  to  cover 
an  existing  overdraft.  Can  the  holder  of  the 
note  (A  bank)  hold  the  guarantor  B  bank 
for  the  amount  of  the  note?  Opinion: 
Although  B  bank  was  without  power  to 
make  such  guaranty,  it  is  liable  for  the 
reason  that  it  received  the  proceeds  of  the 
note  and  applied  it  to  an  overdraft  of 
the  maker.  First  Natl.  Bk.  v.  Greenville 
0.  &  C.  Co.,  60  S.  W.  (Tex.)  828.  Citizens 
Nat.  Bk.  V.  Appleton,  216  U.  S.  196. 
{Inquiry  from  Tex.,  Nov.,  1919.) 

Surety  on  bond  of  county  official 

573.  A  national  bank  has  no  power  to 
become  guarantor  of  the  obligation  of 
another  person  in  which  it  has  no  interest. 
The  individual  members  of  the  board  of 
directors  of  a  national  bank  desiring  to  be- 
come sureties  on  the  bond  of  a  county  official 
have  the  power  so  to  do,  but  cannot  bind  the 
bank  upon  such  a  contract.  Bowen  v. 
Needles  Nat.  Bk.,  87  Fed.  430,  94  Fed.  925. 
Com.  Nat.  Bk.  v.  Pirie,  82  Fed.  799.  Thil- 
many  v.  Iowa  Paper  Bag  Co..  108  Iowa  333. 
First  Nat.  Bk.  v.  American  Nat.  Bk.,  173 
Mo.  153.  Nat.  Bk.  v.  Sixth  Nat.  Bk.,  212 
Pa.  238.  Bailey  v.  Farmers  Nat.  Bk.  97 
111.  App.  66.  {Inquiry  from  Tenn.,  Sept., 
1913,  Jl.) 

Surety  on  indemnity  bond  covering  duplicate 
for  stolen  collateral 

574.  A  national  bank  as  pledgee  of  cer- 
tain stock  certificates  pledged  as  collateral 
becomes  surety  on  an  indemnity  bond 
authorized  by  its  directors  to  enable  the 
owner  to  obtain  duplicate  for  the  stock  col- 
lateral, which  has  been  stolen  from  the  bank. 
Opinion:  The  execution  of  such  indemnity 
bond  b}'-  the  bank  either  as  principal  or  sure- 
ty was  probably  within  the  power  of  the 
bank  and  even  if  ultra  vires  the  directors 
would  not  be  held  personally  hable  by  reason 


of  such  authorization.  U.  S.  Rev.  St.,  Sec 
5147.  {Inquiry  from  W.  Va.,  May,  1912, 
Jl.) 

Trust  powers  of  national  banks 

Right  of  exercise  in  various  states 

575.  General  Counsel  of  the  American 
Bankers  Association  has  received  a  large 
number  of  requests  from  various  states  with 
respect  to  the  right  of  national  banks  to 
exercise  trust  powers.  In  view  of  the  fact 
that  they  involve  largely  the  same  questions 
it  has  been  thought  best  to  put  them  all  in 
the  form  of  one  composite  opinion  involving 
the  different  states.  Opinion:  The  basic 
statute  on  this  question  is  Federal  Reserve 
Act  Section  11  (k).  as  amended  by  Act  of 
September  26,  1918,  under  which  the  Fed- 
eral Reserve  Board  is  authorized  and  em- 
powered "to  grant  by  special  permit  to 
national  banks  applying  therefor,  when  not 
in  contravention  of  State  or  local  law,  the 
right  to  act  as  trustee,  executor,  administra- 
tor, registrar  of  stocks  and  bonds,  guardian 
of  estates,  assignee,  receiver,  committee  of 
estates  of  lunatics,  or  in  any  other  fiduciary 
capacity  in  which  State  banks,  trust  com- 
panies, or  other  corporations  which  come 
into  competition  with  national  banks  are 
permitted  to  act  under  the  laws  of  the 
State  in  which  the  national  bank  is  located." 
It  is  to  be  noted  under  the  terms  of  this 
subsection  that  a  permit  of  the  Federal 
Reserve  Board  is  required  before  the  trust 
powers  can  be  exercised. 

The  phrase  "when  not  in  contravention 
of  State  or  local  law"  in  the  original  act  was 
not  at  all  clear,  as  will  be  subsequently 
shown,  and  because  of  this  the  amendment 
of  September  26,  1918,  added  the  following 
clause:  "Whenever  the  laws  of  such  State 
authorize  or  permit  the  exercise  of  any  or 
all  of  the  foregoing  powers  by  State  banks, 
trust  companies,  or  other  corporations  which 
compete  with  national  banks,  the  granting 
to  and  the  exercise  of  such  powers  by  na- 
tional banks  shall  not  be  deemed  in  contra- 
vention of  State  or  local  law  within  the 
meaning  of  this  Act."  This,  then  is  a  statu- 
tory interpretation  of  the  phrase  "when  not 
in  contravention  of  State  or  local  law." 

575a.   Supreme courtdecision — OnJune  11, 

1917,  prior  to  the  amendment  of  the  statute  in 

1918,  the  supreme  court  of  the  United  States 
in  First  National  Bank  v.  Fellows,  244  U.  S. 
416  held  Section  11  (k)  in  its  original  form 
to  be  constitutional.  The  court  recognized 
as  the  plain  purpose  of  this  provision  the 


120 


BANKS,  ETC.— NATIONAL  BANKS 


[575b-575e 


enabling  of  national  banks  not  to  be  at  a 
disadvantage  with  state  institutions  in  the 
same  state,  exercising  trust  powers,  where 
those  state  institutions  also  exercised  bank- 
ing powers,  and  to  put  national  banks  on  a 
par  with  state  institutions  in  this  respect. 
The  court  said  that  the  phrase  "when  not  in 
contravention  of  state  or  local  law,"  means 
first  where  the  right  to  perform  trust  func- 
tions is  expressly  given  by  state  law,  that  is, 
by  state  statute;  and  secondly,  or  what  is 
equivalent,  where  the  right  "is  deducible 
from  state  law  because  that  law  has  given 
the  functions  to  state  banks  or  corporations 
whose  business  in  a  greater  or  less  degree 
rivals  that  of  national  banks,  thus  engender- 
ing from  the  state  law  itself  an  implication 
of  authority  in  congress  to  do  as  to  national 
banks  that  which  the  state  law  has  done  as 
to  other  corporations." 

The  supreme  court  makes  it  clear  that  the 
exercise  by  national  banks  of  trust  functions 
is  not  in  contravention  of  state  law  because 
of  the  theory  that  the  state  regulates  the 
subject  of  trusts  and  exercises  control  over 
trustees  and  that  this  is  incompatible  with 
its  lack  of  power  to  regulate  the  conduct  of 
national  banks.  So  far  as  state  regulations 
are  reasonable  and  non-discriminatory  be- 
tween state  and  nationally  chartered  trus- 
tees, the  supreme  court  points  out  that  the 
conferring  of  these  peculiar  powers  upon 
national  banks  carries  with  it  an  authority 
to  the  state  to  subject  national  and  state 
trustees  to  like  control ;  and  that  the  Federal 
Reserve  Board  is  given  power  to  adopt  such 
rules  governing  national  bank  trustees  as 
will  co-ordinate  and  harmonize  their  func- 
tions with  the  state  law,  so  that  the  rules  of 
the  Federal  Reserve  Board  and  the  state 
laws  will  make  a  harmonized  whole  and  there 
will  be  no  contravention. 

575b.  Decision  of  Federal  Reserve 
Board — The  Federal  Reserve  Board  on 
August  26,  1916  (prior  to  the  amendment  of 
1918  to  the  subsection)  rendered  an  informal 
decision  regarding  "State  Laws  and  Fidu- 
ciary Powers  of  National  Banks."  It  listed 
the  states  which  had  enacted  laws  expressly 
authorizing  national  banks  to  exercise  trust 
powers,  to  which  list  reference  is  made  in  the 
subsequent  discussion  of  the  right  of  na- 
tional banks  in  the  particular  states  to 
exercise  trust  powers.  The  Board  stated 
that  it  had  "adopted  the  policy  a  year  ago 
last  July  (1915)  of  authorizing  national 
banks,  otherwise  qualified,  to  exercise  the 
powers  conferred  by  section  11  (k),  unless 
there  is  an  express  provision  of  the  State 


law  either  directly  or  by  necessary  implica- 
tion prohibiting  a  national  bank  from  exer- 
cising these  powers.  In  pursuance  of  that 
poHcy  the  Board,  upon  advice  of  counsel, 
has  determined  that  it  would  not  be  in  con- 
travention of  the  laws  of  the  following 
States,  in  addition  to  those  already  men- 
tioned, for  a  national  bank  to  exercise  the 
fiduciary  powers  authorized  by  section  11 
(k),"  hsting  the  states. 

The  effect  of  the  amendment  of  1918  was 
not,  of  course,  to  limit  the  list  of  the  states 
in  which  permits  could  be  given ;  if  anything, 
its  effect  was  to  extend  the  number  of  states 
in  which  national  banks  could  be  permitted 
to  exercise  fiduciary  powers. 

575c.  Jurisdiction  of  state  court  to  decide 
^^contravention" — The  U.  S.  supreme  court, 
in  First  National  Bank  of  Bay  City  v. 
Fellows,  supra,  said  that  "the  state  court 
was,  if  not  expressly,  at  least  impliedly 
authorized  by  Congress  to  consider  and  pass 
upon  the  question  whether  the  particular 
power  was  or  was  not  in  contravention  of  the 
state  law."  In  other  words  it  is  the  function 
of  the  state  courts  to  interpret  the  state  law 
and  determine  whether  or  not  the  exercise 
of  trust  powers  is  in  contravention  of  the 
state  law.  Since  1918,  however,  this  au- 
thority must  be  exercised  by  the  state 
courts  in  harmony  with  the  interpretation 
of  "when  not  in  contravention  of  state  or 
local  law"  by  Act  of  Congress. 

575d.  Capital  and  surplus — Subsection 
11  (k)  as  amended  in  1918  ends  with  the 
proviso  "that  no  permit  shall  be  issued  to 
any  national  banking  association  having  a 
capital  and  surplus  less  than  the  capital  and 
surplus  required  by  state  law  of  state  banks, 
trust  companies,  and  corporations  exercising 
such  powers."  The  prospective  operation 
of  this  provision  is  clear.  It,  however,  does 
not  apply  to  national  banks  to  which  per- 
mits have  been  granted  prior  to  the  passage 
of  the  amendment. 

575e.  Amount  of  surplus — The  question 
arose  whether  a  national  bank,  otherwise 
eligible,  could  be  granted  trust  powers  where 
its  surplus  did  not  amount  to  20'^-  of  its 
paid-in  capital.  Section  5199  U.  S.  Revised 
Statutes  permits  the  declaration  by  a  na- 
tional bank  of  semi-annual  dividends  with 
the  following  proviso:  "But  each  associa- 
tion shall,  before  the  declaration  of  a  divi- 
dend, carry  one-tenth  part  of  its  net  profits 
of  the  preceding  half  year  to  its  surplus 
fund  until  the  same  shall  amount  to  twenty 
per   centum    of   its   capital   stock."      The 


121 


575f-579] 


DIGEST  OF  LEGAL  OPINIONS 


Federal  Reserve.  Act  contains  no  require- 
ment that  a  national  bank  must  have  a 
surplus  equal  to  20%  of  its  capital  in  order 
to  be  eligible,  and  the  mere  fact  that  it  does 
not  have  such  a  surplus  does  not  disqualify 
it  from  exercising  trust  powers,  provided  it 
has  "the  capital  and  surplus  required  by 
state  law  of  state  banks,  trust  companies 
and  corporations  exercising  such  powers." 

575f.  Deposit  of  securities— Section  11 
(k)  of  the  Federal  Reserve  Act,  as  amended 
September  26,  1918,  provides  that  "When- 
ever the  laws  of  a  state  require  corporations 
acting  in  a  fiduciary  capacity,  to  deposit 
securities  with  the  state  authorities  for  the 
protection  of  private  or  court  trusts,  national 
banks  so  acting  shall  be  required  to  make 
similar  deposits  and  deposits  and  securities 
so  deposited  shall  be  held  for  the  protection 
of  private  or  court  trusts,  as  provided  by 
state  law."  Several  states  require  such 
a  deposit.  In  two  states  the  Attorneys-Gen- 
eral have  ruled  that  state  officers  have  no 
authority  to  receive  deposits  from  national 
banks.  In  one  of  these  states.  New  York,  a 
statute  (Laws  1919,  Chapter  229,  Section 
39-a)  was  thereupon  passed  expressly  au- 
thorizing the  receipt  of  such  a  deposit.  In 
the  other  state,  Wisconsin,  there  has  been 
no  enabling  act.  If  these  opinions  are  sound, 
then  either  state  legislation  conferring  au- 
thority upon  state  officers  to  receive  such 
deposits  or  amendatory  federal  legislation 
doing  away  with  the  requirement  will  be 
necessary.  If  the  federal  requirement  of 
deposit  of  securities  is  a  condition  precedent 
to  the  exercise  of  trust  powers,  then  a  na- 
tional bank  will  not  be  qualified  to  act  as 
trustee  without  compliance  with  such  con- 
dition and  the  validity  of  its  acts  and  trans- 
actions in  a  trust  capacity  may  be  ques- 
tioned; but  on  the  other  hand,  if  the  re- 
quirement is  to  be  deemed  directory  and  not 
mandatory  as  a  condition  precedent  no  such 
result  follows. 

575g.  State  examination  of  trust  depart- 
ments of  national  hanks — The  Federal  Re- 
serve Act,  as  amended  September  26, 1918, 
provides  that  the  books  and  records  of  the 
trust  departments  of  national  banks  "shall 
be  open  to  inspection  by  the  state  authori- 
ties to  the  same  extent  as  the  books  and 
records"  of  trust  corporations  of  the  state. 
A  national  bank  can  comply  with  this  re- 
quirement, even  if  the  state  does  not  au- 
thorize the  state  authorities  to  avail  them- 
selves of  the  permission. 


California 

576.  TheCaliforniaBankingActexpressly 
authorizes  corporations  to  do  both  commer- 
cial banking  and  trust  business  and  in  view 
of  this  it  would  seem  that  the  grant  of  power 
by  the  Federal  Reserve  Act,  as  amended 
September  26,  1918,  is  all  sufficient.  Section 
96  of  the  California  Banking  Act  requires 
trust  companies  to  deposit  securities  with 
the  state  treasurer  and  under  the  Federal 
Reserve  Act  as  amended  September  26, 
1918,  national  banks  must  comply  with  this 
requirement.  This  raises  a  question  dis- 
cussed in  the  paragraph  entitled,  "Deposit 
of  securities,"  supra.  {Inquiry  from  Cal., 
March,  1919.) 

Connecticut 

^11.  Laws  of  Connecticut  (1913)  Chap- 
ter 194,  Section  8  expressly  authorizes  a 
corporation  designated  as  a  state  bank  or 
trust  company  to  "act  as  executor,  adminis- 
trator or  trustee  of  the  estate  of  any  person, 
or  as  guardian  or  conservator  of  the  estate 
of  any  ward  but  not  of  the  person  of  any 
ward,"  and  also  to  act  as  "agent,  registrar, 
fiscal  agent  or  trustee  of  any  corporation  or 
holder  of  bonds,  notes  or  other  securities  and 
as  depository  of  court  and  trust  funds." 
Assuming  the  state  institutions  which  exer- 
cise these  powers  compete  with  national 
banks  then  a  Connecticut  national  bank, 
having  sufficient  capital,  is  eligible  and  a 
local  judge  of  probate  should  not  refuse  to 
recognize  it  as  possessing  such  powers. 

In  Connecticut  there  is  apparently  no 
statutory  requirement  that  a  trust  com- 
pany shall  deposit  securities  with  state 
authorities  to  protect  the  trust  funds  in  its 
charge.  This  being  so  there  is  no  obstacle 
to  a  national  bank  exercising  trust  powers 
in  the  state,  if  duly  qualified.  {Inquiry 
from  Conn.,  March,  1919.) 

Delaware 

578.  Delaware  passed  an  act  in  1917 
making  it  lawful  for  national  banks  to  act  as 
executor,  administrator,  trustee  and  as 
registrar  of  stocks  and  bonds  when  au- 
thorized by  the  laws  of  the  United  States. 
{Inquiry  from  Del.,  March,  1919.) 

Illinois 

579.  Notwithstanding  the  prior  opinion 
of  the  Illinois  supreme  court  (People  of 
state  of  111.  V.  Brady  110  N.  E.  [111.]  864), 
that  the  exercise  of  trust  functions  by  na- 
tional banks  would  be  in  contravention  of 
the  state  law,  because  the  national  banks 


122 


BANKS,  ETC.— NATIONAL  BANKS 


[580-584 


would  not  be  subject  to  the  visitatory  and 
regulatory  control  of  the  state,  the  Attor- 
ney-General of  lUinois  reads  from  the  subse- 
quent opinion  of  the  federal  supreme  court 
in  the  Fellows  case,  supra  an  overruling  of 
the  prior  opinion  of  the  Ilhnois  court  and 
concludes  that  there  is  no  such  contraven- 
tion, and  that  such  reasonable  regulations 
as  examination  of  national  banks  with  re- 
spect to  their  trust  business  and  requiring 
them  to  account  or  to  report  and  so  on,  can 
be  exercised  by  state  authorities  over  the 
national  banks  subject  to  harmonious  rules 
provided  to  cover  the  situation  by  the  Fed- 
eral Reserve  Board.  {Inquiry  from  III., 
April,  1919.) 

Michigan 

580.  National  banks  in  Michigan  have 
the  right  to  exercise  trust  powers.  First 
National  Bank  of  Bay  City  v.  Fellows,  244 
U.  S.  416,  37  Sup.  Ct.  Rep.  734.  {Inquiry 
from  Mich.  Apr.  1919.) 

Minnesota 

581.  General  Statutes  of  Minnesota 
Section  6340,  as  amended  by  Chapter  236, 
Laws  1915,  prohibits  corporations,  other 
than  savings  banks,  safe  deposit  and  trust 
companies,  complying  with  the  provisions 
of  the  law  relating  to  such  companies,  from 
using  Hterature  or  advertising  indicating 
that  they  are  authorized  to  transact  savings 
bank,  safe  deposit,  or  trust  company  busi- 
ness and  also  prohibits  such  corporations, 
among  other  things,  from  in  any  manner 
soUciting  business  or  making  loans  or  sohcit- 
ing  or  receiving  deposits  or  transacting  busi- 
ness as  a  trust  company.  This  legislation 
prohibiting  other  corporations  from  doing 
trust  company  business  is  inapplical3le  to 
national  banks  where  such  corporations  are 
in  competition  with  national  banks.  {In- 
quiry from  Minn.,  March,  1919.) 

New  Hampshire 

582.  Laws  1917  (chapter  193)  permits 
trust  companies,  or  national  banks  duly 
authorized,  to  be  appointed  trustees  and 
requires  a  surety  company  bond.  (The 
amendment  of  Sept.  26,  1918  to  Sec,  11  k 

I  provides  that  "national  banks  in  such  cases 
[when  deposit  of  securities  required]  shall 
not  be  required  to  execute  the  bond  usually 
required  of  individuals  if  state  corporations 
under  similar  circumstances  are  exempt 
I  from  this  requirement.  National  banks 
i  shall  have  power  to  execute  such  bond  when 
iso  required  by  the  laws  of  the  state.")  Chap- 


ter 193  Laws  1917  also  requires  any  national 
bank  desiring  to  be  appointed  trustee  to 
first  file  consent  to  examination  of  its  trust 
department  by  the  state  bank  commissioners 
and  to  acknowledge  itself  amendable  to  the 
jurisdiction  of  the  probate  court  of  the  state. 
The  Act  of  March  28, 1919,  provides  that  no 
corporation  shall  be  appointed  in  any  other 
fiduciary  capacity  than  that  of  trustee,  and 
contains  other  regulations  concerning  na- 
tional banks  acting  as  trustee.  {Inquiry 
from  N.  H.,  April,  1919,  Jl.) 

New  Jersey 

583.  Assuming  trust  companies  in  New 
Jersey  exercise  banking  powers  then  na- 
tional banks  in  the  state  are  eligible  to 
exercise  trust  powers  under  the  Federal 
Reserve  Act  as  amended  September  26, 
1918.  There  is  apparently  nothing  to  pre- 
vent the  exercise  of  such  powers  by  national 
banks,  unless  it  be  the  provision  of  the 
Federal  Law  that  whenever  the  state  law 
requires  trust  corporations  to  deposit  se- 
curities with  the  state  authorities,  national 
banks  shall  be  required  to  make  similar 
deposits.  The  trust  company  law  of  New 
Jersey  does  require  of  trust  companies  the 
deposit  of  securities  with  the  register  of  the 
prerogative  court  in  certain  cases.  This 
raises  the  question  considered  in  the  para- 
graph entitled  "Deposits  of  securities," 
supra.     {Inquiry  from  N.  J.,  March,  1919.) 

New  York 

584.  Under  the  amendment  of  Section 
11  (k)  of  the  Federal  Reserve  Act  of  Septem- 
ber 26,  1918,  a  national  bank  is  eUgible  to 
exercise  trust  powers  in  New  York,  not- 
withstanding the  statute  of  that  state  re- 
stricting such  powers  to  corporations  or- 
ganized under  the  laws  of  that  state.  A 
national  bank  seeldng  a  permit  from  the 
Federal  Reserve  board  must  have  the 
capital  required  by  state  law  for  trust  com- 
panies. Section  180  of  the  Banking  Law  of 
New  York  requires  a  trust  company  to  have 
capital  of  $100,000  where  the  population 
does  not  exceed  25,000;  $150,000  where  the 
population  exceeds  25,000  but  does  not 
exceed  100,000;  8200,000  where  the  popula- 
tion exceeds  100,000  but  docs  not  exceed 
250,000  and  $500,000  where  the  population 
exceeds  250,000.  The  state  law  requires 
trust  companies  to  deposit  securities.  For 
a  time  there  was  doubt  whether  the  su- 
perintendent of  banking  had  any  authority 
to  accept  such  deposits  from  national  banks. 
That  matter  has  been  settled  by  the  addi- 


123 


585-589] 


DIGEST  OF  LEGAL  OPINIONS 


tion  in  1919  of  Section  39-a  to  the  Banking 
Law,  expressly  authorizing  the  receipt  of 
such  deposits  and  for  the  examination  of 
trust  departments  of  national  banks.  By- 
Chapter  159  Laws  1919  the  superintendent 
of  banks  may,  by  special  authorization, 
grant  state  banks  the  same  trust  powers  as 
are  possessed  by  trust  companies,  but  no 
authorization  can  be  issued  where  the  bank 
has  a  capital  less  than  that  required  for  a 
trust  company  in  the  same  place.  Such 
banks  are  not  required  to  give  bond  unless 
the  court  or  officer  making  the  appoint- 
ment shall  require  it,  in  which  event  such 
banks  shall  have  power  to  execute  such 
bond.     {Inquiry  from  N.  Y.,  March,  1919.) 

North  Carolina 

585.  There  is  apparently  nothing  in  the 
present  law  of  North  Carolina  which  would 
make  the  exercise  of  trust  powers  by  na- 
tional banks  in  contravention  of  the  state 
law  or  which  would  render  it  necessary  for 
the  state  to  enact  affirmative  legislation 
supplementing  the  act  of  Congress.  In 
1915  (Chapter  196)  the  legislature  passed  an 
act  to  prohibit  foreign  corporations  from 
doing  a  fiduciary  business.  But  this  act 
expressly  applied  only  to  corporations 
"organized  under  the  laws  of  any  other 
state"  or  "organized  under  the  laws  of  any 
foreign  country"  and  national  banks  do  not 
come  under  either  category.  By  expressly 
prohibiting  these  other  corporations  from 
exercising  trust  powers  it  would  appear  as 
if  the  legislature  intended  to  allow  national 
banks  to  exercise  such  powers  by  not  re- 
ferring to  this  class  of  corporation,  as  the 
Federal  Reserve  Act  was  then  in  force.  Two 
national  banks  in  North  Carolina  have  al- 
ready (1917)  been  granted  permits  to 
exercise  trust  powders.  North  Carolina  is 
also  included  in  the  list  of  states,  issued  by 
the  Federal  Reserve  Board  in  1916,  in  which 
it  would  give  permits  to  national  banks  to 
exercise  trust  powers.  {Inquiry  from  N.  C, 
July,  1917.) 

North  Dakota 

586.  In  view  of  the  fact  that  state  banks 
in  North  Dakota  have  not  been  granted 
trust  powers,  the  right  of  national  banks  in 
that  state  to  exercise  such  powers  depends 
upon  whether  the  trust  companies  of  the 
state  compete  with  national  banks,  unless 
irrespective  of  such  competition  the  exercise 
of  trust  powers  are  not  in  contravention  of 
state  law.  The  Trust  Company  Act  of 
North    Dakota    expressly    grants    certain 


banking  powers,  authorizing  trust  com- 
panies to  receive  deposits  of  moeny  for 
general  savings  accounts  and  to  loan  money 
upon  securities. 

If  trust  companies  receive  checking  ac- 
counts and  discount  commercial  paper,  then 
it  is  not  in  contravention  of  state  law  for  a 
national  bank  to  act  as  trustee,  even  assum- 
ing that  the  state  law  confines  the  exercise 
of  trust  powers  to  trust  corporations  or- 
ganized under  the  law  of  the  state.  There 
is,  however,  no  express  provision  confining 
trust  powers  to  trust  corporations. 

Section  5207  Civil  Code  of  North  Dakota 
requires  a  deposit  of  securities  by  trust 
companies  with  the  state  treasurer  and 
National  banks  exercising  trust  powers  are 
required  by  the  federal  law  to  make  similar 
deposits.  This  raises  the  question  con- 
sidered in  the  paragraph  entitled  "Deposit 
of  securities,"  supra.  {Inquiry  from  N.  D., 
Oct.,  1919.) 

Ohio 

587.  Permissive  statutory  legislation  au- 
thorizes national  banks  to  exercise  powers 
as  trustee  or  registrar  only  and  requires  a 
capital  of  $100,000.  Presumably  national 
banks  cannot  be  empowered  to  act  contrary 
to  these  restrictions  unless  state  corpora- 
tions are  given  privileges  discriminatory 
against  national  banks.  {Inquiry  from  Ohio, 
June,  1919.) 

Oklahoma 

588.  A  national  bank  in  Oklahoma  may 
apparently  exercise  all  the  powers  listed  in 
Section  11  (k)  of  the  Federal  Reserve  Act, 
unless  the  provision  in  that  section  regarding 
the  deposit  of  securities  be  an  obstacle. 
Section  324  of  the  Revised  Laws  of  Okla- 
homa requires  trust  companies  as  a  pre- 
requisite to  quafifying  as  guardian,  curator, 
executor,  administrator^  assignee,  receiver 
or  trustee,  either  by  deed,  will,  or  judicial 
appointment  to  deposit  with  the  state 
treasurer  $50,000  in  specified  securities. 
This  raises  the  question  considered  in  the 
paragraph  entitled  "Deposit  of  securities," 
supra.     {Inquiry  from  Okla.,  March,  1919.) 

Pennsylvania 

589.  As  trust  companies  in  Pennsylvania 
which  compete  with  national  banks  are 
permitted  to  exercise  trust  powers  under  the 
laws  of  Pennsylvania,  it  would  seem  under 
the  amendment  of  September  26,  1918,  to 
section  11  (k)  of  the  Federal  Reserve  Act 
that  the  exercise  of  trust  powers,  such  as 


124 


BANKS,  ETC.— NATIONAL  BANKS 


[590-594 


those  of  trustee,  executor,  administrator, 
and  registrar  of  stock  and  bonds  does  not 
conflict  with  State  laws. 

The  Pennsylvania  law  apparently  does 
not  require  trust  companies  to  make  de- 
posits of  securities  with  the  banking  de- 
partment, and  hence  a  national  bank  need 
not  make  such  a  deposit.  {Inquiry  from 
Pa.,  March,  1919.) 

South  Dakota 

590.  In  view  of  the  amendment  to 
Section  11  (k)  in  1918  and  of  the  fact  that 
the  South  Dakota  Law  of  1911  authorizes 
trust  corporations  to  "do  a  banking  business" 
the  exercise  of  trust  powers  by  a  national 
bank  in  South  Dakota  seems  not  to  be  in 
"contravention"  of  state  law,  although  that 
law  prohibits  the  use  of  the  word  "trust"  by 
corporations  other  than  those  authorized  by 
the  Act  and  prohibits  any  corporation  from 
executing  any  trust  unless  it  shall  have 
compHed  with  the  provisions  of  the  act. 
In  other  words,  a  national  bank  is  subject 
only  to  the  national  law  and  the  state  law  is 
not  binding  on  a  national  bank,  except  to 
the  extent  that  the  national  law  makes  the 
national  bank  subject  to  the  state  require- 
ments. As  the  national  law  expressly  pro- 
vides that  the  exercise  of  trust  powers  by 
national  banks  shall  not  be  deemed  in  con- 
travention of  state  or  local  law,  whenever 
the  laws  of  a  state  authorize  state  institu- 
tions which  compete  with  national  banks  to 
exercise  trust  powers,  it  seems  clear  that 

\  the  exercise  of  trust  powers  by  national 
banks  in  South  Dakota  is  not  in  contra- 

:•  vention  of  the  state  law  within  the  meaning 
of  the  Federal  Act. 

The  capital  of  the  national  bank  must  not 

;  be  less  than  that  of  a  trust  company  doing 
business  in  the  locahty,  namely,  $50,000  in 
cities  of  not  less  than  5,000  inhabitants  and 
$100,000  in  cities  of  more  than  5,000. 

The  trust  company  laws  of  the  state  re- 
quire a  deposit  of  securities  by  trust  com- 
panies. Under  the  Federal  Reserve  Act 
national  banks  are  bound  by  such  a  pro- 
vision. This  raises  the  question  considered 
tin  the  paragraph  entitled  "Deposit  of 
securities,"  supra.  {Inquiry  from  S.  D., 
March,  1919.) 


Wisconsin 


591.  Assuming  that  trust  powers  are 
exercised  by  state  institutions  in  Wisconsin 
and  that  these  institutions  compete  with 
national  banks,  the  amendment  of  Septem- 
ber 26,  1918,  to  the  Federal  Reserve  Act, 


Section  1 1  (k)  makes  national  banks  ehgible 
to  exercise  such  powers  provided  the  re- 
quirements of  state  law,  to  which  the  Feder- 
al Act  makes  national  banks  subject,  are 
compHed  with.  The  Wisconsin  statute  for 
the  organization  of  trust  company  banks 
provides  (Sec.  2024-77  i)  that  the  capital 
stock  of  any  such  corporation  "must  be  at 
least  $100,000  and  not  to  exceed  five  million 
dollars,  except  that  in  cities  of  less  than 
100,000  inhabitants  it  may  be  less  than 
$100,000  but  it  shall  not  be  less  than  $50,000. 
A  national  bank  must  comply  with  this 
statute  in  order  to  quaUfy  to  exercise  trust 
powers.  Under  the  Federal  Reserve  Act, 
Section  11  (k)  a  national  bank  must  comply 
with  the  state  statute  requiring  trust  com- 
panies to  make  deposits  of  securities.  The 
opinion  of  the  Attorney-General  of  the  state 
that  the  state  bank  commissioner  is  not 
authorized  to  receive  deposits  from  national 
banks  is  referred  to  in  the  paragraph  en- 
titled "Deposits  of  securities,"  supra.  {In- 
quiry from  Wis.,  March,  1919.) 

Words  'Hrust  company^'  as  part  of  title 

592.  In  Fidelity  National  Bank  &  Trust 
Company  of  Kansas  City  v.  Enright,  264 
Fed.  236  the  Federal  district  court  in  Mis- 
souri sustains  the  right  of  a  national  bank 
in  Missouri,  which  has  received  a  grant  of 
trust  powers  from  the  federal  reserve  board, 
to  use  the  words  "trust  company"  as  a  part 
of  its  corporate  name,  with  the  approval  of 
the  comptroller  of  the  currency,  notwith- 
standing state  statutes  to  the  contrary.  The 
principle  applied  is  that  a  state  law  must 
yield  to  a  federal  statute.  The  court  said: 
"The  name  of  a  national  bank  must  be  ap- 
proved by  the  Comptroller  of  the  Currency. 
It  can  be  changed,  or  its  use  interfered  with, 
by  no  other  authority."  {Inquiry  from  Mo., 
June,  1920,  Jl.) 

National  bank  as  trustee  of  bank  building 

593.  Can  a  national  bank  act  as  trustee 
of  a  bank  building,  in  which  it  owns  a  one- 
third  interest?  Opinion:  In  the  opinion 
of  the  Comptroller  of  the  Currency  a  bank 
should  not  act  as  trustee  in  such  connection, 
as  it  is  always  objectionable  for  any  party 
or  corporation  to  occupy  the  dual  position 
of  trustee  and  cestui  que  trust,  such  course 
being  held  illegal  by  some  of  the  courts.  A 
disinterested  qualified  party  should  be 
chosen.    {Inquiry  from  Kan.,  Nov.,  1919.) 

Exercise  of  trust  powers  in  other  states 

594.  Inquiry  is  made  as  to  the  right 
and  extent  a  national  bank  having  been 


125 


595-596] 


DIGEST  OF  LEGAL  OPINIONS 


vested  with  trust  powers  can  exercise  func- 
tions of  executor  and  trustee  in  states  other 
than  the  state  where  it  is  located.  Opinion: 
Congress  has  now  granted  national  banks, 
when  permitted  by  the  Federal  Reserve 
Board,  and  when  not  in  contravention  of 
state  or  local  law,  "the  right  to  act  as  trustee, 
executor,  administrator,  registrar  of  stocks 
and  bonds,  guardian  of  estates,  assignee,  re- 
ceiver, committee  of  estates  of  lunatics  or  in 
any  other  fiduciary  capacity  in  which  state 
banks,  trust  companies  or  other  corporations 
which  come  into  competition  with  national 
banks  are  permitted  to  act  under  the  laws  of 
the  state  in  which  the  national  bank  is  lo- 
cated." Section  UK,  Federal  Reserve  Act, 
as  amended  September  26,  1918.  It  would 
seem  to  follow  from  this  that  whenever  a 
trust  company  or  other  corporation  is  em- 
powered by  the  laws  of  the  state  in  which  a 
national  bank  is  located,  or  has  the  power  by 
general  grant  without  restriction  as  to  place, 
to  exercise  the  functions  of  executor  or  trustee 
in  a  state  other  than  that  of  its  location,  the 
national  bank,  if  otherwise  eligible,  would 
have  like  power,  subject,  of  course,  to  the  re- 
strictions, hmitations  or  prohibitions  imposed 
by  the  laws  of  such  other  state  upon  the  exer- 
cise by  foreign  corporations  of  trust  powers 
within  its  borders.  Assuming  that  a  trust 
company  in  any  state  and  consequently  a 
national  bank  granted  equivalent  trust 
powers  has  the  power  to  exercise  the  func- 
tion of  executor  and  trustee  outside  the 
state,  then  the  ability  to  exercise  such 
functions  in  another  state  would  depend 
the  restrictions,  hmitations  or  prohibitions 
imposed  upon  foreign  trust  corporations,  if 
any,  by  the  laws  of  such  state.  29  Opin. 
U.  S.  Atty.  Gen.  81.  Augusta  v.  Earle,  13 
Pet.  (U.  S.)  519.  City  Bk.  v.  Beach,  Fed. 
Cas.  No.  2736.  U.  S.  Rev.  St.,  Sees.  5134, 
5190.  Merchants  Bk.  v.  St.  Bk.,  10  Wall. 
(U.  S.)  604.  Armstrong  v.  Second  Nat.  Bk., 
38  Fed.  886.  Fed.  Reserve  Act  (Amend. 
Sept.  26,  1918),  Sec.  11  K.  Avery's  Est.,  92 
N.  Y.  S.  974.  N.  Y.  Bank,  Law,  Sec.  223. 
Farmers  Loan,  etc.,  Co.  v.  Smith,  (Conn.) 
51  Atl.  609.  Laws  Conn.,  1913,  Ch.  194. 
Cal.  Bank  Act,  Sec.  7.  {Inquiry  from  Mo., 
April,  1919,  Jl.) 

Effect  on  trusteeship  of  conversion  of  trust 
company  into  national  hank 

595.  Does  a  trust  company  that  rein- 
corporates under  a  national  charter  jeopar- 
dize the  trusts  enjoyed  by  it?  In  other 
words,  where  a  trust  company  holds  a 
mmiber  of  trusts  the  exercise  of  which  will 


extend  over  a  long  period  of  years  and  con- 
verts into  a  national  bank,  the  limit  of  whose 
existence  unless  extended  is  twenty  years, 
could  a  beneficiary  ask  for  substitution  as 
trustee  of  a  state  institution  which  has  a 
perpetual  charter,  on  the  ground  that  the 
extension  of  the  corporate  existence  of  the 
national  bank  beyond  twenty  years  is  con- 
tingent on  approval  of  the  comptroller  of  the 
currency,  enabling  legislation,  etc?  Opinion: 
It  is  a  general  principle  of  law  that  a  trust 
never  fails  for  want  of  a  trustee  and  when  a 
trustee  dies  or  becomes  incapacitated  in  any 
way,  it  is  always  within  the  power  of  a  court 
of  equity  to  appoint  a  trustee.  It  is  very 
doubtful  that  a  court  would  hold  that  it  was 
sufiicient  ground  to  deprive  the  bank  of 
trusteeship  of  a  long  term  trust,  where  it  has 
converted  from  state  to  national,  because 
the  period  of  its  existence  is  only  twenty 
years  and  yet  there  might  be  sufficient 
doubt  upon  the  question  to  make  it  desirable 
to  urge  an  amendment  of  the  Federal  law 
granting  charters  to  national  banks  not 
limited  to  twenty  years.  Of  course,  all 
charters,  both  state  and  national,  are  subject 
to  revocation  by  the  legislature,  all  state  con- 
stitutions containing  provisions  reserving 
such  right  of  revocation.  {Inquiry  from 
Ohio,  Dec,  1920.) 

Preference  of  trust  estate  on  failure  of  national 
bank  administrator 

596.  A  customer  of  a  bank  is  interested 
in  an  estate  in  Colorado  of  which  a  national 
bank  is  administrator.  The  bank  is  insol- 
vent. Information  is  desired  as  to  standing 
of  customer's  claim  as  against  that  of  a 
depositor?  The  bank  is  acting  without 
bond.  Opinion:  Where  a  national  bank 
trustee  fails,  the  beneficiaries  of  the  trust 
would  be  preferred  over  a  depositor.  The 
Federal  Reserve  Act  requires  a  national 
bank,  acting  as  an  administrator  or  any 
other  trust  capacity  to  segregate  the  trust 
assets  from  the  general  assets;  and  funds 
deposited  or  held  in  trust  by  the  bank 
awaiting  investment  are  not  to  be  used  by 
the  bank  in  the  conduct  of  its  business  un- 
less it  shall  first  set  aside  U.  S.  bonds  or 
other  approved  securities,  and  in  event  of 
failure  of  such  bank,  the  owners  of  the  funds 
held  in  trust  shall  have  a  hen  of  such  se- 
curities so  set  apart,  in  addition  to  their 
claim  against  the  estate  of  the  bank.  (Fed. 
Reserve  Act,  Sec.  11  [k]).  This  section  of 
the  Act  likewise  provides  that  where  a  state 
law  requires  corporations  acting  in  a  fidu- 
ciary capacity  to  deposit  securities  with  the 


126 


BANKS,  ETC.— NATIONAL  BANKS 


[597-602 


state  authorities  for  protection  of  private  or 
court  trusts,  national  banks  so  acting  shall 
be  required  to  make  similar  deposits;  and 
that  national  banks  in  such  cases  shall  not 
be  required  to  execute  the  bond  required  of 
individuals  if  state  corporations  are  exempt 
under  similar  circumstances.  (Inquiry  from 
Wash.,  Dec,  1920.) 

Trustee  for  participating  owners  of  govern- 
ment bonds 

597.  A  Pennsylvania  national  bank  con- 
templates the  holding  of  certain  govern- 
ment bonds  or  notes  in  trust  for  participat- 
ing owners  who  invest  therein  in  small 
amount  of  $10  against  which  the  bank  is  to 
issue  trust  certificates  reciting  that  it  holds 
in  trust  a  participating  interest  of  $10  in 
government  bonds,  etc.  Is  this  permissible? 
Opinion:  Assuming  that  this  would  be  a 
lawful  trust  to  be  exercised  by  a  trust  com- 
pany in  the  state  of  Pennsylvania,  a  national 
bank  has  an  equal  right  to  exercise  such 
trust  without  conflicting  with  state  laws. 
(Inquiry  from  Pa.,  March,  1920.) 

Savings  departments  of  national  banks 

Invalidity  of  state  prohibitory  law 
in  California 

598.  May  a  national  bank  in  CaUfornia 
open  savings  accounts?  Opinion:  The 
California  Banking  Act  prohibits  other 
than  savings  banks  from  advertising  for 
savings  or  from  soliciting  or  receiving  de- 
posits as  savings  banks.  It  is  more  than 
doubtful  whether  this  law  can  control  or 
prevent  national  banks  from  operating 
savings  departments.  The  Comptroller  of 
the  Currency  has  ruled  that  there  is  nothing 
in  the  National  Bank  Act  which  prohibits 
the  operation  of  a  savings  department  by  a 
national  bank  and  while  the  attorney  for  the 
state  bank  department  has  rendered  an 
opinion  that  the  California  statute  is  valid 
and  prohibitory  in  its  application  to  national 
banks,  there  have  been  contrary  opinions  by 
other  attorneys.  (Inquiry  from  Cal.,  April, 
1919.) 

Right  to  install  in  New  Jersey 

599.  May  a  national  bank  install  a 
savings  department?  Opinion:  Under  the 
broad  authority  to  "receive  deposits"  con- 
ferred by  the  National  Bank  Act  there 
appears  to  be  sufficient  grant  of  power  to  a 
national  bank  to  receive  deposits  under 
rules  similar  to  those  adopted  by  savings 
l)anks  respecting  the  time  and  manner  of 


withdrawal,   interest,   etc.      (Inquiry  from 
N.  J.,  May,  1919.) 

Investment  of  funds 

600.  Does  the  national  or  the  state  law 
govern  the  investment  of  funds  in  the 
savings  department  of  a  national  bank? 
Opinion:  Such  funds  must  be  employed  in 
the  modes  prescribed  by  the  National 
Bank  Act.    (Inquiry  from  N.  J.,  May,  1919.) 

601.  What  effect  has  a  state  law 
segregating  assets  and  limiting  the  invest- 
ment of  saving  deposits  on  a  national  bank 
having  a  savings  department?  Opinion: 
Such  a  state  law  is  apparently  not  appHcable 
to  a  national  bank  having  a  savings  depart- 
ment. Deposits  in  a  national  bank  must  be 
invested  in  the  modes  prescribed  by  the 
national  bank  act.  State  v.  Peoples 
National  Bank,  (N.  H.)  70  Atlantic  542. 
(Inquiry  from  Wash.,  March,  1917.) 

Right  to  use  words  "Savings  Department" 
in  New  York 

602.  Does  the  Federal  Reserve  Act 
authorize  a  national  bank  to  use  in  its 
business  the  words  "savings  department?" 
A  deputy  attorney-general  of  the  state  of 
New  York  rendered  an  opinion  in  December, 
1916,  to  the  effect  that  the  Federal  Reserve 
Act  does  not  authorize  a  national  bank  to 
do  a  savings  bank  business  nor  use  the 
word  "savings".  Section  279  of  the  state 
Banking  Law  provides  that  "No  bank, 
national  banking  association,  etc.,  other 
than  a  savings  bank  or  a  savings  and  loan 
association  shall  make  use  of  the  word 
'saving'  or  'savings'  or  its  equivalent,  in  its 
banking  business,  or  advertise  or  put  forth 
any  advertising  literature  or  sign  containing 
the  word  'saving'  or  'savings'  or  its  equiva- 
lent, nor  shall  any  individual  or  corporation 
other  than  a  savings  bank  in  any  way  solicit 
or  receive  deposits  as  a  savings  bank." 
The  statute  provides  a  penalty  for  every 
day  such  offense  shall  be  continued.  The 
question  is  whether  the  above  provision  is 
in  conflict  with  section  19  of  the  Federal 
Reserve  Act  so  that  it  may  be  said  to  be 
superseded  by  the  congressional  legislation. 
This  section  provides  that  "Demand  de- 
posits within  the  meaning  of  this  act  shall 
comprise  all  deposits  payable  after  thirty 
days,  and  all  savings  accounts  and  certifi- 
cates of  deposit  which  are  subject  to  not  less 
than  thirty  days'  notice  before  payment." 
Opinion:  Notwithstanding  the  opinion  of 
the  Deputy  Attorney-General  it  seems  that  a 
national  bank  has  the  right  to  use  the  words 


127 


603] 


DIGEST  OF  LEGAL  OPINIONS 


"savings  department."  The  original  New 
York  statute  prohibited  a  bank  or  corpora- 
tion from  advertising  or  putting  forth  a 
sign  as  a  savings  bank  or  in  any  way  sohcit- 
ing  or  receiving  deposits  as  a  savings  bank. 
A  trust  company  sohcited  and  received 
deposits  in  substantially  the  same  manner 
as  a  savings  bank  and  carried  on  the  business 
of  a  sayings  bank  as  a  branch  of  its  banking 
operations.  An  action  was  brought  to 
recover  the  penalty,  but  the  court  of 
appeals  held  that  the  act  did  not  forbid  the 
carrying  on  of  a  business  substantially  as 
that  of  a  savings  bank,  but  only  forbade  the 
conducting  of  such  business  under  claim  or 
pretense  of  being  a  savings  bank.  People  v. 
Binghamton  Trust  Co.,  139  N.  Y.  191. 
Later  the  act  was  amended  to  its  present 
form.  Long  prior  to  the  Federal  Reserve 
Act,  national  banks  all  over  the  country, 
both  in  states  where  the  use  of  the  word 
"savings"  was  prohibited  as  well  as  in  other 
states,  were  actually  operating  and  adver- 
tising savings  departments  under  the  broad 
authority  to  "receive  deposits"  and  the 
Federal  Reserve  Act,  recognizing  this  custom, 
incorporated  in  its  provision  as  to  reserves 
required  for  time  deposits,  a  definition  of 
time  deposits  as  comprising  "all  savings 
accounts.  . .  .subject  to  not  less  than  thirty 
days'  notice  before  payment."  The  right 
of  national  banks  under  the  national  law  to 
receive  savings  accounts  and  operate  savings 
departments  would  seem  to  have  been 
estabhshed  before  the  Federal  Reserve 
Act,  which  Act,  in  recognition  of  such  right, 
simply  classifies  savings  accounts  subject 
to  not  less  than  thirty  days'  notice  before 
payment,  among  time  deposits  with  refer- 
ence to  the  amount  or  reserve  to  be  main- 
tained. In  view  of  the  Binghamton  Trust 
Company  decision,  supra,  there  is  nothing 
in  the  law  as  it  stands  which  prohibits 
other  state  institutions  from  doing  a 
savings  bank  business  if  they  do  not  pre- 
tend to  be  savings  banks,  but  they  cannot 
use  the  word  "savings"  or  its  equivalent. 
So  far  as  national  banks  are  concerned, 
however,  their  right  to  receive  savings 
accounts  and  operate  savings  departments 
under  the  national  law  being  exercised 
prior  to  the  Federal  Reserve  Act,  and  the 
right  to  receive  savings  accounts  and 
necessarily  make  public  the  fact  that  they 
do  so  receive  them  being  expressly  recog- 
nized by  the  Federal  Reserve  Act,  it  would 
seem  to  follow  that  the  right  to  advertise 
for  savings  accounts  and  to  use  the  words 
"savings  department"  woulc^  be  beyond  the 
control  of  the  state  law. 


A  suggested  distinction  by  the  Deputy 
Attorney  General  between  a  national  and 
a  savings  bank,  that  the  former  is  a  com- 
mercial institution  with  the  relation  to  the 
depositor  of  debtor  and  creditor  while  the 
relation  between  a  savings  bank  and  its 
depositor  is  that  of  trustee  and  cestui  que 
trust,  is  not  borne  out  by  the  decisions 
which  uniformly  hold  that  the  latter  relation- 
ship is  that  of  debtor  and  creditor.  People 
V.  Mechanics  &  Traders  Sav.  Inst.,  92  N.Y.7. 

The  question  will  not  be  positively  settled 
until  decided  by  a  court  of  last  resort  and 
if  there  is  any  fear  of  violating  a  state  law 
and  of  incurring  a  penalty  of  $100  a  day,  it 
is  for  national  banks  to  consult  their  own 
attorneys  upon  the  proposition.  (Inquiry 
from  N.  Y.,Feb.,  1917,  Jl.) 

603.  Has  a  national  bank  the  power  to 
establish  and  advertise  a  savings  depart- 
ment free  from  the  control  of  state  laws. 
Opinion:  In  previous  opinions  which  have 
been  rendered,  the  conclusion  has  been 
reached  that  a  national  bank  has  power, 
under  the  broad  authority  to  "receive 
deposits",  to  receive  savings  deposits  and 
operate  savings  departments  free  from  the 
control  of  state  laws  regulating  savings. 
This  conclusion  is  fortified  by  a  recent  New 
York  decision  in  respect  to  trust  powers  of 
national  banks. 

In  October,  1919,  the  Supreme  Court  of 
New  York  decided  in  re  Molhneau,  179 
N.Y.  Supp.  90,  that  since  the  enactment  of 
section  11  (k)  of  the  Federal  Reserve  Act 
as  amended  by  the  Act  of  September  26, 
1918,  a  state  no  longer  has  the  power  to 
prohibit  the  exercise  of  trust  powers  by 
national  banks  when  the  laws  of  that  state 
permit  the  appointment  of  competing  state 
corporations  in  trust  capacities.  In  the 
opinion  Mr.  Justice  Kapper  says:  "Any 
prior  state  legislation  which  limited  the 
exercise  of  specified  powers  to  certain 
specified  state  corporations  or  agencies 
became  inoperative  when  Congress  clothed 
Federal  corporations  and  agencies  of  a  rival 
character  with  like  powers." 

The  prohibitive  provisions  as  to  trust 
powers  being  held  inoperative  as  to  national 
banks  where  Congress  has  clothed  national 
banks  with  hke  powers,  equally  it  would 
seem  that  the  prohibitive  provisions  as  to 
the  use  of  the  word  "savings"  by  other 
than  savings  banks  would  be  held  inopera- 
tive where  Congress  has  clothed  national 
banks  with  the  power  to  receive  savings 
deposits.  That  Congress  has  clothed  national 


128 


BANKS,  ETC.— TRUST  COMPANIES 


[604-607 


banks  with  such  power  is  evidenced  not 
alone  by  the  broad  grant  of  power  to  "re- 
ceive deposits"  but  is  specifically  recognized 
by  the  provision  of  Section  19  of  the  Federal 
Reserve  Act  which  provides  for  the  inclusion 
of  savings  accounts  subject  to  not  less  than 
thirty  days  before  payment  in  the  category 
of  time  deposited.  {Inquiry  from  N.  Y., 
Dec,  1920.) 

Advertising  for  ^'savings"  accounts 
in  New  York 

604.  A  national  bank  about  to  estabhsh 
a  savings  department  asks  if  there  is  any 
state  law  prohibiting  it  from  using  the 
words  "savings  department"  or  "savings"  in 
advertising  in  this  connection.  Opinion: 
The  conclusion  seems  warranted,  despite 
state  laws  prohibiting  other  than  savings 
banks  from  using  or  advertising  the  word 
"savings"  or  from  transacting  business  as  a 
savings  bank,  that  it  would  be  held  within 
the  power  of  a  national  bank,  free  from  con- 
trol of  state  laws,  to  estabhsh  and  advertise 
a  savings  department  for  savings  ac- 
counts (in  so  doing  necessarily  using  and 
advertising  the  word  "savings"),  and  to  carry 
on  such  department  in  the  same  manner  that 
a  savings  bank  carries  on  its  business  subject, 
of  course,  to  national  laws  and  regulations  of 
the  Federal  Reserve  Board.  The  question 
will  not  be  positively  settled  until  decided  by 
the  court  of  last  resort.  While  there  may  be 
danger  of  violating  a  state  law  and  of  incur- 
ring a  penalty  of  $100  a  day,  it  is  for  the  na- 
tional banks  to  consult  their  own  attorneys 
upon  the  proposition.  Laws  N.  Y.  1882, 
Ch.  409,  Sec.  283.  People  v.  Binghamton 
Tr.  Co.,  139  N.  Y.  191.  N.  Y.  Bank,  L., 
1905,  Sec.  131.  N.  Y.  L.,  1914,  Ch.  369. 
N.  J.  Sav.  Bk.  Act  (April,  1876),  Sec.  46. 
Barrett  v.  Bloomfield  Sav.  Inst.  (N.  J.)  54 
Atl.  542,  57  Atl.  1137.  Fed.  Reserve  Act, 
1913,  Sec.  19.  {Inquiry  from  N.  Y.,  Nov., 
1916,  Jl.) 


605.  Is  it  contrary  to  law  for  a  national 
bank  in  New  York  to  advertise  time 
deposits  as  "savings  accounts"?  The 
question  seems  to  hinge  on  the  right  of  any 
bank  aside  from  a  New  York  State  savings 
bank  to  use  the  word  "savings"  in  any 
of  its  advertising.  Opinion:  As  the  Federal 
Reserve  Act  of  1913  (as  amended  in  1918) 
expressly  recognizes  the  right  of  national 
banks  to  carry  savings  accounts,  it  would  be 
within  the  power  of  a  national  bank,  free 
from  the  control  of  state  laws,  to  establish 
and  advertise  a  savings  department.  In 
re  Molhneaux,  179  N.  Y.  Suppl.  90; 
{Inquiry  from  N.  Y.,  Dec,  1920,  Jl.) 

Stipulation  governing  withdrawals  in 
savings  pass  book 

606.  May  a  national  bank  issue  savings 
books  with  the  following  stipulation  printed 
therein  and  take  advantage  of  it  if  there 
should  be  an  unnatural  demand?  "With- 
drawals of  deposits  are  subject  to  60  days 
notice.  If  funds  are  not  available  at  such 
time,  withdrawals  are  to  be  paid  in  the  order 
such  applications  for  withdrawals  are  re- 
ceived as  receipts  permit."  Opinion:  Na- 
tional banks  in  many  states  are  operating 
savings  departments  with  rules  providing 
for  notice  of  withdrawal  of  deposits.  The 
national  banks  are  given  by  the  National 
Bank  Act  the  broad  authority  to  "receive 
deposits"  and  it  has  been  the  pohcy  of  the 
Comptrollers  of  the  Currency  to  construe 
this  as  permitting  a  national  bank  to  receive 
deposits  on  time  as  well  as  on  demand  and  to 
contract  for  their  repajonent  subject  to 
a  notice  of  withdrawal.  There  are  no 
judicial  decisions  inconsistent  with  this 
pohcy. 

There  appears  to  be  no  reason  why  the 
proposed  stipulation  would  not  be  vahd. 
{Inquiry  from  Ohio,  Sept.,  1913.) 


BANKS,  ETC.— TRUST  COMPANIES 


Trust  companies  with  branches  as 
members   of  Federal    Reserve    system 

607.  Information  is  desired  in  reference 
to  the  Regulations  and  Restrictions  of  the 
Federal  Reserve  Act  respecting  the  estab- 
lishment of  foreign  and  domestic  branches 
by  state  banks  and  trust  companies  in  New 
York  state,  members  of  the  Federal  Reserve 
System.  Opinion:  The  Federal  Reserve 
Board,  under  date  of  August  1915,  announced 
the  adoption  of  certain  conditions  to  be 


made  a  part  of  certificates  of  approval  of 
apphcations  of  state  banks  and  trust 
companies.  Among  these  is  the  following 
condition  to  be  inserted  in  all  cases  where 
the  applying  bank  or  trust  company  is 
authorized  by  its  charter  or  the  laws  of  the 
state  in  which  it  is  located  to  estabhsh 
branches:  "That  the  establishment  of 
additional  branches,  domestic  or  foreign,  be 
subject  to  the  approval  of  the  Federal 
Reserve  Board."     It  was  announced  that 


129 


608-611] 


DIGEST  OF  LEGAL  OPINIONS 


this  condition  would  not  be  inserted  unless 
the  applying  bank  has  the  legal  right  to 
estabhsh  branches  at  the  time  of  admission. 
If,  however,  the  state  law  subsequently 
authorizes  branch  banks,  the  member  bank 
'could  not  at  that  time  avail  itself  of  the 
privilege  except  with  the  approval  of  the 
Federal  Reserve  Board,  because  another 
condition  inserted  in  all  certificates  of 
approval  provides  that  there  shall  be  no 
change  in  the  broadening  of  the  functions 
of  the  bank  or  trust  company,  except  with 
the  approval  of  the  Federal  Reserve  Board. 
In  an  informal  ruling  of  the  Board,  dated 
July  29,  1915,  it  was  said:  "It  would  not 
be  the  intention  of  the  Federal  Reserve 
Board,  should  you  accept  the  proposed 
conditions,  to  deny  to  you  or  any  other 
institution  the  right  to  add  additional 
branches,  except  for  reasons  similar  to 
those  set  forth  by  you  which  might  influence 
your  State  Banking  Department  to  withhold 
consent."  In  another  informal  ruling,  dated 
June  12,  1915,  it  was  held  that  a  trust 
company  having  branches,  is  eligible  for 
membership,  and  that  a  trust  company  as  a 
member  may  maintain  its  branches  as  at 
present.    {Inquiry  from  N.  Y.,Sept.,  1918.) 

Power  to  issue  aunuities 

608.  A  savings  and  trust  company  asks 
whether  it  has  power  to  issue  and  sell 
annuities.  Opinion:  A  corporation  may  be 
authorized  by  its  charter  to  grant  or  dispose 
of  annuities.  See  Cahill  v.  Maryland  L. 
Ins.  Co.,  90  Md.  333.  McCoUister  v. 
Bishop,  78  Minn.  228.  In  the  absence  of  an 
express  grant  of  power,  however,  it  is  very 
doubtful  whether  a  trust  company  possessed 
of  the  usual  powers  granted  such  corpora- 
tions would  be  held  to  have  the  power  of 
granting  annuities.  There  seems  to  be  no 
decision  in  which  the  question  of  such 
power  has  been  at  issue;  nor  any  source  of 
information  wherein  such  a  question  has 
been  discussed.  {Inquiry  from  Ind.,  Oct., 
1917.) 

Limitation  on  investment  in  stock  of 
other  banks 

609.  Is  there  any  limitation  on  trust 
companies  in  New  York  State  in  their 
investments  in  stock  of  other  banks  either  in 
the  state  or  out  of  the  state?  Opinion: 
Section  185  of  the  Banking  Law  provides 
"that  in  addition  to  the  powers  conferred 
by  the  general  and  stock  corporation  laws 
every  trust  company  shall,  subject  to  the 
restrictions    and    limitations    contained    in 


this  article  have  the  following  powers  *  *  * 
(9)  to  purchase,  invest  in  and  sell  stocks, 
bills  of  exchange,  bonds  and  mortgages  and 
other  securities  *  *  *  "  Section  190 
provides  that  "a  trust  company  subject  to 
the  provisions  of  this  article  *  *  *  (10) 
shall  not  invest  or  keep  invested  in  the  stock 
of  any  private  corporation  an  amount  in 
excess  of  ten  per  centum  of  the  capital  and 
surplus  of  such  trust  company;  nor  shall  it  31 
purchase  or  continue  to  hold  stock  of  I 
another  moneyed  corporation  if  by  such 
purchase  or  continued  investment  the  total 
stock  of  such  other  moneyed  corporation 
owned  and  held  by  it  as  collateral  will 
exceed  ten  per  centum  of  the  stock  *  *  * 
provided,  however,  that  this  limitation 
shall  not  apply  to  the  ownership  of  the 
capital  stock  of  a  safe  deposit  company  the 
vaults  of  which  are  connected  with  or 
adjacent  to  an  office  of  such  trust  company." 
{Inquiry  from  N.  Y.,  June,  1918.) 

Power  to  act  as  treasurer  of  a  society 

610.  A  trust  company  was  requested  to 
act  as  treasurer  of  a  society  incorporated 
under  the  laws  of  New  York.  Can  it 
legally  do  so?  Opinion:  The  powers  of  a 
trust  company  depend  on  the  terms  of  its 
charter.  Indeed,  if  one  were  called  upon  to 
enumerate  the  powers  of  such  company, 
the  power  to  act  as  treasurer  for  a  society 
would  seem  to  suggest  itself  as  one  of  the 
normal  and  natural  functions  of  such  a 
company.  A  trust  company  is  usually 
equipped  with  all  the  facilities  necessary 
to  the  performance  of  the  duties  of  a 
treasurer  of  a  society — more  so  than  the 
ordinary  individual— and  where  the  assump- 
tion of  such  duties  is  not  expressly  declared 
to  be,  or  obviously  rendered,  ultra  vires  on 
the  part  of  the  trust  company,  it  would 
seem  to  be  safe  to  declare  them  clearly 
within  the  scope  of  its  designed  and  intended 
normal  activities  {Inquiry  from  N.  Y., 
July,  1916.) 

Fees  of  fiduciaries 

611.  In  view  of  the  intention  to  propose 
legislation  in  Georgia  to  make  the  fees  of 
executors,  administrators,  guardians,  trus- 
tees, etc.,  more  clearly  defined,  the  question 
is  asked  concerning  the  fees  of  fiduciaries 
in  other  states?  Opinion:  In  California 
there  is  an  arbitrary  rate  of  compensation 
for  executors  and  administrators,  dependent 
on  the  size  of  the  estate,  although  the 
compensation  of  the  executor  may  be 
fixed  by  the  terms  of  the  will.    Code  Civ. 


130 


BANKS,  ETC.— TRUSTiCOMPANIES 


[612-614 


Proc.  (1909)  Chap.  10,  Art.  I,  Sec.  1618. 
In  Illinois  a  maximum  rate  of  compensation 
to  executors  and  administrators  is  fixed. 
Hurd's  Rev.  Stat.  (1908)  Chap.  3,  Sec.  132. 

In  Massachusetts  there  seems  to  be  no 
statutory  regulation. 

In  New  York  there  is  an  arbitrary  rate  of 
compensation,  for  executors  and  adminis- 
trators, dependent  on  the  size  of  the  estate, 
although  the  compensation  of  the  executor 
may  be  fixed  by  the  terms  of  the  will,  in 
which  case  no  allowance  will  be  made  by  the 
surrogate,  unless  the  specific  compensation 
be  renounced.  Code  Civ.  Proc.  (1912) 
Sec.  2730. 

In  Pennsylvania,  in  the  absence  of 
statute,  the  matter  is  one  for  judicial 
discretion.  Five  per  cent  seems  to  be  the 
standard,  although  in  a  particular  case  the 
rate  may  be  smaller  or  larger.  Pusey  v. 
Clemson,  9  Serg.  &  R.  209,  cited  with 
approval  in  Lilly's  Estate,  181  Pa.  St.  478. 
There  is  a  statutory  prohibition  against 
double  commissions  as  executor  and  trustee. 
Brightly's  Purdon  Penn.  Dig.  Vol.  I,  p  616, 
Sec.  239.    {Inquiry  from  Ga.,  Dec,  1912.) 

Recommendation  of  schedule  of  fees 
not  violation  of  anti-trust  law 

612.  Would  it  be  a  violation  of  the 
Federal  Anti-Trust  Law  if  a  number  of 
trust  companies  should  agree  at  a  conven- 
tion to  recommend  a  schedule  of  charges? 
Opinion:  An  opinion  has  been  rendered  to 
the  effect  that  the  rules  of  the  New  Orleans 
Clearing  House  fixing  minimum  charges  for 
the  collection  of  out-of-town  items  was  not 
a  violation  of  the  Federal  Anti-Trust  Act, 

See  Opinion  No.  .     This  opinion,   in 

principle  covers  the  question  submitted  and 
there  would  be  even  less  ground  for  holding 
a  violation,  because  the  New  Orleans  Clear- 
ing House — and  the  same  is  true  of  many 
other  clearing  houses  in  the  country — have 
agreements  binding  on  their  members,  while 
in  the  present  case  it  is  proposed  merely  to 
recommend  certain  charges  as  fair  and 
reasonable.  A  resolution  of  recommendation 
that  a  certain  schedule  of  fees  be  charged 
by  trust  companies  will  not  violate  the 
Anti-Trust  Act.  {Inquiry  from  N.  Y., 
March,  1920.) 

Savings  or  interest  departments 
of  trust  companies 

Cross    Reference:    For  Savings    Depart- 


ments of  National  Banks,  see  National  Banks. 

Use  of  word  "savings"  in  advertising  by 
trust  company  in  New  York 

613.  May  a  trust  company  in  New  York 
state  which  is  a  member  of  the  Federal 
Reserve  System  use  the  word  "savings"  in 
advertising  its  Savings  Department,  in 
spite  of  the  section  of  the  New  York  State 
Banking  Law  reading  to  the  contrary? 
Opinion:  This  question  is  distinct  from 
that  relating  to  national  banks.  Apparently 
state  banks  and  trust  companies,  even 
where  they  are  members  of  the  Federal 
Reserve  System,  have  no  right  to  use  the 
word  "savings"  because  they  are  subject  ^o 
the  law  of  the  state  in  this  respect.  {In- 
quiry from  N.  Y.,  Dec,  1918.) 

Use  of  words  "save,"  "accumulate"  and 
"thrift"  by  New  York  trust  company 

614.  A  trust  company  which  conducts 
an  interest  department  asks  if  it  can  use  the 
word  "save",  "accumulate"  and  "thrift" 
in  its  advertising  without  violating  Sec.  279 
of  the  New  York  Banking  Law.  Opinion: 
The  New  York  State  Banking  Law  in  Sec. 
279,  prohibits  the  use  of  the  word  "savings" 
or  its  equivalent  by  a  trust  company  in 
connection  with  its  banking  business  and 
its  advertising.  The  words  "or  its  equiva- 
lent" were  added  by  the  amendment  of 
1914.  The  Court  of  Appeals  in  People  v. 
Birmingham  Trust  Co.,  131  N.  Y.  191, 
rendered  a  decision  which  was  prior  to  this 
amendment,  in  which  it  was  expressly  held 
that  the  law  was  not  intended  to  prevent  an 
institution  other  than  a  savings  bank  from 
doing  a  savings  bank  business,  but  only 
forbade  the  conducting  of  such  business 
under  claim  or  pretext  of  being  a  savings 
bank.  Whether  or  not  the  word  "save," 
"accumulate"  or  "thrift"  would  be  inter- 
preted as  the  equivalent  of  the  word  "sav- 
ing" or  "savings"  within  the  meaning  of 
this  amendment  is  a  question  for  the 
courts  to  decide.  If  the  reasoning  in  the 
case  of  People  v.  Birmingham  Trust  Co.  is 
followed  notwithstanding  the  amendment 
which  was  subsequently  made,  it  would  seem 
that  the  use  of  the  words  in  question  would 
not  be  in  violation  of  the  law.  However, 
before  taking  this  risk,  it  would  be  better 
for  the  trust  company  to  consult  the  Bank 
Superintendent.  {Inquiry  from  N.  Y., 
Feb.,  1921.) 


131 


615-618] 


BANK  OFFICERS,  DIRECTORS  AND  EMPLOYEES 


Election  of  directors 

Transaction  of  other  business  where  notice  of 
meeting  only  for  election  of  directors 

615.  A  bank  states  that  its  articles  of 
association  do  not  require  publication  of 
notice  of  annual  meeting  although  it  did 
give  notice  thereof,  stating  that  the  meeting 
was  to  be  held  for  the  purpose  of  electing 
directors.  At  the  meeting  a  resolution  was 
introduced  giving  the  Board  of  Directors 
express  authority  and  power  to  enter  into  a 
contract  with  responsible  parties  by  which 
the  bank  may  sell,  transfer  and  assign  any 
property,  bills,  notes,  or  other  obligations 
belonging  to  the  bank,  etc.  At  the  meeting 
there  were  represented  4769  shares,  viz., 
in  person  1881,  by  proxy  2888,  Those 
appearing  in  person,  and  also  by  proxy, 
voted  for  the  resolution.  The  bank  asks 
whether  business  other  than  the  election  of 
directors  could  properly  be  brought  up  at 
the  meeting.  Opinion:  It  is  customary  to 
send  each  shareholder  written  or  perhaps 
printed  notice  thirty  days  in  advance  so  as 
to  avoid  any  question  as  to  the  legality  of 
the  meeting.  This  was  done  in  the  present 
case.  The  notice,  however,  simply  stated 
that  the  purpose  of  the  meeting  was  to 
elect  directors  and  the  proxies  were  for  that 
purpose.  It  seems  to  be  the  rule  that,  at 
the  annual  meeting  no  business  can  be 
transacted  without  due  notice  being  given 
that  other  business  will  be  transacted; 
otherwise  the  ratification  of  action  taken 
must  be  obtained  from  shareholders  not 
present.  It  seems,  therefore,  that  the 
resolution  adopted  would  be  binding  on 
the  1881  shares  personally  represented,  but 
not  on  the  shares  not  represented  nor  on 
those  represented  by  proxy,  as  the  proxy 
did  not  give  authority  to  vote  on  this 
question.  There  would  seem  to  be  two 
courses  of  procedure,  (1)  obtain  a  ratification 
of  the  resolution  from  all  shareholders  not 
personally  represented,  or  (2)  issue  a  new 
notice  of  meeting  for  transaction  of  this 
business,  giving  thirty  days'  notice.  (In- 
quiry from  Ky.,Jan.,  1916.) 

Appointment  by  proxy  of  substitute  at 
election  of  directors 

616.  Inquiry  is  made  as  to  whether  the 
holder  of  a  proxy  to  vote  at  a  meeting  for 
election  of  directors,  may  appoint  another 
person    to    act    in    his    stead.      Opinion: 


After  careful  search,  no  reported  case  can  be 
found  which  would  serve  as  a  direct  prece- 
dent for  allowing  such  course.  Going  back 
to  the  general  law  of  principal  and  agent,  it 
is  the  rule  that  an  agent  cannot  delegate 
his  authority  where  the  act  involves  exercise 
of  judgment  or  discretion.  But  where,  as  in 
the  present  case,  the  agent  or  proxy  is 
expressly  instructed  to  vote  for  a  certain 
man  as  director  and  appoints  an  agent  to 
exercise  the  power  of  so  voting  in  his  stead 
by  reason  of  his  unavoidable  absence,  such 
act  would  seem  valid  under  general  princi- 
ples.    {Inquiry  from  N.  Y.,  Nov.,  1914-) 

Power  and  duty  of  directors 

Agreement  by  several  banks  to  jointly  indem- 
nify bank  if  loss  sustained  in 
purchasing  weak  bank 

617.  A,  B,  C,  D,  E  and  F  are  separate 
state  and  national  banking  institutions  in 
a  West  Virginia  town.  F  becomes  weakened 
by  questionable  management,  and  A  agrees 
to  take  over  the  assets  of  F  and  pay  all 
deposit  habiUties  on  agreement  with  the 
other  banks  that  they  will  assume  and 
pay  to  A  their  proportion  of  any  loss  on 
account  of  the  failure  of  F,  beyond  capital 
liability,  based  on  capital  of  banks  participat- 
ing. The  bank  asks  whether  a  board  of 
directors  has  authority  to  pledge  the 
unHmited  assets  of  a  bank  for  such  purposes. 
Opinion:  It  is  a  general  rule  that  no 
corporation  has  the  power,  by  any  form  of 
contract  or  indorsement,  to  become  a 
guarantor  of  the  debt  of  another,  and  an 
agreement  of  the  other  banks  with  A  bank 
to  proportionately  share  any  loss  incurred 
by  A  bank  by  reason  of  taking  over  the 
assets  of  F  bank  and  paying  its  debts, 
would  seem  to  be  guaranteeing  the  debt  of 
another  and  not  within  the  authority  of  the 
directors.  Another  doubtful  question  is 
the  right  of  one  bank  or  a  group  of  banks  to 
purchase  the  assets  and  assume  the  debts 
of  a  tottering  bank.  See  Missouri  State 
ex  rel  Hadley  v.  Bankers'  Trust  Co.,  138 
S.  W.  669.  (Inquiry  from  W.  Va.,  Nov., 
1915.) 

Procedure  where  directors  refuse  to  call  meeting 

618.  In  case  directors  refuse  to  direct 
secretary  to  send  out  notice  that  increase  in 
number  of  directors  or  increase  of  capital 
stock  are  to  be  voted  on,  and  he  is  requested 
to  send  out  such  notice  by  the  owner  of  a 
majority  of  the  stock,  what  is  the  proper 


132 


BANK  OFFICERS,  DIRECTORS  AND  EMPLOYEES 


[619-622 


procedure?  Opinion :  A  writ  of  mandamus 
would  lie  where  there  was  shown  to  be  a 
specific  legal  duty  on  the  part  of  the  directors 
to  do  the  act  sought  to  be  compelled,  and 
clear  proof  of  a  breach  of  that  duty  on 
their  part.  (Ohio  etc.  R.  Co.  v.  People, 
120  111.  200.  In  re  Trenton  Water  Power 
Co.,  20  N.  J.  L.,  659.  People  v.  Brooklyn 
Heights  R.  Co.,  172  N.  Y.  90.  Northern 
Pac.  R.  Co.  V.  Washington  Ter.,  142 
U.  S.  492.)  {Inquiry  from  N.  J.,  Nov.,  1916.) 

Powers  of  cashier 

Transfer  of  stock  and  issue  of  new  certificate 

619.  Inquiry  is  made  whether  a  cashier 
of  a  state  bank  in  Georgia,  by  reason  of  his 
official  position,  is  the  proper  officer  to 
transfer  stock  upon  the  books  of  the  bank 
and  to  issue  new  certificates  of  stock. 
Opinion:  It  is  generally  held  that  the 
cashier  is  the  proper  officer  to  make  a 
transfer  of  stock  on  the  books  of  the  bank. 
Nat.  Bk.  V.  Watsontown  Bk.,  105  U.  S.  217. 
Nothing  can  be  found  in  the  general  statutes 
of  Georgia  on  the  subject.  Some  times 
by-laws  regulate  the  matter  of  transfer. 
Assuming  there  is  nothing  in  the  by-laws  of 
the  inquiring  bank  to  the  contrary,  the 
cashier  is  the  proper  officer  to  transfer 
stock  upon  the  books  of  the  bank  and  to 
issue  new  certificates.  {Inquiry  from  Ga., 
June,  1915.) 

Acceptance  of  note  with  renewal 
privilege 

620.  A  bank  holds  the  unsecured  note 
of  John  Doe  for  $1,000,  made  payable  to  it, 
dated  January  2,  1919,  payable  December  1, 
1919,  after  date  with  interest  at  7  per  cent, 
per  annum  payable  semi-annually,  and  on 
the  margin,  under  the  title  "security"  is 
indorsed  "one  year  renewal  privilege." 
The  note  was  taken  by  a  former  cashier  of 
the  bank  before  its  sale  to  its  present  owners. 
Opinion  is  desired  whether  the  bank  is 
obliged  to  renew  the  note;  and  if  the  nota- 
tion is  binding,  is  it  obhged  to  renew  at  the 
same  rate  of  interest;  and  is  it  obliged  to 
accept  maker's  unsecured  note,  or  can 
bank  insist  on  being  secured?  Opinion: 
Where  an  unsecured  note  is  accepted  by  the 
cashier  of  a  bank  containing  a  provision 
entitling  to  privilege  of  renewal  for  one 
year  and  the  bank  is  afterwards  sold,  the 
new  purchasers  cannot,  in  the  absence  of 
fraud  in  the  transaction  in  which  the  note 
was  given,  relieve  themselves  from  the 
obligation  to  renew  such  note  on  the  same 
terms;  for,  presumably,  the  original  con- 


tract was  within  the  scope  of  authority  of 
the  cashier,  and,  in  any  event,  having  been 
ratified  by  the  bank,  cannot  be  questioned, 
by  the  new  owners  in  the  absence  of  fraud. 
First  Nat.  Bank  v.  Livermore  (Kan.)  133 
Pac.  734.  Vanderford  v.  Farmers,  etc., 
Bank  (Md.)  66  Atl.  47.  Citizens  Bank  v. 
Douglass,  (Mo.)  161  S.  W.  601.  {Inquiry 
from  Mont.,  Jan.,  1920,  Jl.) 

No  power  to  relieve  makers  of  notes 
from  liability 

621.  Directors  of  a  bank  gave  their 
personal  notes  to  the  bank  to  replace 
certain  objectionable  paper  held  by  the 
bank,  to  placate  the  bank  examiner.  They 
now  claim  to  have  been  absolved  from  all 
hability  on  these  notes  by  the  then  acting 
cashier,  particularly  as  they  never  received 
any  consideration  for  the  notes.  Is  their 
contention  correct?  Opinion:  The  general 
rule  is  that  the  president,  cashier  or  other 
similar  executive  officer  of  a  bank  has  no 
authority,  simply  by  virtue  of  his  office,  to 
bind  his  bank  by  an  agreement,  made  with 
the  makers  or  indorsers  of  commercial 
paper  payable  to  the  bank,  that  their 
Uability  on  such  paper  will  not  be  enforced. 
(HilHard  v.  Lyons,  180  Fed.  685.  Thompson 
V.  McKee,  7  Dak.  172.  Gray  v.  Farmers 
Nat.  Bank,  81  Md.  631.  Davuss  v.  Sav. 
Assoc,  63  Mo.  24.  Bank  v.  Rudolph, 
5  Nebr.  527.  Lumberton  First  Nat.  Bank  v. 
Lennon  [N.  C],  86  S.  E.  715.  Cochecho 
Nat.  Bank  v.  Haskell,  51  N.  H.  116.  Hodge 
V.  Richmond  First  Nat.  Bank,  22  Gratt. 
[Va.],  51.  New  Martinsville  First  Nat. 
Bank  v.  Lowther  Kaufman  Oil  Co.,  66  W. 
Va.  505.)  Where  the  board  of  directors  of 
a  bank,  whose  capital  stock  was  impaired 
by  bad  loans,  deem  it  advisable  to  charge 
off  these  bad  loans  and  substitute  in  lieu 
thereof  notes  executed  and  indorsed  by 
individual  members  of  the  board,  it  was 
decided  in  an  action  upon  a  note  so  executed 
and  indorsed  brought  by  the  receiver  of  the 
bank  that  the  directors  were  estopped  to 
set  up  want  of  consideration.  (State  Bank 
V.  Kirk  [Pa.  1907]  65  Atl.  932.)  {Inquiry 
from  Mo.,  March,  1919.) 

No  power  to  relieve  indorser  from  liability 

622.  The  cashier  of  a  bank  allowed  its 
depositor  an  overdraft  of  $1,000.  To  cover 
this  amount  the  cashier  accepted  its 
depositor's  note,  which  was  indorsed  and 
guaranteed  by  A,  upon  the  cashier's  state- 
ment that  A  would  not  be  held  liable  to  the 
bank  upon  his  guaranty,  and  that  the  note 


133 


623-628] 


DIGEST  OF  LEGAL  OPINIONS 


was  only  temporary  to  cover  the  amount 
during  the  presence  of  the  bank  examiner. 
Opinion:  A  is  bound  by  his  guaranty.  A 
bank  cashier  has  no  authority  by  virtue  of 
his  office  to  promise  an  indorser  on  a  note 
to  the  bank  that  he  will  not  be  liable  upon 
his  indorsement.  Bk.  of  U.  S.  v.  Dunn, 
6  Pet.  51.  Bk.  of  Metropolis  v.  Jones, 
8  Pet.  6.  Thompson,  Receiver,  v.  McKee, 
5  Dak.  172.  St.  Bk.  v.  Forsyth,  108  Pac. 
(Mont.)  914.  First  Nat.  Bk.  v.  Lowther, 
etc.,  Co.,  66  S.  E.  (W.  Va.)  713.  (Inquiry 
from  S.  C,  April,  1911,  Jl.) 

Competency  of  officer  in  other  capacities 

Officer  as  attesting  witness 

623.  An  officer,  not  a  stockholder,  of 
the  payee  bank  is  competent  to  subscribe 
to  the  mark  of  the  maker  of  an  instrument 
as  attesting  witness.  Where  the  officer  is  a 
stockholder  it  is  unwise  for  the  bank  to  act 
upon  the  assumption  of  such  competency. 
Willoughby  V.  Moulton,  47  N.  Y.  205.  Ky. 
Civ.  Code,  Sec.  732,  Subdiv.  7.  Vanover  v. 
Murphy's  Admr.,  15  S.  W.  (Ky.)  61. 
Jackson  v.  Tribble,  47  So.  310.  Farnsworth 
V.  Rowe,  33  Me.  263.  Chadwell  v.  Chadwell, 
98  Ky.  643.  Siebold  v.  Rogers,  110  Ala. 
438.  Donovan  v.  St.  Anthony  &  Dakota 
Elevator  Co.,  8  N.  Dak.  585.  Fisher  v. 
Porter,  77  N.  W.  112.  Dail  v.  Moore,  51 
Mo.  589.    (Inquiry  from  Mo.,  July,  1909,  Jl.) 

Disqualification  of  judge  who  is  bank  officer 

624.  A  vice-president  of  a  bank,  en- 
gaged in  other  business,  and  not  active  in 
the  management  of  the  bank,  is  justice  of 
the  peace  in  the  township.  Opinion  re- 
quested as  to  whether  it  would  be  legal  and 
proper  for  the  bank  to  bring  small  suits  in 
his  court.  Opinion:  A  Justice  of  the 
Peace  who  is  vice-president  of  a  bank  is 
disqualified  from  acting  as  judge  in  a  suit 
in  which  the  bank  is  a  partv.  (Ferrell  v. 
Keel)  [Ark.],  146  S.  W.  494.  Adams  v. 
Minor  [Cal.],  53  Pac.  815.  King  v.  Thomp- 
son, 59  Ga.  380.)  (Inquiry  from  Ark., 
Jan.,  1921,  Jl.) 

Liability  to  bank  for  negligence 

Neglect  of  directors  to  examine  bank 

625.  By  reason  of  the  neglect  of  certain 
directors  of  a  Mississippi  bank  in  holding 
regular  examinations  of  the  bank,  the 
stockholders  suffer  a  loss.  The  directors  dis- 
claim liability  because  they  were  not  paid  for 
their  services.  Opinion:  The  fact  that  the 
bank  directors  received  no  compensation  did 


not  relieve  them  from  habihty  for  neglect  of 
duty.     Mobile  Branch  Bk.  v.  Scott,  7  Ala. 

107.  Blue  V.  Capital  Nat.  Bk.,  145  Ind.  518. 
Bolles  on  Banks,  p.  281.  Charitable  Corp. 
V.  Sutton,  2  Atkyns  (Eng.)  405.  Trustees 
of  Mutual  Bldg.  Fund  v.  Bosseiux,  3  Fed. 
817,  838.  (Inquiry  from  Miss.,  Sept., 
1913,  Jl.) 

Supervision  of  employees  by  officers 

626.  A  bank  makes  inquiry  concerning 
recent  decisions  in  United  States  Court 
holding  bank  president  liable  for  loss  caused 
by  the  speculations  of  a  bookkeeper. 
Opinion:  The  case  referred  to  (Bates  v. 
Dresser,  40  Sup.  Ct.  Rep.  247  holding 
estate  of  deceased  president  hable  for 
defalcations  of  bookkeeper)  was  unusual 
in  that  the  president  had  been  warned  of 
the  irregular  practices  of  the  bookkeeper 
and  yet,  without  investigating  same,  kept 
him  in  the  employ  of  the  bank.  Having 
knowledge  of  suspicious  circumstances,  it 
was  his  duty  to  make  inquiry.  With  respect 
to  the  Hability  of  a  bank  officer,  the  general 
rule  is  that  a  bank  officer  is  not  an  insurer 
of  the  honesty  and  fidehty  of  those  holding 
subordinate  positions,  and,  therefore,  is 
hable  only  for  failure  to  exercise  reasonable 
diligence  in  supervising  their  work.  There 
are  numerous  decisions  in  both  the  Federal 
and  State  Courts  so  holding.  For  example, 
see  Briggs  v.  Spaulding,  141  U.  S.  132.  Wii- 
hams  V.  Brady,  221  Fed.  118.  Thomas  v. 
Taylor,  24  U.  S.  73.  Wynn  v.  Talapoosa 
Bank,  168  Ala.  469.  Nortonville  F.  St.  Bk. 
V.  Morton,  146  Ky.  287.  Davenport  v. 
Prentice,  110  N.  Y.  Suppl.  1056.  (Inquiry 
from  Mo.,  Feb.,  1919.) 

Mistaken  payment  of  raised  check 

627.  A  bank  officer  or  minor  official  is 
not  personally  liable  for  a  mistake  in 
paying  a  raised  check  in  absence  of  gross  or 
inexcusable  neglect.  Belknap  v.  The  Nat. 
Bk.  of  North  America,  100  Mass.  380. 
Union  Bk.  v.  Knapp,  3  Pick.  (Mass.)  96, 

108.  Union  Bk.  v.  Clossey,  10  Johns 
(N.  Y.),  271.  Bolles  "Modern  Law  of 
Banking,"  p.  383.  (Inquiry  from  Me., 
March,  1909,  Jl.) 

628.  Bank  teller,  who,  in  violation  of 
instructions  not  to  pay  over  $100,  pays 
check  raised  from  $5  to  $250  is  personally 
hable  to  the  bank.  (Inquiry  from  N.  Y., 
Dec,  1908,  Jl.) 


134 


BANK  OFFICERS,  DIRECTORS  AND  EMPLOYEES 


[629-632 


Mistaken  payment  to  wrong  person 

629.  A  bank  asks  who  is  the  loser  where 
an  employee  of  the  bank  pays  out  money 
through  an  error  to  the  wrong  person  from 
whom  the  bank  cannot  collect.  Opinion: 
The  general  rule  is  that  a  bank  officer  or 
clerk  must  be  diligent,  faithful  and  skillful. 
Commercial  Bank  v.  Ten  Eyck,  48  N.  Y. 
305.  Apperson  v.  Exch.  Bk.,  10  S.  W. 
(Ky.)  801.  His  imphed  contract  is  for 
reasonable  skill  and  care.  Pryse  v.  Farmers 
Bank,  33  S.  W.  532.  And  it  has  been  held 
that  he  is  responsible  to  the  bank  for 
negligence  or  want  of  reasonable  skill  and 
care.  In  Dougherty  v.  Poundstone,  120 
Mo.  App.,  300,  a  cashier  was  held  liable  for 
paying  out  money  on  unauthorized  checks. 
And  in  Western  Bank  v.  Coldeway,  120. 
Ky.,  776,  a  cashier  was  held  hable  for 
allowing  overdrafts  without  the  consent  of 
the  Board  of  Directors.  If  such  a  question 
should  get  into  court,  it  would  be  for  a 
jury  to  decide  whether  there  was  want  of 
reasonable  care.  (Inquiry  from  W.  Va., 
March,  1920.) 

"OK"  of  overdraft  by  bookkeeper  without 
verifying  balance 

630.  Where  a  bookkeeper  in  a  bank 
puts  his  "O.K."  upon  checks  drawn  by  a 
depositor  without  verifying  the  checks  of  the 
depositor  with  his  balance  on  the  books, 
thereby  permitting  an  overdraft  by  the 
depositor,  can  the  bookkeeper  be  held  for 
such  loss  due  to  his  neghgence?  Opinion: 
Where  a  bookkeeper,  whose  duty  it  was  to 
verify  checks  presented  through  the  clear- 
ings by  ascertaining  from  the  books  the 
sufficiency  of  the  balance,  and  if  found  good 
place  thereon  a  "sufficient  fund  and  paid 
stamp"  O.K.,  stamped  as  O.K.  the  checks 
of  a  customer  without  verification,  erroneous- 
ly believing  that  his  balance  was  sufficient, 
the  bookkeeper,  being  under  duty  to  use 
reasonable  skill  and  care,  would  probably 
be  held  negligent  under  the  circumstances 
and  liable  to  the  bank  for  the  amount  of  the 
overdraft,  if  it  chose  to  enforce  same  against 
him  (Com.  Bank  v.  Ten  Eyck,  48  N.  Y. 
305.  Apperson  v.  Exch.  Bank,  [Ky.]  10 
S.  W.  801.  Daugherty  v.  Poundstone,  120 
Mo.  App.  300.  Prvse  v.  Farmers'  Bank, 
[Ky.  1895]  33  S.  W.'^532.  Western  Bank  v. 
Coldeway,  120  Ky.  776.)  (Inquiry  from 
Tex.,  Sept.,  1920,  Jl.) 

Bank  officer  allowing  overdraft 

631.  A  bank  inquires  as  to  the  personal 
liability  of  bank  officers  who  authorize  pay- 


ment of  overdrafts  of  customers.  Opinion: 
The  question  of  the  personal  hability  of  a 
bank  officer  for  allowing  an  overdraft,  has 
not  been  passed  upon  by  the  Louisiana 
Courts.  In  several  of  the  other  states,  how- 
ever, decisions  have  been  rendered  on  the 
subject.  In  Wynn  v.  Tallapoosa  Co.  Bk., 
53  So.  (Ala.)  228,  it  was  held  that  a  cashier 
is  not  absolutely  Hable  for  an  overdraft  if  it 
is  really  a  loan  on  sufficient  security  and  if 
the  directors  vest  the  cashier  with  the  duty 
of  carrying  on  the  bank's  business  and  they 
as  a  body  or  committee  thereof  fail  to  meet 
or  to  instruct,  help  and  supervise  him  and 
thus  put  on  him  the  whole  burden,  in  such 
case  neither  they  nor  the  bank  can  hold  him 
responsible  for  not  consulting  with  them  as 
required  by  the  by-laws,  as  to  discounts  and 
loans.  It  was  further  held  that  bank  direct- 
ors have  the  power  to  authorize  the  cashier 
to  allow  overdrafts.  In  Benham  v.  First 
Cit.  Bk.,  78  S.  E.  (W.  Va.)  656,  it  was  held 
that  if  the  cashier  knowingly  made  bad 
loans  or  permitted  overdrafts  with  knowl- 
edge of  the  insufficiency  of  the  security,  he 
was  liable  for  the  losses  resulting.  (Inquiry 
from  La.,  April,  1919.) 

Liability   to  bank  for  misconduct 

Deriving    personal    profit    and    wrongfully 
declaring  dividend 

632.  A  bank  wishes  opinion  on  civil  and 
criminal  HabiUty  of  bank  officers  for  trans- 
actions such  as  deriving  personal  profit 
from  sale  of  real  estate  owned  by  the  iDank, 
and  declaring  a  dividend  when  the  profits 
were  insufficient  to  meet  same.  Opinion: 
A  president  or  other  officer  of  a  bank  is 
liable  for  a  loss  resulting  to  the  bank  from 
his  abuse  of  his  authority,  or  from  neglect 
of  his  duties.  (Hinsdale  v.  Larned,  16  Mass. 
65.  Austin  v.  Daniels,  4  Den.  (N.  Y.)  299. 
Kalb  V.  Amer.  Nat.  Bank,  21  Ohio  Cir.  Ct. 
1.  McVeigh  v.  Old  Dominion  Bank,  26 
Gratt.  [Va.]  188.  See  also  Blanton  v.  Bank 
[Ark.]  206  S.  W.  745).  Likewise  the  cashier 
of  a  bank  is  hable  for  losses  resulting  from 
his  illegal,  fraudulent,  or  tortious  acts. 
(Wynn  v.  Tallapoosa  County  Bank,  168 
Ala.  469,  53  So.  288.  Fort  Scott  First  Nat. 
Bank  v.  Drake,  29  Kan.  311.  Knapp  v. 
Roach,  62  N.  Y.  614.  Pullman  First  Nat. 
Bank  V.  Caddis,  31  Wash.  596,  72  Pac.  460. 
Merchants  Bank  v.  Jeffries,  21  W.  Va.,  504. 
Bank  v.  Goolsby,  129  Ark.  416,  196  S.  W. 
803).  The  rule  is  elementary  that  the 
officers  of  a  bank  are  not  permitted  to  make 
an  individual  profit  by  reason  of  transactions 
pertaining  to  the  business  of  the  bank;  the 


135 


633-636] 


DIGEST  OF  LEGAL  OPINIONS 


bank  may  avoid  such  transactions,  and  may 
hold  the  officer  Hable  for  any  profits  so  made, 
notwithstanding  they  have  acted  in  good 
faith.  (Morgan  v.  King,  27  Colo.  539,  63 
Pac.  416.  Bank  v.  Free,  [Mich.  1919]  171 
N.  W.  464.  Millsaps  v.  Chapman,  76  Miss. 
942.  Mt.  Vernon  Bank  v.  Porter,  148  Mo. 
176.  Leonhardt  v.  Citizens  Bank,  56  Neb. 
38.  See  also  Gund  v.  Ballard,  73  Neb.  547, 
103  N.  W.  309).  In  quite  a  number  of 
jurisdictions  it  is  a  criminal  offense  to  declare 
a  dividend  from  other  than  profits.  See 
Cabaniss  v.  State,  8  Ga.  App.  129,  68  S.  E. 
849.  Rev.  Laws  Minn.,  1905,  Ch.  58,  Sec. 
2884.    {Inquiry  from  Minn.,  Dec,  1920.) 

Criminal   liability 

Embezzlement  by  bank  officer 

633.  The  cashier  of  Bank  A  took  his  own 
note  and  that  of  several  of  his  friends  which 
he  discounted  with  bank  B  and  placed  the 
proceeds  to  the  credit  of  Bank  A,  bank  B 
supposed  that  it  was  rediscounting  the  paper 
for  bank  A.  The  cashier  then  appropriated 
the  credit  so  obtained  to  his  own  use. 
Would  bank  A  be  liable  to  bank  B,  and 
would  the  cashier  of  bank  A  be  hable  for 
embezzlement?  Opinion:  There  seem  to 
be  no  parallel  reported  cases.  In  the  present 
case,  however,  the  cashier  of  bank  A  fraudu- 
lently misrepresented  that  the  notes  were 
the  property  of  bank  A,  caused  them  to  be 
discounted  by  bank  B,  and  he  withdrew  and 
misappropriated  the  credit  therefor  given 
to  bank  A.  It  appears,  therefore,  that  the 
facts  disclose  a  case  of  embezzlement.  On 
the  question  of  liability  of  bank  A  to  bank 
B,  it  is  generally  held  that  the  cashier  has 
power  to  rediscount  commercial  paper,  and 
in  this  case  he  had  actually  exercised  the 
power  with  the  knowledge  of  the  Board 
of  Directors.  While  the  paper  was  not 
owned  by  bank  A,  the  cashier  so  represented 
it,  and  his  representation  in  the  exercise  of 
this  function  would  probably  bind  the  bank. 
Furthermore,  the  proceeds  were  placed  to 
the  credit  of  the  bank.  Under  such  circum- 
stances it  seems  bank  A  would  be  liable  for 
the  money' and  the  theft  or  embezzlement 
by  the  cashier  was  from  bank  A  and  not 
from  bank  B.  {Inquiry  from  Pa.,  Sept., 
1914.) 

Unlawful  overdraft  by  director 

634.  The  director  of  a  bank  in  pursuance 
of  his  oral  order  received  from  the  bank 
certificates  of  deposit  which  were  in  ex- 
cess of  his  account.  A  New  Jersey  statute 
makes  it  criminal  for  a  director  to  overdraw 


his  account.  Opinion:  This  transaction  con- 
stituted a  violation  of  the  statute,  for  the 
director  made  an  oral  order  which  was  vir- 
tually a  draft  upon  his  account  in  excess  of 
his  credit  and  received  payment  in  the 
bank's  negotiable  certificates  of  deposit, 
which  were  the  equivalent  of  money.  Comp. 
Stat.  N.  J.  1910,  Sec.  171.  State  v.  Stimson, 
24  N.  J.  L.  478.  Norton  v.  U.  S.,  205  Fed. 
593.     {Inquiry  from  N.  J.,  Oct.,  1916,  Jl.) 

Liability  of  bank  for  wrongful  acts  of 
officer 

Fraudulent  negotiation  of  notes 

635.  Without  the  knowledge  of  the 
directors  of  a  bank,  and  as  a  part  of  a  fraudu- 
lent transaction  the  cashier  of  the  bank 
made  up  several  notes  secured  by  chattel 
mortgages  all  of  which  were  on  the  same 
property  and  sold  them  in  the  name  of  the 
bank  with  an  agreement,  also  in  the  name  of 
the  bank,  to  repurchase  them  at  maturity. 
Can  the  bank  be  held  liable  on  the  agree- 
ment? Opinion:  It  would  seem  that  the 
bank  can  be  held  liable  for  the  act  of  the 
cashier  in  negotiating  and  agreeing  to  re- 
purchase the  described  notes,  which  act  was 
a  fraud  on  the  different  purchasers.  The 
bank  would  be  hable  on  the  ground  that  it 
received  the  proceeds  of  the  notes  (assuming 
that  it  did  receive  them)  or,  in  any  event 
under  the  general  rule  that  a  corporation  is 
hable  for  torts  committed  by  its  servants 
or  its  agents  precisely  as  a  natural  person. 
Phila.,  etc.,  R.  R.  v.  Quigly,  21  How.  202. 
Hindmay  v.  First  Nat.  Bank,  112  Fed.  931. 
{Inquiry  from  Mont.,  Feb.,  1921.) 

Misappropriation  of  deposit  by  cashier 

636.  A  bank  submits  a  check  payable  to 
S.  S.  W.,  indorsed  by  him  "Pay  only  to  my 

account  in  the  Bank  of  ",  bearing 

indorsement  of  said  bank  with  guaranty  of 
prior  indorsement;  also  indorsed  by  the  P. 
Bank,  guaranteeing  prior  indorsements.  It 
appears  that  this  check  was  mailed  to  the 
cashier  of  the  C.  Bank,  but  that  the  latter 
did  not  deposit  it  to  the  credit  of  S.  S.  W., 
but  apphed  it  to  his  own  use.  The  bank 
asks  upon  whom  the  liabihty  rests.  Opin- 
ion: It  seems  the  C.  Bank,  having  through 
its  cashier  received  this  check  for  deposit 
and  the  check  having  been  collected  upon 
the  official  indorsement  of  the  C.  Bank,  the 
latter  would  be  hable  for  the  proceeds  to 
S.  S.  W.,  the  payee  of  the  check.  The  in- 
dorsements throughout  indicate  that  the 
check  was  received  by  and  the  proceeds 


136 


BANK  OFFICERS,  DIRECTORS  AND  EMPLOYEES 


[637-641 


collected  by  the  C.  Bank.  The  fact  that 
W.,  the  cashier  of  that  bank,  apphed  the 
proceeds  to  his  own  use,  would  not,  it  seems, 
reUeve  the  C.  Bank  from  habihty.  The  C. 
Bank  is  Uable,  just  as  it  would  be  hable  to 
any  other  depositor  where  an  employee  or 
agent  has  been  guilty  of  misappropriation 
or  deversion  of  funds.  S.  S.  W.  was  a  de- 
positor in  the  C.  Bank  and  the  relation  of 
debtor  and  creditor  existed  between  them. 
{Inquiry  from  W.  Va.,  Jan.,  1919.) 

Fraudulent  bond  of  indemnity  for  duplicate 
stock  certificate 

637.  The  cashier  of  a  bank  without  the 
authority,  knowledge,  or  consent  of  the 
board  of  directors,  executed  a  bond  to  in- 
demnify a  corporation  against  loss  in  issuing 
a  duplicate  certificate  of  stock.  The  cashier 
falsely  represented  that  the  original  certifi- 
cate of  stock  had  been  held  by  the  bank  as 
collateral  and  had  been  lost,  but  in  fact, 
such  original  had  never  been  in  the  bank's 
possession.  Opinion:  The  cashier  had  no 
inherent  power  to  execute  such  a  bond,  and 
his  act  being  without  actual  authority  and 
not  within  the  scope  of  his  imphed  powers 
did  not  bind  the  bank.  Knickerbocker  v. 
Wilcox,  83  Mich.  200,  47  N.  W.  123.  Wat- 
son V.  Bennett,  12  Barb.  (N.  Y.)  196.  (In- 
quiry from  W.  Va.,  June,  1910,  Jl.) 

Interlocking  directorates 

Director   in    national    and    state    hank 

638.  A  bank  states  that,  in  the  town  in 
which  it  is  located  there  is  a  national  bank 
and  a  state  bank,  and  some  of  the  stock- 
holders have  stock  in  each,  and  a  director  in 
the  national  wishes  also  to  become  a  director 
in  the  state  bank.  The  bank  desires  infor- 
mation relative  thereto.  Opinion:  Sec.  8 
of  the  Clayton  Act  passed  October  15,  1914, 
prohibited  a  director  from  being  in  more 
than  one  national  bank  where  either  had 
capital  and  deposits  exceeding  $5,000,000; 
also  prohibited  a  director  of  a  state  bank 
having  capital  and  deposits  exceeding  S5,- 
000,000  from  being  a  director  of  any  national 
bank;  also  a  further  provision  applicable 
to  cities  of  200,000  or  more  prohibiting  in- 
terlocking directorates.  This  Act  was 
amended  by  Act  approved  May  15,  1916, 
which  permitted  a  director  of  a  national 
bank,  who  first  procured  the  consent  of  the 
Federal  Reserve  Board,  to  be  a  director  in 
not  more  than  two  other  banks,  either 
national  or  state.  The  above  is  the  law. 
Appljang  it  to  the  present  case,  the  bank  is 
not  in  a  city  of  over  200,000,  and  it  is  pre- 


sumed neither  the  national  nor  state  bank 
have  capital  and  deposits  aggregating  $5,- 
000,000.  If  so,  there  is  nothing  in  Section 
8  prohibiting  the  course  desired  to  be  pur- 
sued upon  first  applying  for  the  consent  of 
the  Federal  Reserve  Board.  {Inquiry  from 
III,  May,  1917.) 

Director  in  national  hank  and  trust  company 

639.  A  bank  asks  whether  a  national 
bank  with  capital,  surplus  and  undivided 
profits  of  S300,000,  is  prevented  from  having 
a  director  of  a  trust  company  located  in  the 
same  city,  serve  on  its  board  of  directors. 
Opinion :  In  view  of  the  fact  that  the  bank  is 
located  in  a  city  having  less  than  200,000 
inhabitants,  and  the  additional  fact  that  the 
bank's  deposits,  capital,  surplus  and  profits 
do  not  exceed  the  sum  of  $5,000,000,  your 
bank  does  not  come  within  the  prohibition 
specified  in  the  Federal  Interlocking  Di- 
rectorate Act  of  October  15,  1914  (as  amend- 
ed May  15,  1916  and  May  26,  1920).  There 
is,  therefore,  nothing  to  prevent  the  bank 
from  having  as  a  director,  the  director  of  a 
trust  company  located  in  the  same  city. 
{Inquiry  from  Me.,  July,  1920.) 

Director   of  national   hank   in   non-^nemher 
state  hanks 

640.  The  right  of  an  oflScer  and  director 
of  a  national  bank  with  resources  exceeding 
five  milhon  dollars,  located  in  a  city  of  over 
two  hundred  thousand  inhabitants,  to  be  an 
oflScer  and  director  in  any  number  of  non- 
member  state  banks,  elsewhere  located  and 
none  having  resources  equahng  five  milhon 
which  right  exists  under  the  Clayton  Act, 
is  not  restricted  by  the  pro\dsions  of  the 
Kern  Act  which  are  cumulative  and  addi- 
tionally permit  such  officer,  upon  consent  of 
the  Federal  Reserve  Board,  to  be  in  not 
more  than  two  other  banks  not  in  sub- 
stantial competition,  from  which,  but  for  the 
Kern  proviso,  he  would  be  excluded.  {In- 
quiry from  Minn.,  Nov.,  1916,  Jl.) 

Director  of  national  hank  as  trustee 
of  savi7igs  hank 

641.  A  director  of  a  national  bank 
located  in  New  York  is  ehgible  to  become 
trustee  of  a  savings  bank  in  the  same  state, 
provided  a  majority  of  the  board  of  trustees 
of  the  savings  bank  is  not  composed  of 
directors  of  the  national  bank.  N.  Y. 
Banking  Law,  Sees.  267,  260.  {Inquiry 
from  N.  Y.,  Feb.,  1919,  JL) 


137 


642-6471 


BANK  OFFICERS,  DIRECTORS  AND  EMPLOYEES- 
NATIONAL  BANKS 


Increase  of  directors 

642.  What  is  the  method,  and  when  may 
the  number  of  directors  in  a  national  bank 
be  increased?  Opinion:  Directors  of  na- 
tional banks  are  elected  by  the  stockholders. 
(U.  S.  Rev.  St.  Sec.  5144).  While  the 
statute  provides  that  the  minimum  number 
of  directors  in  a  national  bank  shall  be  five, 
it  fails  to  prescribe  or  Hmit  the  maximum 
number;  such  matter  being  regulated  either 
by  the  articles  of  association  or  by  the  by- 
laws which  the  directors  are  empowered  to 
adopt  (U.  S.  Rev.  St.  Sec.  5145.  Com.  Nat. 
Bank  v.  Weinhard,  193  U.  S.  243).  As  to 
the  time  of  election,  all  elections  after  the 
first  one,  are  to  be  held  annually  on  such 
day  in  January  as  may  be  authorized  by  the 
articles  of  association.  (U.  S.  Rev.  St.  Sec. 
5149  [Sec.  9687  U.  S.  Comp.  St.].  Rankin 
V.  Tygard,  198  Fed.  795).  Where  the  elec- 
tion is  not  held  on  the  day  designated  by  the 
articles  of  association,  or  the  articles  fail  to 
fix  such  day,  then  the  board  of  directors — 
or,  in  case  of  their  failure  to  act,  two-thirds 
of  the  stockholders — may  designate  any 
subsequent  day  for  the  election,  thirty  days' 
notice  thereof  having  in  all  cases  been  given 
in  a  newspaper  in  the  city,  town  or  county 
where  the  association  is  located.  There 
being  no  statutory  inhibition  of  the  increase 
in  the  number  of  directors,  it  would  seem 
that,  in  the  absence  of  a  rule  on  the  subject 
incorporated  in  the  articles  of  association, 
the  number  of  directors  might  be  increased 
at  the  pleasure  of  the  stockholders  ad 
hbitum.  As  to  whether  the  meeting  for  the 
election  of  such  additional  directors  would 
have  to  be  held  in  January,  or  might  be  held 
at  some  other  time  of  the  year,  to  be  fixed 
by  the  directors  or  stockholders,  quaere. 
{Inquiry  from  N.J.,  Nov.,  1916.) 

Eligibility  of  directors 

Single   or  married  women  as   directors 

643.  A  bank  is  preparing  its  list  for 
election  of  directors.  It  has  several  women 
who  are  holders  of  shares  of  stock,  and 
desires  to  know  if  it  is  necessary  to  put  their 
names  on  the  list;  also  whether  a  woman  can 
hold  a  directorship  of  a  national  bank? 
Opinion:  A  woman,  whether  married  or 
unmarried,  possessing  the  qualifications  of 
directors  required  by  U.  S.  Rev.  Stat.  Sec. 
5146  (Act.  Feb.  28,  1905,  Ch.  1163,  33  St.  L. 


818),  can  hold  directorship  in  a  national 
bank  provided  that  in  case  of  a  married 
woman  the  laws  of  the  state  do  not  pro- 
hibit or  incapacitate  her  from  owning 
stock.  (Christopher  v.  Norvelle,  201  U.  S. 
216).  Under  the  laws  of  Pennsylvania  there 
is  no  such  incapacity.  (See  Peter  Adams 
Paper  Co.  v.  Cassard,  206  Pa.  St.  179.) 
{Inquiry  from  Pa.,  Oct.,  1920,  Jl.) 

Cashier  may  hut  need  not  he  a  director 

644.  The  cashier  of  a  national  bank  need 
not  but  may  be  a  director.  U.  S.  Rev.  Stat., 
Sees.  5236,  5145,  5150.  {Inquiry  from  Tex., 
Apr.,  1915,  Jl.) 

Powers    and   duties   of  officers 

Cashier  as  real  estate  agent  for  customer 

645.  Is  the  acceptance  of  a  commission 
by  a  cashier  of  a  national  bank  for  effecting 
the  sale  of  real  estate  of  a  customer  of  the 
bank  in  violation  of  the  banking  law? 
Opinion:  It  is  not  unlawful  for  the  casliier 
of  a  national  bank  to  act  as  agent  for  one  of 
the  bank's  customers  in  selling  his  real  estate 
to  another  customer,  and  to  receive  a  com- 
mission therefor.  {Inquiry  from  Colo., 
Apr.,  1920,  Jl.) 

President  of  national  hank  as  hond  hroker 

646.  A  national  bank  president  acted 
as  bond  broker  and  in  his  personal  capacity 
sold  a  bond  to  B  and  at  the  same  time 
verbally  promised  B  that  the  bank  would 
take  up  the  bond  should  B  desire  to  cash  it. 
B  seeks  to  compel  the  bank  to  take  up  the 
bond.  Opinion:  A  national  bank  has  no 
power  to  act  as  broker  in  stocks  and  bonds, 
and  its  president  who  sells  bonds  in  a  per- 
sonal capacity  has  no  authority  to  bind 
bank  by  promise  that  bank  will  take  up 
bonds  thus  sold.  First  Nat.  Bk.  of  Allen- 
town  V.  Hoch,  89  Pa.  324.  Weckler  v. 
First  Nat.  Bk.,  42  Md.  581.  Grow  v. 
Cockrill,  63  Ark.  418.  City  Electric  Co.  v. 
First  Nat.  Bk.,  65  Ark.  543.  {Inquiry  from 
Ore.,  Jan.,  1912,  Jl.) 

Power  to  horrow  money  for  use  of  hank 

647.  It  is  now  well  settled  that  the 
executive  officers  of  national  banks  may 
legitimately  in  the  usual  course  of  banking 
business,  and  without  special  authority 
from  their  board   of  directors,   rediscount 


138 


OFFICERS,  DIRECTORS  AND  EMPLOYEES— NATIONAL  BANKS     [648-653 


their  own  discounts  or  otherwise  borrow 
money  for  the  bank's  use.  It  is  likely  that 
such  officers  would  have  Hke  authority  to 
bind  the  bank  by  an  independent  blanket 
guaranty  of  payment  covering  all  the  notes 
transferred,  the  notes  themselves  being 
indorsed  without  recourse.  Western  Nat. 
Bk.  v.  Armstrong,  152  U.  S.  346.  Cherry 
V.  City  Nat.  Bk.,  144  Fed.  587,  affi'd  in 
208  U.  S.  541.  Auten  v.  U.  S.  Nat.  Bk.,  174 
U.  S.  125,  141.  Aldrich  v.  Chemical  Nat. 
Bk.,  176  U.  S.  618,  627.  First  Nat.  Bk.  of 
Huntington  v.  Arnold,  156  Ind.  494.  Thom- 
as v.  City  Nat.  Bk.  of  Hastings,  40  Neb. 
501.     {Inquiry  from  Wash.,  Mar.,  1913,  Jl.) 

Power    of   vice-president    to    assign    or 
satisfy  mortgage 

648.  Can  a  vice-president  of  a  national 
bank  sign  a  satisfaction  of  a  mortgage,  or  an 
assignment  of  a  mortgage,  or  a  warranty 
deed,  on  behalf  of  his  bank?  Opinion: 
Unless  specifically  authorized  by  by-law  or 
resolution  of  the  board  of  directors,  the 
vice-president  of  a  national  bank  has  no 
implied  or  inherent  power  to  assign  or 
satisfy  a  mortgage,  or  execute  a  warranty 
deed  on  behalf  of  the  bank.  (Western  Nat. 
Bank  v.  Armstrong,  152  U.  S.  346.  Arbo- 
gast  V.  American  Exch.  Nat.  Bank,  125  Fed. 
518.  Warner  v.  Penover,  91  Fed.  587; 
Monmouth  First  Nat.  Bank  v.  Brooks,  22 
111.  App.  238.  St.  John's  Nat.  Bank  v 
Steel,  135  Mich,  165.  Bank  v.  Bennett, 
159  Mo.  App.  1,  139  S.  W.  219.  Robertson 
V.  Buffalo  Nat.  Bank,  40  Neb.  235.  Han- 
son V.  Heard,  69  N.  H.  190.  Ziegler  v. 
Allentown  First  Nat.  Bank,  93  Pa.  St.  393. 
Nat.  Bank  v.  Thomas,  30  R.  I.  294.  See 
also  Peoples  Bank  v.  National  Bank,  101 
U.  S.  181,  and  Armstrong  v.  Chemical  Nat. 
Bank,  83  Fed.  556).  {Inquiry  from  Wis., 
Jan.,  1921,  Jl.) 

Duty   to   deface   counterfeit   money 

649.  The  Federal  law  requires  United 
States  and  national  bank  officers  to  deface 
counterfeit  notes,  but  makes  no  similar 
requirement  as  to  counterfeit  coins.  Some 
clearing  house  rules  require  defacement  of 
both  counterfeit  coins  and  notes  and  such 
would  seem  the  proper  procedure  for  all 
banks,  national  and  state.  U.  S.  Comp.  L. 
(1918),  Sees.  6568,  10342.  {Inquiry  from 
Iowa,  Oct.,  1916,  Jl.) 

Eligibility  of  officers 

President  serving  in  army 

650.  A  bank's  president  is  serving  in  the 
army  stationed  in  New  York  City.     The 


bank  asks  whether  he  can  serve  as  such 
president  while  so  serving;  also  asks  if  he 
fills  out  his  unexpired  term,  he  can  be  re- 
elected at  the  annual  meeting  in  January. 
Opinion:  There  seems  to  be  no  legal  ob- 
jection so  far  as  the  Banking  Law  is  con- 
cerned to  the  president  of  the  bank  holding 
his  position  in  the  bank  while  at  the  same 
time  serving  in  the  army  stationed  in  New 
York  City.  There  are  many  presidents  of 
national  banks  who  are  inactive  at  the  bank 
and  still  hold  the  office.  There  is  nothing 
in  the  National  Bank  Act  which  would  pre- 
vent the  holding  of  this  position  and  his  re- 
election to  this  position  on  the  next  January 
as  President  if  the  Board  of  Directors  so 
chooses.     {Inquiry  from  N.  J.,  Oct.,  1918.) 

Officer  cannot  act  as  proxy 

651.  A  bank  asks  whether  an  ofiicer  of 
a  bank  is  prohibited  from  acting  as  proxy. 
Opinion:  The  National  Bank  Act  provides 
as  follows:  "In  all  elections  of  directors, 
and  in  deciding  all  questions  at  meetings  of 
shareholders,  each  shareholder  shall  be 
entitled  to  one  vote  on  each  share  of  stock 
held  by  him.  Shareholders  may  vote  by 
proxies  duly  authorized  in  writing,  but  no 
officer,  clerk,  teller,  or  bookkeeper  of  such 
association  shall  act  as  proxy;  and  no  share- 
holder whose  habihty  is  past  due  and  un- 
paid shall  be  allowed  to  vote.  (U.  S.  Rev. 
Stat.  Sec.  5144  [U.  S.  Comp.  Stat.  1913,  Sec. 
9682]).     {Inquiry  from  N.  Y.,  Jan.,  1919.) 

Loans  to  officers 

Written  application  unnecessary 

652.  Is  there  any  provision  in  either  the 
Federal  Reserve  Act  or  the  National  Bank 
Act  which  requires  a  written  application 
from  an  officer  or  director  of  a  national  bank 
when  requesting  loans  from  institutions 
with  which  they  are  connected  either  as 
officers  or  directors?  Opinion:  There  is 
no  provision  in  either  the  Federal  Reserve 
Act  or  the  National  Bank  Act  which  re- 
quires a  written  application  from  a  director 
or  officer  of  a  national  bank  when  requesting 
a  loan  from  his  institution.  (See  Sec.  22 
Federal  Reserve  Act,  as  amended  by  Act 
September  26,  1918).  {Inquiry  from  N.  J., 
March,  1919.) 

Criminal    liability    of    officer    for    un- 
aulliorized  loan  to  himself 

653.  A  national  bank  requests  an  opin- 
ion as  to  criminal  liabihty  of  its  former 
nresident  who  borrowed  money  from  the 


139 


664-656] 


DIGEST  OF  LEGAL  OPINIONS 


banks'^on  unsatisfactory  security  without 
the  knowledge  or  consent  of  the  board  of 
directors  resulting  in  loss  to  the  bank. 
Opinion:  The  question  is  whether  Section 
5209  U.  S.  Rev.  Stat's,  which  punishes  em- 
bezzlement and  willful  misapphcation, 
would  make  him  criminally  hable.  The 
following  authorities  are  pertinent:  While 
bank  officers  who  make  loans  or  discounts 
in  good  faith  and  without  fraud  incur  no 


criminal  Habihty,  even  though  the  trans- 
action may  be  injudicious  and  unsafe,  and 
may  actually  result  in  loss  or  damage  to  the 
bank  (U.  S.  v.  Youtsey,  91  Fed.  864.  U.  S. 
V.  Harper,  33  Fed,  471)  yet  an  officer  who 
knowingly  makes  a  loan  for  his  own  private 
gain  is  guilty  of  willful  misapphcation. 
Fhckhnger  v.  U.  S.,  150  U.  S.  1.  U.  S.  v. 
Fish,  24  Fed.  585.  {Inquiry  from  Fla., 
Oct.,  1919.) 


BANKRUPTCY  AND    INSOLVENCY 


Cross  references — For  insolvency  of  collecting 

bank,  see  Collection.   For  set-off  in 

bankruptcy,  see  Set-off 

Enforcement  of  secured  and 
unsecured  claims 

Bight  of  creditor  of  bankrupt  to  apply  surplus 
of  collateral  on  secured  note  upon 
second  unsecured  note 

654.  On  June  30th,  1917,  a  bank  loaned 
a  manufacturing  concern  $1,700  on  a 
collateral  demand  note,  with  bonded  ware- 
house receipt  covering  goods  in  storage. 
The  company  had  financial  trouble,  as  a 
result  of  which  involuntary  bankruptcy 
followed  on  January  2nd,  1918.  The  bank 
asks  whether  it  can  sell  the  security  under 
the  collateral  note,  which  would  amount  to 
about  $600  more  than  the  face  thereof,  and 
apply  the  balance  upon  an  unsecured  note 
of  the  company  which  is  dated  August  27th, 
1917  and  due  February  27th,  1918.  To 
further  protect  its  interest  should  the  bank 
on  maturity  of  the  note  demand  payment 
of  the  indorser,  who  is  solvent,  and  bring 
suit  to  enforce  the  claim?  Opiiiion:  Under 
the  Bankruptcy  Law,  the  bank  can  hold  the 
collateral  for  both  notes.  See  In  re  Searles, 
200  Fed.  Rep.  893.  It  is  stated  by  the  bank 
that  the  collateral  will  more  than  satisfy 
its  claim,  but  it  would  do  no  harm  to 
further  protect  its  interests,  namely,  demand 
payment  on  the  second  note  at  its  maturity 
and  notify  the  solvent  indorser  and  thereby 
preserve  recourse  upon  him  as  an  additional 
security.    {Inquiry  from  III.,  Jan.,  1918.) 

Proof  by  holder  of  secured  claim  under 
general  assignment 

655.  A  bank  asks  whether  under  a 
general  assignment  for  the  benefit  of 
creditors,  where  there  are  both  secured 
and  unsecured  claims,  the  holder  of  a  se- 
cured claim  must  first  reahze  upon  and 
exhaust  the  security,  and  then  present  the 


balance  due  on  his  claim  for  his  distributive 
share  of  the  unencumbered  assets.  Opinion: 
It  seems  that  the  question  presented  has 
not  been  passed  upon  by  the  Missouri 
courts,  and  what  their  attitude  would  be 
in  view  of  the  conflicting  line  of  decisions, 
cannot  be  foreseen.  According  to  the  weight 
of  authority,  the  creditor  who  has  security 
may  prove  up  his  whole  claim,  undiminished 
by  the  value  of  the  security  or  the  amount 
realized  thereon  after  the  assignment,  but 
where  he  reaUzes  on  his  security  before 
proving  his  claim,  he  must  deduct  the 
amount  received  and  future  dividends  will 
be  based  on  the  claim  at  the  time  proven. 
In  some  jurisdictions  the  rule  is  that  a 
creditor  who  holds  collateral  security  must 
either  surrender  the  collateral  or  first 
exhaust  it,  or  have  its  value  determined  by 
the  court  and  have  his  claim  allowed  only 
for  the  difference  between  the  proceeds  or 
the  value  of  collateral  and  the  amount  of  his 
claim.  See  5  Corpus  Juris,  1280.  {Inquiry 
from  Mo.,  March,  1916.) 

Proving  claim  in  bankruptcy  on  {1) 
secured  and  {2)  guaranteed  note 

656.  A  bank  holds  a  protested  collateral 
note  made  by  W,  secured  by  bank  stock. 
The  note  empowers  the  bank  on  non-per- 
formance to  sell  the  collateral  at  pubHc  or 
private  sale,  without  notice.  The  bank  also 
holds  another  note  made  by  W's  wife,  which 
he  indorsed  in  connection  with  a  guaranty 
of  payment  by  a  third  party.  W  has  been 
adjudicated  a  bankrupt.  The  bank  asks 
how  it  should  proceed  in  the  premises. 
Opinion:  As  to  the  first  note  secured  by 
bank  stock  collateral,  if  the  same  exceeds  in 
value  the  amount  of  the  note,  it  seems 
unnecessary  to  make  any  proof  of  claim. 
In  Yeatman  v.  Sav.  Inst.,  95  U.  S.  764,  it 
was  held  that  the  pledgee  is  entitled  to  the 
possession  of  the  collateral  notwithstanding 
a  subsequent  adjudication  of  bankruptcy 
and  failure  of  the  pledgee  to  appear  and 


140 


BANKRUPTCY  AND  INSOLVENCY 


[657-661 


prove  his  claim  forfeits  only  his  right  to 
participate  in  the  bankrupt's  estate.  There 
are  other  cases  to  the  same  effect.  See  also 
Sec.  57  of  the  Bankrupt  Act.  Concerning 
the  note  upon  which  the  bankrupt  is 
indorser,  if  payment  has  been  refused  by 
the  maker  and  the  liability  of  the  indorser 
fixed  and  the  guarantor  fails  to  pay  upon 
demand,  the  note  should  be  proved  as  a 
claim  against  the  indorser's  estate.  If  the 
guarantor  pays  the  note  he  would  be 
subrogated  to  the  bank's  rights  and  entitled 
to  make  proof  of  claim.  {Inquiry  from 
N.  J.,  Dec,  1916.) 

Remedy  against  insolvent  Nebraska 
corporation  and  officers 

657.  A  Nebraska  corporation  with  a 
paid-up  capital  of  $15,000,  gave  a  note  for 
$2,500  to  one  bank  and  one  for  $3,500  to 
another  bank,  the  corporation  having  no 
other  debts  at  that  time.  The  company, 
through  mismanagement  and  accidents, 
incurred  debts  which  now  greatly  exceed  its 
resources,  and  also  the  two-thirds  Hmit 
placed  on  indebtedness  for  corporations  un- 
der Nebraska  law.  Would  creditors  on  above 
named  notes  have  a  prior  right  to  the 
assets  in  the  proportion  that  the  total  of 
said  notes  ($6,000)  bore  to  the  two-thirds 
hmit  placed  on  corporation  indebtedness 
which  would  be  $9,000?  Would  the  fact 
that  the  officers  of  said  corporation  permitted 
the  company  to  become  indebted  in  excess 
of  the  two-thirds  hmit  set  by  law,  make  the 
officers  and  stockholders  hable,  inasmuch 
as  the  violation  of  this  law  operated  to  re- 
move the  protection  which  creditors  should 
have  had?  Opinion:  Where  a  Nebraska 
corporation  incurs  indebtedness  beyond  the 
statutory  limit  and  becomes  insolvent 
because  of  mismanagement,  creditors  .  to 
whom  indebtedness  was  first  incurred  are 
not  preferred,  but  there  is  probably  a 
common  law  liability  of  officers  and  directors 
for  mismanagement,  enforceable  at  suit  of 
a  receiver,  and  there  is  also  a  statutory 
liability  of  stockholders,  to  the  extent  of 
their  stockholdings,  in  event  of  failure  of 
the  corporation  to  pubhsh  the  required 
annual  notice  of  indebtedness,  and  a 
further  statutory  liabihty  of  officers  and 
directors  for  any  deception  practiced,  to 
any  person  injured  thereby,  for  double  the 
damages  sustained.  Rev.  St.  Neb.,  1913, 
Art  11,  Par.  569,  Sec.  21.  Ibid.  Par  577, 
Sec.  29.  Ibid.  Sec.  33.  First  Nat.  Bank  v. 
Cooper,  89  Neb.  632.  (Inquiry  from  Neh., 
March,  1920,  Jl) 


Status  of  claim  of  copartner  against 
bankrupt  partner 

658.  A  and  B  were  partners  in  business. 
Finally  B's  estate  was  thrown  into  bank- 
ruptcy, at  which  time  A  held  B's  checks 
and  drafts  to  the  extent  of  about  $30,000. 
The  bank  asks  whether  A  is  obhged  to  wait 
until  all  creditors  of  B  are  paid  before 
sharing  in  his  estate.  Opinion:  It  seems 
that  A,  being  a  partner  of  B,  could  not 
make  claim  against  B's  estate  in  advance 
of  satisfaction  of  claims  of  all  other  creditors. 
It  is  stated  that  B  carried  on  the  local 
transactions  in  his  individual  name,  incur- 
ring debts  upon  papermade  by  B  individually. 
Assuming  there  is  sufficient  evidence  to 
constitute  a  partnership  transaction,  the 
firm  name  may  be  the  individual  name  of 
any  partner.  Theilen  v.  Hann,  27  Kan. 
778.  Rochester  Bank  v.  Monteath,  1  Den. 
(N.  Y.)  402.  (Inquiry  from  Ore.,  Sept., 
1920.) 

Discharge  as  bar  to  unlisted  claim 

659.  A  bankrupt  owing  a  bank  on  a 
claim  intentionally  omitted  to  list  the  bank 
as  a  creditor  in  his  schedules,  because  he 
intended  to  pay  the  claim.  He  obtained  his 
discharge  and  now  refuses  to  pay  the  claim. 
Opinion:  The  bank  can  recover  the  full 
amount  of  its  claim  against  the  bankrupt, 
provided  it  had  no  notice  or  knowledge  of  the 
bankruptcy  proceedings  prior  to  the  dis- 
charge. National  Bankruptcy  Law,  1898, 
Sees.  17,  65,  15.  Birkett  v.  Columbia  Bk., 
195  U.  S.  345.  Heim  v.  Chapman,  171 
Mass.  347.  Webster  v.  City  Steel  Radiator 
Co.  v.  ChamberUn,  115  N.  W.  (Iowa)  504. 
(Inquiry  from  Miss.,  March,  1911,  Jl.) 

Property  inherited  after  adjudication 

660.  Where  a  bankrupt  inherits  property 
after  the  adjudication  of  his  banlcruptcy, 
the  creditors  have  no  claim  against  such 
after  acquired  property.  National  Bank- 
ruptcy Act,  Sec.  70.  Conley  v.  Nehn,  128 
S.  W.  425.  In  re  Woods,  133  Fed.  (Pa.)  82. 
(Inquiry  from  N.  Y.,  March,  1912,  Jl.) 

Status  of  innocent  purchaser  of 

negotiable  paper  transferred  by 

bankrupt 

661.  A  bankrupt's  estate,  from  the  date 
of  fihng  of  petition  against  him,  being  in 
custody  of  the  court,  the  bankrupt  is 
without  power  to  thereafter  transfer  same 
and  such  fihng  being  notice  to  all  the  world 
that  the  bankrupt's  power  of  disposal  is  at  an 
end,  it  has  been  held  that  the  innocent  pur- 


141 


662-665] 


DIGEST  OF  LEGAL  OPINIONS 


chaser  of  negotiable  paper,  transferred  by 
the  bankrupt  after  fiUng  of  the  petition  is 
not  a  bona  fide  holder,  but  is  charged  with 
constructive  notice.  But  this  rule  is  not 
firmly  estabUshed,  and  in  view  of  the  inequity 
and  impolicy  of  charging  innocent  purchasers 
of  negotiable  paper  with  constructive  notice 
in  such  cases,  it  is  fair  to  assume  that  future 
courts  will  create  an  exception  of  innocent 
purchasers  of  negotiable  paper  from  the  doc- 
trine of  constructive  notice  because  of  the 
fihng  of  a  petition  in  bankruptcy  against  a 
prior  transferor,  as  has  already  been  done  in 
protection  of  bank  which  has  innocently 
paid  its  customer's  check  in  ignorance  of 
prior  fihng  of  petition  in  bankruptcy  against 
such  customer.  Acme  Harvester  Co.  v. 
Beekman  Lumber  Co.,  222  U.  S.  300.  In 
re  Duncan,  148  Fed.  464.  In  re  Lake,  Fed. 
Cas.  No.  7992.  In  re  Zotti,  186  Fed.  84. 
Watson,  Trustee  v.  European  American 
Bk.,  32  Sup.  Ct.  Rep.  522.  Lord  v.  Seymour 
83  N.  Y.  S.  88,  affi'd  in  177  N.  Y.  525. 
{Inquiry  from  III.,  Oct.,  1918,  Jl.) 

Preferences 

Substitution  of  mortgage  collateral  within  four 
months  not  a  preference 

662.  A  note  secured  by  a  real  estate 
mortgage  was  past  due,  although  part 
payment  had  been  made  by  a  sale  of  a  part  of 
the  mortgaged  premises.  The  mortgagee  de- 
sires a  new  note,  secured  not  only  by  a  new 
mortgage  on  the  premises  covered  by  the  old 
mortgage,  but  also  by  additional  new  security. 
In  case  of  the  mortgagor's  bankruptcy  with- 
in four  months  of  the  renewal  the  mort- 
gagee questions  the  right  of  the  creditors  to 
the  mortgaged  property.  Opinion:  Substi- 
tution of  new  mortgage  within  four  months 
on  same  property  covered  by  old  mortgage 
would  not  be  a  preference,  but  taking  of  ad- 
ditional security  would  be  a  preference  to 
extent  of  such  security.  National  Bank- 
ruptcy Act,  Sec.  60  b.  Citizens  Nat.  Bk.  v. 
Bruce,  109  Fed.  69.  Neill  v.  Barbaree, 
70  S.  E.  (Ga.)  638.  Sawyer  v.  Turpin,  91 
U.  S.  114,  120.  In  re  Reese  v.  Hammond 
Fire  Brick  Co.,  181  Fed.  641.  St.  Bk.  of 
WiUiamson  v.  Fish,  120  N.  Y.  S.  365. 
(Inquiry  from  Ala.,  Oct.,  1912,  Jl.) 

Renewal  of  collateral  note  and  increase 
of  loan  within  four  months 

663.  A  bank  holds  notes  with  collateral 
which  it  renews  from  time  to  time  for  60  and 
90  days.  The  bank  asks  (1)  whether 
bankruptcy  would  imperil  collateral  because 
current    notes   bear   dates   less   than   four 


months  prior  thereto;  and  (2)  would  an 
increase  in  the  amount  of  a  loan  of  this 
nature  in  less  than  four  months  bar  its  being 
a  preferred  claim  on  collateral?  Opinion: 
It  does  not  seem  there  would  be  any  voidable 
preference  in  the  transaction  described. 
The  collateral  being  pledged  more  than 
four  months  prior  to  the  bankruptcy  of  the 
pledgor  the  fact  that  he  renewed  the  notes 
witliin  four  months  would  not  be  the  crea- 
tion of  any  preference.  It  is  not  as  if  the 
indebtedness  was  created  beyond  the  four 
months  and  collateral  pledged  therefor 
within  the  four  months.  Furthermore,  if 
the  amount  of  loan  secured  by  this  collateral 
was  increased  witliin  the  four  months, 
this  would  be  simply  the  giving  of  so  much 
new  or  present  consideration  by  the  bank, 
secured  by  collateral.  There  appears  to  be 
nothing  which  would  imperil  the  collateral, 
because  of  preference,  either  in  the  renewing 
of  the  notes  within  the  four  months  or 
increasing  the  loan  within  that  period. 
{Inquiry  from  Miss.,  Nov.,  1912.) 

Substitution  within  four  months  for 
previously  surrendered  collateral 

664.  More  than  four  months  prior  to 
the  bankruptcy  of  a  firm  a  bank  loaned 
money  to  said  firm  on  pledge  of  collateral. 
Within  the  four  months  the  bank  released 
the  collateral  on  the  promise  of  the  firm  to 
substitute  farmers'  notes  later.  The  farmers' 
notes  were  afterwards  substituted  for  most 
of  the  loan  and  the  balance  was  paid  by 
check.  A  month  later  the  firm  was  forced 
into  bankruptcy,  but  the  bank  had  had  no 
reason  to  believe  that  the  firm  was  not  en- 
tirely solvent.  The  question  was  raised 
whether  the  settlement  of  the  loan  by  the 
firm  by  substituted  collateral  and  check 
constituted  a  preference.  Opinion:  While 
a  substitution  of  new  collateral  within  the. 
four  months  in  exchange  for  collateral  of 
equal  value  rehnquished  at  the  same  time 
would  not  be  a  preference,  it  is  doubtful 
whether  it  would  be  so  held  where  new 
collateral  was  afterwards  substituted  for 
most  of  the  loan  pursuant  to  a  prior  promise, 
the  balance  being  paid  by  check.  In  re 
Reese  v.  Hammond  Fire  Brick  Co.,  181 
Fed.  641.  Sawyer  v.  Turpin,  91  U.  S.  114. 
In  re  Dismal  Swamp  Cont.  Co.,  135  Fed. 
415.    {Inquiry  from  Okla.,  Oct.,  1911,  Jl.) 

Payment  of  note  by  insolvent  within 
four  months 

665.  A  bank  holds  a  note  of  a  maker  who 
has  no  account  with  the  bank.    The  maker 


142 


BANKRUPTCY  AND  INSOLVENCY 


[666-669 


paid  it  in  full,  at  which  time  he  was  insolvent. 
The  bank  asks  whether  the  trustee  in  bank- 
ruptcy can  compel  the  bank  to  return  the 
money  received  in  pajTuent  of  note;  and 
also  asks  what  would  constitute  knowledge 
of  insolvency.  Opinion:  In  the  case  stated, 
where  the  insolvent  paj^s  the  bank  in  full 
the  amount  of  a  note  which  he  owes  within 
four  months  of  bankruptcy,  the  bank's 
hability  to  refund  would  depend  upon 
whether,  at  the  time  of  receiving  pajonent, 
the  bank  had  reasonable  cause  to  believe 
that  a  preference  was  intended.  The 
following  recent  cases  are  cited  wherein  the 
question  as  to  what  constitutes  reasonable 
cause,  has  been  dealt  with.  Healy  v. 
Wehrung,  229  Fed.  686.  Rosenthal  v. 
Bronx  Nat.  Bk.,  231  Fed.  691.  Grandison 
V.  Robertson,  231  Fed.  785.  {Inquiry  from 
Ohio,  June,  1917.) 

Fraud  of  insolvent  hank  in  incurring 
debt  as  ground  for  preference 
666.     On  April  30,   1913,  Bank  A  was 
taken  in  charge  by  the  pul^lic  examiner  of 
the  state.     Prior  to  said  date  Bank  A  had 
procured  from  the  inquiring  bank  several 
loans  for  which  it  placed  various  notes  as 
collateral  to  secure  the  indebtedness.    After 
the  bank  examiner  had   taken   charge,   it 
was  discovered  that  some  of  the  collateral 
so  given  was  forged,  or  that  there  were  no 
such    persons    as    the    purported    makers 
in   existence.      The    loans   were   made   in 
rehance    on    the    truth    of    representations 
made  by  the  president  of  the  defunct  bank 
that  the  collateral  given  was  a  valid  and 
legal    obligation    of    the    makers    thereof. 
The  bank  asks  if,  under  the  circumstances, 
it  is  entitled  to  a  preference.    Opinion:    It 
is  doubtful  whether,  under  the  facts  stated, 
the    bank    would    be    held    entitled    to    a 
preference  on  the  ground  that  the  insolvent 
bank  was  a  trustee  of  the  money  f  raudulenty 
obtained.     Fraud   would   ordinarily  entitle 
the  lending  bank  to  immediately  cancel  the 
loan   and   reclaim   its   money   and   if   the 
money  could  be  traced  into  the  assets  of 
the  bank  and  it  could  be  shown  that  the 
assets,    increased    thereby,    went   into   the 
hands  of  the  public  examiner,  it  might  be 
possible  to  maintain  a  claim  in  full;  but 
otherwise  not.     See  Decision  in  Stilson  v. 
First  St.  Bk.  of  C,  129  N.  W.  (Iowa)  70, 
for  statement  of  the  law  and  citation  of 
authorities  on  this  point.     {Inquiry  from 
S.  D.,  June,  1914.) 

Assignment  "for  present  consideration^^ 
667.     W.  Construction  Co.  has  a  contract 


with  a  railroad  to  erect  an  ofl&ce  building. 
The  W.  C.  Co.  procured  a  loan  from  N. 
Bank  to  which  it  gave  an  assignment  of 
moneys  to  be  paid  by  the  railroad  and  the 
same  was  accepted  by  the  railroad.     For 
several  months  the  railroad  paid  to  the  bank 
the  amounts  due  to  the  construction  com- 
pany, thereby  liquidating  the  loan  then  due 
to  the  bank.     A  few  daj^s  after  a  monthly 
payment  had  been  made  to  the  bank  by  the 
railroad  the  contractor  went  into  bankruptcy 
wliich  payment  was  apphed  as  a  credit  on 
the  loan  due  the  bank  by  the  contractor. 
The    bank    asks    whether   the   receiver    in 
bankruptcy  can  force  it  to  return  the  last 
payment  made  to  it  for  the  benefit  of  the 
sub-contractors,   some  of  whom  have  not 
been  paid.    Opinion:    Under  the  authorities, 
there  would  seem  to  be  no  preference  in- 
volved in  the  transaction.    The  bank  loaned 
the  construction  company  a  sum  of  money, 
and  for  its  own  protection  and  security  took 
an  assignment  of  moneys  due  and  to  Ijecome 
due  to  said  company  from  the  A.  R.  R.  Co. 
This    assignment    was   made    "for   present 
consideration"    and    does    not,    therefore, 
come  within  the  inliibition  of  preferences  in 
the  Bankruptcy  Act.     {Inquiry  from  Va., 
Oct.,  1915.) 

Transfer  of  securities  within  four 
months  as  preference 

668.  A  debtor  gave  security  for  a  past 
due  note  within  four  months  of  his  bank- 
ruptcy. Is  the  transfer  voidai)le?  Opinion: 
The  transfer  of  securities  witliin  four  months 
of  bankruptcy  to  secure  a  past  due  note 
would  be  a  voidable  preference,  provided 
the  creditor  had  reasonable  grounds  to 
believe  that  a  preference  was  intended. 
Aronin  v.  Security  Bank  of  New  York, 
228  Fed.  888.  English  v.  Ross,  140  Fed. 
630.  In  re  Graham,  6  Am.  Bankr.  Rep.  750. 
If,  however,  the  bank  did  not  know  of  the 
insolvency  and  had  no  reasonalole  cause  to 
beUeve  that  a  preference  was  intended; 
that  is,  if  it  received  the  securities  under 
circumstances  which  would  not  naturally 
cause  an  ordinary  person  to  believe  that 
the  debtor  intended  to  give  a  preference; 
then  it  would  seem  that  the  bank  could 
retain  the  securities.  In  re  Block,  142  Fed. 
674,  15  Am.  Bankr.  Rep.  750.  Off  v.  Halses, 
142  Fed.  364,  15  Am.  Bankr.  Rep.  699. 
Hastings  v.  Fithrain,  13  Am.  Bankr.  Rep. 
676.    {Inquiry  from  Kan.,  March,  1921.) 

Mortgage  notes  assigned  "for  present  consid- 
eration"— Surplus  payable  to  trustee 
669.     A  bank  holds  mortgage  notes  on 


143 


670-674] 


DIGEST  OF  LEGAL  OPINIONS 


real  estate  transferred  to  it  as  collateral 
security  within  four  months  of  bankruptcy 
for  a  present  consideration,  the  collateral 
being  pledged  at  the  time  notes  were  given. 
The  bank  asks  whether  it  can  be  compelled 
to  bring  them  to  hotchpot,  and  if  not,  does 
the  law  compel  sale  of  collateral  when  notes 
are  due,  and  the  balance  paid  into  general 
fund  for  creditors.  Opinion:  Under  the 
stated  case  the  transfer  would  not  constitute 
a  preference.  See  Sec.  67-d  of  the  Bankrupt 
Act.  Concerning  the  further  question, 
57-h  provides  that  "The  value  of  securities 
held  by  secured  creditors  shall  be  deter- 
mined by  converting  the  same  into  money 
according  to  the  terms  of  the  agreement 
pursuant  to  which  such  securities  were 
dehvered  to  such  creditors  or  by  such 
creditors  and  the  trustee,  by  agreement, 
arbitration,  compromise  or  Htigation  as  the 
court  shall  direct,  and  the  amount  of  such 
value  shall  be  credited  upon  such  claims, 
and  a  dividend  shall  be  paid  only  on  the 
unpaid  balance."  Assuming  the  value  of  the 
mortgaged  security  is  in  excess  of  the 
amount  due  the  bank,  the  balance  upon 
sale  would  have  to  be  paid  over  to  the 
trustee.     {Inquiry  from,  Miss.,  May,  1912.) 

Payment  (by  assignment  of  accounts) 
within  four  months  of  bankruptcy 

670.  One  of  bank's  customers  paid  his 
note  to  it  by  assignment  of  good  accounts, 
and  witliin  four  months  thereafter  the 
customer's  creditors  forced  him  into  bank- 
ruptcy. The  bank  inquires  whether  it  can 
be  compelled  to  refund  the  money  as  a 
preferential  payment.  Opinion:  In  the 
case  submitted,  the  pa3Tiient  or  assignment 
of  the  account  was  made  within  four  months 
of  the  bankruptcy.  If  the  customer  was 
insolvent  at  the  time  it  was  made  and  if  the 
facts  are  such  as  to  indicate  that  there  was 
reasonable  cause  to  believe  the  payment 
would  result  in  the  bank  receiving  more 
than  other  creditors,  the  trustee  in  bank- 
ruptcy might  be  able  to  compel  the  bank 
to  refund  the  amount.  But  if  the  customer 
was  not  insolvent  at  the  time  or  if  there 
was  no  reasonable  cause  to  believe  a  pref- 
erence would  result,  the  assignment  of 
the  accounts  would  not  be  a  preferential 
transfer.  The  case  depends  largely  upon 
the  particular  facts.  (Inquiry  from  Neb., 
Sept.,  1917.) 

Mortgage  within  four  months  as  preference 

671.  A  mortgage  was  put  on  record 
January  7th,  192L  Default  was  made  in 
February  upon  one  of  the  notes,  secured 


by  the  mortgage  which,  by  the  terms  of  the 
mortgage,  gives  the  right  to  foreclose.  The 
mortgagor  is  indebted  to  other  persons  and 
the  mortgagee  is  advised  that  if  the  mortgage 
is  foreclosed,  he  will  go  into  bankruptcy. 
Is  the  mortgagee  safe  in  foreclosing  under 
these  circumstances?  Opinion:  A  mortgage 
given  for  a  prior  indebtedness  within  four 
months  of  bankruptcy  is  a  voidable  pref- 
erence. It  would  be  better  to  wait  for  four 
months  from  the  time  the  mortgage  was 
recorded  before  taking  steps  to  foreclose. 
Then  if  bankruptcy  does  not  intervene,  the 
bank  is  secure.  {Inquiry  from  N.  C, 
Feb.,  1921.) 

Collateral    previously    received    but    collected 
within  four  months  of  bankruptcy 

672.  A  bank  received  a  number  of 
notes  as  collateral  upon  a  loan  due  Decem- 
ber 1,  1910.  The  notes  were  collected  and 
apphed  on  the  indebtedness  on  January  5, 
1911.  The  borrower  became  a  bankrupt 
April  28,  1911.  Opinion:  The  assignment 
of  the  notes  as  collateral  more  than  four 
months  prior  to  the  bankruptcy  was  not  a 
preference,  although  the  notes  were  not  col- 
lected until  within  the  four  months.  Lowell 
V.  Internat.  Tr.  Co.,  158  Fed.  781.  In  re 
Bird,  180  Fed.  229.  National  Bankruptcy 
Law,  1898,  Sec.  57  h.  {Inquiry  from  Idaho, 
Oct.,  1911,  Jl.) 

When  judgment  a  preference 

673.  A  judgment  obtained  more  than 
four  months  prior  to  the  fihng  of  a  petition 
in  bankruptcy  is  a  vaUd  and  enforceable 
lien  against  the  bankrupt's  estate,  but 
when  obtained  within  four  months,  it  is  void 
where  the  debtor  is  adjudged  bankrupt. 
National  Bankruptcy  Law,  1898,  Sec.  67  f. 
In  re  Burrus,  97  Fed.  926.  In  re  Richards, 
96  Fed.  935.  U.  S.  Fidelity,  etc.,  Co.  v. 
Murphy,  4  Ga.  App.  13.  Metterford  v. 
Helming,  139  Iowa  437.  Smith  v.  Musen- 
heimer,  104  Ky.  753.  Kinmouth  v.  Braeu- 
tigam,  65  N.  J.  L.  165.  Hillyer  v.  Le  Roy, 
179  N.  Y.  369.  In  re  Dunavant,  96  Fed. 
542.  Metcalf  v.  Barker,  167  U.  S.  165. 
{Inquiry  from  N.  J.,  May,  1918,  Jl.) 

Depositaries  for  estates  in  bankruptcy 

674.  National  Bankruptcy  Law  does 
not  restrict  deposits  of  money  of  bankrupt 
estates  to  national  banks  and  the  courts  of 
bankruptcy  may  designate,  by  order,  state 
banks  as  depositaries.  National  Bankruptcy 
Law,  1898,  Sec.  61.  {Inquiry  from  N.  C, 
Feb.,  1911,  Jl.) 


144 


[675-678 


BANK  STOCK  AND  STOCKHOLDERS 


Assessment  upon  impairment  of  capital 

Liability  of  transferee  after  assessment 

675.  A  bank  states  that  some  time  ago 
its  stockholders  were  assessed  to  make  up  a 
loss  occasioned  by  non-payment  of  some 
notes.  Directly  after  the  assessment  and 
before  it  had  been  paid  by  all  the  stockhold- 
ers, one  of  them  sold  his  stock.  The  bank 
asks  who  is  Hable,  whether  the  person  who 
owned  the  stock  at  the  time  of  the  assessment 
or  the  purchaser  of  the  stock.  Opinion: 
Under  the  law,  the  person  who  owned  the 
stock  at  the  time  the  debt  was  incurred 
and  at  the  time  the  assessment  was  levied, 
is  liable  therefor,  and  not  his  transferee. 
See  Golden  v.  Cervenka,  116  N.  E.,  Rep, 
(111.)  273,  upon  the  general  proposition. 
{Inquiry  from  III.,  Jan.,  1919.) 

Power  of  majority  to  assess  minority  for  losses 

676.  Can  bank  stockholders  representing 
51%  of  the  total  holdings  vote  to  assess 
all  stockholders  in  order  to  take  care  of 
losses  incurred  through  robbery?  Opinion: 
There  is  no  statute  in  Iowa  giving  such 
right.  There  is,  however,  an  Iowa  statute 
which  provides  that,  should  the  capital 
stock  of  any  state  or  savings  bank  become 
impaired  by  losses  or  otherwise,  the  Auditor 
of  the  State  may  require  an  assessment 
upon  the  stockholders,  and  shall  address  an 
order  to  the  several  members  of  the  board 
of  directors  of  such  bank,  fixing  the  amount 
of  the  assessment  required;  and  it  then 
becomes  the  duty  of  such  directors  to 
cause  such  deficiency  to  be  made  good  by  a 
ratable  assessment  upon  the  stockholders 
for  the  amount  of  stock  held  by  them. 
(Code  of  Iowa,  1897,  Chap.  12,  Sec.  1878.) 
{Inquiry  from  Iowa,  Nov.,  1919.) 

Assessment  where  stock  in  hands  of  pledgee 

677.  X,  a  stockholder  owning  ten  shares 
in  bank  Y,  in  North  Dakota,  procured  a  loan 
from  an  Iowa  concern  giving  as  collateral 
the  ten  shares  of  Y  bank  stock.  Later  the 
Y  bank  met  with  reverses  making  necessary 
an  assessment  on  all  stock  100%,  and  if  not 
paid  within  a  specified  time  the  stock  to  be 
advertised  and  sold.  X  was  unable  to  pay 
assessment,  nor  was  he  al)le  to  pay  his  note 
for  which  he  had  given  his  bank  stock  as 
collateral.  However,  the  bank  officers 
neglected  to  sell  this  stock  although  two 
years  have  expired,  and  neither  the  assess- 


ment nor  the  note  has  been  paid.  Who  has 
prior  Hen  on  this  stock?  Opinion:  It 
seems  that  the  assessment  on  the  stock 
constitutes  a  debt  by  the  owner  to  the 
bank,  and  the  bank  by  statute  has  a  prior 
lien  on  such  stock  for  the  indebtedness. 
Although  the  assessment  was  not  levied  at 
the  time  the  stock  was  pledged  it  would,  it 
appears,  attach  to  the  stock  in  the  hands  of 
the  pledgee  and  the  bank  would  have  the 
right  to  appropriate  all  dividends  declared 
upon  such  stock  to  such  indebtedness. 
(Compiled  Laws  N.  D.  1913,  Chap.  5160). 
Concerning  enforcement  of  the  bank's 
lien,  the  stock  being  outstanding  in  the 
hands  of  the  pledgee,  probably  the  proper 
procedure  would  be  an  action  in  equity 
against  the  registered  owner  and  the 
pledgee  to  procure  a  decree  for  surrender  of 
the  stock  and  settlement  of  the  rights  and 
liabilities  of  the  parties.  While  the  pledgee 
is  not  legally  bound  to  pay  the  assessment, 
he  holds  subject  to  the  paramount  lien  of  the 
bank.  See  Corbin  Banking  Co.  v.  Mitchell, 
132  S.  W.  (Ky.)  426,  where  the  court  said: 
"If  the  pledgee  does  not  want  to  pay  the 
assessment,  he  ought  not  to  be  allowed  to 
hold  the  stock  and  have  its  value  increased 
by  the  payments  made  by  shareholders 
other  than  the  pledgor.  If  he  wishes  to 
enjoy  the  advantage  of  the  increased  value 
of  the  stock,  he  ought  to,  contribute  his 
share  to  the  fund  that  increases  its  value. 
This  he  can  do  through  the  shareholder  and 
as  between  him  and  the  shareholder,  will 
have  a  Hen  on  the  stock  to  indemnify  him 
for  the  amount  paid."  {Inquiry  from  N.  D., 
Jan.,  1920.) 

Double  liability  of  stockholders  for  debts 

No  double  liability  in  Arkansas  prior 
to  new  banking  law 

678.  A  person  called  at  an  Iowa  bank 
and  presented  a  sight  draft  drawn  on  an 
Arkansas  bank,  for  which  he  asked  credit. 
Before  giving  him  credit  the  bank  wired  the 
Arkansas  bank,  and  received  a  reply  that 
draft  was  good,  on  the  faith  of  which  the 
person  was  given  credit  for  part  and  cash 
for  the  balance.  Later  the  Iowa  bank 
learned  that  the  Arkansas  bank  was  in  the 
hands  of  a  receiver,  but  before  such  dis- 
covery, the  person  had  withdrawn  all 
money  to  his  credit  and  disappeared.  The 
Iowa  bank  asks  if  the  stockholders  of  the 
insolvent    bank    are    liable    for    the    loss 


145 


679-683] 


DIGEST  OF  LEGAL  OPINIONS 


Opinion:  The  Arkansas  bank  would  be 
liable  to  inquiring  bank  for  its  agreement 
by  wire  to  accept  and  pay  the  draft.  Oil 
Well  Supply  Co.  v.  MacMurphy  (Minn. 
1912),  138  N.  W.  Rep.  784.  Concerning 
the  question  of  stockholders  liability  for 
debts  of  the  bank,  at  common  law  they 
were  not  hable.  By  the  constitution  of 
Arkansas  of  1869,  each  stockholder  was  made 
Hable,  over  and  above  the  stock  owned  by 
him,  to  a  further  sum  at  least  equal  in 
amount  to  such  stock.  But  the  constitution 
of  1873,  which  superseded  the  constitution 
of  1868,  contains  no  such  provision,  and 
there  is  no  statute  in  Arkansas  which 
imposes  a  habihty  upon  stockholders  of  a 
corporation  for  its  debts,  except  a  statute 
that,  where  the  capital  of  a  corporation  has 
been  withdrawn  and  refunded  to  the 
stockholders  before  the  payment  of  aU 
debts,  the  stockholders  are  liable  to  any 
creditor  to  the  amount  refunded  to  them 
respectively.  See  Sand.  &  Hill's  Dig., 
Ark.  Stat.,  Chap.  47,  Sec.  1348.  There 
has  been  a  recent  banking  law  passed  the 
present  year  which  provides  such  double 
liability  of  stockholders,  but  it  is  assumed 
the  transaction  in  the  present  case  took 
place  before  the  passage  of  this  act.  At  the 
time  of  the  transaction  in  question,  there- 
fore, there  was  no  stockholders'  habihty  for 
debts  of  the  bank  which  renders  unnecessary 
consideration  of  the  further  question,  if 
such  liabiHty  existed,  whether  the  creditors 
or  only  the  receiver  could  sue  the  stock- 
holders.   (Inquiry  from  Iowa,  March,  1913.) 

Double  liability  in  Arkansas 

679.  What  is  the  stockholders'  liabiUty 
in  case  of  the  bank's  insolvency?  Opinion: 
Section  36  of  the  new  Arkansas  Banking 
Act  provides  that  "the  stockholders  of 
every  bank  doing  business  in  this  state 
shall  be  held  individually  responsible, 
equally  and  ratably  and  not  one  for  another, 
for  all  contracts,  debts  and  engagements  of 
such  bank,  to  the  extent  of  the  amount  of 
their  stock  therein,  at  the  par  value  thereof, 
in  addition  to  the  amount  invested  in  such 
stock"  *  *  *.  This  measures  the  extent 
of  the  Habihty  of  the  stockholders.  (Inquiry 
from  Ark.,  Aug.,  1916.) 

Double  liability  in  Mississippi 

680.  A  became  the  owner  of  certain 
fully  paid  non-assessable  stock  issued  by  a 
Mississippi  bank  at  a  time  when  the  law 
provided  for  no  double  liabiHty  of  stock- 
holders.    Under  the   Mississippi   Banking 


Act  of  March,  1914,  A  has  been  assessed 
equal  to  the  par  value  of  his  stock.  Opinion: 
A's  stock  is  subject  to  the  assessment.  Al- 
though the  law  under  which  the  bank  was  or- 
ganized provides  no  double  Habihty  of  stock- 
holders, the  legislature  may  amend  the  law 
and  create  such  liability  where  the  state  con- 
stitution, as  in  Mississippi,  reserves  power  to 
the  legislature  to  amend  the  law  of  incor- 
poration. Constitution  of  Miss.,  Art.  7, 
Sec.  178.  Miss.  Banking  Act,  March,  1914, 
p.  135.    (Inquiry  from  Miss.,  Aug.,  1916,  Jl.) 

Law  of  Oregon  as  to  double  liability 

681.  Are  the  stockholders  in  Oregon 
banks  subjected  to  double  habihty?  Opinion : 
Stockholders  of  trust  companies  in  Oregon 
are  by  statute  subjected  to  double  liability. 
General  Laws  of  Oregon,  1920,  Sec.  6261. 
A  definition  of  a  trust  company  is  found  in 
Sec.  6227.  A  search  does  not  reveal  any 
statutory  provision  in  Oregon  for  double 
Habihty  of  stockholders  of  state  banks,  and, 
of  course,  in  the  absence  of  such  statute 
there  is  no  such  liabiHty.  (Inquiry  from 
Wis.,  Feb.,  1921.) 

Double  liability  in  Pennsylvania 

682.  A  trust  company  asks  whether  the 
laws  of  Pennsylvania  impose  a  double 
liability  on  stockholders  in  case  of  failure. 
Opinion:  By  Act  of  May  11th,  1874, 
Section  1,  the  Pennsylvania  legislature 
imposed  a  liability  on  all  stockholders  in 
banks,  banking  companies,  savings  fund 
institutions,  trust  companies  and  all  other 
incorporated  companies  doing  the  business 
of  banks  for  all  debts  and  deposits  to 
double  the  amount  of  capital  and  stock  held 
and  owned  by  each.  There  was  a  proviso 
that,  in  case  of  banks  already  chartered, 
the  liabiHty  should  not  accrue  until  the 
stockholders  should  declare  at  a  meeting 
their  intention  to  be  bound  by  its  provisions. 
Furthermore,  the  Banking  Act  of  1876  for 
the  incorporation  and  regulation  of  banks  of 
discount  and  deposit,  provides  (Sec.  5)  that 
the  shareholders  of  any  corporation  formed 
under  this  Act  shall  be  individually  re- 
sponsible, equally  and  ratably,  but  not  one 
for  the  other,  for  all  contracts,  debts  and 
engagements  of  such  company  to  the 
amount  of  their  stock  therein  and  the  par 
value  thereof  in  addition  to  the  par  value 
of  such  shares.  (Inquiry  from  Pa.,  Dec, 
1914.) 

Double  liability  in  Washington 

683.  Is  the  stock  of  a  state  bank  of 
Washington    assessable    again   after   being 


146 


BANK  STOCK  AND  STOCKHOLDERS 


[684-688 


assessed  up  to  the  full  amount  of  100%? 
Opinion:  Section  3327  of  the  Washington 
Code  provides  that  stockholders  of  every 
bank  shall  be  individually  Hable,  equally 
and  ratably  and  not  one  for  another,  to  the 
amount  of  their  stock  at  par  value  thereof, 
in  addition  to  the  stock  held  by  them.  See 
also  Section  4266.  Under  this  provision 
where  a  stockholder  has  paid  up  his  stock 
in  full  and  has  been  assessed  up  to  the  full 
amount  of  100%  in  addition,  he  is  not 
hable  to  further  assessment.  {Inquiry 
from  Wash.,  March,  1920.) 

Double  liability  of  national  bank 
stockholders 

Meaning  of  "in  addition  to  the  amount 
invested  in  such  stock'' 

684.  Section  23  of  the  Federal  Reserve 
Act  provides  in  part:  "The  stockholders 
of  every  national  banking  association  shall 
be  held  individually  responsible  for  all 
contracts,  debts  and  engagements  of  such 
association,  each  to  the  amount  of  his  stock 
therein,  at  the  par  value  thereof  in  addition 
to  the  amount  invested  in  such  stock."  The 
question  is  raised  as  to  the  meaning  of  the 
underscored  phrase;  whether  it  means  the 
price  that  is  paid  for  the  stock  in  the  open 
market.  Opinion:  In  event  of  failure,  stock- 
holder loses  the  amount  invested  in  the  stock 
and  in  addition  is  liable  for  debts,  pro  rata 
with  other  stockholders,  up  to  the  amount 
of  the  par  value  of  his  stock.  If  the  stock- 
holder has  bought  stock  in  an  open  market 
above  par  and  thereafter  the  national  bank 
goes  into  the  hands  of  a  receiver,  he  loses  the 
amount  invested  in  such  stock,  namely,  the 
market  price  paid  for  it,  and  is  also  hable  to 
assessment  to  the  extent  of  the  amount  of  his 
stock  at  the  par  value  thereof.  Fed.  Re- 
serve Act,  Sec.  23.  U.  S.  Rev.  Stat.,  Sec. 
5151.  U.  S.  V.  Knox.  102  U.  S.  422. 
Studebaker  v.  Perry,  184  U.  S.  258.  Kenne- 
dy V.  Gibson,  8  Wall  (U.  S.)  498.  Deweese 
V.  Smith,  106  Fed.  438  Aldrich  v.  Yates, 
95  Fed.  78.  (Inquiry  from  N.  J.,  March, 
1919,  Jl.) 

Liability  of  stockholder  who  receives  for  debt 

685.  A  national  bank  held  stock  of  the 
B  national  bank  as  security  for  a  loan  and 
bid  in  the  stock,  having  it  transferred  to  its 
own  name  upon  the  books  of  the  B  bank. 
Thereafter  B  bank  failed  and  A  bank  is 
charged  with  pajnuent  of  the  statutory 
assessment  of  100  per  cent.  Opinion:  The 
A  bank  is  hable  for  the  assessment.     The 


fact  that  it  became  owner  of  the  stock  by 
necessity  and  not  by  choice  would  not 
change  the  result.  Germania  Nat.  Bk.  v. 
Case,  99  U.  S.  628.  Anderson  v.  Phila. 
Warehouse  Co.,  Ill  U.  S.  479.  Pauly  v. 
St.  Loan  &  Tr.  Co.,  165  U.  S.  606.  Rankin 
V.  Fidehty  Ins.,  Tr.  &  S.  D.  Co.,  189  U.  S. 
242.  Ohio  Valley  Nat.  Bk.  v.  Hulett,  204 
U.  S.  162.  {Inquiry  from  Utah,  Feb., 
1919,  Jl.) 

Liability  of  stockholder  after  transfer 

686.  A  sold  B  in  good  faith  ten  shares 
of  his  stock  in  a  national  bank.  Within 
one  year  after  the  sale  the  bank  failed. 
The  question  was  raised  whether  A  was 
subject  to  liability.  Opinion:  If  the 
transfer  was  made  in  good  faith  and  was 
properly  registered  on  the  books,  the 
transferor  was  not  hable  to  assessment  when 
the  bank  subsequently  failed,  even  though 
the  bank  was  insolvent  at  the  time  of  the 
transfer.  Richmond  v.  Irons,  121  U.  S. 
127.  McDonald  v.  Dewey,  202  U.  S.  510. 
Fowler  v.  Grouse,  175  Fed.  646.  Earle  v. 
Carson,  188  U.  S.  42.  Stuart  v.  Hayden, 
169  U.  S.  1.  Whitney  v.  Butler,  118  U.  S. 
655.  Bowden  v.  Johnson,  107  U.  S.  251 
Nat.  Bk.  v.  Case,  99  U.  S.  628.  {Inquiry 
from  N.  D.,  Aug.,  1911,  Jl.) 

Dividends 

Stockholders  transferring  stock  after 
declaration,  entitled  to  dividend 

687.  After  a  dividend  was  declared 
and  became  payable,  the  stock  was  trans- 
ferred to  a  holder  without  any  agreement 
as  to  the  dividend.  Opinion:  The  dividend 
belongs  to  the  owner  of  the  stock  at  the 
time  it  was  declared  and  does  not  pass  with 
a  subsequent  transfer  of  the  stock  unless  by 
express  contract.  Clark  v.  Campbell,  23 
Utah  569.  Livingston  Co.  Bk.  v.  First  St. 
Bk.,  121  S.  W.  (Ky.)  451.  Price  v.  Morning 
Star  Min.  Co.,  83  Mo.  App.  470.  {Inquiry 
from  Neb.,  July,  1912,  Jl.) 

Assignment  of  dividends — Right  of  assignee 

688.  A  has  four  share  of  stock  in  his 
bank  standing  in  his  name.  He  owes  a 
national  bank  which  is  now  in  the  hands 
of  a  receiver,  and  had  assigned  dividends  on 
his  stock  to  this  bank.  A  writes  the  bank 
which  issued  the  stock  to  send  dividends  to 
him,  and  the  receiver  of  the  national 
bank  also  claims  that  he  is  entitled  thereto 
under  the  assignment,  the  debt  to  the 
insolvent  bank  being  still  unpaid.  To 
whom  can  the  bank  legally  pay  the  dividends 


147 


689-690] 


DIGEST  OF  LEGAL  OPINIONS 


Opinion:  It  would  seem  from  the  statement 
made  that  the  receiver  is  entitled  to  the 
dividends  under  the  assignment  until  the 
debt  is  paid.  As  the  bank's  stockholder  has 
assigned  these  dividends  and  the  debt  is  not 
fully  paid,  there  appears  to  be  no  ground  on 
which  he  can  make  claim  thereto.  He 
certainly  has  no  right  to  cancel  the  assign- 
ment. It  may  be  there  is  some  dispute 
between  the  parties  as  to  whether  or  not  the 
debt  has  been  fully  paid.  Of  course,  if 
there  is  any  reasonable  doubt  upon  this 
point,  the  bank  to  protect  itself  could 
deposit  the  money  in  court  and  require  the 
respective  claimants  to  interplead.  {Inquiry 
from  N.  C,  July,  1918.) 

Proving  claim  on  dividend  check  of 
failed  national  bank 

689.  A  bank  acquired  by  indorsement 
a  dividend  check  drawn  by  a  national 
bank  payable  to  one  of  its  stockholders. 
Before  the  check  was  presented  the  national 
bank  failed,  and  the  receiver  takes  the  posi- 
tion that  the  claim  on  the  dividend  check 
must  be  made  by  the  original  stockholder- 
payee,  and  no  assignment  of  the  check  can 
be  recognized  because  such  stockholder  may 
be  liable  to  assessment  on  his  stock.  The 
bank  holding  the  check  seeks  to  file  a  proof 
of  claim.  Opinion:  The  indorsee  for  value 
of  the  check,  acquiring  the  same  before  the 
failure  of  the  bank,  has  a  right  to  prove  its 
claim  thereon  against  the  receiver  free  from 
counterclaim  by  the  receiver  against  the 
original  payee  for  assessment  on  stock. 
The  position  taken  by  the  receiver  ignores 
the  fact  that  such  dividend  check  is  a 
negotiable  instrument.  If  the  receiver 
disallows  the  claim  the  bank's  remedy  is  by 
action  to  establish  claim  by  judgment. 
First  Nat.  Bk.  of  Bethel  v.  Nat.  Pahquique 
Bk.,  14  Wall.  383.  U.  S.  Rev.  Stat.,  Sees. 
5204,  5242.  McDonald  v.  Williams,  174 
U.  S.  397.  McDonald  v.  Chemical  Nat.  Bk., 
174  U.  S.  610.  {Inquiry  from  Fla.,  Oct., 
1917,  Jl.) 

Stock  dividends  by  national  banks 

690.  May  national  banks  issue  stock 
dividends?  Opinion:  Acting  Attorney- 
General  Frierson  rendered  an  opinion  to  the 
secretary  of  the  treasury  Oct.  26, 1920,  to  the 
effect  that  national  banks  may  not  declare 
stock  dividends.  The  following  is  a  digest 
of  this  opinion.  The  right  must  be  deter- 
mined by  an  examination  of  the  acts  of 


congress  providing  for  the  organization  and 
regulation  of  the  business  of  national  banks. 
There  is  no  express  authority  to  declare 
stock  dividends,  although  there  is  express 
authority  to  declare  dividends.  Rev.  St. 
5199.  "Since,  however,  a  stock  dividend 
cannot  be  declared  without  increasing  the 
capital  stock,  and  since  the  Acts  of  Congress 
contain  explicit  provisions  as  to  the  manner 
in  which  the  capital  stock  may  be  increased, 
a  stock  dividend  cannot  be  lawful  unless 
the  stock  so  issued  may  be  provided  for 
through  an  increase  of  the  capital  in 
accordance  with  the  terms  of  these  prov- 
isions." U.S.  Rev.  St.  Sec.  5142  and  amenda- 
tory act  of  May  1,  1866  provide  that  no 
increase  of  capital  stock  shall  be  valid  unless 
the  amount  "has  been  duly  paid  in  as  part  of 
the  capital  of  such  association."  This  is 
coupled  with  an  express  prohibition  against 
the  increase  of  capital  in  any  other  manner. 
The  issuance  of  a  stock  dividend,  it  has  been 
held,  does  not  make  the  stockholder  richer 
or  the  corporation  poorer.  It  simply 
changed  the  evidence  of  the  stockholder's 
title  of  what  he  already  owns.  Towne  v. 
Eisner,  245  U.  S.  418,  426,  Eisner  v.  Macom- 
ber  252  U.  S.  189.  It  would  seem,  therefore, 
that  the  mere  conversion  by  a  corporation  of 
earnings  which  it  already  owns  into  capital 
stock,  thus  keeping  in  its  business  per- 
manently what  it  previously  was  at  hberty 
to  distribute  among  stockholders,  is  not 
equivalent  to  paying  in  an  equal  amount  of 
money  as  a  part  of  the  capital  of  the  cor- 
poration. No  part  of  it  is  paid  into  the 
corporation.  The  result  of  declaring  a 
stock  dividend  may  not  be  different  from 
the  result  accomplished  by  declaring  a 
cash  dividend,  which  is  used  by  the  stock- 
holders to  pay  for  additional  stock,  but 
Congress  has  expressed  an  intention  that 
it  shall  be  done  in  the  one  way  and  not  the 
other.  A  good  reason  which  may  have 
moved  congress  to  make  the  distinction  is 
the  effect  of  the  double  liabihty  of  stock- 
holders; it  may  very  well  have  been  con- 
sidered unwise  to  permit  two-thirds  of  the 
stockholders  to  increase  this  liabihty  of  the 
minority  by  increasing  the  capital  stock 
through  the  issuance  of  stock  dividends. 
The  uniform  construction  of  the  statutes 
by  the  comptrollers  of  the  currency  to  the 
effect  that  stock  dividends  could  not  be 
declared  would  be  sufficient  to  decide  the 
question,  were  it  doubtful.  {Inquiry  from 
Ohio,  Dec,  1920,  Jl.) 


148 


BANK  STOCK  AND  STOCKHOLDERS 


[691-693 


Lien  on  bank  stock  by  state  banks 

Lien  of  Arkansas  hank  for  stockholder's 
indebtedness 

691.  The  stockholder  of  an  Arkansas 
bank  owed  his  bank  on  an  overdraft  but 
had  transferred  to  another  his  stock,  upon 
which  the  bank  claimed  a  statutory  lien. 
After  the  stockholder  died  the  bank  trans- 
ferred the  stock  to  the  purchaser  but  applied 
part  of  the  dividends  to  payment  of  the  over- 
draft and  paid  the  balance  of  the  dividends 
to  the  decedent's  administrator.  Opinion: 
By  statute  in  Arkansas  a  bank  has  a  lien  on 
the  stock  and  dividends  of  its  stockholder  for 
an  indebtedness  to  the  bank,  superior  to  the 
claim  of  the  transferee.  The  transferee, 
however,  can  recover  from  the  bank  the  bal- 
ance of  dividends  paid  to  the  administrator 
in  view  of  the  due  notice  to  the  bank  of  the 
transfer  of  the  stock.  Dig.  Ark.  Stat. 
(1904),  Chap.  31,  Sec.  853.  (Mansf.  Dig. 
1884,  Chap.  29,  Sec.  975.)  OHphant  v. 
Bk.  of  Commerce,  60  Ark.  198.  Mcllroy 
Banking  Co.  v.  Dickson,  66  Ark.  327,  331. 
Springfield  Wagon  Co.  v.  Bk.  of  Batesville, 
68  Ark.  234.  {Inquiry  from  Ark.,  March, 
1913,  Jl.) 

Lien  of  Iowa  savings  hank  on  stock 

692.  A  bank  desires  to  know  whether  or 
not  the  stock  of  a  savings  bank  in  Iowa  in 
the  hands  of  a  pledgee  as  security  for  a  loan 
is  subject  to  any  claim  of  lien  by  the  issuing 
bank.  Opinion:  At  common  law  a  cor- 
poration has  no  hen  upon  its  stock  for  the 
indebtedness  of  a  shareholder,  but  in  many 
states  a  corporation  is  given  a  hen  by  statu- 
tory authority,  either  expressed  by  general 
law,  or  by  the  act  of  incorporation,  or  by 
by-laws  made  under  such  authority.  (Union 
Bank  v.  Laird,  2  Wheat.  [U.  S.]  390. 
Brent  v.  Bank  of  Washington,  10  Pet. 
[U.  S.]  596.  McDowell  v.  Bank  of  Wilming- 
ton, 2  Del.  1.  Cummings  v.  Webster,  43 
Me.  192.  Leggett  v.  Bank  of  Sing  Sing, 
24  N.  Y.  283.  Steamship  Dock  Co.  v. 
Geron,  52  Pa.  St.  280.)  In  Iowa,  while  the 
statutes  do  not  expressly  give  to  a  corpora- 
tion a  lien  upon  its  stock  for  indebtedness  of 
a  stockholder,  such  hen  may  be  created  by 
the  articles  of  incorporation,  or  even  by  the 
by-laws,  although  in  the  latter  case,  such 
lien  does  not  affect  a  third  person  without 
notice.  Before  loaning  money  on  such  stock, 
the  prospective  lender  should  make  in- 
vestigation as  to  the  existence  of  a  lien,  and 
whether  the  stockholder  is  indebted,  and 
upon  making  the  loan,  should  notify  the 


corporation  of  the  transfer  for  collateral 
security.  Dempster  Mfg.  Co.  v.  Downs, 
126  Iowa  80,  101  N.  W.  735.  Jewell  v. 
Nuhn,  173  Iowa  112,  155  N.  W.  174. 
Des  Moines  Nat.  Bank  v.  Warren  County 
Bank,  97  Iowa  204.  Farmers'  &  Traders' 
Bank  v.  Haney,  87  Iowa,  101.  Iowa  Code 
1897.  Sec.  1626.  {Inquiry  from  Minn., 
Feb.,  1920,  Jl.) 

Enforcement  of  lien  of   Kansas   bank   and 
rights  as  against  pledgee 

693.     One  of  the  stockholders  of  a  bank 
is  indebted  to  it  on  a  note  and  it  becomes 
necessary  for  the  bank  to  enforce  the  hen 
on  his  stock,  but  he  has  thus  far  refused  to 
dehver  same.     The  bank  inquires  whether 
an   order   can   be   procured  from   a   court 
directing   the   cancellation   of   the   present 
stock   and   issuance   of   a   new   certificate. 
Further,  whether  the  fact  that  the  certificate 
is  held  as  collateral  by  a  third  party  is  an 
obstacle,  and  would  it  matter  whether  the 
stock  was  pledged  before  the  creation  of 
indebtedness  to  the  bank.    Opinion:    The 
Kansas  statute  provides  that  no  transfer 
of  the  stock  of  an  incorporated  bank  shall 
be  valid  against  such  bank  as  long  as  the 
registered  holder  thereof  shall  be  hable  as 
principal  debtor,  surety  or  otherwise  to  the 
bank  for  any  debt  which  shall  be  due  and 
unpaid,  nor  in  such  case  shall  any  dividend, 
interest  or  profit  be  paid  on  such  stock  so 
long  as  such  habilities  continue;  but  all  such 
dividends,  interests  or  profits  shall  be  re- 
tained by  the  bank  and  applied  to  the  dis- 
charge of  such  liabilities,  and  no  such  stock 
shall  be  transferred  on  the  books  of  any 
bank  without  the  consent  of  the  l3oard  of 
directors,  where  the  registered  holder  thereof 
is  in  debt  to  the  banlc  for  any  matured  and 
unpaid    obligation.      (Kans.    Laws    1897, 
Chap.  47  Sec.  52  [Genl.  St.  1901,  Sec.  458] 
Gen.  St.  1915,  Sec.  570).   It  would  seem  that 
the  statute  alcove  referred  to  would  give  the 
bank  ample  protection.    The  statutory  lien 
takes  priority  of  other  liens  subsequently 
created   by    pledge  of  the  stock  and  even 
though  the  stock  was  pledged  before  crea- 
tion of  indebtedness  to  the  bank,  the  bank's 
hen  is  superior  in  the  absence  of  notice 
thereof.    Where  a  pledgee  claims  his  lien  is 
superior,  the  burden  of  proving  notice  to  the 
bank  is  upon  him.    Curtice  v.  Crawford  Co. 
Bank,  110  Fed.  830.     If  the  bank  desires 
immediate  collection   of  the  note  it  may 
enforce  the  lien  by  appropriate  proceedings. 
{Inquiry  from  Kan.,  Feb.,  1920.) 


149 


694-699] 


DIGEST  OF  LEGAL  OPINIONS 


694.  The  Kansas  Banking  Law  protects 
a  bank  against  a  transfer  of  bank  stock  so 
long  as  th.e  registered  holder  is  indebted  to 
the  bank,  and  provides  that  all  dividends, 
interest  or  profit  shall  be  retained  by  the 
bank  and  apphed  to  the  debt.  The  bank 
cannot  sell  the  stock,  unless  authorized  by  a 
court  order  granted  in  a  proper  case.  Kansas 
Banking  Law,  Sec.  52.  {Inquiry  from  Kan., 
Feb.,  1913,  Jl.) 

Lien  of  Michigan  hank  covers  debt  of  stock- 
holder's firm 

695.  Has  a  bank  a  hen  on  its  stock  as 
against  the  heirs  and  creditors  of  a  deceased 
stockholder  for  a  debt  due  from  a  firm  of 
which  the  stockholder  was  a  member? 
Opinion:  The  Michigan  statutes  give  a 
bank  a  lien  on  its  stock  for  the  indebtedness 
of  its  stockholders,  and  such  hen  extends 
to  the  stockholder's  liability  to  the  bank 
for  a  debt  of  the  firm  of  which  he  is  a  mem- 
ber. Citizens  State  Bank  v.  Kalamazoo 
County  Bank,  111  Mich.  313.  The  bank  is 
therefore  protected  in  the  case  stated.  (In- 
quiry from  Mich.,  Oct.,  1917.) 

Copy  of  New   York  statutory  lien  must  be 
printed  on  certificate 

696.  The  stockholder  of  a  state  bank 
in  New  York  pledged  his  stock  to  a  national 
bank  as  collateral  for  a  loan.  The  stock- 
holder was  indebted  to  his  own  bank.  The 
national  bank  claimed  the  right  to  sell  the 
stock  to  secure  themselves,  while  the  state 
bank  claimed  a  prior  hen  on  the  stock  pur- 
suant to  a  provision  of  its  by-law  giving  it  a 
secret  lien.  Opinion:  The  state  bank  has  no 
lien  on  its  stock  and  cannot  refuse  to  transfer 
it.  Section  51  of  the  Stock  Corporation 
Law  of  New  York  gives  a  bank  or  other  cor- 
poration a  lien  on  its  stock  or  right  to  refuse 
to  transfer  while  the  stockholder  is  in- 
debted to  the  bank,  provided  a  copy  of  the 
section  is  printed  on  the  certificate — where 
not  so  printed,  a  lien  for  indebtedness 
created  by  the  by-law  is  not  effectual  against 
a  purchaser  of  the  stock  for  value  without 
notice.  Bk.  of  Attica  v.  Manuf.  &  Traders 
Bk.,  20  N.  Y.  501.  Lyman  v.  St.  Bk.  81 
(N.  Y.)  App.  Div.  367  affi'd  in  179  N.  Y.  577. 
See  citations  in  Opinion  No.  697.  (Inquiry 
from  N.  Y.,  Nov.,  1913,  Jl.) 

697.  A  bank  holds  its  stockholder's  note 
of  $1,000.  He  has  not  paid  his  indebtedness 
and  claims  he  has  sold  his  certificate  of  stock 
to  a  third  person.  The  bank  refused  to 
transfer  the  stock  until  the  note  was  paid. 
The  certificate  contains  no  provision  claim- 


ing a  lien  for  the  indebtedness  of  the  stock 
holder.  Opinion:  Where  stockholder  in- 
debted to  state  bank  in  New  York  has  as- 
signed his  stock,  bank  may  refuse  transfer  to 
assignee  until  stockholder's  indebtedness  is 
paid,  provided  section  of  statute  declaring 
lien  is  printed  on  certificate;  otherwise  not. 
Stock  Corp.  Law  (N.  Y.),  Sec.  51.  Union 
Bk.  V.  U.  S.  Exch.  Bk.  (1911),  143  App.  Div. 
128,  127  N.  Y.  S.  661.  Stralimann  v.  York- 
ville  Bk.  (1911),  148  App.  Div.  8,  132  N.  Y. 
S.  130.    (Inquiry  from  N.  Y.,  Jan.,  1918,  Jl.) 

Lien  of  Ohio  bank  on  stock 

698.  By  statute  in  Ohio,  a  bank  has  a 
lien  on  the  stock  owned  by  its  debtors  and 
may  refuse  to  transfer  the  same  until  the 
indebtedness  is  satisfied.  Utica  Bk.  v. 
Smalley,  2  Cow.  (N.Y.)  11.  Merchants  Bk. 
V.  Shouse,  102  Pa.  488.  New  Orleans  Nat. 
Bk.  V.  Wiltz,  4  Woods  (U.  S.)  43, 10  Fed.  330. 
Duncan  v.  Biscoe,  7  Ark.  175.  Farmers  Bk. 
V.  Haney,  87  Iowa  101.  Mohawk  Nat.  Bk. 
V.  Schenectady  Bk.,  151  N.  Y.  665.  Cecil 
Nat.  Bk.  V.  Watsontown  Bk.,  105  U.  S.  217. 
Mobile  Mut.  Ins.  Co.  v.  Cullow,  49  Ala.  558. 
Mechanics  Bk.  v.  N.  Y.,  etc.,  R.  Co.,  13 
N.  Y.  599.  Brent  v.  Wash.  Bk.,  10  Pet. 
(U.  S.)  596.  Rev.  Stat.  Ohio  (1905),  Sec. 
6184.  Stafford  v.  Produce  Exch.  B.  Co.,  61 
Ohio  St.  160.  Downer  v.  Zanesville  Bk., 
Wright  (Ohio)  477.  Frankhn  Bk.  v.  Com- 
mercial Bk.,5  Ohio  Dec.  (Reprint)  339. 
Stafford  v.  Produce  Exch.  B.  Co.,  16  Ohio 
Cir.  Ct.  50,  80  C.  D.  483.  Bellevue  Bk.  v. 
Higbee,  20  C.  D.  512,  4  Ohio  Cir.  Ct.  222. 
(Inquiry  from  Ohio,  May,  1913,  Jl.) 

Statutory  prohibition  of  lien  by  state  banks  in 

Pennsylvania — Effect  of  stock 

transfer  act 

699.  A  borrower  pledged  as  collateral 
for  a  loan  the  stock  of  a  national  and  of  a 
state  bank.  The  stockholder  is  indebted 
to  the  banks  which  claim  a  prior  lien.  Opin- 
ion: A  national  bank  has  no  lien  on  the 
stock  for  the  indebtedness  of  its  stockholder, 
and  in  Pennsylvania  there  is  a  statutory  pro- 
hibition (Act  of  1901)  of  a  hen  by  state 
banks.  The  Uniform  Stock  Transfer  Act 
passed  in  Pennsylvania  in  1911  provides 
that  no  corporation  shall  have  a  lien  upon 
its  shares  or  restrict  their  transfer  unless 
notice  is  imprinted  on  the  certificate.  It  is 
doubtful  if  this  would  be  construed  as  re- 
peahng  the  Act  of  1901  prohibiting  banks 
from  acquiring  liens  upon  their  stock.  Bk. 
V.  Lanier,  11  Wall.  (U.  S.)  369.  Third  Nat. 
Bk.  V.  Buffalo  German  Ins.  Co.,  193  U.  S.  58. 


150 


BANK  STOCK  AND  STOCKHOLDERS 


[700-705 


Gen'l  Banking  Act  (Pa.)  1850,  Sec.  10;  Act 
of  1876.  Sec.  21;  Act  of  1895;  Act  of  1901, 
Sec.  2.  Merchants  Bk.  v.  Shouse,  102  Pa. 
488.  Bk.  of  Millvale  v.  Ohio  Valley  Bk.,  82 
Atl.  1115.  Uniform  Stock  Transfer  Act. 
(Pa.),  Sec.  15.  {Inquiry  from  Pa.,  Aug., 
1915,  Jl.) 

Lien    on    bank    stock — national    banks 

No   lien   of  national   hank   on   stock 

700.  The  stockholder  of  a  national  bank 
owed  the  bank  on  several  notes  wliich 
matured  after  his  death.  The  bank  ques- 
tions its  right  to  claim  a  lien  on  its  stock  for 
the  indebtedness  or  to  refuse  to  transfer  its 
stock  to  another  upon  the  sale  by  the  ex- 

'         ecutor.    Opinion:    The  national  bank  has  no 
■         lien  and  cannot  refuse  to  transfer  the  stock 
should  the  executor  see  fit  to  sell  it  to  an- 
other.    See  citations  in  opinion  No.  701. 
{Inquiry  from  Md.,  Aug.,  1913,  Jl.) 

701.  A  national  bank  has  no  lien  on  its 
stock  for  the  indebtedness  of  its  stockholder. 
Where  such  stock  is  in  the  hands  of  a  pledgee 
as  security  for  a  loan  it  is  not  subject  to  any 
claim  of  lien  by  the  issuing  bank.  U.  S. 
Rev.  Stat.,  Sec.  5201.  Bk.  v.  Lanier,  11 
Wall.  (U.  S.)  369.  Third  Nat.  Bk.  v.  Buffalo 
German  Ins.  Co.,  193  U.  S.  581.  {Inquiry 
from  Mich.,  Nov.,  1914,  Jl.) 

702.  A  stockholder  of  a  national  bank 
is  indorser  on  a  note  payable  to  it,  the  maker 
of  which  is  irresponsible.  The  stockholder 
himself  has  been  adjudged  insolvent.  May 
the  bank  refuse  to  transfer  the  stock?  May 
it  cancel  the  stock  and  issue  new  stock  to 
another  person  and  thereby  apply  the 
amount  of  the  stock  on  the  note?  Opinion: 
The  rule  is  well  settled  that  a  national  bank 
cannot  acquire  a  lien  on  its  own  stock  held 
by  persons  who  are  its  debtors,  or  prohibit 
transfers  by  its  debtors,  even  by  provisions 
framed  with  a  direct  view  to  that  effect  in 
its  articles  of  association,  or  by  direct  by- 
laws and  notice  in  the  certificate  of  stock. 
Buffalo  Third  Nat.  Bank  v.  Buffalo  Ger- 
man Ins.  Co.,  193  U.  S.  581.  Smith  v. 
Marietta  First  Nat.  Bank,  115  Ga.  608. 
Hagar  v.  Union  Nat.  Bank,  63  Me.  509. 
Del.,  etc.,  R.  Co.  v.  Oxford  Iron  Co.,  3  N.  J 
Eq.  340.  Bridges  v.  Troy  Nat.  Bank,  185 
N.  Y.  146.  Goodbar  v.  City  Nat.  Bank, 
78  Tex.  461.  Peckheuner  v.  Nat.  Exch. 
Bank,  79  Va.  80.  {Inquiry  from  Tex.,  Feb., 
1921.) 

Attachment  of  shares  in  hands  of  stockholders 

703.  A  stockholder  of  a  national  bank 
borrows  money  of  the  bank  without  security. 


When  the  note  falls  due,  he  fails  to  pay  it. 
The  bank  asserts  a  lien  on  his  stock  for  the 
indebtedness.  Opinion:  A  national  bank 
has  no  hen  on  its  stock  for  the  indebtedness 
of  a  stockholder  and  cannot  refuse  to  trans- 
fer his  stock  until  the  debt  is  paid.  But  it 
would  seem  that  the  National  Bank  Act 
would  not  prevent  the  bank  attaching  the 
shares  for  his  indebtedness,  where  in  posses- 
sion of  the  stockholder  at  the  time  of  the 
attachment.  See  citations  in  Opinion  No. 
701.  Bullard  v.  Bk.,  18  Wall.  (U.  S.)  589. 
Hager  v.  Union  Nat.  Bk.,  63  Me.  509.  {In- 
quiry from  Mo.,  Jan.,  1911,  Jl.) 

704.  A  bank  requests  advice  as  to  what 
procedure  should  be  taken  to  cancel  the 
stock  of  a  stockholder  who  is  indebted  to  the 
bank;  that,  so  far  as  known,  the  stock  has 
not  been  pledged  to  an  innocent  third  party. 
Opinion:  Evidently  the  bank  does  not 
realize  that  a  national  bank  cannot  make  a 
loan  on  the  security  of  its  own  stock  nor 
acquire  a  lien  thereon,  and  restrict  its 
transfer,  because  the  stockholder  is  indebted 
to  it.  Sec.  5201  U.  S.  Revised  Statutes. 
Under  said  statute  it  has  been  held  that  a 
national  bank  cannot  acquire  a  lien  on  its 
stock  and  that  any  provision  in  its  articles 
or  by-laws  or  in  the  certificate  prohibiting  a 
transfer  until  the  liability  of  a  stockholder 
to  the  bank  is  paid  is  wholly  void.  Bank  v. 
Lanier,  11  Wall.,  369.  But  it  has  been  held 
that  this  section  does  not  forbid  the  shares 
of  the  stockholder  being  attached  for  his 
indebtedness  to  the  bank.  Hogan  v.  Union 
Nat.  Bank,  63  Me.,  509.  {Inquiry  from 
N.  Y.,  Jan.,  1918.) 

Inspection  of  books 

Inspection  of  hooks  hy  minority  stockholder 

705.  What  privileges  has  a  minority 
stockholder,  who  is  not  an  officer,  or  on  the 
board  of  directors,  in  a  state  bank  in  Ala- 
bama to  inspect  the  books?  Opinion:  The 
general  rule  is  that  stockholders  of  a  bank 
have  a  right  to  inspect  the  books  of  the  bank 
at  all  reasonable  times.  Such  a  right  is  a 
common  law  right,  and  not  of  statutory 
origin.  (Ranger  v.  Champion  Cotton  Press 
Co.,  51  Fed.  61.  Robertson  v.  Owensboro 
Sav.  Bank  Co.,  150  Ky.  50.  State  v.  New 
Orleans  Gaslight  Co.,  49  La.  Ann.  1556. 
State  V.  Laughlin,  53  Mo.  App.  542.  Gerner 
V.  Mosher,  58  Neb.  135.  Huvlor  v.  Cragin 
Cattle  Co..  40  N.  J.  Eq.  392.  Deaderick  v. 
Wilson,  8  Baxt.  [Tenn.]  108.  State  v.  Pa- 
cific, etc.,  Brew.  Co.,  21  Wash.  451.  See  Gen. 
Acts  Ala.,   1911,  Act  No.  84).     So  there 


151 


706] 


DIGEST  OF  LEGAL  OPINIONS 


would  seem  to  be  no  doubt  as  to  the  common 
law  right  of  a  minority  stockholder  in  a 
state  bank,  say  in  Alabama,  to  inspect  the 
books  of  the  bank  on  proper  occasions  and 
at  proper  times,  and  where  such  a  right  is 
improperly  withheld,  the  court  would,  upon 
proper  apphcation,  enforce  such  right  by 
means  of  mandamus.  {Inquiry  from  Ala., 
Jan.,  1919.) 

National  bank  stockholder's  right  of 
inspection 

706.  Has  a  stockholder  of  a  national 
bank  the  right  to  inspect  its  books  and  with 
the  aid  of  an  expert  make  extracts  from 
them?  What  if  the  stockholder  is  an  officer 
of  a  competing  institution?  If  the  motive 
of  the  stockholder  is  to  discredit  the  manage- 
ment, should  the  request  be  denied?  Opin- 
ion: At  common  law  a  stockholder  is  given 
the  right  to  inspect  the  books  and  papers  of 
the  corporation  at  proper  times  and  for 
proper  purposes.  In  some  states  the  courts 
will  enforce  the  statutory  right  of  inspection 
regardless  of  the  motive  of  the  stockholder; 
in  others  they  will  refuse  relief  when  the 
motive  is  improper.  The  right  of  inspection 
exists  in  the  case  of  stockholders  of  banking 
as  of  other  corporations;  and  national  banks, 
being  deemed  citizens  of  the  state  in  which 
located,  are  held  in  a  number  of  cases  to 
come  within  state  statutes  granting  the 
right  of  inspection.  See,  for  example, 
Winter  v.  Baldwin,  89  Ala.  483  and  Peo.  v. 
Consol.  Nat.  Bank,  105  App.  Div.  409,  94 
N.  Y.  Supp.  173.  Pennsylvania  cases  con- 
cerning corporations  other  than  national 
banks  are  equally  apphcable  to  such  insti- 
tutions. Com.  V.  Pennsylvania  Silk  Co., 
(1920)  267  Pa.  331,  110  Atl.  157,  holds  that 
the  right  may  be  exercised  through  an  agent, 
attorney  or  expert  and  that  the  corporation 
has  no  right  to  dictate  as  to  who  the  agent 
or  attorney  shall  be.  Kuhbach  v.  Irving 
Cut  Glass  Co.,  220  Pa.  427,  69  Atl.  981  and 
Hodder  v.  George  Hogg  Co.,  223  Pa.  196, 
72  Atl.  553,  are  to  the  effect  that  the  fact 
that  the  stockholder  is  interested  in  a  com- 
peting corporation  is  not  enough  to  cause 
mandamus  to  be  denied.  Drovin  v.  Lehigh 
Coal  &  Nav.  Co.,  (1919)  265  Pa.  447,  109 
Atl.  128,  enforced  the  common  law  right  of 
inspection.  In  Rochester  v.  Indiana  County 
Gas  Co.,  246  Pa.  571,  92  Atl.  717,  the  court 
states  that  "the  right  of  a  stockholder  to  an 
inspection  of  the  books  and  papers  of  a 
corporation,  in  a  proper  case,  is  clearly 
established,  and  it  would  be  an  affectation 


of  learning  to  cite  authorities  in  support  of 
the  proposition."  The  court  makes  this 
quotation  from  Phoenix  Iron  Co.  v.  Com., 
113  Pa.  563,  6  Atl.  75:  "Such  a  right  is,  of 
course,  not  to  be  exercised  to  gratify  curios- 
ity, or  for  speculative  purposes,  but  in  good 
faith,  and  for  a  specific  honest  purpose,  and 
where  there  is  specific  matter  in  dispute, 
involving  and  affecting  seriously  the  rights 
of  the  relator  as  a  stockholder."  Schondel- 
meyer  v.  Columbia,  219  Pa.  610,  shows  that 
the  granting  of  a  writ  of  mandamus  on  behalf 
of  a  stockholder  rests  in  the  sound  discretion 
of  the  court. 

Other  cases,  outside  of  Pennsylvania,  in- 
volve specifically  the  right  of  a  stockholder 
to  inspect  the  books  of  a  national  bank. 
People  V.  Consol.  Nat.  Bank,  105  App.  Div. 
409.  94  N.  Y.  Supp.  173  holds  that  under 
both  the  federal  (Rev.  St.  Sec.  5210)  and  the 
state  statute  (now  Sec.  32,  Stock  Corp.  Law) 
a  national  bank  is  bound  to  keep  its  stock 
book  open  for  the  inspection  of  its  share- 
holders, whose  right  includes  that  of  making 
copies,  and  that  when  the  purpose  is  legiti- 
mate, the  right  of  inspection  is  manda- 
tory. Matter  of  Tuttle  v.  Iron  Nat.  Bank, 
170  N.  Y.  9  upholds  the  right  of  inspection 
of  the  books  of  a  national  bank,  including 
that  of  making  extracts,  for  a  legitimate 
purpose,  and  holds  that  the  method  of 
enforcing  the  right  is  by  peremptory  writ  of 
mandamus.  People  v.  Nat.  Park  Bank,  122 
App.  Div.  635,  107  N.  Y.  Supp.  369,  holds 
that  the  statutory  right  to  inspect  the  stock 
book  of  a  corporation  includes  national 
banks  and  that  mandamus  will  lie,  but  the 
writ  may  be  denied  where  the  application  is 
not  in  good  faith  but  for  an  ulterior  purpose. 
The  right  to  deny  the  writ  was  reaffirmed 
in  Peo.  v.  Am.  Press  Assoc,  148  App.  Div. 
651,  133  N.  Y.  Supp.  216  (not  involving 
national  bank  directly).  Harkness  v.  Guth- 
rie, 27  Utah  248,  75  Pac.  624  holds  that  a 
state  statute  authorizing  inspection  of 
corporate  books  by  stockholders  as  applied 
to  national  banks  is  not  within  the  prohibi- 
tion of  U.  S.  Rev.  St.  5241  that  no  national 
banking  association  shall  be  subject  to  any 
visitorial  powers,  etc.  This  case  was  affirmed 
in  199  U.  S.  148  on  the  ground  that  there  was 
a  common  law  right  of  inspection  for  proper 
purposes  under  proper  regulations.  The 
supreme  court  stated  that  the  examination 
should  not  be  granted  for  speculative  or 
improper  purposes.  See  7  A.  B.  .\.  Jl.,  690. 
{Inquiry  from  Pa.,  March,  1921.) 


152 


BANK  STOCK  AND  STOCKHOLDERS 


[707-711 


Stockholder  can  inspect  stock  book  but  cannot 
compel  bank  to  furnish  list  of  stockholders 

707.  Can  a  stockholder  compel  a  bank 
to  furnish  him  a  list  showing  the  names  of  all 
stockholders  and  the  amount  of  stock  held 
by  each?  Opinion:  The  right  of  a  stock- 
holder in  a  bank  to  inspect  the  stock  book 
and  to  make  extracts  therefrom,  provided 
the  inspection  is  sought  at  a  proper  time, 
and  for  proper  purposes,  is  well  settled. 
(Tuttle  V.  Iron  Nat.  Bank,  170  N  Y.  9. 
Irving  Cut  Glass  Co.,  220  Pa.  St.  427. 
Harkness  v.  Guthrie,  27  Utah  248  [aff'd 
in  199  U.  S.  148.])  But  there  appears  to  be 
no  case  in  which  it  has  been  held  that  a  bank 
is  compelled  to  furnish  a  stockholder  with  a 
list  of  the  names  of  all  stockholders,  and  the 
amount  of  stock  owned  by  each.  And  it 
would  not  seem  that  the  courts  would  com- 
pel a  bank  to  do  this  work  for  the  stock- 
holder. The  stockholder's  right  of  inspec- 
tion would  seem  to  be  sufficient,  and  that  a 
bank  could  not  be  compelled  to  perform  this 
onerous  and  gratuitous  labor  for  the  stock- 
holder.   {Inquiry  from  Tenn.,  Nov.,  1915.) 

Depositor  has  no  right  of  inspection 

708.  Opinion:  A  depositor  as  distin- 
guished from  a  stockholder  has  no  such 
interest  in  the  bank  as  would  give  him  the 
right  to  inspect  its  books  and  records.  The 
contrary  statement  in  two  early  cases  that 
on  all  proper  occasions  a  depositor  has  a 
right  to  inspect  the  books  of  the  bank  is  a 
mere  expression  of  opinion,  not  having  the 
force  of  law.  If  any  right  of  inspection  exists 
in  the  depositor,  it  would  at  most  be  confined 
to  his  particular  account  and  could  not 
extend  to  the  accounts  of  other  customers 
or  to  the  general  business  of  the  institution. 
Michie  on  Banks  &  Banking,  Sec.  119  (4). 
Union  Bk.  v.  Knapp,  3  Pick.  (Mass.)  96. 
Morse  on  Banking,  Sec.  294.  Watson  v. 
Phoenix  Bk.,  8  Mete.  (Mass.)  217,  {In- 
quiry from  Pa.,  Feb.,  1915,  Jl.) 

Increase  in  bank  stock 

Status  of  authorized  but  unsubscribed  capital 

709.  A  bank  says  that  the  state  charter 
authorizes  a  capital  of  S25,000  and  only 
$10,000  has  been  paid  in.  The  bank  in- 
quires as  to  the  necessary  steps  to  increase 
its  paid  in  capital,  as  it  desires  to  sell  this 
other  stock  to  new  subscribers.  Opinion: 
As  gathered  from  your  letter,  you  do  not 
propose  to  increase  the  bank's  capital  which 
has  already  been  authorized  at  $25,000  but, 
as  only  $10,000  has  been  paid  in,  what  the 
bank  proposes  to  do  is  to  obtain  additional 


subscriptions.  It  seems  that  as  its  charter 
already  authorizes  an  issue  up  to  $25,000, 
all  that  would  be  necessary  to  exercise  the 
power  alreadj^  conferred  by  the  charter  w^ould 
be  a  resolution  of  the  board  of  directors. 
It  is  doubtful  in  such  a  case  that  it  would  be 
obligatory  upon  the  bank  to  offer  the  new 
stock  to  its  present  stockholders  before 
offering  it  to  the  public  at  large.  In  Reese 
v.  Montgomery  Co.  Bank,  31  Pa.  78,  it  is 
held  that  where  all  the  stock  is  not  at  first 
subscribed  for,  the  balance  is  held  by  the 
bank  in  trust  for  all  subscribers  and  not 
simply  for  those  who  subscribed  at  the 
beginning.  It  might  be  well  to  write  to  the 
Secretary  of  State  and  ask  if  there  is  any  fee 
required  in  such  cases;  also  whether  certifi- 
cate is  required  to  be  filed  under  the  case 
stated.  There  appears  to  be  notliing  in  the 
South  Carohna  statutes  regulating  this 
particular  subject.  {Inquiry  from  S.  C, 
Oct.,  1919.) 

Right   of  existing   stockholders   to   subscribe 
to  increase 

710.  A  bank  is  contemplating  an  in- 
crease of  our  capital  stock  from  $25,000  to 
$50,000,  declaring  50%  stock  dividend  to 
present  stockholders,  and  placing  the  other 
50%  with  customers  who  would  make 
desirable  stockholders.  Could  it  pass  a  res- 
olution at  the  special  stockholders'  meeting 
making  it  legal  and  binding  to  pay  the  non- 
resident or  undesirable  stockholder  in  cash 
in  proportion  to  the  sale  of  the  stock  to  the 
new  stockholders  and  in  this  way  avoid  the 
undesiralDles  from  taldng  on  some  more 
stock?  Opinion:  Where  the  capital  stock 
of  a  bank  is  increased  in  the  method  pro- 
vided by  law,  each  stockholder  has  a  right 
to  subscribe  to  such  proportion  of  the  new 
stock  as  the  number  of  shares  owned  by  him 
bears  to  the  whole  number  of  shares  before 
the  increase  and  cannot  be  compelled  to 
accept  cash  instead  of  new  stock.  Eidman 
v.  Bowman,  58  111.  444.  Gray  v.  Portland 
Bank,  3  Mass.  364.  Stokes  v.  Continental 
Trust  Co.,  186  N.  Y.  285.  Electric  Co.  v. 
Edison  Electric  Co.,  200  Pa.  St.  516.  Strick- 
ler  V.  McElroy,  45  Pa.  Super.  Ct.,  165. 
Dousman  v.  Wisconsin,  etc..  Smelting  Co., 
40  Wis.  418.  McNulta  v.  Corn  Belt  Bank, 
164  111.  427.  See  Cook  on  Corporations, 
Vol.  1,  Sec.  286.  {Inquiry  from  Wis.,  July, 
1919,  Jl.) 

National  bank  stockholder,  though  not  voting 
for  increase,  has  subscription  rights 

711.  Where  stock  of  national  bank  is 
increased  by  the  vote  of  necessary  number 


153 


712-715] 


DIGEST  OF  LEGAL  OPINIONS 


of  shareholders,  and  resolution  authorizing 
increase  fixes  premium  at  which  new  stock 
shall  be  sold.  Opinion:  The  stockholder 
not  participating  or  voting  for  increase  has 
right  to  purchase  his  proportion  of  new 
shares  at  par.  1  Cook  on  Corps.  (4th  Ed.), 
Sec.  286.  Gray  v.  Portland  Bk.,  3  Mass. 
364.  Miller  v.  111.  Cent.  R.  Co.,  24  Barb. 
(N.  Y.)  312.  Wilson  v.  Bk.,  29  Pa.  537. 
Mason  v.  Daval  Mills,  132  Miss.  76. 
Cunningham's  Appeal,  108  Pa.  546.  De  La 
Cuesta  V.  Ins.  Co.,  136  Pa.  62.  Jones  v. 
Crawford,  etc.,  R.  Co.,  30  Atl.  (N.  H.)  614. 
Stokes  V.  Continental  Tr.  Co.,  186  N.  Y. 
285,  295.  10  Cyc.  544.  26  Am.  &  Eng.  En- 
cycl.  Law,  90  N.  W.  1040.  Bennett  v.  Baum 
133  N.  W.  (Neb.)  439.  Strickler  v.  McElroy 
45  Pa.  Super.  165.  Bond  v.  Atlantic  Terra 
Cotta  Co.,  122  N.  Y.  S.  425.  {Inquiry  from 
Del,  May,  1913,  Jl.) 

Procedure  for  increase  of  national  hank  stock 

712.  Can  a  national  bank  increase  its 
capital  stock  at  any  time,  and  what  is  the 
proper  procedure?  Opinion:  A  national 
bank  with  the  approval  of  the  comptroller 
by  vote  of  its  shareholders  owning  two- 
thirds  of  the  stock  may  increase  its  capital 
to  any  sum  approved  by  the  comptroller 
notwithstanding  a  hmit  has  been  fixed  in  its 
original  articles  of  association  (Ch.  73  Act 
May  1,  1886).  The  procedure  involves  writ- 
ing the  comptroller  and  stating  the  amount 
of  the  proposed  increase  before  formally 
submitting  the  question  to  the  shareholders. 
If  the  comptroller  approves,  the  bank  will 
be  so  advised  and  blank  forms  supphed. 
Prior  to  the  Act  of  1886,  the  law  required 
that  the  articles  of  association  provide  for 
increase  of  the  capital  (Sec.  5142  Rev.  Stat.) 
but  this  provision  is  no  longer  necessary 
because  the  Act  of  1886  authorizes  share- 
holders owning  two-thirds  of  the  shares  to 
increase  the  capital  at  any  time  and  to  any 
amount  subject  to  approval  of  the  comp- 
troller.    (Inquiry  from  N.  J.,   Nov.,  1916.) 

Stock  issued  in   name   of  partnership 

713.  John  Smith  and  Son,  a  partnership, 
have  bought  bank  stock  and  request  that 
the  certificate  be  issued  under  the  firm  name. 
The  bank  is  uncertain  as  to  whether  one  of 
the  firm  under  such  issue  could  qualify  to  act 
as  a  director  of  the  bank.  Opinion:  A 
certificate  of  bank  stock  may  be  issued  to 
a  firm  in  the  firm  name  and  at  common  law  a 
director's  qualification  shares  may  be  held  by 
the  partnership  of  which  he  is  a  member. 
But  where  the  statute  provides  that  the 


director  must  own  a  certain  number  of 
shares  "in  his  own  right"  he  could  not 
quaUfy  as  a  member  of  a  partnership  who 
owned  the  requisite  number  of  shares. 
Where  a  certificate  of  stock  is  issued  in  the 
name  of  a  partnership,  a  valid  transfer  there- 
of may  be  executed  by  any  member  of  the 
firm  who  is  authorized  to  sign  the  firm  name. 
Union  Hotel  Co.  v.  Hersee,  79  N.  Y.  454. 
Morse  v.  Pac.  Ry.  Co.,  191  111.  356.  Reh- 
bein  v.  Rohr.  109  Wis.  136.  In  re  Glory 
Mills  Co.  3  Ch.  473,  63  L.  J.  Ch..  885 
(Eng.).  Barton  v.  London,  etc.,  R.  Co.,  242 
B.  D.  77  (Eng.)  Kortwright  v.  Buffalo 
Commercial  Bk.,  20  N.  Y.  91.  Plymouth 
V.  Norfolk  Bk.,  10  Pick.  (Mass.)  454. 
Cook  on  Corps.,  Chap.  24,  Sec.  429.  {In- 
quiry from  N.  J.,  April  1918,  Jl.) 

Transfer  of  bank  stock 

Arkansas  statute  requiring  registry  of  certifi- 
cate of  transfer  with  county  clerk 

714.  A  Virginia  bank  purchased  at  a 
private  sale  ten  shares  of  stock  of  an  Ar- 
kansas bank  wliich  it  had  held  as  security 
for  a  loan  to  a  stockholder  of  the  latter  bank. 
The  Arkansas  bank  refused  to  transfer  the 
stock  thus  sold,  claiming  that  under  the  Ar- 
kansas statute  the  pledged  stock  was  not 
registered  in  the  county  clerk's  office  as  re- 
quired by  law.  Opinion:  Notwithstanding 
provisions  of  Arkansas  statutes  that  upon 
transfer  of  stock  a  certificate  of  transfer 
must  be  deposited  with  county  clerk,  it  has 
been  decided  that  a  pledge  of  stock  is  valid 
without  such  deposit  and  the  statute  is  only 
apphcable  to  transfers  by  the  stockholder 
by  way  of  sale.  Kirby's  Dig.  Ark.  Stat. 
(i904),  Chap.  31,  Sec.  849.  Masury  v. 
Ark.  Nat.  Bk.,  93  Fed.  603.  Batesville  Tel. 
Co.  V.  Meyer,  etc., Co.,  68  Ark.  115.  Sand. 
&  H.  Dig.  Ark.  Stat.,  Sec.  1338.  Claflin  Co. 
V.  Bretzf elder,  69  Ark.  271.  Contrary 
decision  in  Fahrney  v.  Kelly,  102  Fed.  403. 
(Inquiry  from  Va.,  Sept.,  1913,  Jl.) 

Note:  The  statute  above  referred  to  is 
still  in  force. 

Question  of  full  negotiability  of  national  hank 
stock  under  stock  transfer  act 

715.  A  certificate  of  stock  indorsed  in 
blank  was  stolen,  and  inquiry  is  made 
whether  purchaser  would  have  good  title. 
Opinion:  At  common  law  a  certificate  of 
stock  is  not  a  negotiable  instrument,  and 
one  who  in  good  faith  purchases  from  a  third 
person  a  certificate  of  stock,  with  power  of 
attorney  indorsed  in  blank  by  the  owner, 


154 


BANK  STOCK  AND  STOCKHOLDERS 


[716-720 


does  not  take  any  better  title  than  the  third 
person.  Knox  v.  Eden  Musee  American 
Co.,  148  N.  Y.  441.  But  in  1913  the  legisla- 
ture of  New  York  passed  the  Uniform  Trans- 
fer of  Stock  Act,  Section  5  of  which  gives 
fuU  negotiabihty  to  certificates  of  stock, 
and  under  this  Act  the  purchaser  from  a 
thief  of  an  indorsed  certificate  in  a  New 
York  corporation  would  take  good  title. 
The  only  question  is  whether  this  Act  would 
cover  a  certificate  in  a  national  bank.  It 
has  been  held  that  a  state  law  cannot  hmit 
the  transferable  quahty  of  national  bank 
stock.  Doty  V.  First  Nat.  Bk.,  3  N.  D.  9. 
But  it  has  also  been  held  that  a  state  statute 
prescribing  the  mode  of  transfer  of  stock  by 
executors  will  apply  to  the  stock  of  a  na- 
tional bank  in  such  state.  Hobbs  v.  West- 
ern Nat.  Bk.,  2  Nat.  Bank  Cases,  187.  The 
question  has  not  been  as  yet  definitely 
determined  (Inquiry  from  N.  Y.,  June, 
1916.) 

Book  transfers 

716.  The  owner  of  fifty  shares  of  national 
bank  stock  seeks  to  divide  the  same  equally 
among  his  five  children.  He  assigns  each 
certificate  in  blank,  leaving  them  in  a  safe 
deposit  box  to  be  dehvered  upon  his  death. 
The  purpose  is  to  avoid  pa>Tnent  of  the 
national  inheritance  tax.  Can  the  bank 
legally  transfer  said  stock  without  making 
a  transfer  on  the  books?  Opinion:  A  valid 
gift  of  bank  stock  may  be  effected  by  deliv- 
ery of  same  to  the  bank  to  be  delivered  to 
the  donee  upon  death  of  the  donor,  provided 
there  is  an  absolute  and  unequivocal  sur- 
render by  the  donor  of  dominion  over  the 
stock  and  it  is  clearly  indicated  that  the 
bank  is  constituted  trustee  of  the  donee  and 
not  mere  agent  of  the  donor.  Regarding  the 
bank  as  trustee,  the  necessity  of  transferring 
the  stock  on  the  books  could  possibly  be  dis- 
pensed with.  In  case  of  sale  of  bank  stock 
it  has  been  held  that  title  to  national  bank 
shares  is  transferred  by  delivery  of  the  cer- 
tificate, with,  power  of  attorney  indorsed  in 
blank,  without  the  necessity  of  transfer  on 
the  books  and  presumably  the  same  rule 
would  apply  to  a  gift  of  bank  stock.  Calvin 
v.  Free,  66  Kan.  466.  Bickford  v.  Mattocks, 
(Me.)  50  Atl.  894.  Grant  Tr.,  etc.,  Co.  v. 
Tucker,  (Ind.)  96  N.  E.  487.  Johnston  v. 
Laflin  103  U.  S.  800.  {Inquiry  from  Kan., 
July,  1918,  Jl.) 

Voting 

Proxy  under  general  power  of  attorney 

717.  Does  an  attorney  in  fact  under  a 
general  power  have  the  right  to  vote  the 


national  bank  stock  of  his  principal  at  an 
annual  meeting,  without  the  usual  proxy? 
Opinion:  U.  S.  Rev.  St.  provides  among 
other  things  that  "shareholders  may  vote 
by  proxies  duly  authorized  in  writing."  It 
is  doubtful  whether  the  general  power  of 
attorney  is  sufficient  without  a  special  proxy 
to  authorize  the  voting  of  the  stock.  Ap- 
parently the  question  has  never  been  passed 
upon  judicially.  (Inquiry  from  III.,  Dec, 
1920.) 

Trustee  in  bankruptcy  of  registered  owner  of 
pledged  stock 

718.  The  pledgor  of  certain  stock  in  a 
national  bank  became  bankrupt.  The 
trustee  in  bankruptcy  claimed  the  right  to 
vote  the  stock  at  the  stockholders  meeting. 
Opinion:  The  trustee  had  the  right  to  vote 
the  stock  in  the  hands  of  the  pledgee  of  the 
bankrupt,  where  the  stock  had  not  been 
transferred  to  the  pledgee  on  the  books  of 
the  bank.  10  Cyc.  333.  National  Bank- 
ruptcy Law,  Sec.  70  a.  (3)  (5).  Iowa  Code 
Supp.  Sec.  1641  a.  (Inquiry  from  Iowa, 
Dec,  1912,  Jl.) 

Sufficiency  of  vote  by  majority  of  those  present 

719.  Is  a  majority  vote  of  all  of  the 
stock  issued  by  a  bank  either  state  or 
national  necessary  to  be  voted  at  a  regular 
annual  meeting  of  stockholders  to  elect  a 
board  of  directors  or  to  transact  other 
business?  Opinion:  At  a  regular  meeting 
of  stockholders  of  a  national  or  state  bank, 
notice  of  which  has  been  duly  given,  a 
majority  of  votes,  in  person  or  by  proxy, 
present  at  the  meeting  is  sufficient  to  elect 
a  board  of  directors  or  transact  other 
business,  though  such  votes  are  a  minority 
of  all  the  stock,  unless  different  provision  is 
made  in  the  statute  or  by-laws.  See  Slyla- 
vania,  etc.,  R.  R.  v.  Hoge,  129  Ga.  734. 
Green  v.  Felton  42  Ind.  App.  675.  Gil- 
christ V.  Collopy  119  Kv.  110.  Morrill  v. 
Little  FaUs  Mfg.  Co.,  53  Minn.  371.  Ash- 
croft  V.  Gammond  132  N.  Y.  App.  Div.  3. 
Craig  V.  First,  etc..  Church,  88  Pa.  St.  42. 
(Inquiry  from  Kan.,  Jan.,  1920.) 

Voting    trust    agreement    of   national    bank 
stockholders 

720.  A  bank  inquires  as  to  the  legahty 
of  voting  trust  agreements  of  national  bank 
stockholders.  Opinion:  There  is  a  decision 
by  the  Supreme  Court  of  North  Carohna  in 
Bridgers  v.  First  National  Bank  of  Tarboro, 
April  6,  1910,  reported  67  S.  E.  770,  which 
holds   that   a   voting   trust   agreement   of 


155 


721-725] 


DIGEST  OF  LEGAL  OPINIONS 


stockholders  of  a  national  bank,  placing 
their  stock  in  the  hands  of  trustees,  is  against 
public  policy  and  void.  One  of  the  justices 
dissented.  This  appears  to  be  the  only 
decision  upon  voting  trust  agreements  by 
national  bank  stockholders.  {Inquiry  from 
Ky.,  Dec,  1916.) 

Executor^ s  right  to  vote 

721.  It  is  a  general  rule  of  law  that  an 
executor  has  the  right  to  vote  with  respect 
to  the  stock  standing  on  the  corporate  books 
in  the  name  of  the  testator  on  exhibiting  an 
exemplified  copy  of  his  letters  testamentary. 
There  is  nothing  in  the  national  bank  act 
which  restricts  this  right  with  respect  to 
stock  in  a  national  bank.  Market  St.  R.  Co. 
V.  Hellman,  109  Cal.  571.  {Inquiry  from 
N.  Y.,  June,  1915,  Jl.) 


Retention  of  voting  'power  on  sale  of  stock 

722.  If  A  should  sell  shares  of  his  con- 
trolhng  interest  in  a  bank  to  B,  is  there  any 
way  A  can  still  retain  the  voting  power  of 
B;  and  if  B  leaves  the  employ  of  A  is  there 
any  legal  way  of  providing  for  the  return  of 
the  stock  to  A  at  book  value?  Opinion:  A 
person  may  accept  ownership  of  stock  on 
condition  involving  consent  that  another 
may  vote  the  stock  for  him.  Elger  v.  Boyle, 
126  N.  Y.  Supp.  946.  It  seems  in  the  case 
stated  A  could  sell  the  stock  to  B  on  condi- 
tion that  A  retained  the  right  to  vote  the 
stock  and  upon  an  agreement  that  in  the 
event  B  left  the  employ  of  A,  the  latter 
should  have  the  option  to  repurchase  the 
stock  at  book  value.  {Inquiry  from  Wis., 
April,  1920.) 


BILLS   OF   LADING 


Cross  references — Attachment  of  proceeds  of 
B/L  draft  see  attachment  and  garnish- 
ment.   Opinion  Nos.  387-389 
Collection  of  b/l  draft,  see  Collection 

Form  of  b/I   draft 

723.  Doe  a  local  merchant  sells  Sully  a 
cotton  buyer,  ten  bales  of  cotton  and  draws 
on  Sully  for  the  price,  making  the  draft 
payable  to  the  X  National,  which  is  the 
buyer's  local  bank.  Sully  accepts  the  draft, 
to  which  no  bill  of  lading  is  attached  and  it 
is  indorsed  in  blank  by  Doe  and  is  deUvered 
to  the  X  State  Bank,  which  is  his  own  local 
bank,  for  credit.  The  latter  bank  objects  to 
the  form  of  the  draft  and  as  not  conveying 
proper  title.  Opinion:  The  draft  is  in- 
correctly drawn  for  the  purpose  intended  in 
that  it  is  made  payable  to  the  X  National 
Bank,  and  the  acceptance  delivered  to  Doe 
when  it  is  the  purpose  of  Doe  to  deposit  and 
collect  the  same  through  his  own  local  bank. 
In  other  words,  this  acceptance  is  payable 
to  the  X  National  Bank  and  is  transferable 
and  payable  through  their  indorsement. 
If  Doe  intended  to  deposit  and  collect  it 
through  that  bank  it  would  be  all  right  for 
such  purpose,  but  otherwise  the  draft  should 
be  drawn  and  the  acceptance  made  payable 
either  to  Doe  or  to  his  own  local  bank. 
Where  an  acceptance  is  made  payable  to  the 
X  National  Bank  and  delivered  to  the 
drawer,  it  would  require  the  indorsement  of 
the  payee  before  the  drawer  could  properly 
negotiate  it  to  or  collect  it  through  the  in- 
quiring bank.  The  fact  that  the  bill  of 
lading  is  not  attached  does  not  affect  it  as 


Sully  would  be  entitled  to  the  bill  of  lading 
upon  acceptance.  Furthermore,  the  fact 
that  the  acceptance  is  made  across  the  left 
margin  of  the  draft,  is  not  valid  ground  for 
objection.  True,  an  acceptance  is  usually 
evidenced  by  words  written  across  the  face 
of  the  instrument,  but  it  is  sufficient  to 
write  the  acceptance  on  any  part  of  the  bill. 
See  Iowa  City  First  Nat.  Bk.  v.  Trognitz,  12 
Cal.  App.  176.  {Inquiry  from  Tex.,  Aug., 
1917.) 

Shipper's  signature 
Effect  of  absence  of  shipper^ s  signature 

724.  The  requirement  of  the  signature 
of  the  shipper,  where  a  blank  is  provided  on 
the  uniform  bills,  is  not  a  requirement  of 
law  but  a  recommendation  of  the  Interstate 
Commerce  Commission.  It  is  a  matter  of 
practice,  not  of  law,  and  the  absence  of  the 
shipper's  signature  does  not  render  the 
document  invaUd.  {Inquiry  from  N.  J., 
March,  1910,  Jl.) 

Shipper^s   signature   not   necessary 

725.  Should  a  bank  insist  upon  the 
shipper's  signature  on  a  bill  of  lading  drawn 
to  his  order,  before  it  accepts  drafts  drawn 
thereon?  Opinion:  It  is  the  general  prac- 
tice for  the  shipper  not  to  sign  the  bill  of 
lading,  although  there  is  a  blank  for  the 
signature  in  the  uniform  bill  of  lading. 
Under  the  great  weight  of  authority,  the 
shipper's  signature  is  not  necessary  to  the 
validity  of  the  contract  contained  in  the  biU 
of  lading,  and  to  its  binding  effect  on  the 
shipper,  accepting  the  bill  of  lading.    The 


156 


BILLS  OF  LADING 


[726-730 


Henry  B.  Hyde,  82  Fed.  681.  Cin.  U.  &  D. 
R.  Co.  V.  Berdan,  22  Ohio  Cir.  Ct.  Rep.  326. 
{Inquiry  from  Mo.,  Jan.,  1911.) 

Note:  The  Uniform  Bills  of  Lading  Act, 
in  force  in  a  number  of  states  which  pro- 
vides the  form  and  essential  terms  of  bills  of 
lading,  enmnerates  "the  signature  of  the 
carrier"  as  one  of  the  essentials,  but  con- 
tains no  corresponding  requirement  of 
signature  of  the  shipper.  The  Federal  Bills 
of  Lading  Act,  passed  in  1916,  contains  no 
such  requirement. 

Carrier's  liability  upon  b/1  issued  with- 
out receipt  of  goods 

Liability  to  drawee  of  b/l  draft 

726.  A  bank  purchased  and  collected 
of  the  drawee  a  bill  of  lading  draft,  given  for 
goods  to  be  shipped  on  the  Wabash  railroad. 
The  goods  were  never  delivered  to  the  rail- 
road and  the  consignors  failed.  The  drawee 
sued  the  purchasing  bank  for  money  paid 
under  a  mistake  of  fact.  Opinion:  The  pur- 
chasing bank  was  not  lial^le  to  the  drawee 
as  warrantor  of  the  accompanying  bill  of 
lading;  but  the  drawee's  remedy,  if  any,  was 
against  the  railroad  for  issuing  an  accommo- 
dation bill  of  lading  without  the  receipt  of 
the  goods.  Landa  v.  Latten,  19  Tex.  Civ. 
App.  246.  Haas  v.  Bk.,  144  Ala.  562.  Finch 
V.  Gregg,  126  N.  C.  176.  Searles  v.  Smith, 
80  Miss.  688.  The  doctrine  of  the  above 
cases  was  overruled  by  the  following  cases: 
Blaisdell  v.  Bk.,  96  Tex.  626.  Mason  v. 
Nelson  Cotton  Co.,  148  N.  C.  492.  Tolerton 
V.  Bk.,  112  La.  706.  Leonhardt  v.  Small, 
117Tenn.  153.  Hall  v.  Keller,  64  Kan.  211. 
German  American  Bk.  v.  Craig,  70  Neb.  41. 
{Inquiry  from  III.,  March,  1910.) 

Liability  to  bona  fide  holder  of  order  bill 

727.  A  railroad  company  through  its 
agent  issued  an  order  bill  of  lading  for  a 
shipment  to  another  state,  although  no 
goods  were  in  fact  received  by  it.  An 
opinion  is  asked  whether  the  bill  of  lading  is 
conclusive  in  the  hands  of  a  bona  fide  holder 
for  value  against  the  company  issuing  it, 
where  no  property  was  received  to  warrant 
its  issuance.  Opinion:  It  seems  the  rail- 
road would  be  held  liable  in  such  a  case 
under  the  Federal  Bill  of  Lading  Act  of 
August  29,  1916.  Section  22  of  this  Act 
makes  the  carrier  liable  to  the  "holder  of  an 
order  bill  who  has  given  value  in  good  faith, 
relying  upon  the  description  therein  of  the 
goods,  for  damages  caused  by  the  non- 
receipt  of  the  goods  or  their  failure  to  cor- 
respond with  the  description  thereof  in  the 


bill  at  the  time  of  its  issue."  The  case 

stated  falls  directly  ^dthin  the  statutory 

rule  of  hability  of  the  carrier.  {Inquiry 
from  Va.,  June,  1918.) 

Liability   under   state  b/l   act  upon  bill  pur- 
porting interstate  shipment 

728.  A  case  is  presented,  where  the  agent 
has  issued  an  order  bill  of  lading  without 
goods  and  on  faith  thereof  the  bank  has 
advanced  value.  Opinion:  Under  the 
Pomerene  Act,  the  railroad  would  be  clearly 
liable.  But  that  Act  only  took  effect  Janu- 
ary 1,  1917,  and  the  transaction  was  August 
and  September,  1916.  Under  the  Uniform 
B/L  Act  of  Michigan  the  railroad  would  also 
be  liable  for  the  issue  of  an  order  bill  of 
lading  without  receiving  the  goods  and  the 
only  question  is  whether  that  act  would 
apply  and  create  a  liability  of  the  railroad 
where  the  purported  bill  of  lading  repre- 
sented, not  a  shipment  within,  but  to  an- 
other state.  The  decision  of  the  United 
States  Supreme  Court  in  Adams  Ex.  Co.  v. 
Croninger.  (226  U.  S.  491)  creates  serious 
doubt  whether  the  rule  of  hability  upon 
false  bills  provided  by  the  Uniform  Bills  of 
Lading  Act  as  passed  in  the  different  states, 
would  apply  where  the  false  bill  of  lading 
purported  to  represent  an  interstate  ship- 
ment. If  the  loss  is  a  large  one,  the  question 
would  be  worth  fighting  out  in  the  courts. 
{Inquiry  from  Mich.,  April,  1917.) 

Indorsement  of  bill  of  lading 

Bank  purchasing  draft  and  b/l  indorsed  in 
blank  need  not  indorse  b/l 

729.  A  draft  is  drawn  by  Z.  Co.  by  John 
Doe,  President,  in  favor  of  the  F.  Bank,  on 
the  S.  bank,  and  has  an  order  bill  of  lading 
attached  consigned  to  John  Doe.  The 
question  is  asked  whether  the  draft  should 
be  indorsed  by  the  F.  bank,  and  the  bill  of 
lading  by  John  Doe;  and  should  the  F. 
bank  also  indorse  the  bill  of  lading.  Opin- 
ion: The  F.  bank  should  indorse  the  draft 
and  John  Doe  to  whose  order  the  goods  are 
consigned  should  indorse  the  bill  of  lading. 
The  indorsement  in  blank  of  the  bill  of  lading 
by  John  Doe  is  sufficient  for  transfer  and  it 
is  not  necessary  that  the  F.  bank  indorse  the 
bill  of  lading.  {Inquiry  from  Ariz.,  June, 
1920.) 

Indorser  of  draft  does  not  warrant  b/l 

730.  A  bill  of  lading  draft  comes  to  a 
bank  with  several  indorsements  "pay  to 
order  of  any  bank  or  banker,  previous  in- 
dorsements guaranteed."    Inquiry   is  as  to 


157 


731-733] 


DIGEST  OF  LEGAL  OPINIONS 


the  liability  of  indorsers  either  on  account 
of  the  bill  of  lading  or  of  the  draft.  Opinion: 
The  indorsement  "Pay  any  bank  or  banker" 
is  generally  held  restrictive  and  does  not 
bind  the  bank  to  the  liabihties  and  warran- 
ties of  a  regular  indorser.  The  indorsement 
"pay  to  order  of  any  bank  or  banker  pre- 
vious indorsements  guaranteed",  would 
have  the  effect  of  making  the  indorsing  bank 
hable  as  guarantor  of  the  genuineness  of 
prior  indorsements,  but  would  not  render 
the  bank  liable  in  the  event  the  paper  was 
not  paid.  Assuming  the  signature  of  the 
drawer  to  be  forged,  the  bank  so  indorsing 
would  not  be  liable  to  drawee,  or  assuming 
the  bill  of  lading  attached  to  the  draft  was 
a  forgery,  or  that  the  goods  represented  by 
the  bill  of  lading  were  deficient  in  quantity, 
quality  or  condition,  the  indorsing  bank 
would  not  be  Hable  to  the  drawee  which 
paid  the  draft.  This  has  been  so  held  by  the 
Supreme  Court  of  the  United  States,  and  by 
a  number  of  states  even  where  the  indorsing 
bank  was  owner  of  the  draft.  The  only 
state  in  which  the  contrary  doctrine  prevails 
is  Mississippi.  See  Cherokee  National  Bank 
V.  Union  Trust  Co.  33  Okla.  342,  125,  Pac. 
464.    {Inquiry  from  Okla.,  Oct.,  1916.) 

Liability  of  indorser  of  60  day  b/l  draft  cashed 
by  draivee's  bank  before,  but  refused  pay- 
ment at  maturity 
731.  A  form  of  draft  submitted  is  by 
John  Smith,  a  cotton  buyer  in  Alabama, 
drawn  upon  John  Doe  in  Columbus,  Miss., 
to  whom  he  sells  the  cotton  at  60  days' 
sight  payable  to  the  order  of  the  Alabama 
bank  who  discounts  the  draft  which  is  made 
payable  through  a  national  bank  at  Colum- 
bus. Presumably  the  draft  is  accepted  by 
the  drawee,  but  in  any  event  it  is  stated  that 
the  national  bank,  through  whom  it  is  made 
payable,  cashes  it  upon  presentment  and 
does  not  wait  for  the  60  days  to  elapse  before 
the  sum  becomes  payable.  The  question 
asked  is  whether  the  indorser  is  responsible 
where  the  draft  is  cashed  or  paid  by  the 
bank  through  which  it  is  payable  when  first 
presented  although  at  maturity  payment 
should  be  refused.  Opinion:  Where  a 
draft  upon  a  specified  payee  is  drawn  pay- 
able "through"  a  bank,  it  "has  been  held  that 
presentment  for  payment  at  the  bank  is 
suflScient  and  presentment  need  not  be 
made  to  the  drawee.  Bartholomew  v. 
First  Nat.  Bk.,  18  Wash.  683.  When, 
therefore,  a  60-day  sight  draft  is  presented 
before  maturity  to  the  bank  through  which 
it  is  made  payable,  and  it  is  paid  by  that 
bank,  the  question  arises  whether  the  trans- 


action is  in  reality  a  payment  or  a  purchase 
by  the  bank.  If  the  draft  is  paid  at  the  place 
where  payable  in  advance  of  maturity,  then 
the  indorser  would  be  discharged.  If 
however,  the  draft  is  purchased,  the  indorser 
would  remain  hable.  It  seems  in  the  case 
stated,  that  the  transaction  would  be  held 
to  be  a  purchase  of  the  draft  and  the  indorser 
would  be  liable  if  dishonored  at  maturity 
and  the  necessary  steps  were  taken  to  pre- 
serve his  Uability.  He  can,  however,  in- 
dorse "without  recourse"  which  would 
transfer  title  without  indorser's  habihty  in 
case  of  non-pajonent.  (Inquiry  from  Ala., 
Oct.,  1919.) 

Shipper^s  indorsement  supplied  by  collecting 
bank 

732.  The  shipper's  indorsement  on  an 
"order  notify"  bill  of  lading  was  supphed 
by  a  collecting  bank  in  order  to  facih- 
tate  the  payment  of  the  attached  draft  and 
the  dehvery  of  the  goods  to  the  consignee. 
Opinion:  The  collecting  bank  would  incur 
no  responsibihty  in  supplying  the  indorse- 
ment where  the  transaction  was  bona  fide 
and  the  bill  of  lading  represented  the  actual 
goods,  but  might  incur  responsibihty  in  the 
event  of  a  forged  or  false  bill  of  lading. 
{Inquiry  from  Ala.,  Nov.,  1912,  Jl.) 

Indorsement  of  b/l  in  blank  followed  by  special 
indorsement 

733.  (1)  May  a  carrier  dehver  goods  to 
any  one  presenting  the  bill  of  lading  regard- 
less of  indorsements  or  lack  of  them?  (2)  If 
a  bill  of  lading  is  indorsed  in  blank  by  the 
consignee,  and  a  bank  when  it  deUvers  it  to 
the  party  to  whom  it  has  made  advances, 
plainly  stamps  the  back  of  the  bill  under 
but  in  such  close  proximity  to  the  indorse- 
ment of  the  consignee,  that  it  is  practically 
impossible  to  see  the  indorsement  without 
seeing  the  stamp,  in  the  following  form: 
"Dehver  to  any  Buffalo  elevator  for  account 

of  Bank  of ,  A.  B.,  Cashier,"  would 

the  carrier  be  hable  for  disregarding  the 
stamps  in  making  dehvery?  Opinion:  (1) 
Generally  speaking,  some  railroads  use  care 
in  scrutinizing  the  indorsements  before  taking 
up  order  biUs  of  lading,  while  others  disre- 
gard them.  A  railroad  would  seem  to  act 
at  its  peril  in  dehvering  goods  upon  an  un- 
indorsed bill  of  lading.  The  contract  on  the 
bill  of  lading  itself  provides  that  "the  sur- 
render of  this  original  order  biU  of  lading 
properly  indorsed  shall  be  required  before 
the  dehvery  of  the  property."  (2)  Concern- 
ing the  effect  of  the  stamped  indorsement 


158 


BILLS  OF  LADING 


[734-736 


in  this  particular  case,  an  indorsement  of 
commercial  paper  in  blank  makes  the  paper 
transferable  by  dehvery  and  payable  to 
bearer  notwithstanding  a  subsequent  special 
indorsement.  Were  this  appHed  by  analogy 
to  bills  of  lading,  the  carrier  would  not  be 
bound  to  notice  the  special  indorsement, 
but  could  deliver  to  the  holder  of  the  bill 
under  blank  indorsement,  and  the  way  for 
the  bank  to  protect  itself  would  be  to  place 
such  indorsement  over  the  blank  indorse- 
ment so  as  to  change  the  character  of  the 
latter  from  an  indorsement  in  blank  to  an 
indorsement  in  full.  (Inquiry  from  N.  Y., 
Jan.,  1911.) 

Collection 

Collecting    bank's    liability  for    violation    of 
instructions 

734.  A  bank  held  a  bill  of  lading  to  be 
delivered  to  the  consignee  after  he  had 
signed  an  attached  agreement  to  buy  a  soda 
fountain.  In  violation  of  instructions  from 
its  principal,  the  bank  as  agent  delivered  the 
bill  of  lading  without  procuring  the  signa- 
ture to  the  agreement.  Opinion:  The  bank 
was  hable  to  its  principal  for  the  damages 
suffered  by  reason  of  the  violation  of  in- 
structions, but  if  the  principal  was  not 
rightfully  entitled  to  have  the  agreement 
signed  as  a  condition  of  delivery  of  the  bill 
of  lading  and  the  imposing  of  such  condition 
was  wrongful  or  fraudulent,  the  loss  of 
opportunity  on  the  part  of  the  principal  to 
drive  an  unconscionable  bargain  would  not 
be  legitimate  actual  damage  recoverable 
from  the  agent  bank.  Morse  on  Banks  and 
Banking,  Sec.  246.  Kirkham  v.  Bk.  of 
America,  165  N.  Y.  132.  Castle  v.  Corn 
Exch.  Bk.,  148  N.  Y.  122.  Allen  v.  Mer- 
chants Bk.,  22  Wend.  (N.  Y.)  215.  Borup 
V.  Nininger,  5  Minn.  523.  Trinidad  First 
Nat.  Bk.  V.  Denver  First  Nat.  Bk.,  4  Dill. 
(U.  S.)  290.  Flood  V.  Fu-st  Nat.  Bk.,  69 
S.  W.  (Ky.)  750.  {Inquiry  from  La.,  Aug., 
1912,  Jl.) 

Failure  to  demand,   wire  non-payment  and 

return  before  arrival  of  goods  when  subject 

to  inspection 

735.  Bank  A  received  for  collection 
from  Bank  B  in  another  state,  a  draft  on  a 
party  in  A's  town,  marked  "No  protest.  If 
not  paid  on  demand,  wire  and  return." 
The  order  b/1  read,  "Allow  inspection." 
As  result  of  conversation  with  consignee  A 
made  no  immediate  demand  for  pajTuent  of 
draft  because  the  goods  were  sold  subject  to 
inspection  and  to  be  paid  for  if  satisfactory 


to  consignee  and  had  not  yet  arrived.  A 
acknowledged  receipt  of  draft  showing  it  had 
been  entered  for  collection  on  condition 
that  payment  would  be  demanded  on  arrival 
of  goods.  In  reply  B  wrote  A  that,  having 
first  ignored  instructions,  it  would  hold  A 
for  acceptance  of  goods  because  of  failure 
to  demand  payment  on  receipt  of  draft  and 
B/L  instead  of  waiting  for  goods.  Upon 
arrival  of  goods  they  were  found  not  in 
condition  called  for  by  contract  and  were  re- 
fused by  consignee,  and  wire  was  sent  to 
consignor  of  refusal,  and  draft  and  b/1  were 
returned  by  A  to  B.  The  consignor  then 
reshipped  goods  to  another  point  and  noti- 
fied A  that  he  would  hold  A  and  B  jointly 
for  loss.  Opinion:  As  a  matter  of  strict  law, 
under  the  facts  stated.  Bank  A  would  not  be 
held  responsible  even  though  it  violated  the 
instruction  to  present  the  draft  immediately. 
To  make  a  case  of  Hability  there  must  not 
only  be  a  failure  to  obey  instructions  but 
also  damage  as  a  result  of  that  failure.  Here 
was  a  case  where,  although  the  instructions 
were  to  demand  the  draft  immediately  and 
if  not  to  wire  and  return,  the  attached  bill 
of  lading  read  "allow  inspection"  and  from 
a  conversation  with  the  consignee  the  bank 
learned  that  he  would  not  pay  until  the 
goods  arrived  and  he  had  inspected  them. 
The  consignor  having  made  a  contract  with 
the  consignee  for  sale  of  the  goods  subject  to 
inspection  on  arrival,  it  is  difficult  to  see  how 
the  holding  by  Bank  A  of  the  documents 
until  the  goods  arrived  worked  any  damage 
to  the  consignor  for  which  he  would  be  en- 
titled to  recover  either  against  Bank  A  or 
Bank  B.     (Inquiry  from  Tenn.,  Oct.,  1912.) 

Bill  of  lading  draft  with  right  to  examine  goods 
736.  A  bank  received  from  the  shipper  of 
a  motor  cycle  for  collection  a  draft  with  a 
bill  of  lading  attached.  The  shipper  by 
letter  agreed  with  its  customer  that  the  ma- 
chine would  be  shipped  subject  to  examina- 
tion, but  the  bill  of  lading  was  silent  on  this 
point.  Knowing  that  this  condition  ex- 
isted, the  bank  on  receipt  of  the  customer's 
deposit  for  the  amount  of  the  draft  surren- 
dered the  bill  of  lading.  The  customer  pre- 
sented the  bill  of  lading,  received  and  tried 
the  machine,  but  being  dissatisfied  there- 
with retm-ned  it  to  the  freight  office  and 
received  a  new  bill  of  lading.  This  he  at- 
tached to  the  draft  and  returning  same  to 
the  bank  was  repaid  his  deposit.  The  firm 
lost  the  sale.  Opinion:  The  collecting  bank 
is  not  hable  for  any  neglect  of  duty.  It  had, 
in  the  absence  of  contrary  instructions,  a 
right  to  rely  on  the  letter  of  the  firm  per- 


159 


737-742] 


DIGEST  OF  LEGAL  OPINIONS 


mitting  inspection,  and  to  construe  this 
permission  as  extending  to  an  actual  test, 
and  for  that  purpose  to  surrender  the  bill 
of  lading,  safeguarding  its  principal  by 
requiring  a  conditional  deposit  to  be  re- 
funded if  the  machine  proved  unsatisfactory. 
Such  deposit  was  not  a  payment  of  the  pur- 
chase price,  the  surrender  of  which  would 
have  made  the  bank  responsible.  Morse 
on  Banks  and  Banking,  Sec.  246.  Kirkham 
V.  Bk.  of  America,  165  N.  Y.  132.  Castle  v. 
Corn  Exch.  Bk.,  148  N.  Y.  122.  Allen  v. 
Merchants  Bk.,  22  Wend  (N.  Y.)  215. 
Borup  V.  Nininger,  5  Minn.  523.  Trinidad 
First  Nat.  Bk.  v.  Denver  First  Nat.  Bk., 
■4  Dill  (U.  S.)  290.  Flood  v.  First  Nat.  Bk., 
69  S.  W.  (Ky.)  750.  (Inquiry  from  N.  Y. 
Aug.,  1912,  Jl.) 

737.  A  bank  receives  for  collection  a 
draft  to  which  is  attached  a  bill  of  lading 
which  allows  inspection.  The  car  has  not 
yet  arrived.  The  bank  questions  whether 
it  shall  hold  for  arrival  of  car  or  protest  im- 
mediately. Opinion:  The  better  practice  is 
to  hold  the  draft  for  a  reasonable  time  before 
presentment  to  permit  of  arrival  and  inspec- 
tion.    (Inquiry  from  Tex.,  March,  1912,  Jl.) 

Liability  of  bank  for  misdirecting  to  consignee 

738.  A  bank  through  error  mailed  a 
draft  and  an  indorsed  order  bill  of  lading  to 
the  consignee.  The  consignee  obtained  the 
goods  upon  the  bill  of  lading  without  paying 
for  the  draft.  Opinion:  The  bank  is  liable 
to  its  customer  for  the  amount  of  the  draft 
on  the  ground  of  negligence.  (Inquiry  from 
La.,  March,  1912.) 

Deduction  of  freight  charges  from  draft 

739.  A  bank  receives  a  draft  with  bill 
of  lading  attached  with  instructions  to  re- 
turn at  once  if  not  paid  and  with  further 
instructions  to  deduct  amount  of  freight 
charges  from  draft.  As  the  draft  arrives 
before  the  goods  do,  there  is  no  way  of  know- 
ing what  the  freight  charges  are,  and  it  is 
desired  to  know  if  the  customer  is  under 
obligation  to  pay  face  of  draft  on  presenta- 
tion where  the  charges  are  not  prepaid. 
Opinion :  Where  the  freight  charges  are  not 
prepaid  according  to  agreement  between 
shipper  and  customer,  the  customer  would 
have  a  perfect  right  to  refuse  to  pay  the  face 
of  the  draft.  Such  drafts  ought  to  be  ac- 
companied with  some  instruction  to  bank 
authorizing  it  to  hold  the  draft  for  arrival 
of  goods  and  then  receive  the  face  of  the 
draft  less  the  freight  charges.  (Inquiry  from 
Mont.,  May,  1920.) 


Violation  of  instructions  to  protest  if  not  paid 

740.  Bank  A  forwarded  a  sight  draft 
with  bill  of  lading  attached  to  bank  B  with 
instructions  to  protest  if  not  paid.  Two 
weeks  afterwards  B,  in  response  to  inquiry, 
sent  word  that,  because  of  controversy  over 
freight  charges,  it  was  returning  draft  with- 
out protesting.  A  claims  that  because  of 
the  improper  handling  of  the  draft,  it  has 
been  put  to  loss  and  requests  that  B  remit 
at  once.  Opinion:  The  law  requires  a 
collecting  agent  to  exercise  reasonable  care 
and  diligence,  which  includes  due  present- 
ment and  notice  of  dishonor  and  protest,  if 
instrument  requires  it.  It  is  the  duty  of  a 
collecting  bank  to  follow  instructions,  and 
failure  to  do  so  will  make  it  Uable  for  re- 
sulting loss.  In  case  of  loss  through  negli- 
gence of  B,  bank  A  would  have  a  right  of 
action  for  damages  for  actual  loss  sustained 
because  of  B's  omission  of  duty.  See  Omaha 
Nat.  Bank.  v.  Kiper,  60  Neb.  33,  82  N.  W. 
102.    (Inquiry  from  Neb.,  July,  1916.) 

Liability  of  collecting  bank  which  allows  de- 
duction from  draft  because  of  claim  of 
damaged  goods 

741.  Bank  A  in  Michigan,  received  a 
draft  from  customer  with  bill  of  lading  at- 
tached drawn  on  an  Indiana  firm,  with 
instructions  from  customer  to  send  draft  to 
bank  B.  A  instructed  B  to  deHver  bill  of 
lading  only  on  payment.  B  was  not  in- 
structed to  allow  deductions,  but  on  its 
remittance  to  A  sent  a  lesser  amount  than 
face  of  draft,  claiming  damaged  goods,  which 
amount  A  received  under  protest.  Inquiry 
is  made  as  to  proper  procedure.  Opinion: 
The  law  is  that  a  collecting  bank  in  the  ab- 
sence of  contrary  instructions,  is  entitled  to 
surrender  a  time  draft  upon  acceptance  of 
the  bill  of  lading  without  awaiting  payment, 
but  is  not  so  entitled  in  case  of  a  sight  or 
demand  draft,  and  must  surrender  the  bill 
of  lading  only  on  payment.  In  this  case 
there  were  express  instructions  not  to  sur- 
render the  bill  of  lading  until  payment  was 
received  and  for  violation  of  these  instruc- 
tions B  would  be  answerable  for  resulting 
damages.  It  was  B's  duty  to  collect  the 
face  of  the  draft,  and  it  had  no  right  to  make 
a  deduction,  because  of  claimed  defects  in 
the  goods,  without  receiving  instructions 
from  its  principal.  Undoubtedly  A's  cus- 
tomer has  a  cause  of  action  against  B  for 
damages.    (Inquiry  from  Mich.,  Jan.,  1918.) 

Delay  in  presentment  of  draft  pending  arrival 
of  goods 

742.  Can  a  collecting  bank  hold  a  sight 


160 


BILLS  OF  LADING 


[743-745 


draft  with  a  bill  of  lading  attached  until  the 
arrival  of  the  goods  before  making  formal 
presentment  or  giving  notice  of  dishonor,  in 
the  absence  of  instructions  so  to  do  by  the 
principal?  Opinion:  A  sight  draft  with 
order-notify  bill  of  lading  attached  drawn  by 
the  seller  upon  the  buyer  of  goods  is 
governed  by  the  provisions  of  the  Negotiable 
Instruments  Act.  The  draft  is  a  negotiable 
instrument  although  the  bill  of  lading  is 
attached.  Generally  when  the  shipper  does 
not  expect  the  draft  to  be  paid  before  the 
goods  arrive,  he  issues  instructions  that  the 
draft  shall  be  held  for  presentment  pending 
arrival,  and  this  will  excuse  the  collecting 
bank  for  any  reasonable  delay;  but  where 
no  instructions  accompany  the  draft,  the 
question  is  raised  whether  it  is  the  duty  of 
the  collecting  bank  to  promptly  present  and 
protest  if  payment  is  refused,  immediately 
notifying  the  drawer  of  dishonor,  or 
whether  the  collecting  bank  is  justified  in 
holding  it  a  reasonable  time  pending  the 
arrival  of  the  goods,  because  of  a  custom  to 
that  effect.  The  Negotiable  Instruments 
Act  provides  that  presentment  must  be 
made  within  a  reasonable  time,  but  in 
determining  what  is  a  reasonable  time, 
"regard  is  to  be  had  as  to  the  nature  of  the 
instrument,  the  usage  of  trade  or  busi- 
ness (if  any)  with  respect  to  such  instrument 
and  the  facts  of  the  particular  case."  If 
there  is  a  usage  of  trade  to  hold  the  draft  a 
reasonable  time  for  the  arrival  of  goods, 
upon  proof  of  such  usage  or  custom,  the 
bank  would  be  probably  held  free  from 
negligence  because  it  did  not  present  the 
draft  immediately  knowing  that  such  pre- 
sentment would  be  futile.  See  Hubble  v. 
Fogartie,  3  Rich  L.  (S.  C.)  413,  45  Am.  Dec. 
775.  Dickens  v.  Beal,  35  U.  S.  (10  Pet.) 
572,  9  Led  538.  Joseph  v.  Salomon,  19  Fla. 
623.  Orcar  v.  McDonald,  9  Gill  (Md.)  350, 
52  Am.  Dec.  703.  Grosvenor  v.  Stone,  25 
Mass.  (8  Pick),  79.  Rolnnson  v.  Ames,  20 
Johns.  (N.  Y.)  146,  11  Am.  Dec.  259.  Rob- 
bins  V.  Gibson,  1  M.  &  S.  288.  But  in  the 
absence  of  well-established  custom  to  hold 
the  draft  for  a  reasonable  time,  pending 
arrival  of  goods,  the  safer  course  is  to  make 
prompt  presentment.  {Inquiry  from  S.  C, 
Feb.,  1919.) 

743.  Inquiry  is  made  as  to  responsibility 
of  collecting  bank  in  holding  for  arrival  of 
goods  a  no  protest  sight  draft  with  bill  of 
lading  attached  in  the  absence  of  instruc- 
tions. Opinion:  If  the  owner  wants  the 
draft  held  pending  arrival  of  goods,  he 
should   give   instructions    to    that    effect. 


In  the  absence  of  such,  and  where  there  is  no 
provision  for  inspection,  a  collecting  bank 
would  not  be  safe  in  holding  a  sight  draft 
for  any  length  of  time  to  await  the  arrival 
of  goods.  The  goods  covered  by  a  bill  of 
lading  generally  travel  slower  than  the  bill 
of  lading  draft  in  the  mail,  and  it  cannot  be 
expected  in  all  such  cases,  in  the  absence  of 
instructions,  that  the  collecting  bank  should 
take  the  risk  of  holding  for  arrival  of  the 
goods.  The  drawee  is  presumed  to  pay  the 
draft  upon  presentment  with  the  bill  of 
lading  attached  and  not  wait  arrival  of 
the  goods  which  may  not  come  in  for  some 
time,  and  if  he  does  not  intend  to  pay 
the  draft  the  principal  should  be  promptly 
advised  so  that  he  may  be  guided  according- 
ly. He  might  be  prejudiced  by  delay.  There 
is  httle  positive  judicial  authority  for  guid- 
ance on  this  question,  and  it  is  the  safest 
rule  to  present  a  no  protest  sight  draft  with 
bill  of  lading  attached  promptly,  in  the 
absence  of  specific  instructions.  If  the  draft 
is  subject  to  protest,  there  is  all  the  more 
reason  for  prompt  presentment.  4  A.B.A  Jl. 
557.  Citizens  Nat.  Bank  v.  Greensburgh 
Nat.  Bank,  19  Ind.  App.  69,  49  N.  E.  17L 
{Inquiry  from  Va.,  March,  1920.) 

Collecting  hank  should  require  unconditional 
payment  in  absence  of  instructions 

744.  A  draft  with  bill  of  lading  attached 
was  sent  to  a  bank  for  collection  and  return, 
without  special  instructions.  The  inquiry 
made  is  whether  the  drawee  has  a  right  to 
deposit  the  money  with  the  collecting  bank 
to  pay  and  take  up  same  with  bill  of  lading 
and  require  withholding  of  payment  until 
examination  of  the  goods  can  be  made,  and 
if  not  satisfactory  return  to  the  collecting 
bank  the  documents  after  refusing  the  goods, 
and  demand  a  return  of  his  money.  Opin- 
ion :  It  does  not  seem  that  the  bank  has  any 
right  to  receive  the  mone}^  in  payment  and 
surrender  of  the  draft  and  bill  of  lading  on 
the  conditions  above  specified.  It  would 
require  special  instructions  or  authorization 
from  the  holder  of  the  draft  before  the  bank 
could  make  any  such  arrangement.  In  the 
case  stated,  the  bank  should  not  receive 
payment,  but  should  receive  an  uncondition- 
al pajinent  and  remit  same  to  drawer,  or 
else  protest  the  draft  for  refusal  to  uncondi- 
tionally pay.  {Inquiry  from  Ohio,  Dec, 
1916.) 

Surrender  of  b/l  without  payment  of  sight  draft 

745.  A  bank  clerk,  without  knowledge 
of  the  officers,  and  in  the  name  of  the  bank. 


161 


746-749] 


DIGEST  OF  LEGAL  OPINIONS 


sent  for  collection  a  sight  draft  with  b/1 
attached  to  an  Omaha  bank.  Payment  was 
refused  by  the  drawee  bank,  and  b/1  was 
subsequently  dehvered  to  the  consignee 
without  collection  of  draft  upon  official 
instructions  given  by  the  sending  bank. 
The  drawer  claims  that  the  sending  bank 
acted  without  authority  in  releasing  the  b/1, 
and  claims  damages.  Opinion:  While  the 
clerk  forwarded  the  draft  and  bill  of  lading 
without  authority,  the  bank  subsequently 
virtually  ratified  the  clerk's  act  by  assuming 
control  of  the  matter  and  officially  instruct- 
ing the  Omaha  Bank  to  surrender  the  bill 
of  lading  without  collection  of  the  draft. 
This  surrender  without  payment  is  the  act 
for  which  the  drawer  claims  damages  and 
this  was  an  official  act  of  the  bank,  for  which 
it  would  be  liable  for  any  damages  sustained. 
{Inquiry  from  Mont.,  April,  1919.) 

Surrender  of  h/l  upon  acceptance  of  draft 

746.  Information  is  sought  regarding 
effect  of  surrendering  the  documents  at- 
tached to  a  bill  of  exchange  in  the  absence 
of  instructions  to  the  contrary.  Opinion: 
The  question  asked,  it  seems,  is  covered  by 
Section  41  of  the  Uniform  Bills  of  Lading 
Act,  which  has  been  passed  in  New  York 
and  in  a  number  of  other  states  in  the 
country.  According  to  this,  in  the  absence 
of  specific  instructions  to  the  contrary,  the 
documents  are  surrendered  upon  acceptance 
where  the  draft  is  payable  on  time  (that  is, 
payable  more  than  three  days  after  demand, 
presentation  or  sight),  but  where  the  draft 
is  by  its  terms  or  legal  effect  payable  on 
demand  or  not  more  than  three  days  there- 
after, the  documents  must  be  held  for  pay- 
ment of  the  draft.  {Inquiry  from  N.  Y., 
Nov.,  1917.) 

Collecting  hank's  duty  as  to  demand  and  protest 
of  dernand  b/l  draft 

747.  A  collecting  bank  received  from  C 
bank  a  collection  letter  enclosing  a  demand 
draft  with  bill  of  lading  attached,  which  was 
drawn  by  A  upon  B  and  payable  to  C  bank. 
There  were  no  instructions  regarding  pro- 
test. The  questions  asked  by  the  collecting 
bank  are  set  forth  below.  Opinion:  The 
first  question  is  whether  the  draft  should  be 
protested,  if  unpaid,  on  first  presentation. 
It  appears  it  should.  When  the  draft  is 
presented  and  payment  is  refused,  it  is  dis- 
honored by  non-payment,  and  the  necessary 
steps  upon  dishonor  should  be  taken  to 
preserve  the  Uabihty  of  the  drawer.  Al- 
though notice  of  dishonor  might  be  suffi- 
cient, unless  it  was  a  draft  coming  from  an- 


other state,  it  is  best  to  protest  in  any  event 
and  protest,  if  made,  must  be  made  on  the 
day  of  dishonor.  The  second  question  is 
whether  the  collecting  bank  would  be  Uable 
if  after  receiving  the  draft  it  refrained  two 
days  from  making  demand  and  protest.  It 
seems  the  ordinary  course,  unless  specifically 
instructed  otherwise,  is  to  present  a  demand 
draft  with  bill  of  lading  as  soon  as  received. 
A  delay  of  two  days  before  presenting  might  in 
certain  cases  be  in  the  interest  of  the  holder,  if 
the  collecting  bank  had  reason  to  beheve 
that  it  would  receive  payment  if  delayed  a 
short  time  and  that  the  draft  would  not  be 
-paid  if  immediately  presented.  At  the  same 
time  there  might  be  a  case  where  a  delay  of 
two  days  in  presentment  would  be  held  to 
work  an  injury  to  the  drawer  for  which  the 
collecting  bank  might  be  hable.  The  third 
question  is  whether  the  case  would  be  altered 
if  the  draft  bore  a  "no  protest"  shp.  The 
Negotiable  Instruments  Act  provides  that 
a  waiver  of  protest  whether  in  the  case  of  a 
foreign  bill  of  exchange  or  other  negotiable 
instrument  is  deemed  to  be  a  waiver  not 
only  of  a  formal  protest,  but  also  of  pre- 
sentment and  notice  of  dishonor.  {Inquiry 
from  Tenn.,  Dec,  1913.) 

B/L  draft  "with  exchange." 

748.  A  bank  received  for  collection  a 
draft  with  bill  of  lading  attached,  the  draft 
being  drawn  "with  exchange."  The  bank 
accepted  the  face  of  the  draft  and  made  a 
reasonable  charge  for  collection.  Opinion: 
The  courts  have  held  in  a  number  of  cases 
that,  where  an  instrument  is  drawn  payable 
"with  exchange,"  such  words  are  surplusage, 
meaningless,  and  have  no  effect,  because  the 
instrimaent  is  payable  in  the  place  on  which 
it  is  drawn,  and  in  such  case  there  can  be  no 
exchange.  In  the  case  stated,  the  bank  was 
justified  in  receiving  the  face  of  the  draft 
from  the  drawee.  {Inquiry  from  Miss., 
June,  1919.) 

Collecting  hank  not  liable  for  act  of  freight 
agent  who  allows  inspection 

749.  A  bank  received  a  sight  draft 
marked  N.  P.  with  order  bill  of  lading  at- 
tached and  held  it  a  few  days  after  notifying 
drawee  by  mail.  In  the  meanwhile  a  freight 
agent  allowed  the  drawee  to  open  the  car 
which  contained  the  goods  covered  by  the 
bill  and  afterward  drawee  refused  to  pay  the 
draft.  Would  the  bank  be  in  any  way  re- 
sponsible. Opinion:  It  is  difficult  to  see 
how  the  collecting  bank  could  be  held  re- 
sponsible for  the  act  of  the  freight  agent  in 


162 


II 


BILLS  OF  LADING 


[750-751 


allowing  inspection,  where  without  the 
knowledge  or  authority  of  the  bank,  pro- 
vided the  bank  otherwise  acted  with  due 
diligence.  If  the  freight  agent,  without 
authority,  had  allowed  the  drawee  to  open 
the  car  and  remove  the  goods  without  paying 
the  draft,  the  railroad  would  be  responsible, 
but  it  is  doubtful  if  his  mere  allowing  in- 
spection, though  unauthorized,  would  be  a 
sufficient  basis  for  an  action  for  damages 
against  the  railroad.  {Inquiry  from  N.  J., 
Oct.,  1912.) 

Delivery    of   goods    without   surrender 
ofbiU 

Delivery   by   carrier   on   order   of  consignee 
without   surrender   of  the   bill 

750.  A  shipper  in  Michigan  sold  a  com- 
mission merchant  in  Chicago  a  carload  of 
beans  to  be  shipped  to  a  point  in  Indiana. 
The  shipper  received  an  order  bill  of  lading 
containing  the  usual  clause  that  surrender 
will  be  required  before  delivery  of  the 
property,  which  indicated  R  in  Indiana  as 
the  notify  party.  The  bill  was  not  taken  out 
to  shipper's  order  but  the  order  of  the 
Chicago  consignee.  The  shipper  attached 
the  bill  of  lading  to  a  draft  and  deposited  it 
with  a  bank  for  collection  but  the  draft  was 
returned  unpaid.  It  appeared  that  the 
Chicago  commission  merchant,  learning  the 
number  of  the  car,  made  out  a  written  order 
addressed  to  the  connecting  carrier  at  the 
terminal  point  to  deUver  the  beans  to  R  on 
the  payment  of  charges  "without  surrender 
of  the  original  bill  of  lading"  which  was  done. 
The  beans  not  being  paid  for,  the  bank  de- 
sires to  know  the  habihty  of  the  railroad  to 
the  shipper  for  the  delivery  of  the  goods 
without  requiring  surrender  of  the  bill. 
Opinion:  Where  bill  of  lading  is  made  out 
to  shipper's  order,  numerous  authorities 
hold  that  the  railroad  is  liable  for  damages 
sustained  if  it  makes  delivery  without 
taking  up  the  bill.  In  this  case  the  bill  of 
lading  was  deUvered  to  the  shipper  but  was 
made  to  the  order  of  the  commission  mer- 
chant. While  no  direct  precedent  can  be 
found,  upon  principle  and  analogy  of  the 
authorities,  the  carrier  is  liable  to  the  shipper 
for  the  damage  sustained  because  he  has 
expressly  contracted  with  the  shipper  not  to 
deliver  except  upon  production  of  the  bill 
and  it  is  no  excuse  for  making  delivery  with- 
out surrender  of  the  bill  that  such  delivery 
is  made  upon  the  order  of  the  person  who  is 
named  in  the  bill  as  the  consignee.  {Inquiry 
from  Mich.,  March,  1914-) 


Note:  In  the  above  case  the'shipper'sued 
the  carrier  and  in  April,  1915,  the  Supreme 
Court  of  Michigan  decided  in  his  favor. 
Thomas  v.  Blair,  151  N.  W.  (Mich.)  1041. 
The  court  held  in  substance:  Where  plain- 
tiffs shipped  goods  under  an  "order  notify" 
bill  of  lading  requiring  its  surrender  before 
delivery  and  the  goods  were  delivered  to  the 
consignee  upon  his  written  order  and  with- 
out surrender  of  the  bill,  such  delivery  was 
a  breach  of  the  contract  for  transportation 
giving  the  shippers  a  right  of  action.  Fur- 
ther held  the  initial  carrier  was  Uable  for 
such  delivery  by  the  terminal  carrier  under 
the  provision  of  the  Interstate  Commerce 
Act  which  makes  the  initial  carrier  of  inter- 
state shipments  Kable  for  the  defaults  of 
connecting  carriers  in  the  transportation  of 
through  shipments. 

Delivery  to  notify  party  in  straight  bill  without 
authority  from  shipper 

751.  A  straight  bill  of  lading  was  issued 
by  a  railroad  company  in  which  A  was 
named  both  as  consignor  and  consignee  and 
B  named  as  the  person  to  be  notified  of  the 
arrival  of  the  goods.  Would  the  railroad 
company  be  justified  in  deHvering  the  goods 
to  B  without  further  authority  from  A  even 
though  it  was  customary  to  deHver  to  notify 
parties  on  straight  bills?  Opinion:  De- 
livery, of  course,  may  be  made  without  sur- 
render of  the  bill,  but  such  dehvery  can  only 
safely  be  made  to  the  consignee  or  to  someone 
authorized  by  him  to  receive  the  goods.  It 
seems  at  first  view  a  Httle  anomalous  to  have 
to  notify  a  party  in  connection  with  such  a 
biU,  but  where  a  straight  bill  is  used,  as 
here,  the  consignor  naming  himself  as  con- 
signee and  adding  a  notify  party,  it  leads 
to  the  opinion  that  the  railroad  cannot 
safely  deUver  the  goods  to  the  notify  party 
without  the  latter  possessing  some  authority 
from  the  consignee  to  receive  them  other 
than  what  is  indicated  by  the  mere  insertion 
of  his  name  as  notify  party  in  the  bill  of 
lading.  The  Uniform  Bills  of  Lading  Act 
in  force  in  New  Jersey  contains  a  provision 
that  "Where  by  the  bill  the  goods  are  de- 
hverable  to  the  seller  or  to  his  agent  or  to 
the  order  of  the  seller  or  his  agent  the  seller 
thereby  reserves  the  property  in  the  goods. 
But  if  except  for  the  form  of  the  bill,  the 
property  would  have  passed  to  the  buyer  on 
shipment  of  the  goods,  the  seller's  property 
in  the  goods  shall  be  deemed  to  be  only  for 
the  purpose  of  securing  performance  by  the 
buyer  of  his  obhgations  under  the  contract." 
In  the  present  case  the  goods  are  deliverable 


163 


752-755] 


DIGEST  OF  LEGAL  OPINIONS 


to  the  seller  or  consignor  who  is  also  named 
as  consignee  in  the  bill,  wliich  indicates  that 
the  seller  reserves  the  property  in  the  goods. 
This  being  so,  it  would  seem  that  delivery 
to  the  notify  party  without  his  producing 
authority  from  the  seller  would  not  be  any 
safer  for  the  railroad  than  similar  delivery 
on  an  order  bill  without  his  producing  the 
bill.    {Inquiry  from  N.  J.,  Feb.,  1915.) 

Rights  of  attaching  creditor  of  shipper 

Superior  right  of  'purchasing  hank  to  proceeds 
of  draft 

752.  Local  dealers  shipped  peaches  to 
the  west,  and  western  banks  wired  guaran- 
ties that  drafts  of  local  dealers  for  the 
peaches  would  be  paid.  These  drafts  were 
discontinued  by  a  local  bank  and  forwarded 
for  collection.  The  drafts  were  paid,  and  the 
peaches  dehvered  to  the  buyers,  who  then 
claimed  that  the  peaches  were  not  up  to 
contract,  and  attached  the  proceeds  in  the 
hands  of  the  collecting  bank.  Who  is  en- 
titled to  proceeds  as  between  bank  pur- 
chasing drafts  and  attaching  creditors  of 
shippers?  Opinion:  It  has  been  repeatedly 
held  by  courts  in  different  states  that  the 
bank  which  has  purchased  a  draft  has  a 
superior  right  to  the  proceeds  thereof  to  an 
attaching  creditor  of  the  shipper.  Some 
years  ago  courts  in  four  states,  Texas,  Ala- 
bama, North  Carolina  and  Mississippi,  held 
that  a  bank  purchasing  a  draft  with  bill  of 
lading  for  goods  attached,  warranted  the 
quahty  of  the  goods,  so  that  after  the  draft 
was  paid,  if  the  goods  were  not  up  to  con- 
tract, the  purchasing  bank  was  liable.  But 
these  decisions  have  been  subsequently 
overruled  in  all  of  these  states,  except  in 
Mississippi.  In  Mississippi  such  rule  still 
prevails,  and  it  also  has  a  statute  requiring 
a  collecting  bank  to  hold  the  proceeds  96 
hours  before  remitting,  so  as  to  give  the 
buyer  of  the  goods  an  opportunity  to  attach 
the  proceeds,  if  the  goods  are  not  up  to 
contract.  But  outside  of  Mississippi  the 
rule  is  as  stated  above.  {Inquiry  from  Md., 
Feb.,  1918.) 

Creditor  takes  no  greater  right  to  proceeds 
than  shipper 

753.  A  drew  a  draft  on  B  payable  to  C 
to  which  was  attached  a  bill  of  lading.  It 
was  indorsed  by  C  and  delivered  to  bank  D 
which  gave  him  credit  for  the  full  amount 
and  sent  it  to  bank  E  for  collection  indorsing 
it  payable  to  said  bank's  order.  B  paid  the 
draft,  received  the  documents  attached,  and 


immediately  filed  suit  against  A,  alleging 
breach  of  contract,  and  making  bank  E 
garnishee  defendant.  Must  bank  D  which 
in  good  faith  advanced  full  amount  of  draft 
lose?  Opinion:  There  are  a  number  of  de- 
cisions to  the  effect  that,  when  a  bank  takes 
title  to  a  draft,  as  distinguished  from  merely 
holding  it  as  agent  for  collection  it  has  a 
right  to  the  proceeds  superior  to  that  of  an 
attaching  creditor  of  the  shipper.  These 
cases  sometimes  go  against  the  bank  in  the 
lower  court,  but  the  Supreme  Court  general- 
ly reverses  the  judgment,  applying  the  well- 
known  rule  that  the  creditor  in  the  garnish- 
ment proceedings  can  take  no  greater  rights 
than  his  debtor  possessed  and  as  the  debtor, 
namely,  the  shipper,  would  have  no  right 
to  the  proceeds  as  against  the  discounting 
bank,  neither  does  the  attaching  creditor. 
{Inquiry  from  Wash.,  March,  1917.) 

Drawee's  claim  to  proceeds  where  goods  not 
according  to  contract 

754.  A  bank  purchased  a  number  of 
drafts  covering  cars  of  hay  with  order  bills 
of  lading  attached  and  forwarded  the  same 
to  another  bank  for  collection.  The  drawee 
paid  the  drafts  but  later  attached  the  funds 
in  the  hands  of  the  collecting  bank,  be- 
cause the  goods  were  not  according  to  the 
contract.  Opinion:  The  purchasing  bank 
had  a  right  to  the  proceeds  in  the  hands  of 
the  collecting  bank  as  against  the  drawee. 
Blaisdell  v.  Bk.,  96  Tex.  626.  Mason  v. 
Nelson  Cotton  Co.,  148  N.  C.  492.  Tolerton 
V.  Bk.,  112  Iowa  706.  Central  Mercantile 
Co.  V.  Okla.  St.  Bk.,  83  Kan.  504.  German 
American  Bk.  v.  Craig,  70  Neb.  41.  First 
Nat.  Bk.  V.  Mt.  P.  MilHng  Co.,  103  Iowa 
518.     {Inquiry  from  Minn.,  Feb.,  1913,  Jl.) 

Conflicting   claim   to   proceeds   of  draft  for 
potatoes 

755.  A  customer  of  the  bank  sold  pota- 
toes to  representative  of  a  Pittsburg  com- 
mission firm,  delivering  the  bills  of  lading 
therefor,  and  receiving  in  payment  thereof 
two  sight  drafts  drawn  by  said  representa- 
tive on  the  commission  company.  The 
drafts  were  deposited  with  the  inquiring 
bank  as  cash  items  and  forwarded  in  regular 
course,  and  upon  presentation  were  paid 
and  the  funds  immediately  attached  in  the 
hands  of  the  Pittsburg  bank.  The  com- 
mission company  claimed  that  the  potatoes 
were  not  as  represented,  and  attached  the 
funds  against  the  bank's  customer  who  in 
turn  claims  the  sale  and  delivery  took  place 
f.o.b.  the  shipping  point  when  he  dehvered 


164 


BILLS  OF  LADING 


[756-761 


the  bills  of  lading  to  the  purchaser  and 
accepted  the  drafts  in  payment.  The  bank 
claims  that  the  moneys  attached  are  funds 
of  the  bank.  Opinion:  If  the  bank  took 
title  to  the  drafts  it  would  have  a  right  to 
their  proceeds  superior  to  an  attaching 
creditor  of  the  shipper.  If  the  bank  held 
the  drafts  simply  for  collection  it  would  not. 
A  case  almost  identical  with  the  bank's  case 
has  been  decided  by  the  Supreme  Court  of 
North  Carolina,  Elm  City  Lumber  Co.  v. 
Childerhose,  83  S.  E.  22,  holding  as  stated 
in  the  preceding  sentence  hereof.  {Inquiry 
from  N.  C,  Sept.,  1918.) 

Owner's  right  to  proceeds  of  draft  for  prunes 

756.  A  bank  discounted  and  became 
owner  of  a  draft  with  an  attached  order 
bill  of  lading  representing  prunes.  The 
draft  was  paid  by  the  consignee  of  the  goods, 
but  while  the  funds  were  in  the  hands  of  the 
collecting  bank  they  were  attached  by  a 
creditor  of  the  shipper.  Opinion:  The  pur- 
chasing bank  has  a  right  to  the  proceeds  in 
the  hands  of  the  collecting  bank  superior  to 
that  of  the  attaching  creditor.  See  citations 
in  opinion  No.  757.  {Inquiry  from  Cat., 
April,  1912,  Jl.) 

Superior  rights  of  pledgee  hank  to  goods 

757.  Where  goods,  shipped  under  an 
order  bill  of  lading,  are  attached  by  a  cred- 
itor of  the  shipper,  the  courts  quite  generally 
hold  that  a  bank  to  whom  the  bill  has  been 
pledged  for  value  as  security  for  advances 
has  a  right  to  the  property  superior  to  that 
of  an  attaching  creditor.  Seward  Co.  v. 
Miller,  55  S.  E.  (Va.)  681.  Mather  v.  Gor- 
don, 77  Conn.  341.  American  Nat.  Bk.  v. 
Henderson,  123  Ala.  612.  Neil  v.  Rogers, 
41  W.  Va.  37.  First  Nat.  Bk.  v.  MilHng  Co., 
103  Iowa  518.  Nat.  Bk.  v.  Everett,  71  S.  E. 
(Ga.)  660.  {Inquiry  from  Me.,  Dec,  1908, 
Jl) 

Superior  right  of  purchasing  hank  to  proceeds 
of  goods 

758.  Where  a  bank  gave  value  for  a 
draft  for  the  purchase  price  of  automobiles, 
h/l  therefor  attached  to  draft,  and  subse- 
quently authorized  the  railroad  company  to 
release  the  cars  to  consignee,  and  authorized 
latter  to  sell  them  for  bank's  account,  what 
are  bank's  rights  as  against  claim  of  consig- 
nee against  the  original  shipper?  Opinion: 
It  would  seem  that  the  bank  is  entitled  to 
the  proceeds  of  the  sale  of  the  cars  free  from 
any  claim  of  the  consignee  against  the  orig- 
inal shipper.     The  rule  is  well  estabhshed 


that  where  the  consignor  draws  on  the  con- 
signee for  the  purchase  money,  and  the 
draft,  with  b/1  attached,  is  indorsed  or 
transferred  to  a  party  who  discounts  the 
draft,  a  special  property  in  the  goods  passes 
to  the  transferee,  subject,  however,  to  be 
divested  by  acceptance  and  payment  of  the 
draft.  (Halsey  v.  Warden,  25  Kan.  128. 
See  also  State  Nat.  Bank  v.  Wood,  142  Pac. 
[Okla.]  1002.  Ladd,  etc..  Bank  v.  Com.  State 
Bank,  [Oreg.]  130  Pac.  657).  This  rule  ap- 
plies although  no  money  has  actually  been 
advanced  to  the  consignor,  and  it  is  sufficient 
that  the  consignor  has  been  given  credit. 
(Kansas  City  First  Nat.  Bank  v.  Mt. 
Pleasant  Mill.  Co.,  103  Iowa  518.  Fredonia 
Nat.  Bank  v.  Tommel,  131  Mich.  674). 
{Inquiry  from  Mich.,  Feb.,  1918.) 

Bank  acquires  superior  title  hy  giving  credit 

759.  A  bank  discounted  a  shipper's 
draft  with  an  accompanying  bill  of  lading 
representing  hay,  and  credited  the  shipper 
with  the  amount.  The  drawee  refused  to 
pay  the  draft  and  attached  the  goods  be- 
cause of  an  alleged  prior  indebtedness  of  the 
shipper  to  him.  Opinion:  The  bank  was 
not  simply  collecting  agent  of  the  shipper 
but  acquired  special  title  to  the  hay  superior 
to  that  of  an  attaching  creditor  of  the 
shipper,  even  though  the  credit  was  not 
checked  out.  See  citations  in  opinion  No. 
760.    {Inquiry  from  N.  Y.,  July,  1910,  Jl.) 

General  rule  stated 

760.  It  is  the  undoubted  rule  of  law  that 
where  a  bank  purchases  or  makes  advances 
upon  a  draft,  to  which  is  attached  a  bill  of 
lading  as  security,  the  purchasing  bank 
takes  a  right  to  the  property  superior  to  that 
of  an  attaching  creditor.  See  citations  in 
opinion  No.  757,  Sather  Banking  Co.  v. 
Hartwig,  23  Misc.  (N.  Y.)  89.  Tliird  Nat. 
Bk.  of  St.  Louis  v.  Hayes  (Supreme  Ct. 
Tenn.  1907),  Citizens  St.  Bk.  v.  Cowles,  180 
N.  Y.  346,  73  N.  E.  33.  First  Nat.  Bk.  v. 
Mt.  Pleasant  Milling  Co.,  103  Iowa  518. 
{Inquiry  from  N.  Y.,  July,  1910.  Jl.) 

Rights  of  attaching  creditor  of  shipper  superior 
to    claim    of   shipper^s    collecting    bank 

761.  A  New  Jersey  bank  received  for 
collection  a  draft  signed  by  a  depositor 
drawn  on  a  concern  in  Indiana.  The  draft 
was  payable  to  the  bank's  order  with  bill  of 
lading  attached.  The  draft  was  sent  to  an 
Indiana  bank  for  collection  and  remittance 
with  instructions  to  dehver  bill  of  lading 
only  upon  payment  of  draft.    The  Indiana 


165 


762-764] 


DIGEST  OF  LEGAL  OPINIONS 


bank,  upon  being  requested  to  remit  or 
return  draft  and  bill  of  lading,  stated  they 
has  been  impounded  by  the  sheriff  and 
were  in  the  hands  of  the  Indiana  court. 
Opinion:  If  this  draft  was  the  New  Jersey 
bank's  property  with  bill  of  lading  attached 
as  security,  a  creditor  of  its  depositor  in 
Indiana  would  have  no  right  to  attach  the 
same;  but  if  it  was  the  property  of  the  bank's 
depositor,  it  seems  it  would  be  subject  to 
attachment  by  his  creditor  in  that  state,  and 
the  collecting  bank  would  not  be  responsible 
if  it  was  taken  out  of  its  hands  by  order  of 
the  court.  The  creditor's  right  of  attach- 
ment would  depend  upon  ownership  or 
otherwise,  by  the  New  Jersey  bank  of  the 
draft  and  bill  of  lading.  {Inquiry  from  N. 
J.,  April,  1919.) 

Liability  of  collecting  hank  to  attaching 
creditor  for  wrongfully  deducting  at- 
tached proceeds  from  his  account 

762.  A  shipper  forwarded  goods  and 
entrusted  to  a  bank  for  collection  bill  of 
lading  attached  to  sight  draft.  The  con- 
signee requested  the  collecting  bank  to 
have  the  goods  and  draft  forwarded  to 
another  state,  which  request  was  comphed 
with.  The  consignee  paid  the  draft  to  a 
bank  in  such  other  state  and  immediately 
sued  the  shipper  and  garnished  the  money 
in  the  hands  of  such  bank.  This  latter  bank 
remitted  to  the  first  named  bank  the  balance 
of  the  proceeds  after  deducting  the  amount 
of  the  judgment  rendered  against  the  ship- 
per, which  the  court  directed  to  be  paid  out 
of  the  proceeds.  The  original  collecting 
bank,  added  to  the  net  proceeds,  sufficient 
to  pay  the  draft  and  sent  the  amount  to  the 
shipper  and  deducted  the  amount  added 
from  the  consignee's  account  in  the  bank. 
Subsequently  the  consignee  drew  checks 
against  his  account  on  which  payment  was 
refused  for  insufficient  funds,  although  were 
it  not  for  the  amount  deducted  there  would 
have  been  sufficient  to  pay  the  checks.  The 
consignee  has  sued  the  bank  to  recover  the 
amount  claimed  to  be  on  deposit,  and  asks 
damages  for  refusing  to  pay  checks.  Is  the 
bank  liable  to  the  consignee?  If  so,  to  what 
extent?  Opinion:  There  is  a  line  of  cases 
which  holds  that  where  a  bank  takes  title  to 
a  draft  with  bill  of  lading  attached  and 
collects  the  proceeds  from  the  consignee, 
such  proceeds  cannot  be  attached  or  gar- 
nished by  the  consignee  as  the  property  of 
the  shipper  who  drew  the  draft.  The  follow- 
ing cases  are  on  this  general  subject,  most  of 
which  so  hold:     Merchant  Bk.  v.  Parker, 


82  S.  E.  (Ga.)  658.  Thomas  v.  Cit.  Nat. 
Bk.,  147  N.  W.  (Wis.)  1005.  First  Nat.  Bk. 
v.  Mt.  Pleasant  M.  Co.,  103  Iowa,  518. 
Seward  v.  Miller  55  S.  E.  (Va.)  681.  Mather 
V.  Gordon,  77  Conn.  341.  Am.  Nat.  Bk.  v. 
Henderson,  123  Ala.  612.  Neill  v.  Rogers, 
41  W.  Va.  37.  If,  therefore,  the  bank  had 
given  value  to  the  shipper  and  had  not  taken 
the  draft  for  collection,  it  would  upon  the 
authority  of  the  above  cases  be  held  entitled 
to  the  proceeds  in  the  hands  of  the  bank  in 
the  other  state  to  whom  the  draft  and  bill 
of  lading  were  forwarded  and  by  proper 
intervention  in  the  garnishment  proceed- 
ings, would  have  been  entitled  to  those  pro- 
ceeds free  from  garnishment.  But  apparent- 
ly the  draft  was  received  for  collection  only 
as  agent  of  the  shipper  and  the  proceeds 
were  subject  to  garnishment  as  the  property 
of  the  shipper;  the  bank  forwarded  more 
than  the  shipper  was  entitled  to  receive,  and 
had  no  right  to  deduct  the  amount  from  the 
consignee's  account.  Hence  the  bank  would 
be  hable  to  the  consignee  for  the  amount  so 
deducted;  and  there  may  also  be  a  Uability 
to  the  consignee  for  not  paying  his  checks. 
{Inquiry  from  Colo.,  Nov.,  1914-) 

Warrantor  liability  of  purchasing  bank 

No  warranty  of  bill  of  lading  to  acceptor  of 
draft 

763.  The  question  is  asked  whether  a 
bank  discounting  a  draft  warrants  to  the 
acceptor  bills  of  lading  attached  thereto  as 
security.  Opinion:  The  rule  is  quite  well 
settled  that  the  bank  does  not.  In  Goetz  v. 
Bank  of  Kansas  City,  119  U.  S.  551,  the 
Supreme  Court  of  the  United  States  held 
that  the  acceptor  of  a  bill  of  exchange  dis- 
counted by  a  bank  with  b/1  attached  which 
the  acceptor  and  the  bank  regard  as  genuine 
at  the  time  of  acceptance,  but  which  turns 
out  to  be  a  forgerj^,  is  bound  to  pay  the  bill 
to  the  bank  at  maturitJ^  To  the  same  effect, 
see  Hoffman  v.  Bank  of  Milwaukee,  12  Wall. . 
(U.  S.)  181.  Springs  v.  Hanover  Nat.  Bk., 
130  N.  Y.  Suppl.  87  (affirming  127  N.  Y. 
Suppl.  178).  {Inquiry  from  Iowa,  May, 
1917.) 

No  warranty  of  goods  to  payor  of  draft 

764.  What  is  the  liabiUty  of  a  bank  in 
forwarding  for  collection  a  draft  with  a  bill 
of  lading  attached?  Opinion:  A  bank 
which  purchases  from  the  drawer  and  col- 
lects from  the  drawee  a  draft,  with  bill  of 
lading  attached,  is  not  responsible  for  the 
quantity,  quaUty  or  condition  of  the  goods 
covered   by   the   bill   of   lading.     Cosmos 


166 


11 


BILLS  OF  LADING 


[765-768 


Cotton  Co.  V.  First  Nat.  Bank,  [Ala.]  54 
So.  621.     {Inquiry  from  AUl.,  July,  1920.) 

The    exceptional    rule    in    Mississippi 

765.  A  bank  has  been  informed  that  the 
Supreme  Court  of  the  United  States  has 
handed  down  a  decision  that,  if  a  bank 
accepts  even  for  collection  a  draft  having  a 
b/1  attached  covering  a  shipment  of  cotton, 
the  bank  or  collecting  agent  becomes  liable 
for  the  count,  weight  and  quality  thereof, 
even  if  it  stamps  such  draft  on  the  back  a 
disclaimer  of  liability  therefor.  Opinion: 
The  supreme  court  of  Mississippi  in  Searles 
v.  Smith  Grain  Co.  32  So.  287,  decided  in 
1902,  held  that  a  bank,  sending  a  draft  for 
grain,  with  b/1  attached,  payable  in  Mis- 
sissippi was  a  co-warrantor  with  the  shipper 
and  seller  of  the  grain,  and  if  the  grain  was 
defective,  the  bank  was  liable  for  the  loss  to 
the  payor  of  the  draft — i.  e.,  the  consignee 
of  the  grain — and  such  de])t  would  sustain 
an  attachment.  This  decision  did  not  apply 
to  a  collecting  bank,  not  owner  of  the  draft, 
after  it  has  remitted  the  proceeds,  but  a 
statute  in  Mississippi  required  retention  of 
the  proceeds  for  96  hours.  The  Supreme 
Court  of  the  United  States  in  1887  held 
directly  the  contrary.  Goetz  v.  Bank  of 
Kansas  City,  119  U.  S.  551.  It  seems  the 
State  of  Mississippi  stands  alone  in  holding 
that  a  bank  which  collects  a  draft  with  a 
bill  of  lading  is  responsible  to  the  drawee 
where  the  goods  are  not  up  to  contract,  and 
that  is  the  reason  it  is  necessary  for  the  bank 
to  put  on  the  bill  of  lading  drafts  the 
stamped  disclaimer  of  liability.  {Inquiry 
from  Miss.,  June,  1916.) 

Note:  In  Citizens  Bank  v.  Harpeth  Nat. 
Bank,  82  So.  (Miss.)  329,  decided  July,  1919, 
the  supreme  court  of  Mississippi  adheres  to 
the  decision  in  the  earlier  Searles  case. 

766.  A  bank  inquires  whether  a  bank 
purchasing  a  draft  with  bill  of  lading  at- 
tached is  responsible  to  the  payor  of  the 
draft  for  the  quality,  quantity  or  condition 
of  the  goods.  Opinion:  The  courts  are 
almost  unanimous  that  the  bank  is  not 
responsible  in  such  cases.  A  contrary  rule 
was  formerly  held  in  the  states  of  Texas, 
North  Carolina,  Alabama  and  Mississippi, 
that  the  bank  purchasing  the  draft  war- 
ranted the  goods  to  the  buyer,  but  this  doc- 
trine has  been  repudiated  in  the  three 
states  first  named  and  the  only  state 
wherein  the  warrantor  doctrine  still  pre- 
vails, as  far  as  discoverable,  is  Mississippi. 
{Inquiry  from  Minn.,  Oct.,  1918.) 


Distinction    between   negotiation    of   hill    of 

lading  and  collection  of  debt  secured 

thereby 

767.  Under  Sections  37  and  39  of  the 
Pomerene  bill  (embodying  the  main  features 
of  the  Uniform  Bills  of  Lading  Act),  which 
has  passed  the  United  States  Senate  and 
is  pending  in  the  House, 

1.  Where  a  bank  purchases  a  draft  with 
an  order  bill  of  lading  attached  and  assigns 
the  draft  with  indorsement  to  another  bank 
for  value,  the  bank  guarantees  the  genuine- 
ness of  the  bill  to  the  purchaser  although  it 
does  not  indorse  the  bill,  but 

2.  Where  a  bank  forwards  the  draft  with 
the  attached  bill  of  lading  for  collection  from 
the  drawee,  the  bank  does  not  warrant  the 
genuineness  of  the  bill  of  lading  to  the  payor. 
The  act  makes  a  distinction  between  the 
negotiation  of  a  bill  of  lading  by  indorse- 
ment or  delivery,  and  the  collecting  of  a 
debt  for  which  the  bill  of  lading  is  security. 
{Inquiry  from  N.  Y.,  Nov.,  1913,  Jl.) 

Note:  The  above  bill  became  a  law 
August  29,  1916,  and  took  effect  Jan- 
uary 1,  1917.  In  the  law  as  passed  the 
sections  above  referred  to  are  numbered  34 
and  36  respectively. 

Bank    negotiating    h/l    for    value    warrants 
genuineness   unless   liability  disclaimed 

768.  A  bank  inquires  respecting  utility 
of  stamps  placed  upon  drafts  and  bills  of 
lading  disclaiming  responsibility  for  lack  of 
genuineness  or  for  defect  of  title,  quantity, 
quahty  or  condition  of  the  goods,  etc. 
Opinion:  In  the  ordinary  case  of  purchase 
of  a  draft  secured  by  a  bill  of  lading  which  is 
forwarded  for  collection,  there  would  be  no 
particular  utility  in  placing  such  stamp  on 
bill  of  lading  documents,  for,  although  the 
bank  collected  the  draft  from  the  drawee 
and  it  later  turned  out  that  the  bill  of  lading 
was  forged  or  that  the  property  was  defect- 
ive or  there  was  lack  of  title,  the  bank  would 
not  be  responsible  therefor  to  the  drawee 
who  paid  the  draft  except  possibly  in  the 
state  of  Mississippi  where  a  contrary  doc- 
trine still  holds.  But  should  a  case  arise, 
where  a  bank  secured  by  a  bill  of  lading, 
should  indorse  it  over  to  another  purchaser 
for  value,  as  distinguished  from  collecting 
payment  from  the  drawee,  the  Uniform  Bills 
of  Lading  Act  provides  in  such  case  a  war- 
ranty by  the  assignor  of  genuineness,  title, 
condition,  etc.,  and  if  it  is  desired  not  to 
assume  this  warrantor  liability,  the  stamp 
referred  to  would  have  utility  in  such  case. 
{Inquiry  from  Pa.,  July,  WIS.) 


167 


769-773] 


DIGEST  OF  LEGAL  OPINIONS 


Effect  of  disclaimer 

769.  A  purchasing  bank  placed  a  rubber 
stamp  indorsement  on  a  draft  with  a  bill  of 
lading  attached,  whereby  it  disclaimed 
liability  as  warrantor  of  the  quantity, 
quality,  and  delivery  of  the  goods  affected. 
The  bank  questions  the  effect  of  such  dis- 
claimer. Opinion:  No  decision  by  a  court 
of  last  resort  has  been  rendered  testing  the 
effect  of  such  disclaimer.  It  is  almost  the 
universal  rule  that  the  bank  does  not  incur 
this  warrantor  liabiUty  and  it  would  prob- 
ably be  held  that  the  written  disclaimer 
would  be  surplusage  and  would  not  give  a 
bank  any  more  protection  than  it  already 
had.  Leonhardt  v.  Small,  117  Tenn.  153. 
{Inquiry  from  Ga.,  Oct.,  1908,  Jl.) 

Disclaimer  of  warrantor  liability  for  b/l  se- 
curity unnecessary  except  in  Mississippi 

770.  A  bank  received  payment  of  a 
draft  with  bill  of  lading  attached  for  con- 
signment of  goods,  in  payment  of  purchase 
price.  It  later  develops  that  the  goods  were 
not  according  to  contract  and  the  question 
is  raised  as  to  whether  the  receiving  bank  is 
liable  as  an  agent  of  the  seller  guaranteeing 
performance  of  the  contract,  unless  it  dis- 
claims such  warrantor  liability  by  indorse- 
ment on  the  bill  of  lading.  Opinion:  The 
almost  universal  judicial  rule  in  this  country, 
now  enacted  in  statutory  form  as  to  inter- 
state bills  by  Section  36  of  the  Federal  Bill 
of  Lading  Act  is  that  a  bank  which  purchases 
a  draft  with  bill  of  lading  attached  is  not  re- 
sponsible to  the  drawee  who  pays  the  draft 
for  the  genuineness  of  the  bill  or  the  quan- 
tity or  quaUty  of  the  goods  therein  described. 
There  is  no  necessity  of  stamping  on  the 
draft  an  express  disclaimer  of  such  warrantor 
liability  except  possibly  in  the  case  of  intra- 
state bills  of  lading  in  Mississippi.  Blaisdell 
Co.  V.  Citizens  Nat.  Bk.,  96  Tex.  626. 
Mason  v.  Nelson  Cotton  Co.,  148  N.  C.  492. 
Cosmos  Cotton  Co.  v.  First  Nat.  Bk.,  54 
So.  (Ala.)  621.  Tolerton-Stetson  Co.  v. 
Anglo-California  Bk.,  112  la.  706.  Hall  v. 
Keller,  64  Kans.  211.  German  American 
Bk.  V.  Craig,  70  Neb.  41.  Leonhardt  v. 
Small,  117  Tenn.  153.  Goetz  v.  Bk.,  119 
U.  S.  551.  Federal  Bill  of  Lading  Act, 
Sec.  36.  (Inquiry  from  Colo.,  Nov.,  1918, 
Jl.) 

Disclaimer  indorsed  on  draft  does  not  weaken 
hank's  special  title 

111.  A  bank  indorses  a  draft  with  a  bill 
of  lading  attached,  using  its  rubber  stamp 
as   follows:    "By   indorsing   this   draft    or 


receiving  a  payment  thereon  we  do  not 
warrant  the  genuineness  of  the  bill  of  lading 
attached,  nor  the  quantity  or  quality  of  the 
goods  therein. 

Bank 

Michigan." 

The  bank  asks  whether  this  disclaimer  of 
warrantor  liability  invalidates  its  title  to  the 
goods  covered  by  the  bill  of  lading.  Opin- 
ion: Bank  which  purchases  and  collects 
draft  to  which  bill  of  lading  is  attached  as 
security  holds  a  special  title  to  the  goods  as 
pledgee  which  is  divested  upon  payment  of 
the  draft,  but  does  not  warrant  the  quantity 
or  quahty  of  the  goods  therein  described. 
A  disclaimer  of  such  warrantor  liability, 
stamped  upon  a  bill  of  lading  draft  is  un- 
necessary, except  probably  in  case  of  drafts 
drawn  on  Mississippi,  where  the  warrantor 
doctrine  still  prevails;  but  if  such  disclaimer 
stamp  is  indorsed  upon  the  draft,  opinion 
expressed  that  it  would  not  weaken  the 
bank's  special  title  in  the  security.  Cosmos 
Cotton  Co.  V.  First  Nat.  Bk.  54  So.  (Ala.) 
621.    {Inquiry  from  Mich.,  April,  1918,  Jl.) 

Disclaimer  where  necessary  should  he  placed 
on  draft  rather  than  on  h/l 

772.  It  is  almost  universally  held  that  a 
bank  which  purchases  a  draft  with  a  bill  of 
lading  attached  does  not  warrant  to  the 
drawee  who  pays  the  draft  the  quantity  and 
quality  of  the  goods.  An  express  disclaimer 
by  the  bank  of  such  liability,  where  it  is 
thought  necessary  to  guard  against  a  possi- 
ble liability,  should  be  placed  on  the  draft 
rather  than  on  the  bill  of  lading  and  such 
stipulation  would  probably  be  binding  on 
the  drawee.  {Inquiry  from  Ohio,  Nov., 
1910,  Jl.) 

Rights    of   banks    as    purchasers 

Rights  of  hank  discounting  order  h/l 

773.  Information  is  sought  concerning 
the  method  of  handling  negotiable  bills  of 
lading;  also  as  to  Hability  of  banks  in  con- 
nection with  such  transactions.  Opinion: 
The  shipper  who  delivers  goods  to  the  rail- 
road and  obtains  a  negotiable  bill  of  lading 
therefor  frequently  attaches  thereto  a 
draft  on  the  purchaser  for  the  price  and 
discounts  the  same  with  his  local  bank. 
Since  the  enactment  of  the  Pomerene  bill 
of  lading  act,  the  railroad  is  liable  on  such 
bill  of  lading  even  though  the  agent  issued 
same  without  receipt  of  goods.  The  bank 
would,  therefore,  be  protected  in  security 
although  the  bill  was  issued  by  an  agent  as 


168 


BILLS  OF  LADING 


[774-775 


accommodation  to  the  shipper  without  goods 
or  fraudulently  in  collusion  with  the  shipper. 
It  was  held  at  one  time  in  a  few  states  that 
a  bank  discounting  a  bill  of  lading  draft  and 
collecting  the  same  from  the  drawee  was 
responsible  to  the  latter  in  case  the  goods 
w«ere  not  up  to  contract,  but  at  the  present 
titne  this  doctrine  has  been  repudiated  and 
there  is  no  such  responsibility  except  that 
the  courts  of  Mississippi  still  uphold  such 
doctrine.  Furthermore,  a  bank  discounting 
a  draft  with  negotiable  bill  of  lading  draft 
attached  has  a  superior  right  to  the  goods 
or  to  the  proceeds  of  the  draft  in  the  hands 
of  a  collecting  bank  over  an  attaching  cred- 
itor of  the  shipper.  This  has  been  held  in 
numerous  cases.  If,  however,  the  first 
bank  does  not  discount  the  draft  but  simply 
takes  it  for  collection  as  agent  of  the  shipper 
or  drawer,  this  result  would  not  follow.  {In- 
quiry from  Mont,  Sept.,  1917.) 

Where  order  h/l  is  consigned  to  broker  and 
order  on  broker  is  attached  to  draft 

774.     In    the    sliipment    of   hma   beans 
from  Cahfornia  to  Eastern  points  cases  arise 
where  one  carload  contains  shipments  to 
several  purchasers.    In  such  cases  b/1  for  the 
entire  car  is  forwarded  by  the  shipper  to  his 
broker  in  the  Eastern  city  and  the  shipper 
deposits  his  draft  on  the  purchaser  attaching 
to  the  draft  an  order  on  the  broker  for  the 
beans.    A  bank  which  has  in  the  past  dis- 
counted shipper's  drafts  v/ith  b/1  attached 
is  now  asked  to  discount  shipper's  drafts 
with    such    order    attached    and    asks    (1) 
whether  a  national  bank  is  permitted  to 
discount  such  drafts  with  orders  attached 
and  if  so  (2)  whether  such  orders  give  the 
bank  sufficient  control  over  the  shipment. 
Opinion:     (1)  It  is  within  the  power  of  a 
national  bank  to  discount  such  drafts  with 
orders  attached  without  reference  to  the 
statutory  limit  of  loans  to  a  single  borrower. 
The  ten  per  cent,  limit  does  not  apply  to  the 
discount  of  bills  of  exchange  drawn  in  good 
faith  against  actually  existing  values  and 
such  drafts  would  be  drawn  against  actually 
existing  values  although  the  bill  of  lading 
representing   the   goods   was   not   actually 
attached  to  the  draft  and  transferred  to  the 
bank  at  the  time  of  discount.    But  (2)  where 
the  bill  of  lading  does  not  accompany  the 
draft  but  only  an  order  for  the  goods  ad- 
dressed to  a  broker  to  whom  they  have  been 
shipped  the  bank  would  not  have  sufficient 
security  in  financing  such  transactions  un- 
less the  responsibility  of  the  shipper  was 
ample.    The  order  on  the  broker  does  not 


amount  to  anything  as  security.  Where  an 
order  bill  of  lading  is  attached  to  a  draft 
the  pledgee  bank,  in  case  of  non-payment, 
has  recourse  both  against  the  drawer  and 
against  the  shipment  which  it  controls  by 
means  of  the  bill  of  lading,  but  where  only 
an  order  on  the  broker  is  attached,  the  sole 
recourse  of  the  bank  is  upon  the  drawer  of 
the  draft,  in  event  of  its  non-payment,  for 
the  broker  might  wrongfully  dispose  of  the 
goods  and  they  would  be  beyond  the  control 
of  the  bank.  Unless,  therefore,  the  shipper 
is  of  undoubted  financial  responsibihty,  it 
would  be  inadvisable  to  discount  such  drafts 
upon  mere  attached  orders  upon  the  broker 
to  whom  the  goods  have  been  shipped.  {In- 
quiry from  Cat.,  July,  1914-) 

Conflicting  claim  of  title  between  bank  holding 

bill  of  sale  and  copy  of  bjl  and  consignee 

claiming  under  prior  bill  of  sale 

775.     A  party  shipped  a  car  load  of  lum- 
ber to  a  firm  in  Louisville,  Ky.,  and  a  bill  of 
sale  was  given  to  the  bank  by  the  shipper, 
to  which  was  attached  a  copy  of  a  straight 
bill  of  lading  in  which  said  firm  was  named 
as  consignee.     Upon  these  documents  the 
bank  advanced  value  to  the  shipper.    The 
lumber  was  accepted  upon  arrival,  but  no 
remittance  was  made,   a  claim  being  ad- 
vanced that  the  title  to  the  lumber  had  been 
already  transferred  by  bill  of  sale  to  the  con- 
signee.   (1)  Did  the  bill  of  sale  by  the  shipper 
to  the  bank  and  attached  copy  of  bill  of 
lading  transfer  title  to  the  bank?     (2)  Can 
the  shipper  be  held  criminally  hable  for 
obtaining    money    under    false    pretenses? 
Opinion:    (1)     The  goods  being  deliverable 
to  the  consignee,  the  bill  of  lading  would 
evidence  a  transfer  of  title  to  such  consignee. 
Therefore,  the  bill  of  sale  and  attached  copy 
of  the  bill  of  lading  would  not  transfer  any 
title  to  goods  already  sold  and  transferred 
to  the  consignee.     The  bank  should  have 
taken  for  its  own  protection  a  bill  of  lading 
to  shipper's  order  with  the  firm  in  Louisville 
as  notify  party,  indorsed  in  blank  by  the 
shipper,  attached  to  his  draft  for  the  price 
and  transferred  to  the  bank,  in  which  case 
the  railroad   could   not  deliver  the   goods 
without    surrendering    and    the    Louisville 
firm  would  have  to  pay  the  draft  in  order  to 
get  the  b/1  and  o])tain  the  goods.    But  even 
then,  if  there  had  been  a  prior  valid  transfer 
of  title  to  the  goods  by  bill  of  sale  to  the 
consignee,  the  lattcr's  title  might  be  held 
superior  to  that  of  the  bank,  because  if  at 
the   time   of  dehvering  the  goods  to  the 
railroad  and  receiving  the  bilf  of  lading  the 


169 


776-779] 


DIGEST  OF  LEGAL  OPINIONS 


shipper  had  no  title,  the  bank  would  acquire 

no  greater  rights  even  under  an  order  b/1. 
(2.)  If  the  shipper  obtained  the  bank's 
money,  upon  false  representation  of  title, 
he  might  be  held  hable  criminally.  {In- 
quiry from  Ind.,  Oct.  1915.) 

Consignor  cannot  change  routing 

lid.  The  consignor  of  goods  having 
transferred  an  order  bill  of  lading  as  security 
to  a  bank,  has  no  right  without  the  bank's 
consent  to  have  the  shipment  diverted  en 
route,  and  if  the  railroad  obeys  his  instruc- 
tions it  would  be  liable  in  damages  to  the 
bank.  In  the  case  of  a  shipment  from 
California  to  New  York,  if  the  bank  sued 
the  railroad  for  damages  in  converting  and 
injuring  the  property,  the  law  of  the  state 
where  the  injury  occurred  would  govern; 
but  if  the  bank  sued  the  railroad  for  breach 
of  contract,  the  law  of  the  state  where  the 
contract  was  made  would  govern.  Ryan  v. 
Great  Northern  Ry.  Co.,  90  Minn.  12. 
Baily  v.  Hudson  River  R.  R.  Co.,  49  N.  Y. 
70.  Sheldon  v.  N.  Y.  Cent.  &  H.  R.  R.  R. 
Co.,  61  Mis.  (N.  Y.)  274.  {Inquiry  from 
N.  F.,  Dec,  1910,  Jl.) 

Estoppel  of  carrier  to  claim  lien  for  freight 

against  bona  fide  holder  where  h/l  recites 

^'freight  prepaid." 

111.  A  draft  with  a  b/1  attached  was 
negotiated  by  the  maker  through  the  inquir- 
ing bank,  the  b/1  containing  a  statement 
that  freight  charges  were  prepaid.  While 
goods  were  in  transit  the  maker  failed.  The 
railroad  company  over  which  goods  were 
shipped  extended  credit  to  the  maker  on  a 
weekly  basis.  In  order  to  facilitate  matters 
the  bank  paid  the  freight  charges  upon  the 
company's  refusal  to  deliver  goods  without 
payment  thereof,  the  goods  being  of  a 
perishable  nature.  The  inquiry  is  whether 
the  company  is  liable  to  the  bank  for  the 
freight  charges.  Opinion:  (1.)  The  car- 
rier's right  to  a  lien  on  the  goods  may  be 
waived  by  giving  credit.  Pinney  v.  Wells, 
10  Conn.  104.  Chandler  v.  Belden,  18 
Johns.  (N.  Y.)  525.  Sicard  v.  Buffalo,  etc., 
R.  Co.,  15  Blatch  (U.  S.)  525.  See  also 
Cent,  of  Ga.  Ry.  Co.  v.  Southern  Ferro 
Concrete  (Ala.  1915)  68  So.  981.  Sears  v. 
Wills,  4  Allen  (Mass.)  212.  (2.)  In  this 
case  the  carrier  did  give  credit  and  waived 
the  lien.  (3.)  Although  the  waiver  of  the 
lien  on  the  goods  would  not  deprive  the 
carrier  of  his  right  to  collect  the  freight 
charges  from  the  person  lawfully  hable 
therefor,   still  the  bank  having  advanced 


value  on  the  bill  of  lading  on  faith  of  the 
statement  therein  contained  that  the  charges 
were  "prepaid",  it  might  fairly  be  main- 
tained that  the  carrier  was  estopped  to  deny 
the  truth  of  such  statement  as  against  a 
bona  fide  purchaser  who  had  paid  value  on 
faith  thereof.  There  seems  to  be  no  prece- 
dent upon  a  precisely  similar  state  of 
facts,  but  it  seems  that  the  bank  having 
paid  the  freight  charges  under  protest, 
might  hold  the  railroad  liable  therefor. 
{Inquiry  from  Ohio,  Sept.,  1916.) 

Conversion  of  lost  order  h/l  hy  consignee 

778.  A  bank  messenger  lost  a  bill  of 
lading  covering  a  car  load  of  produce,  which 
b/1  found  its  way  into  the  hands  of  a  produce 
firm,  the  consignees.  It  was  to  shipper's 
order.  The  firm  presented  it  to  the  railroad 
company  and  obtained  the  produce  without 
making  payment.  A  bank  which  acquired 
the  b/1  for  value  asks  as  to  the  hability  of 
the  firm.  Opinion:  The  firm  in  question  is 
undoubtedly  civilly  hable  for  the  value  of 
the  bill  of  lading,  having  appropriated  the 
same  to  its  own  use  without  paying  the 
draft.  Whether  it  can  be  held  criminally 
hable  under  the  Illinois  statutes  depends 
upon  the  facts.  If  it  could  be  proved  that 
it  stole  the  bill  of  lading  from  the  messenger 
or  obtained  it  from  him  by  false  pretense, 
the  bill  of  lading  being  property,  it  seems  the 
offender  would  be  amenable  to  the  criminal 
statutes.  If,  however,  the  messenger  lost 
the  bill  of  lading  in  the  street  and  somebody 
picked  it  up  and  handed  it  to  the  firm,  think- 
ing it  belonged  to  such  firm,  there  probably 
would  be  no  criminal  hability.  {Inquiry 
from  III,  Dec,  1911.) 

Acceptor's  liability  on  b/l  draft 

779.  The  drawee  of  a  draft  which  had 
been  discounted  by  a  bank  with  an  attached 
bill  of  lading  representing  cotton  accepted 
the  draft  before  checking  the  invoice.  Before 
the  expiration  of  the  three  days  of  grace,  the 
drawee  discovered  an  error  in  the  invoice 
and  refused  payment  of  the  draft  at  ma- 
turity, whereupon  the  instrument  was 
protested.  Opinion:  Under  the  Missis- 
sippi law  (the  Anti-Conmaercial  statute)  the 
acceptor  of  the  draft  is  not  hable  to  a  bona 
fide  holder  where  it  has  a  good  defense 
against  the  drawer.  Miller  v.  Bk.,  76  Miss.  .. 
84.     {Inquiry  from  Miss.,  April,  1912,  Jl.)      || 

Note:  Under  the  Negotiable  Instruments 
Act,  which  became  a  law  in  Mississippi  in 
1916,  the  acceptor  would  be  Uable. 


170 


BILLS  OF  LADING 


[780-784 


Non-negotiable    b/1    drafts    and    rights 
thereunder 

Recovery  by  drawee  of  money  paid  on  non- 
negotiable  b/l  draft 

780.  A  draft  was  drawn  payable  "on 
arrival"  and  provided  that  the  "paid  freight 
bill  will  be  accepted  as  part  payment."  The 
drawer  cashed  the  draft  with  the  bill  of 
lading  attached  at  the  bank,  which  for- 
warded the  instrument  for  collection.  The 
drawee  paid  the  draft  upon  surrender  of  the 
bill  of  lading,  but  afterwards  repudiated  the 
transaction  and  recovered  the  money  from 
the  collecting  bank,  claiming  that  the  goods 
were  bought  on  sample  from  the  drawer  and 
were  not  as  represented.  Opinion:  The 
draft  not  being  an  unconditional  order  to 
pay  money  was  not  negotiable  and  the  bank 
which  purchased  the  draft  was  Hable  to  re- 
fund where  it  was  shown  that  there  was 
failure  of  consideration  for  the  draft.  De- 
troit First  Nat.  Bk.  v.  Burkham,  32  Mich. 
328.  Tolertonv.Bk.  112  Iowa  706.  Burton 
St.  Bk.  v.  Pease-Moore  M.  Co.,  163  Mo. 
App.  135.  Cosmos  Cotton  Co.  v.  First 
Nat.  Bk.,  54  So.  (Ala.)  621.  (Inquiry  from 
Mich.,  Feb.,  1912,  Jl.) 

B/L  draft  payable  "on  arrival  of  goods''  not 
protestable 

781.  A  bank  holds  a  bill  of  lading  draft 
sent  as  a  protest  item  which  reads,  "On 
arrival  of  goods  pay  to  the  order  of",  etc. 
Is  draft  protestable  at  time  presented  or 
after  arrival  of  goods?  Opinion:  A  draft 
payable  "on  arrival  of  goods"  is  not  strictly 
speaking  a  negotiable  instrument  as  its 
payment  depends  upon  a  condition  which 
may  never  be  fulfilled.  The  law  merchant 
authorizes  a  protest  and  notice  only  in  cases 
of  negotiable  instruments,  and  the  protest  of 
a  non-negotiable  bill  would  be  of  no  avail, 
nor  be  evidence  of  any  fact  therein  stated, 
unless  some  statute  expressly  provided  for 
the  protest  of  non-negotiable  bills  of  ex- 
change. The  sections  of  the  Negotiable 
Instruments  Act  providing  for  protest  only 
apply  to  negotiable  instruments.  A  draft, 
therefore,  payable  on  arrival  of  goods,  would 
not  in  strict  law  be  protestable  upon  refusal 
of  pajonent  when  presented  at  or  after 
arrival.     (Inquiry  from  Ark.,  Oct.,  1915.) 

Purchaser  holds  subject  to  defense  of  party 
liable 

782.  A  bank  cashed  two  drafts  drawn 
on  an  Illinois  company,  paj'able  to  H.  H. 
Bailey,  who  was  employed  by  the  company 


in  purchasing  logs.  The  cashed  drafts  being 
payable  "when  attached  to  bill  of  lading." 
The  bill  of  lading  was  not  attached.  The 
Ilhnois  company,  purchaser  of  logs,  had 
withheld  the  amount  for  charges  of  loading 
the  logs  on  the  cars.  Bailey  caused  the  bank 
to  believe  that  he  would  load  the  logs  and 
produce  the  bill  of  lading,  and  the  bank  was 
to  mail  same  and  collect  amount  of  drafts. 
Opinion:  The  drafts  were  non-negotiable, 
being  payable  "when  attached  to  bill  of 
lading."  If  Bailey  loaded  the  logs  and  the 
company  owed  him  this  amount,  the  selling 
of  the  drafts  to  the  bank  would  operate  as  an 
equitable  assignment  to  the  bank  of  his 
claim  against  the  company.  But  if  the 
company  had  paid  Bailey  or  anyone  else  for 
loading,  it  would  seem  that  the  bank  has  no 
claim  against  the  company  as  the  drafts  the 
bank  acquired  from  Bailey  for  the  cost  of 
loading  were  non-negotiable  and  only  pay- 
able when  attached  to  the  bill  of  lading 
which  was  not  attached.  (Inquiry  from  Mo. 
March,  1918.) 

Straight  bills  of  lading 

Straight  b/l  insufficient  as  collateral  security 

783.  Question  is  asked  whether  a  rail- 
road company  would  be  hable  for  reshipping 
and  dehvering  a  car  of  goods  to  parties 
other  than  consignees,  without  authority 
from  bank  holding  original  bill  of  lading. 
Opinion:  It  seems  the  draft  upon  which  the 
bank  made  advances  had  attached  a  straight 
and  not  an  order  bill  of  lading.  If  the  bill  of 
lading  had  been  an  order  bill,  the  railroad 
would  be  hable  to  the  bank  as  the  holder  for 
wrongful  delivery  of  the  goods.  But  a 
straight  biU  of  lading  affords  a  bank  no 
protection.  Prima  facie,  the  consignee  is  the 
owner  of  the  goods  in  transit  and  the  carrier 
is  bound  to  treat  the  consignee  as  owner  and 
take  orders  from  him  until  it  is  advised  that 
a  different  relation  exists.  (Inquiry  from 
N.  C,  July,  1915.) 

Foreign   shipments   under   straight   b/l   con- 
taining   requirement    that    bill    be 
surrendered  by  consignee  before 
delivery  of  goods 

784.  It  seems  shipping  orders  of  the 
British  Government  authorize  the  seizure 
of  neutral  merchant  vessels  and  the  taking 
of  conditional  contraband  if  consigned 
"to  order"  in  a  neutral  port.  The  use  of  an 
order  bill  not  being  practicable,  a  bank 
inquires  how  shipments  to  Norway,  Den- 
mark and  Sweden  can  be  made  so  as  to 
insure  payment  by  the  consigneee  before 


171 


785-787] 


DIGEST  OF  LEGAL  OPINIONS 


delivery  of  the  goods.  Opinion:  Under 
such  circumstances  perhaps  it  could  be 
arranged  with  the  carrier  that  they  imprint 
upon  the  straight  bill  of  lading  a  clause  or 
contract  with  the  shipper  that  the  goods 
represented  thereby  are  dehverable  to  the 
consignee  only  upon  his  production  and 
surrender  of  the  bill  of  lading.  The  situation 
is  a  pecuUar  one,  but  it  seems  that,  while, 


under  the  law,  the  carrier  is  bound  to  deliver 
the  goods  to  the  consignee  of  a  straight  bill 
of  lading  upon  his  demand,  such  require- 
ment of  law  might  be  supplemented  by  an 
additional  contract  under  which  the  con- 
signee would  not  be  entitled  to  obtain  the 
goods  except  upon  production  and  surrender 
of  the  bill  of  lading.  {Inquiry  jrom  N.  F., 
1917.) 


CERTIFICATE  OF  DEPOSIT 


Form  and  interpretation 

Demand  and  time  certificates  distinguished 

785.  The  provision  printed  on  the  back 
of  a  certificate  of  deposit  payable  on  return 
that  "this  certificate  is  payable  twelve 
months  after  date"  is  part  of  the  terms  of  the 
contract  on  the  face  so  that  the  instrument 
is  not  a  demand  but  a  time  certificate  of  de- 
posit. Warrington  v.  Early,  2  El.  &  Bl.  763 
(1850).  Benedict  v.  Cowden,  49  N.  Y.  396. 
Springfield  Bk.  v.  Merrick,  14  Mass.  322. 
CooHdge  V.  Ingler,  13  Mass.  26.  Heywood 
V.  Perrin,  10  Pick.  (Mass.)  228.  Franklin 
Sav.  Inst.  V.  Reed,  125  Mass.  365.  .  Effin- 
ger  V.  Richards,  35  Miss.  540.  Daniel  on 
Neg.  Inst.  (6th  Ed.)  Vol.  1,  p.  203.  Farm- 
ers Bk.  V.  Ewing,  78  Ky.  264.  Van  Zandt 
V.  Hopkins,  151  111.  248.  {Inquiry  jrom 
Colo.,  May,  1915,  Jl.) 

C/D  payable  6  or  12  months  after  date  "with 

3%  int.  if  left  6  and  4%  if  left  12  mos." 

is  time  and  not  demand  certificate 

786.  A  bank  submits  a  sample  certificate 
of  deposit,  the  same  being  payable:  "On 
return  of  this  certificate  properly  indorsed 
6  or  12  months  after  date,  with  interest  at 
the  rate  of  3  per  cent,  per  annum,  if  left  six 
months,  or  4  per  cent,  per  annum  if  left 
twelve  months.  No  interest  after  maturi- 
ty". The  contention  of  the  National  Bank 
Examiner  is  that  the  phrase  "if  left  six 
months",  makes  it  a  demand  certificate; 
that  it  implies  that  the  holder  may  demand 
pajonent  at  any  time  after  date,  but  if  he 
chooses  to  leave  the  money  on  deposit  for  six 
months  it  will  bear  three  per  cent,  interest. 
The  bank  states  that  it  has  been  treating  these 
certificates  as  time  deposits  up  to  within 
thirty  days  of  their  maturity,  and  asks 
whether  such  course  was  proper.  Opinion: 
It  does  not  seem  that  this  form  of  certificate 
has  been  interpreted  by  any  court,  but  it  is 
reasonable  to  construe  it  as  a  time  certificate 
and  not  payable  on  demand  of  the  holder 
before  the  expiration  of  six  months.     The 


promise  is  not  to  pay  on  demand,  but  to  pay 
6  months  after  date  or  12  months  after  date 
and  it  seems  reasonable  to  suppose  that  a 
court  would  construe  it  as  a  time  certificate 
and  that  the  three  per  cent,  clause  is  simply 
intended  to  differentiate  the  rate  of  interest 
which  it  bears  for  six  months  from  the  rate 
of  four  per  cent,  which  it  would  bear  if  not 
demanded  until  twelve  months  after  date. 
At  the  same  time  there  is  some  merit  in  the 
criticism  of  the  Bank  Examiner,  and  in 
order  to  obviate  this  it  might  be  drawn  pay- 
able on  return  "twelve  months  after  date" 
with  interest  at  4%,  and  contain  the  clause 
"payable  in  six  months  if  desired  with 
interest  at  3%."  In  Citizens  Bank  of  Los 
Angeles  v.  Jones,  53  Pac.  (Gal.)  354  a 
certificate  so  phrased  was  held  a  negotiable 
instrument  which  matured  at  the  end  of  a 
year,  with  an  option  to  the  payee  to  present 
in  six  months  at  his  election  and  the  indorser 
is  not  discharged  because  not  presented  for 
payment  by  his  indorsee  at  the  end  of  six 
months.    {Inquiry  from  Wash.,  Jan.,  1920.) 

Certificate  of  deposit  with  foreign  correspond- 
ent payable  by  check  on  correspondent 

787.  The  customers  of  a  bank  having 
branches  and  agencies  in  Central  and  South 
America  frequently  request  it  to  open  inter- 
est bearing  accounts  with  its  foreign  corre- 
spondents. These  accounts  are  regarded  as 
time  deposits  and  are,  therefore,  not  subject 
to  sight  drafts  as  a  rule.  For  this  reason  it  is 
not  convenient  for  banks  in  America  to 
negotiate  drafts  drawn  against  time  deposits 
or  savings  accounts  in  South  America  and 
as  a  consequence  the  rate  of  exchange  cannot 
be  fixed  until  notice  is  received  that  the 
funds  have  actually  been  collected.  The 
depositor,  on  the  other  hand,  desires  to 
withdraw  his  funds  to  take  advantage  of  a 
favorable  rate  of  exchange,  and  does  not 
wish  to  be  subject  to  a  fluctuating  exchange 
until  the  transaction  is  finally  consummated. 
Would  the  following  form  of  foreign  certifi- 
cate of  deposit,  which  would  seem  to  render 


172 


CERTIFICATE  OF  DEPOSIT 


[788-791 


possible  the  withdrawal  of  time  deposits 
without  inconvenience  to  the  beneficiary,  be 
proper?  Would  it  relieve  the  makers  from 
all  responsibility  after  the  foreign  account 
has  been  once  opened? 

"Foreign  Certificate 
of  Deposit  No. —      San  Francisco,  Cal. 

This  is  to  Certify,  that 

has  delivered  to  the  X  bank,  the  amount  of 

to  be  deposited  by  mail  in  a  special 

account  with  the  X  bank's  correspondent 

at payable  on  demand 

upon  proper  endorsement  of  this  Certificate 
by  the  X  bank's  check  against  said  deposit 
with  interest  at  the  rate  accorded  the  X 
bank,  by  said  correspondent  on  said  deposit. 
This  Certificate  is  issued  on  condition  that 
the  X  bank  assumes  no  responsibility  for 
deposits  made  at  the  request  of  clients  with 
its  correspondents  abroad,  that  such  de- 
posits are  held  solely  at  the  risk  and  peril 
of  the  chent,  and  the  form  of  withdrawal  of 
such  deposits  has  been  adopted  purely  for 
the  convenience  of  said  client  or  depositor. 
No  interest  will  be  allowed  on  deposits 
withdrawn  within  thirty  days."  Opinion: 
The  proposed  form  of  certificate  would 
reheve  the  maker  from  responsibility  to  the 
depositor  after  the  deposit  has  been  mailed 
to  the  foreign  correspondent.  But  when  the 
issuing  bank  comes  to  pay  the  certificate  by 
making  its  draft  on  the  foreign  correspond- 
ent against  the  deposit  and  the  draft  is  not 
paid  because  of  failure  or  insolvency  of  the 
correspondent  or  for  other  reason,  it  seems 
there  might  be  a  liability  of  the  bank  upon 
its  unpaid  draft,  assuming  it  was  in  nego- 
tiable form  and  the  payee  had  negotiated 
the  same.  If  there  is  any  weight  in  this  sug- 
gestion it  might  be  well  to  issue  such  checks 
"without  recourse  on  the  drawer"  or  con- 
taining some  other  form  of  words  that  would 
stipulate  against  hability.  The  Negotiable 
Instruments  Act  provides  that  the  drawer 
is  liable  in  the  event  of  dishonor  but  further 
provides: — "But  the  drawer  may  insert  in 
the  instrument  an  express  stipulation  nega- 
tiving or  limiting  his  own  lial)ility  to  the 
holder."    {Inquinj  from  Cal.,  Feb.,  1921 .) 

Negotiability 

Effect  of  words  "not  transferable^' 

788.  A  certificate  of  deposit  drawn 
payable  to  specified  payee  with  the  words 
"non-transferable"  written  on  or  across  the 
face  of  the  instrument  is  not  negotiable. 
Tanners  Nat.  Bk.  v.  Lacs.  136  App.  Div. 
(N.  Y.)  92.  Durr  v.  State,  59  Ala.  24. 
{inquiry  from  Cal.,  Dec,  1912,  Jl.) 


Effect    of    words    "non-negotiahle" 

789.  Do  words  "non-negotiable"  printed 
on  a  negotiable  certificate  of  deposit  make 
the  same  non-negotiable?  Opinion:  The 
words  "non-negotiable"  printed  on  the 
certificate  of  deposit  would  render  the  in- 
strument non-negotiable  but  it  would  still 
be  assignable.  See  Dollar  v.  International 
Banking  Corporation,  101  Pac.  (Cal.)  34 
where  the  words  "not  transferable"  appear- 
ing at  the  top  of  a  c/d  were  held  to  destroy 
the  negotiability  of  the  instrument  under 
the  law  merchant  but  not  to  restrict  the 
right  of  transfer.  (Inquiry  from  Ark.,  Aug., 
1916.) 

Advantages  and  disadvantages  of  non-negoti- 
able form 

790.  What  are  the  advantages  and  dis- 
advantages of  the  use  respectively  of  nego- 
tiable and  non-negotiable  certificates  of 
deposit?  Opinion:  Where  a  bank's  certifi- 
cate is  negotiable,  it  enables  the  depositor 
to  negotiate  it  before  maturity  when  he 
needs  money,  either  by  pledging  the  cer- 
tificate for  a  loan  or  selling  it  outright.  On 
the  other  hand,  if  a  negotiable  certificate  is 
lost,  the  depositor  is  put  to  the  disadvantage 
of  furnishing  indemnity,  for,  although  the 
depositor  may  assert  that  the  certificate 
was  un-indorsed  when  lost  the  bank  cannot 
take  the  risk  of  the  honesty  of  the  depositor 
or  safely  pay  without  indemnity.  Some  banks 
make  all  their  certificates  non-negotiable 
for  then,  upon  claim  of  loss,  they  can  safely 
pay  to  the  original  depositor  without  in- 
demnity. Being  non-negotiable,  no  trans- 
feree of  the  original  depositor  can  acquire 
greater  rights,  and  defense  of  payment  to 
the  original  depositor  would  be  a  good  de- 
fense against  an  assignee  who  had  not 
notified  the  bank  of  the  assignment  l)cfore 
payment  of  the  certificate.  Some  courts 
hold  that  a  bond  of  indemnity  need  not  be 
given  where  a  depositor  alleges  that  a  ne- 
gotaible  certificate  has  been  lost;  others  hold 
to  the  contrary,  and,  in  order  to  avoid  all 
disputes  as  to  the  giving  of  indemnity  some 
banks  think  it  better  to  issue  all  their  certifi- 
cates of  deposit  in  non-negotiable  form,  for 
then  they  can  be  safely  paid  without 
indemnity.  See  Zander  v.  N.  Y.  Securitv 
&  Trust  Co.,  178  N.  Y.  208,  70  N.  E.  449, 
102  Am.  St.  Rep.  492.  {Inquiry  from  La., 
Jan.,  1917.) 

C/D  payable  on  condition  not  negotiable 

791.  A  bank  upon  receiving  from  an 
attorney  $500,   delivered  its  certificate  of 


173 


792-794] 


DIGEST  OF  LEGAL  OPINIONS 


deposit  to  John  Doe  a  justice  of  the  peace. 
The  certificate  was  made  payable  to  John 
Doe  in  case  of  default  of  a  certain  bond  in 
the  case  of  People  vs.  Jones.  The  court 
records  showed  that  Jones  was  acquitted, 
and  as  there  was  no  default  on  the  bond,  the 
attorney  requested  return  of  the  certificate, 
which  was  refused.  Later,  however,  the 
bank,  returned  the  money  to  the  attorney 
without  the  surrender  of  the  certificate  on 
the  claim  that  the  court  would  not  surrender 
it  to  him.  Still  later,  the  certificate  indorsed 
by  John  Doe  in  blank  was  presented  to  the 
bank  in  the  regular  course  of  business  and 
payment  refused  because  of  no  evidence 
to  show  that  Jones  had  defaulted  on  his 
bond.  The  bank  is  threatened  with  suit. 
Opinion:  A  certificate  of  deposit  payable  on 
condition  is  not  negotiable,  and  where  the 
condition  does  not  eventuate,  the  issuing 
bank  may  safely  return  the  money  to  the  de- 
positor without  surrender  of  the  certificate. 
The  condition  not  being  performed,  neither 
the  payee  nor  an  assignee  acquires  any  en- 
forceable rights  therein.  Lemar,  etc.,  Co. 
V.  Bk.,  127  Ga.  448.  Baker  v.  Tillman,  84 
Ga.  40L  McGorray  v.  Stockton  Sav.,  etc., 
Soc.  131  Cal.  321.  (Inquiry  from  Mich., 
Oct.,  1917,  Jl.) 

Negotiability  of  c/d  payable  six  or  twelve 
months  after  date 

792.  Is  a  certificate  of  deposit,  drawn 
payable  six  or  twelve  months  after  date  and 
bearing  the  notice  on  its  face,  "This  is  a 
time  deposit  under  the  provisions  of  Section 
19  of  the  Federal  Reserve  Act.  Therefore, 
the  right  is  reserved  to  require  notice  of 
thirty  days  before  payment",  negotiable? 
Opinion:  It  has  never  been  specifically 
decided  that  a  certificate  "payable  six 
months  or  twelve  months  after  date"  is  ne- 
gotiable. The  Negotiable  Instruments  Act 
requires  that  to  be  negotiable  the  instrument 
must  be  payable  on  demand,  or  "at  a  fixed 
or  determinable  future  time"  and  provides 
that  the  instrmnent  is  payable  at  a  de- 
terminable future  time  when  payable  "at  a 
fixed  period  after  date  or  sight  or  on  or 
before  a  fixed  or  determinable  future  time 
specified  therein".  The  courts  might  con- 
strue the  words  "six  or  twelve  months  after 
date"  as  making  the  instrument  payable 
"on  or  before  a  fixed  or  determinable  future 
time  specified  therein".  The  only  trouble 
with  this  interpretation  would  be  that 
there  are  in  reality  two  fixed  future  times 
specified  in  the  instrument,  namely,  six 
months  and  twelve  months.    In  Leader  v. 


Plaute,  95  Me.  339,  50  Atl.  54,  85  Am.  St. 
Rep.  415,  the  promise  to  pay  was  "within 
one  year  after  date,"  and  the  court  held  that 
it  was  a  negotiable  promissory  note,  payable 
one  year  after  its  date,  with  an  option  in  the 
maker  to  pay  before  maturity.  Also  in 
Citizens  Bank  of  Los  Angeles  v.  Jones,  53 
Pac.  (Cal.)  354  a  c/d  payable  twelve  months 
after  date  containing  the  clause  "payable  in 
six  months  if  desired"  was  held  negotiable, 
maturing  in  a  year  with  an  option  to  the 
payee  to  present  at  the  end  of  six  months. 
Likewise  a  promise  to  pay  "six  or  twelve 
months  after  date",  might  be  construed  as 
a  promise  to  pay  twelve  months  after  date 
with  an  option  in  the  maker  (not  the  payee 
or  holder)  to  pay  at  six  months.  Until  this 
point  is  specifically  settled  by  decisions,  the 
question  of  negotiabihty  is  somewhat  doubt- 
ful. In  addition  there  is  the  provision  in  the 
certificate  reserving  the  right  to  require 
notice  of  thirty  days  before  payment.  This 
provision  of  itself  would  seem  to  make  the 
instrument  uncertain  as  to  lime  of  payment. 
(Inquiry  from  Wis.,  April,  1917.) 

Time  of  payment 

Withholding  payment  of  time  certificate 

793.  The  Iowa  statute  allows  savings 
banks  to  require  sixty  days'  notice  of 
withdrawal  of  a  savings  deposit  and  question 
is  raised  whether  a  bank  would  have  the 
right,  by  giving  public  notice,  to  withhold 
payment  of  time  certificates  of  deposit  sixty 
days  after  due  date.  Opinion:  A  bank 
must  pay  its  time  certificate  of  deposit  at 
maturity  according  to  its  terms,  in  the 
absence  of  a  contract  with  the  debtor  ex- 
pressed in  certificate  or  otherwise  binding, 
which  would  give  it  the  right  to  require 
notice  of  withdrawal  given  at  a  specified 
time  before  payment,  unless  there  is  some 
statutory  provision  which  gives  it  such  right. 
Iowa  statute  giving  savings  banks  right  to 
require  sixty  days'  notice  of  withdrawal  of 
savings  deposits  interpreted  not  to  apply  to 
time  certificates  of  deposit  having  fixed  and 
definite  time  of  maturity.  Code  of  Iowa, 
Sec.  1848,  1860.  (Inquiry  from  Iowa,  Aug., 
1917,  Jl.) 

Statute  of  limitations 

794.  A  national  bank  in  Nebraska  issued 
a  certificate  of  deposit  on  January  1,  1903, 
"payable  on  return  properly  indorsed  one 
year  from  date."  Eleven  years  have  elapsed 
and  said  certificate  has  not  been  presented 
for   payment.     Opinion:     The   weight   of 


174 


CERTIFICATE  OF  DEPOSIT 


[795-799 


authority  (a  few  cases  contrary)  is  to  the 
effect  that  a  certificate  "payable  on  re- 
turn properly  indorsed"  is  not  due  until  de- 
manded and  the  statute  of  limitation  begins 
to  run  only  from  the  time  of  demand.  Where 
the  certificate  is  "payable  on  return  properly 
indorsed  one  year  from  date"  some  courts 
apply  the  same  rule  that  the  statute  does  not 
begin  to  run  until  demand  of  payment  is 
made,  while  other  courts  hold  that  the 
statute  begins  to  run  at  the  time  when  the 
certificate  specifies  it  is  due  and  payable. 
Mitchell  V.  Wilkins,  33  N.  W.  (Minn.)  910. 
Tripp  V.  Curtenius,  36  Mich.  494.  Curran 
V.  Witter,  68  Wis.  616.  Lusk  v.  Stoughton 
St.  Bk.,  135  Wis.  311.  Elhott  v.  Capital 
City  St.  Bk.,  128  Iowa  275,  103  N.  W.  777. 
Citizens  Bk.  v.  Fromholz,  64  Neb.  284.  Bk. 
of  Conmaerce  v.  Harrison,  66  Pac.  (N.  Mex.) 
460.  In  re  Gardner's  Estate,  228  Pa.  282. 
Thompson  v.  Farmers  St.  Bk.,  140  N.  W. 
(Iowa)  877.  {Inquiry  from  Iowa  March, 
1914,  Jl') 

795.  A  Minnesota  bank  carries  on  its 
books  two  time  certificates  of  deposit  issued 
in  1907,  payable  in  six  months.  One  was 
issued  to  a  party  since  deceased  and  the 
other  to  a  stranger,  who  cannot  be  located. 
The  bank  seeks  to  dispose  of  the  certificates. 
Opinion:  In  Minnesota,  a  time  certificate  of 
deposit  is  outlawed  six  years  after  maturity, 
and  the  bank  may  credit  undivided  profits 
with  the  amount  of  an  unpaid  certificate.  In 
some  states  statutes  exist  requiring  un- 
claimed deposits  to  be  paid  over  to  the 
public  authorities.  Mitchell  v.  Wilkins,  33 
N.  W.  (Minn.)  910.  Mitchell  v.  Easton,  37 
Minn.  335.  Thompson  v.  Farmers  St.  Bk., 
140  N.  W.  (Iowa)  877.  Elhott  v.  Capital 
City  St.  Bk.,  103  N.  W.  (Iowa)  777,  128 
Iowa  311.  (Inquiry  from  Minn.,  May, 
1917,  Jl) 

796.  A  Missouri  bank  issued  a  certificate 
of  deposit  which  has  been  outstanding 
twelve  years.  Would  the  bank  have  the 
right,  either  under  the  Statute  of  Limita- 
tions or  otherwise  to  appropriate  the  amount 
and  credit  to  profit  and  loss?  Opinion: 
There  is  a  conflict  of  authority  whether  a 
time  certificate  of  deposit  is  due  at  the 
maturitj'^  date  of  the  certificate,  so  that  a 
cause  of  action  immediately  accrues  against 
the  bank  and  the  statute  begins  to  run  from 
such  maturity  date  or  whether  the  certifi- 
cate notwithstanding  the  maturity  date  is 
not  due  until  demanded  so  that  the  cause  of 
action  would  not  accrue  and  the  statute 
begin  to  run  until  demand  made.     This 


question  does  not  appear  to  have  been 
decided  one  way  or  the  other  in  Missouri. 
In  Iowa  it  was  held  in  the  case  of  Thompson 
V.  Farmers  State  Bank,  159  Iowa  662,  140 
N.  W.  877,  where  a  certificate  payable  on 
return  six  months  after  date  was  not  pre- 
sented until  thirteen  years  after  issue,  that 
it  was  outlawed  and  action  thereon  barred. 
If  this  rule  was  adopted  by  the  Missouri 
courts  then  the  bank  which  issued  the  cer- 
tificate in  question  could  appropriate  the 
amount  and  credit  it  to  profit  and  loss. 
{Inquiry  from  Mo.,  Dec,  1920.) 

Interpretation  of  maturity   clauses 

797.  A  bank  issued  a  certificate  of  de- 
posit payable  "on  the  return  of  this  certi- 
ficate properly  indorsed  12  months  after 
date  with  interest  at  the  rate  of  4  per  cent., 
if  left  12  months".  A  short  time  after  issue 
the  certificate  was  presented  and  payment 
refused  by  the  bank  which  claimed  that  it 
was  not  due  until  12  months  after  date  of 
issue.  Opinion:  The  clause  in  the  certifi- 
cate is  ambiguous.  It  provides  that  it  is 
payable  upon  "return  of  this  certificate 
properly  indorsed  12  months  after  date" 
which,  standing  alone,  would  make  it  a 
time  certificate  not  payable  before  12 
months;  but  it  couples  the  above  with  the 
further  phrase  "with  interest  at  the  rate  of 
4  per  cent.,  if  left  12  months."  This  phrase 
is  more  appropriate  in  a  demand  certificate. 
It  might  be  held  to  indicate  that  the  holder 
has  the  right  to  demand  payment  at  any 
time,  but  that  if  he  leaves  the  money  on 
deposit  for  12  months  he  is  then  entitled  to 
interest  at  4  per  cent,  for  the  year,  or  it 
might  be  construed  as  contemplating  pay- 
ment before  twelve  months  only  by  com- 
mon consent.  This  latter  interpretation 
would  be  consistent  with  the  clause  making 
it  payable  in  twelve  months  and,  if  so  con- 
strued, the  bank's  refusal  to  pay  before  that 
time  was  justified.  {Inquiry  from  Kan., 
Oct.,  1920.) 

798.  The  provision  in  a  certificate  of 
deposit  payable  on  return  properly  indorsed 
for  "interest  at  the  rate  of  4  per  cent,  per 
annum  if  left  twelve  months"  does  not 
prevent  earUer  presentment  if  the  holder 
chooses  to  waive  interest.  {Inquiry  from 
Mo.,  April,  1911,  Jl.) 

799.  Where  a  certificate  of  deposit  pro- 
vides that  the  money  has  been  deposited 
payable  in  one  year  from  date  at  4  per  cent, 
interest,  the  certificate  is  not  due  until  the 
expiration  of  twelve  months  from  date,  and 


175 


800-806] 


DIGEST  OF  LEGAL  OPINIONS 


the  holder  cannot  compel  payment  before 
maturity,  although  payment  of  interest  is 
waived.  {Inquiry  Jrom  Okla.,  June,  1911, 
Jl) 

800.  A  bank  issued  a  certificate  of 
deposit  payable  "on  the  return  of  this 
certificate  properly  indorsed  six  months 
after  date  with  interest  at  the  rate  of 
six  per  cent,  per  annum  for  the  time 
specified  only".  The  certificate  contained 
also  the  clause:  "The  right  to  demand  sixty 
days'  notice  of  payment  is  reserved".  Could 
the  certificate  he  held  to  be  payable  on  de- 
mand, or  is  the  time  of  payment  absolutely 
fixed  at  six  months  with  the  added  right  to 
the  bank  to  defer  payment  sixty  days  there- 
after if  it  choses?  Opinion:  The  certificate 
matures  at  the  end  of  six  months  after  date 
and  it  is  then  payable  upon  return  properly 
indorsed.  It  cannot  be  held  payable  on 
demand.  The  clause  reserving  the  right  to 
demand  sixty  days'  notice  of  payment 
would  more  properly  have  relation  to  a 
demand  certificate  and,  if  contained  in  a 
demand  certificate,  would  enable  the  bank, 
if  it  so  chose,  to  refuse  payment  on  demand 
and  require  sixty  days'  notice,  but  inserted 
in  a  certificate  such  as  this  which  is  payable 
six  months  after  date,  it  can  only  be  con- 
strued as  having  operation  at  or  after 
maturity  and  as  giving  the  right  to  the  bank 
to  postpone  payment  for  sixty  days  after 
maturity  by  giving  notice.  {Inquiry  Jrom 
Wis.,  Jan.,  1921.) 

Payable  "in  current  funds" 

801.  A  certificate  of  deposit  payable 
"in  current  funds"  is  not  negotiable  in 
Indiana.  The  decisions  of  other  states  con- 
flict upon  this  proposition.  Bk.  v.  Ringel, 
51  Ind.  393.  {Inquiry  jrom  Ind.,Feh.,  1911, 
Jl.) 

802.  A  bank's  drafts  and  certificates  of 
deposit  contain  the  words  "Payable  in  cur- 
rent funds."  Inquiry  is  made  as  to  their 
meaning.  Opinion:  The  decisions  in  the 
various  states  are  not  harmonious  respecting 
the  negotial)ility  of  instruments  containing 
those  words,  but  the  courts  of  Iowa  have 
uniformly  held  that  they  render  the  instru- 
ment non-negotiable.  The  Supreme  Court 
of  that  state  has  so  held  in  a  case  decided 
after  passage  of  the  Negotiable  Instruments 
Act.  Dill  V.  White,  132  Iowa,  327,  in  which 
the  court  said:  "The  checks  here  in  con- 
troversy were  not  made  payable  in  money 
but  in  current  funds,  and  it  is  the  settled 
law  in  this  state  that  such  instruments  do 
not  have  the  qualities  of  negotiable  paper." 


As  to  the  meaning  of  the  words  "current 
funds",  they  seem  intended  to  designate  as 
a  medium  of  payment  anything  which  i& 
current  as  mone}'^  and  not  only  legal  tender 
money.    {Inquiry  jrom  Iowa,  April,  1917.) 

803.  The  original  owner  of  a  certificate 
of  deposit  payable  "in  current  funds"  was 
held  up  by  a  thief  and  forced  to  indorse 
and  part  with  the  certificate.  The  thief 
negotiated  it  to  an  innocent  purchaser  for 
value.  In  the  meantime  the  issuing  bank 
was  notified  to  stop  payment.  Opinion: 
According  to  a  Minnesota  decision  the  certi- 
ficate is  negotiable,  and  for  that  reason  the 
innocent  holder  is  protected  as  against  the 
original  owner.  Butler  v.  Paine,  8  Minn. 
324.  Hatch  v.  First  Nat.  Bk.,  94  Me.  348. 
{Inquiry  jrom  Minn.,  July,  1909,  Jl.) 

Payment 

Insanity  oj  payee 

804.  A  certificate  of  deposit  was  issued 
to  a  depositor,  who  later  became  insane. 
The  certificate  was  indorsed  in  blank  and 
the  bank  is  doubtful  whether  the  depositor 
was  insane  at  the  time  of  the  indorsement. 
A  relative  was  the  holder  of  the  certificate. 
Opinion:  The  bank  should  refuse  pajnnent 
to  the  holder  of  the  certificate  in  the  absence 
of  positive  proof  that  the  indorsement  in 
blank  and  the  delivery  took  place  while  the 
depositor  was  sane.  A  guardian  or  com- 
mittee of  the  lunatic  should  be  appointed 
to  receive  payment.  If  the  holder  sues  the 
bank  a  bill  of  interpleader  should  be  filed. 
Riley  v.  Albany  Sav.  Bk.,  36  Hun  (N.  Y.) 
513.  American  Tr.  &  Banking  Co.  v.  Boone, 
29  S.  E.  (Ga.)  182.  Fidelity  Fire  Ins.  Co.  v. 
111.  Tr.  etc.,  Bk.  110  111.  App.  92.  Livingston 
V.  Montreal  Bk.,  50  111.  App.  562.  Platte, 
etc.,  Bk.  V.  Nat.  Bk.  155  111.  250.  Newhall 
V.  Kastens,  70  111.  156.  {Inquiry  jrom  III., 
July,  1915,  Jl.) 

Payment  oj  non-negotiable  c/d  to  third  person 

805.  Is  it  advisable  for  a  bank  to  pay 
a  non-negotiable  certificate  to  a  third  per- 
son? Opinion:  If  the  certificate  has  been 
duly  assigned  and  notice  of  assignment  and 
satisfactory  proof  thereof  given  to  the  bank, 
the  certificate  could  be  paid  the  assignee; 
but  generally  speaking,  in  the  absence  of 
assignment,  the  certificate  should  only  be 
paid  to  the  depositor.  {Inquiry  jrom  La., 
Jan.,  1917.) 

Payment   oj  time   c/d   hejore  maturity 

806.  Is  a  bank  compelled  to  cash  a 
certificate  of  deposit  on  demand  whether  it 


176 


CERTIFICATE  OF  DEPOSIT 


[807-810 


is  a  demand  or  time  one  and  notwithstanding 
the  wording  of  it?  Opinion:  Sometime  the 
terms  of  the  certificate  make  it  a  httle  un- 
certain whether  it  is  to  be  construed  as  a 
demand  or  time  certificate,  but  where  the 
certificate  is  unquestionably  paj^able  at  a 
future  date  and  the  time  has  not  arrived, 
there  is  nothing  in  the  law  which  would 
compel  the  bank  to  pay  on  demand  if  it  does 
not  choose  to  do  so.  (Inquiry  from  Neb., 
March,  1916.) 

C/D   payable   in   Mexican    money 

807.  Bank  A  issued  a  certificate  of 
deposit  to  B  payable  six  months  after  date 
in  current  funds  on  the  return  of  certificate 
porperly  indorsed.  It  bore  on  its  face 
stamped  in  two  different  places  the  words 
"Mexican  money."  B  made  no  demand 
until  nearly  five  years  after  date  of  maturity, 
when  he  demanded  the  value  of  silver 
Mexican  money  which  had  appreciated  in 
value  since  such  date.  If  the  certificate  is 
not  outlawed,  is  the  bank  compelled  to  pay 
in  Mexican  silver  or  its  equivalent,  and  as 
of  what  time  should  it  fix  value?  Opinion: 
When  a  certificate  of  deposit  is  payable  six 
months  after  date  on  return,  the  courts  differ 
as  to  when  the  Statute  of  Limitations  begins 
to  run,  some  holding  that  it  does  not  begin 
to  run  until  demand — others,  that  it  begins 
to  run  at  the  end  of  the  six  months.  The 
Texas  courts  have  not  passed  upon  the  point 
and  if  it  should  be  held  that  this  certificate 
is  not  outlawed  then  the  question  arises  as 
to  what  the  bank  is  obliged  to  pay.  It  has 
used  an  ordinary  form  of  certificate  of  de- 
posit payable  in  current  funds  of  the  United 
States  and  stamped  upon  same  "Mexican 
money."  The  contract,  it  would  appear,  is 
a  promise  to  pay  the  certificate  in  Mexican 
money  six  months  after  date,  and  it  would 
be  reasonable  to  maintain  that  the  value  of 
Mexican  money  at  the  end  of  six  months 
would  be  the  amount  payable  and  not  the 
value  of  the  Mexican  money  five  years  later 
or  whenever  the  holder  chooses  to  demand 
payment  at  a  time  when  it  has  appreciated. 
There  seem  to  be  no  decisions  in  point  upon 
this  state  of  facts.  (Inquiry  from  Tex.,  Jan., 
1919.) 

Payment  on  conditional  indorsement 

808.  A  certificate  of  deposit  issued  by 
bank  A  to  B  was  presented  for  payment 
bearing  the  following  indorsement:  "For 
value  received  I  assign  the  within  certificate 
to  H.  M.  to  be  held  on  a  release  of  a  mort- 
gage on  property  that  I  am  conveying  to 
W.  J.  until  the  same  is  released",  signed  by 


B  and  followed  by  the  indorsement  of  H.  M. 
Payment  to  the  indorsee  was  refused  by  the 
bank  which  demanded  an  unconditional 
indorsement.  Its  action  is  questioned. 
Opinion:  This  was  not  a  straight  indorse- 
ment but  an  indorsement  on  condition,  of 
which  the  bank  was  bound  to  take  notice. 
There  are  cases  which  hold  that  if  a  bank 
pays  a  certificate  of  deposit  which  has  been 
indorsed  on  condition  without  satisfying 
itself  that  the  condition  has  been  complied 
with,  it  does  so  at  its  peril.  See  McGorray 
V.  Stockton  Sav.  Soc,  131  Cal.  321,  63  Pac. 
479;  Johnson  v.  Barrow,  12  La.  Ann.  83. 
In  the  present  case,  if  the  condition  was 
performed,  it  would  seem  that  B  would  be 
entitled  to  return  of  the  certificate,  and  he 
rather  than  the  indorsee  would  be  entitled 
to  collect  it.  Under  the  circumstances  of  the 
case  bank  A's  refusal  of  payment  of  the 
certificate  was  proper.  (Inquiry  from  W. 
Va.,  March,  1916.) 

Certificate   obtained   through  fraud 

809.  A  bank  issued  its  certificate  of 
deposit  payable  to  the  order  of  A  six  months 
after  date  with  interest.  The  certificate  was 
fraudulently  obtained  and  the  bank  asks  if 
it  is  liable  to  a  third  party.  Opinion:  If  the 
third  party  is  an  innocent  purchaser  for 
value  before  maturity,  and  the  certificate 
is  in  negotiable  form,  he  can  enforce  same 
free  from  defense  of  fraud  of  payee.  (In- 
quiry from  Ark.,  May,  1918.) 

Validity    of    payment    to    indorsee 

810.  A  received  a  certificate  of  deposit 
from  bank  B,  and  regularly  received  interest 
on  the  money.  This  certificate  bearing  A's 
indorsement  and  underneath  the  words  "To 
C.  D.  and  E.  F.",  was  paid  by  the  bank  to 
some  person  not  remembered  but  other  than 
A  who  a  short  time  afterwards  became  irra- 
tional and  left  the  vicinity.  Returning 
several  years  later,  A  threatened  suit  against 
the  bank  because  it  had  paid  the  certificate 
without  the  indorsement  of  C.  D.  and  E.  F. 
Opinion:  Under  the  circumstances  it  would 
not  appear  that  A  could  hold  bank  B  liable. 
If  this  certificate  is  to  be  regarded  as  in- 
dorsed in  blank  by  A  and  if  the  words  under- 
neath do  not  amount  to  a  special  indorse- 
ment by  him  to  C.  D.  and  E.  F.,  then  it 
would  be  payable  to  bearer  by  virtue  of  A's 
indorsement  in  blank  and  could  be  nego- 
tiated by  deUvery  and  its  paj-ment  by  bank 
B,  although  not  now  able  to  say  to  whom, 
would  be  a  discharge  from  liability.  If,  on 
the  other  hand,  the  certificate  is  to  be  rc- 


177 


811-814] 


DIGEST  OF  LEGAL  OPINIONS 


garded  as  specially  indorsed  by  A  to  C.  D. 
and  E.  F.,  and  the  courts  would  probably 
hold  so,  although  the  form  of  indorsement 
is  unusual,  then,  A  having  transferred  the 
certificate  would  have  no  ground  to  make 
claim  thereon,  but  C.  D.  and  E.  F,  would  be 
the  only  ones  to  complain  if  they  had  not 
received  the  money.  Its  possession  by  bank 
B,  though  unindorsed  by  them,  would  be 
prima  facie  evidence  of  payment  to  them 
which  would  have  to  be  disproved  by  them. 
(Inquiry  from  Mich.,  May,  1913.) 

Interest 

Indorsement  of  interest  payments  on 
certificates 
811.  A  number  of  six  months  time  certifi- 
cates of  deposit  upon  which  interest  was 
to  be  paid  until  due  only,  were  issued  to  a 
depositor  by  bank  A.  Under  an  arrange- 
ment between  bank  and  depositor,  as  soon 
as  the  certificates  would  mature  the  deposi- 
tor would,  instead  of  renewing  same,  receive 
the  interest  due,  indorsement  to  this  effect 
being  made  on  the  certificate,  and  leave 
same  in  the  bank's  keeping.  Shortly  after 
one  of  these  payments  of  interest,  the  de- 
positor died  and,  something  over  a  year 
afterwards,  the  administrator  of  his  estate 
demanded  payment  of  the  certificates  with 
interest  to  date.  The  bank  claims  it  is  only 
obhgated  to  pay  interest  on  the  certificates 
for  the  period  for  which  same  were  originally 
written.  Opinion:  The  contract  in  this 
case  was  to  pay  interest  until  due  only,  and 
no  interest  after  maturity,  when  the  interest 
was  due.  Instead  of  the  depositor  taking 
out  new  certificates,  bank  A  indorsed  pay- 
ment of  interest  on  the  certificates  and  this 
was  virtually  understood  as  renewing  the 
interest-bearing  period  of  the  certificate  for 
six  months  more.  It  would  seem  that  the 
bank's  Kability  to  pay  interest  ceased  six 
months  after  the  last  indorsement  and  that, 
legally,  it  could  not  be  held  for  interest 
thereafter.  The  original  contract  to  pay 
interest  only  to  the  due  date  of  the  certifi- 
cate was  modified  by  an  understanding  and 
practice  to  pay  interest  for  succeeding  six 
months  periods,  but  this  modification  only 
appUed  where  the  depositor  called  at  the 
end  of  six  months  and  collected  the  interest 
and  a  new  indorsement  was  made.  The 
modification  could  not  be  construed  to 
change  the  original  contract  so  as  to  make 
the  interest  run  indefinitely.  {Inquiry  from 
Ida.,  March,  1920.) 

Interest  clause  where  ''per  annum"  emitted 
812.     As  certificates  of  deposit  are  usually 


issued  with  interest  at  a  certain  rate  "per 
annum"  if  left  a  certain  time,  could  a  holder 
of  a  certificate  with  the  clause  "with  interest 
at  the  rate  of  4  per  cent,  if  left  six  months", 
collect  interest  at  the  rate  of  8  per  cent,  a 
year?  Opinion:  The  clause  "with  interest 
at  the  rate  of  4  per  cent,  if  left  six  months", 
would  be  interpreted  by  any  court  to  mean 
4  per  cent,  per  annum.  It  would  not  be 
construed  so  as  to  allow  the  holder  of  such  a 
certificate  to  collect  interest  at  the  rate  of  8 
per  cent,  a  year.  Such  a  construction  would 
imply  that  the  parties  contracted  for  a 
usurious  rate  of  interest  apart  from  other 
considerations.  (Inquiry  from  N.  Y.,  April, 
1919.) 

Payment  of  interest  after  maturity 

813.  Bank  A  issued  a  certificate  of  de- 
posit to  B  in  which  it  was  stated  that  the 
bank  will  allow  interest  at  the  annual  rate 
of  3  per  cent,  from  the  date  of  deposit  and  on 
a  certain  date  pay  the  amount  with  the 
interest  to  B  or  assignee  on  the  return  of  the 
certificate.  B  did  not  present  the  certificate 
at  the  time  set  for  payment,  but  held  it  for 
over  a  year  after  that  time,  and  then  upon 
presentment  demanded  the  amount  with 
interest  at  the  rate  of  3  per  cent,  up  to  date 
set  for  payment  together  with  interest  at 
the  rate  of  six  per  cent,  per  annum  from  that 
time  to  time  of  demand.  Is  B  entitled  to 
receive  any  interest  after  the  maturity  of 
the  certificate?  Opinion:  There  appears 
to  be  but  few  cases  on  the  precise  point  and 
none  in  New  York,  but  those  cases  in  which 
the  question  has  been  raised  seem  to  agree 
that  the  failure  to  present  does  not  stop  the 
running  of  interest  which  continues  at  the 
same  rate.  See  Payne  v.  Clark,  23  Mo.  259; 
Lordell  v.  Bank,  64  Mo.  600;  Bank  of  Com- 
merce V.  Harrison,  11  N.  M.  50,  66  Pac.  460. 
It  is  usual  for  certificates  to  contain  such 
clause  as  "No  interest  after  maturity"  or 
"Interest  for  six  months  only"  or  "Interest 
to  date  of  maturity  only,"  and  it  would  be 
wise  for  banks  to  protect  their  certificates 
by  some  such  clause.  (Inquiry  from  N.  Y., 
Dec,  1917.) 

Rights  of  holder 

Purchase  of  certificate  with  money 
fraudulently  obtained 

814.  An  agent  of  an  insurance  company 
sold  a  poUcy  of  insurance  to  A  who  gave  his 
note  in  pajmaent  of  premium.  The  agent 
discounted  the  notes  at  bank  B  and  received 
a  certificate  of  deposit  for  the  amount.  A 
refused    to    accept    the    poUcy    sent    him, 


178 


CERTIFICATE  OF  DEPOSIT 


[815-818 


claiming  it  was  not  such  as  had  been  repre- 
sented, and  notified  bank  B  that  he  repu- 
diated the  note.  On  presentation  of  the 
certificate  by  the  insurance  company,  pay- 
ment was  refused  by  the  bank  on  the  ground 
that  the  certificate  was  not  vahd  and  binding 
on  the  bank,  as  the  note  given  therefor  had 
been  secured  by  fraud.  Can  the  bank  inter- 
pose as  a  defense,  the  fraud  perpetrated  on 
the  maker  of  the  note  by  the  holder  of  the 
certificate  through  its  agent?  Opinion: 
It  would  seem  that  the  ends  of  justice  would 
be  best  served  by  denying  recovery  to  the 
fraudulent  payee,  but  the  authorities  seem 
to  point  to  a  contrary  conclusion.  See 
Times  Square  Automobile  Co.  v.  Rutherford 
Nat.  Bank,  77  N.  J.  L.  649,  73  Atl.  479; 
Warren  v.  Haight,  65  N.  Y.  171;  Carrier  v. 
Sears,  86  Mass.  336,  81  Am.  Dec.  707.  It  is 
doubtful  if  bank  B  could  successfully  defend 
payment  of  this  certificate  of  deposit  and  in 
the  event  it  should  be  held  liable,  it  would 
seem  to  have  a  good  cause  of  action  against 
A,  the  maker  of  the  note,  as  a  bona  fide  holder 
thereof.    {Inquiry from Cal.,  Nov.,  1914-) 

Defense  against  payee 

815.  A  bank  issued  certificates  of  de- 
posit to  a  corporation  in  exchange  for  its  notes 
the  stock  of  the  corporation  later  turned  out 
to  be  worthless.  Can  the  bank  stop  pay- 
ment if  the  certificates  are  presented  with 
the  signature  of  the  corporation  only?  What 
would  be  the  effect  of  a  sale  to  an  innocent 
purchaser?  Opinion :  If  the  certificates  are 
negotiable  and  have  been  negotiated  to 
innocent  purchasers,  the  bank  is  liable  to 
such  purchasers.  If  the  certificates  are 
presented  by  the  original  payee  and  if  the 
bank  has  a  good  defense  of  failure  of  con- 
sideration, it  may  refuse  payment,  and 
interpose  the  defense  in  a  suit  on  the  certifi- 
cates. The  nature  of  the  notes  is  not 
disclosed.  If  the  certificates  were  issued  in 
exchange  for  notes  of  the  corporation, 
secured  by  certificates  of  stock,  then  it 
would  owe  the  bank  upon  the  notes  and  its 
indebtedness  upon  the  notes  could  be  set 
off  against  the  indebtedness  to  it  on  the 
certificates,  and  the  bank  would  not  be  liable. 
However,  as  above  stated,  the  bank  would 
be  liable  to  a  holder  in  due  course  of  negoti- 
able certificates.  (Inquiry  from  Mo.,  Feb., 
1921.) 

Rights  of  innocent  purchaser 

816.  A  bank  issued  a  negotiable  cer- 
tificate of  deposit  for  SoOO  to  one  of  its  de- 
positors in  exchange  for  her  check  on  the 
same  bank  for  S500,  which,  as  it  turned  out, 


was  an  overdraft  of  $100.  The  bank  seeks 
to  know  if  it  can  refuse  payment  in  case  the 
certificate  should  come  to  it  through  an  inno- 
cent purchaser.  Opinion:  So  long  as  the 
certificate  remains  in  the  depositor's  hands 
or  is  presented  by  her  in  person,  the  bank 
has  the  right  to  withhold  payment  of  the 
excess  over  $400.  But  if  the  certificate  had 
been  negotiated  to  a  holder  in  due  course  the 
bank  would  be  liable  for  the  full  amount  and 
would  have  to  look  to  the  depositor  for  the 
overdraft.  {Inquiry from  Pa., March,  1917,  Jl) 

Laches  of  holder  where  hank  closed 
and  affairs  settled 

817.  A  certificate  of  deposit  was  issued 
to  A  by  bank  B  which  matured  the  following 
year.  It  was  not  presented  at  maturity  and 
two  years  later  B  failed  and  its  assets  were 
purchased  by  bank  C  which  assumed  such 
debts  as  could  be  ascertained  and  verified. 
A  could  not  be  located  nor  could  anything 
be  learned  of  the  certificate  issued  to  him, 
and  the  court  finally  foreclosed  it  and  ordered 
the  account  closed.  Ten  years  afterwards 
A  presented  the  certificate  for  payment  to 
bank  C,  and  the  latter,  without  acknowledg- 
ing liability,  offered  in  settlement  two  thirds 
of  its  face  value.  Has  A  any  legal  claim 
against  bank  C?  Opinion:  According  to 
decisions  in  some  states,  the  statute  of 
limitations  begins  to  run  from  the  maturity 
of  the  certificate,  while  in  others  it  does  not 
run  until  payment  is  demanded.  The  point 
does  not  appear  to  have  been  passed  upon 
either  way  by  the  South  Dakota  Courts, 
but,  even  if  the  latter  rule  would  prevail  in 
that  state,  it  seems  reasonable  that  its 
courts  would  not  hold  C  liable  ten  years 
after  foreclosure  of  the  certificate  where  A 
has  slept  on  his  rights  for  this  long  period. 
A's  rights  have  doubtless  been  forfeited  by 
laches  and  the  best  thing  for  him  to  do 
would  be  to  accept  the  offer.  See  Re 
Gardner,  228  Pa.  282,  77  Atl.  509.  {In- 
quiry from  S.  D.,  Dec,  1914-) 

Non-liability  to  payee  where  certificate 
outstanding 

818.  Bank  A  issued  a  certificate  of 
deposit  payable  in  either  six  or  twelve 
months  to  B  who  indorsed  it  and  gave  it  to 
C  as  a  deposit  in  a  business  transaction 
which  was  never  completed.  C  failed  to 
return  certificate  to  B  on  demand  and  the 
latter  notified  bank  A  not  to  pay  the  same, 
claiming  that  he  had  been  defrauded.  The 
certificate  was  presented  before  the  first  due 
date  of  pajTuent  and  pajTnent  refused  on  the 
ground  that  it  was  not  due  and  that  pay- 


179 


819-822] 


DIGEST  OF  LEGAL  OPINIONS 


ment  had  been  stopped  because  of  alleged 
fraud.  It  was  not  afterwards  presented,  and 
is  overdue.  Can  B  compel  the  bank  to  pay 
the  amount  of  certificate  to  him?  Opinion: 
It  is  very  possible  that  before  its  maturity, 
C  may  have  negotiated  the  certificate  to  an 
innocent  purchaser  and  in  that  event  the 
bank  would  be  liable  to  that  purchaser  al- 
though C  himself  was  a  fraudulent  holder. 
To  justify  the  bank  in  paying  the  certificate 
to  B,  he  should  either  surrender  it  or  es- 
tablish by  proof  that  it  was  still  in  the  hands 
of  C  at  and  after  maturity,  and  that  C  was 
a  fraudulent  holder.  But  it  not  being 
satisfactorily  shown  that  the  certificate 
is  in  the  possession  of  C  (being  overdue), 
and  that  he  did  not  negotiate  the  same  be- 
fore maturity,  a  court  would  not  be  likely  to 
compel  bank  A  to  pay  amount  to  B  without 
surrender  of  the  certificate  or  without  re- 
quiring that  the  bank  be  fully  indemnified 
against  a  possible  liabihty  of  being  compelled 
to  pay  it  again  to  an  innocent  purchaser  who 
acquired  it  before  maturity.  {Inquiry  from 
Wash.,  Feb.,  1918.) 

Innocent  'purchaser  of  c/d  issued  against 
uncollected  funds 

819.  A  bank  issued  a  negotiable  demand 
certificate  to  a  depositor  against  deposit  of 
his  check  upon  another  bank.  Four  days 
later  the  bank  over  the  long  distance  tele- 
phone, upon  depositor's  request,  advised 
that  the  certificate  could  be  cashed  O.K.,  as 
the  deposited  check  had  not  been  returned. 
After  the  certificate  was  cashed,  the  de- 
positor's account  in  the  other  bank  was 
attached.  Opinion:  Where  a  bank  issues 
a  negotiable  demand  certificate  against 
deposit  of  a  check  upon  another  bank,  the 
fact  that  the  deposited  check  is  dishonored 
is  no  defense  to  the  liability  of  the  bank  to 
an  innocent  purchaser  of  the  certificate. 
This  transaction  illustrates  the  unwisdom 
of  issuing  a  negotiable  certificate  against 
uncollected  funds.  {Inquiry  from  Wash., 
Dec,  1917,  Jl.) 

Transfer 

Transfer  without  indorsement 

820.  A  certificate  of  deposit  issued  to  A 
was  pledged  by  A  to  B  for  value,  without 
indorsement.  After  its  maturity  A,  upon 
a  false  written  statement  that  he  had  lost 
and  had  not  negotiated  the  certificate, 
obtained  payment  from  the  bank.  B  not 
having  been  paid  by  A  now  seeks  to  hold  the 
bank  liable  on  the  unindorsed  certificate 
pledged  by  A,  Opinion:  The  bank  is  not 
liable  to  B  who,  taking  without  indorse- 


ment, holds  the  certificate  subject  to  any 
defense  good  against  A.  A  is  criminally 
liable  for  obtaining  money  under  false 
pretenses.  Neg.  Inst.  A.  of  111.,  Sec.  7688. 
Mfg.  Co.  V.  Blitz.  115  N.  Y.  S.  402.  Croy 
V.  Farmers  Bk.,  109  Ky.  694.  Nat.  Bk.  v. 
Bingham,  118  N.  Y.  349.  {Inquiry  from  III., 
April,  1913,  Jl.) 

Negotiation  of  c/d  restrictively  indorsed 
to  issuing  hank 

821.  A  certificate  of  deposit  was  issued 
by  bank  A  to  B  who,  wishing  to  renew  it, 
indorsed  it  payable  to  the  bank  and  gave  it 
to  C  to  mail.  C  indorsed  the  certificate  and 
depositing  it  with  bank  D  received  credit 
for  same.  Bank  A  paid  D  the  certificate 
notwithstanding  B's  restrictive  indorsement 
to  it.  Should  bank  D  refund  to  bank  A? 
Opinion:  Bank  D  having  received  the 
certificate  without  indorsement  to  it,  took 
no  greater  rights  than  transferror  and  having 
collected  the  certificate  without  having 
good  title,  is  under  hability  to  refund. 
While  bank  A  should  not  have  paid  the 
certificate  indorsed  as  it  was,  and  is  hable 
to  B  for  so  doing,  this  does  not  prevent  it 
from  recovering  the  money  paid  to  bank  D 
which  had  no  title  to  it.  {Inquiry  from  Ore., 
March,  1916.) 

Time  limit  for  negotiation  of  demand 
certificate  before  overdue 

822.  A  note  signed  by  A  and  indorsed 
by  B  was  discounted  for  the  latter  by  bank 
C.  Attached  to  the  note  as  collateral  was 
a  certificate  of  deposit  for  same  amount 
issued  five  months  previously  by  bank  D  to 
A  "payable  in  current  funds  on  return  of 
this  certificate  properly  indorsed"  with 
interest  at  3  per  cent.,  a  line  showing  it  was 
not  expected  to  run  over  twelve  months 
being  stricken  out.  Being  unable  to  collect 
the  note,  bank  C  two  years  after  issue  of  the 
certificate  presented  it  to  bank  D  which 
refused  payment  and  returned  it  protested 
giving  as  a  reason  that  it  had  some  agree- 
ment with  A  that  the  certificate  would  not 
be  presented  for  payment  until  a  certain 
note  for  the  proceeds  of  which  the  certificate 
was  issued  had  been  paid  and  that  the  note 
was  past  due  when  negotiated.  Can  C  hold 
D  liable?  Opinion:  The  certificate  in 
question  is  virtually  a  demand  instrument 
"payable  in  current  funds  on  return  of  this 
certificate  properly  indorsed."  Such  a 
certificate  carrying  interest  until  presented 
for  payment  does  not  contemplate  imme- 
diate presentment  and  banks  are  in  the 
habit  of  loaning  on  the  security  of  such, 


180 


CERTIFICATE  OF  DEPOSIT 


[823-826 


within  a  reasonable  time  after  their  date. 
There  would  seem  to  be  a  right  of  recovery 
by  the  bank  upon  this  certificate  unless  it 
could  be  held  (1)  that  the  certificate  was 
non-negotiable,  in  which  event  the  trans- 
feree would  take  no  greater  rights  than  the 
payee,  or  (2)  if  negotiable,  that  it  was  not 
transferred  to  the  bank  until  it  was  overdue. 
It  is  generally  held  that  a  certificate  "pay- 
able on  return  properly  indorsed"  is  nego- 
tiable, and  the  weight  of  authority  is  to  the 
effect  that  making  an  instrument  payable 
"in  current  funds"  does  not  destroy  nego- 
tiability. The  vital  question  in  this  case  is 
whether  negotiation  of  the  certificate  five 
months  after  date,  subjected  it  to  equities. 
Upon  this  question  there  is  very  little  specific 

;  authority,  and  what  there  is,  in  the  case  of 
demand  promissory  notes,  is  conflicting  so 

''  it  would  require  a  court  decision  to  settle  the 
precise  period  of  time  during  which  this 
certificate  could  be  negotiated  before  it 
became  overdue.  Probably  five  months 
would  be  held  within  the  negotiable  period. 
{Inquiry  from  W.  Va.,  March,  1917.) 

Bank's  obligation  to  l^now  payee's 
signature 

Effect  of  "prior  indorsements  guaranteed" 

823.  Bank  A  issues  a  certificate  of 
deposit  to  a  stranger.  It  comes  back 
through  regular  course,  the  indorsements  of 
all  banks  handling  the  same  reading,  "All 
prior  indorsements  guaranteed".  The  pay- 
ee's signature  seems  to  be  different  from 
that  on  file  and  bank  A  refuses  to  pay. 
Opinion:  Where  the  bank  has  the  signature 
of  the  payee  of  a  certificate  of  deposit  on 
file,  it  is  bound  to  know  the  signature  the 
same  as  on  a  check,  and  if  it  pays  on  a 
forgery  it  cannot  recover  the  money  from 
a  Ijona  fide  holder.  The  guaranty  of  all  prior 
indorsements,  in  the  case  of  a  check  has 
l)een  held  not  to  cover  the  signature  of  the 
drawer.  In  the  case  of  a  certificate  of 
deposit,  while  technically  it  would  seem 
to  cover  same,  there  is  a  chance  it  might  be 
held  or  construed  not  to  apply  to  the 
payee's  signature  in  view  of  the  fact  that 
the  bank  is  responsible  for  that.  Where 
the  signature  differs  in  several  particulars 
from  the  specimen  on  file,  the  safest  course 
is  to  refuse  payment  until  the  genuineness 
of  the  signature  is  satisfactorily  established, 
or  a  guaranty  is  given  specifically  covering 
the  indorsement  of  the  paj'ee.  {Inquiry 
from  Iowa,  Nov.,  1915.) 

Rule  limited  to  signatures  kept  on  file 

824.  A  bank  issued  a  certificate  of  de- 


posit without  keeping  a  record  of  the  payee's 
signature.  The  certificate  was  presented  at 
the  clearing  house  and  paid  by  the  bank  of 
deposit,  although  the  presenting  bank  re- 
fused to  guarantee  the  paj^ee's  indorsement. 
In  the  event  the  payee's  indorsement  was 
a  forgery,  the  paying  bank  questions  its 
right  of  recovery.  Opinion:  Where  bank 
keeps  file  of  signatures  of  paj^ees  to  whom 
certificates  of  deposit  issued  it  is  bound  to 
know  payee's  indorsement  upon  such  cer- 
tificates and  cannot  recover  money  paid  on 
forgery  thereof.  But  this  rule  is  limited  to 
cases  where  signature  is  kept  on  file.  {In- 
quiry from  Ohio,  Jan.,  1917,  Jl.) 

Liability  of  indorser 

825.  The  depositor  of  a  bank  brought 
in  a  time  certificate  of  deposit  of  another 
bank  which  had  run  nine  months,  it  having 
been  made  out  for  twelve  months,  which  he 
indorsed  to  the  bank.  The  bank  issued  to 
said  depositor  one  of  its  own  time  certifi- 
cates and  allowed  him  the  accrued  interest 
for  nine  months  on  the  certificate  brought 
in.  Before  the  nine  month's  certificate 
came  due,  the  issuing  bank  failed.  Can  the 
bank  hold  its  depositor  as  indorser?  Opin- 
ion: The  bank  can  hold  the  indorser  of  the 
certificate  of  deposit  provided  at  maturity 
there  was  due  demand  and  notice  of  dis- 
honor to  preserve  his  liability;  this  upon  the 
assumption  that  the  certificate  was  nego- 
tiable in  form.  Being  indorsed  to  the  bank 
for  value  before  maturity,  the  contract  of 
the  indorser  of  the  certificate,  the  same  as 
of  any  other  negotiable  instrument,  is  that 
he  will  pay  provided  the  maker  docs  not 
pay  at  maturity  upon  due  demand,  and 
provided  he  receives  due  notice  of  dishonor. 
{Inquiry  from  Minn.,  Aug.,  1916.) 

Use  of  certificate  of  deposit  as  collat- 
eral by  oflficer  of  bank 

826.  A  bank  issued  to  its  president  who 
had  a  running  account  with  it  subject  to 
check,  a  certificate  of  deposit  for  amount 
less  than  account,  which  he  pledged  to 
another  bank  as  security  for  a  personal  loan. 
His  right  to  do  tliis  is  questioned.  Opinion: 
If  the  holder  of  a  demand  certificate  who  is 
the  president  of  the  issuing  bank  should  seek 
to  obtain  a  loan  on  it  from  another  bank 
instead  of  cashing  it  in  at  his  own  bank,  the 
bank  department  might  naturally  question 
the  regularity  of  the  transaction.  Or  there 
might  be  a  case  where  a  certificate  was 
signed  in  the  name  of  the  bank  by  its  presi- 
dent, payable  to  his  own  order,  in  which  the 
form    of    the    certificate    might    affect    its 


181 


827] 


DIGEST  OF  LEGAL  OPINIONS 


validity  as  collateral  for  a  loan  by  another 
bank.  But  if  there  are  no  such  irregularities 
and  the  certificate  is  a  regular  time  certifi- 
cate issued  by  the  bank  to  the  order  of  its 
president,  representing  an  actual  deposit  of 
money,  it  would  not  be  unlawful  for  another 
bank  in  the  same  state  to  make  a  loan  to  the 


holder  on  the  security  thereof.  The  banking 
law  of  Nebraska  prohibits  loans  by  a  bank 
to  its  own  officers,  but  this  is  a  case  of  a  loan 
to  a  bank  officer  by  another  bank,  the  officer 
having  deposited  money  in  his  own  bank  and 
taken  as  evidence  thereof  a  time  certificate 
of  deposit.    {Inquiry  from  Neb.,  Sept.,  1914-) 


CHECKS 


Form,    interpretation    and    execution 

Duty    of   care  in  preparing  check 

827.  A  bank  which  draws  checks  on  its 
correspondent  has  been  approached  by  an 
insurance  company  and  requested  to  take 
out  a  forgery  bond  covering  the  raising  and 
forging  of  checks.  The  insurance  company 
cite  instances  where  the  payor  bank  under 
some  circumstances  would  not  be  Hable  but 
the  loss  would  fall  upon  the  bank  which 
draws  the  check  for  not  using  proper  pre- 
cautions. The  bank  requests  reference  to 
any  recent  pertinent  decisions.  Opinion: 
The  general  rule  has  been  thus  stated  by  the 
New  York  Court  of  Appeals:  '"While  the 
drawer  of  a  check  may  be  Uable  where  he 
draws  the  instrument  in  such  an  incomplete 
state  as  to  facilitate  or  invite  fraudulent 
alterations,  it  is  not  the  law  that  he  is  bound 
so  to  prepare  the  check  that  nobody  else 
can  successfully  tamper  with  it."  Critten 
V.  Chemical  Nat.  Bank,  171  N.  Y.  219. 
Also,  in  Timbel  v.  Garfield  Nat.  Bank,  106 
N.  Y.  Supp.  497,  the  court  said:  "The  text 
books  are  quite  unanimous  in  asserting  that, 
where  a  drawer  of  a  check  has  prepared  his 
check  so  neghgently  that  it  can  be  easily 
altered,  without  giving  the  instrument  a 
suspicious  appearance,  and  alterations  are 
afterwards  made,  he  can  blame  no  one  but 
himself,  and  that  in  such  case  he  cannot 
hold  the  bank  Hable  for  the  consequences  of 
his  own  negligence  in  that  respect." 

If  the  drawer  dehvers  the  check  with  the 
amount  line  left  blank  and  it  is  wrongfully 
filled  out,  he  is  hable.  Trust  Co.  v.  Conkhn, 
119  N.  Y.  Supp.  367.  Likewise,  if  he  de- 
hvers the  check  with  the  amount  blank 
partly  filled  so  as  to  permit  insertion  of  an 
increased  amount  without  detection.  Young 
V.  Grote,  4  Bing.  253.  In  Trnibel  v. 
Garfield  National  Bank,  a  woman  signed 
a  check  filled  out  by  her  husband  for 
nine  hundred  dollars  leaving  a  space  which 
enabled  him  to  raise  the  amount  to  four 
thousand,  nine  hundred  dollars,  and  it  was 
held  a  question  for  the  jury  to  determine 
whether  her  negligence  precluded  recovery 


from  the  bank.  Other  specific  recent 
cases  of  negligence  of  the  depositor  which 
makes  him  liable,  are  Citizens  Nat.  Bank  v. 
Reynolds,  126  N.  E.  (Ind.)  234  and  S.  S. 
Allen  Grocery  Co.  v.  Bank  of  Buchanan  Co., 
182  S.  W.  (Mo.)  777,  where  depositors 
signed  checks  in  blank  that  were  lost  or 
stolen,  the  blanks  filled  in  and  the  checks 
cashed.  Most  of  the  cases  in  which  de- 
positors have  been  held  hable  for  negligence 
in  the  execution  of  the  check  have  been 
those  where  blanks  have  been  unfilled  or 
partly  unfilled,  so  as  to  invite  successful 
alteration.  We  have  been  unable  to  find  a 
case  in  which  it  has  been  held  that  failure  to 
use  protective  devices,  safety  paper  or  the 
like,  is  negligence;  nor  a  case  in  which  it  has 
been  held  that  the  drawing  of  a  check  in 
lead  pencil  is  neghgence.  At  the  same  time, 
the  general  rule  announced  by  the  courts 
and  text  writers  that  where  the  drawer 
prepares  his  check  "so  neghgently  that  it 
can  be  easily  altered  without  giving  the 
instrument  a  suspicious  appearance"  he  is 
responsible,  is  broad  enough  to  cover  much 
more  than  the  leaving  of  unfilled  blanks  and 
cases  may  arise  in  the  future  where  it  will 
be  held  that  the  drawing  of  a  check  in  lead 
pencil  is  neghgent  because  it  can  be  so  easily 
altered,  whether  or  not  the  courts  will  ever 
hold  that  the  omission  to  use  certain  pro- 
tective devices  is  neghgent.  A  recent  de- 
cision in  Texas  (First  Nat.  Bank  of  Newsom 
V.  Walhng,  218  S.  W.  1080)  may  have  broad 
application.  A  check  raised  from  SI 2. 40  to 
$112.40  was  paid  by  the  bank.  The  court 
held  the  bank  "is  entitled  to  show  as  a  defense 
as  between  it  and  the  depositor,  that  it  has 
done  all  that  due  care  and  foresight  would 
suggest  and  that  the  real  and  proximate 
cause  of  loss  in  making  payment  of  a 
fraudulently  altered  check  was  solely  caused 
by  the  negligence  of  the  drawer  in  so  pre- 
paring the  check  that  it  can  be  easily  altered 
without  exciting  the  suspicion  of  a  prudent 
and  cautious  man,  A  person  free  from 
neghgence  should  not  suffer  the  loss.  The 
drawer  can  blame  as  against  the  bank  no 
one  but  himself,  as  a  consequence  of  his  own 


182 


CHECKS 


[828-830 


negligence."  There  are  cases,  also,  where 
the  drawer  has  been  held  liable  because  he 
cannot  prove  that  his  check  paid  by  the 
bank  has  been  altered.  Thus,  in  Mitchell  v. 
Security  Bank,  147  N.  Y.  Supp.  470,  a  check 
for  $196.76  payable  to  "H  and  A"  was 
stolen  from  the  mail  box  of  the  payee,  who 
informed  the  drawer  of  the  theft  and  the 
latter  stopped  payment.  The  check  in 
question,  however,  was  returned  to  the 
drawer  among  his  paid  vouchers  at  the 
end  of  the  month,  the  payee  having 
been  changed  to  bearer.  The  drawer  sued 
the  bank  and  alleged  that  before  present- 
ment the  check  had  been  "washed"  and 
altered  and  was  therefore  a  forgery.  The 
court  reversed  a  judgment  for  the  plaintiff 
and  ordered  a  new  trial,  saying:  "As  to 
the  alteration  of  the  check,  I  am  of  the 
opinion  that  the  weight  of  evidence  is 
against  the  plaintiff.  It  was  drawn  on  safety 
paper,  which  turns  white  if  washed  with 
acid,  yet  it  shows  not  the  slightest  trace  of 
alteration."  Whatever  may  be  the  truth 
in  this  particular  case,  it  indicates  the  possi- 
bility that  the  drawer  of  a  check  which  has 
been  altered  might  be  held  liable,  not  be- 
cause of  negligence  in  execution,  but  be- 
cause the  alteration  has  been  so  skilfully 
done  that  he  is  unable  to  prove  in  a  particu- 
lar case  that  it  has  been  altered.  {Inquiry 
from  N.  Y.,  March,  1921.) 

828.  What  is  the  drawer's  duty  of  care 
in  preparing  checks?  Opinion:  It  is  the  duty 
of  the  drawer  to  exercise  ordinary  care  in 
preparing  his  check.  The  question  of  negli- 
gence does  not  arise  unless  the  depositor 
leaves  blanks  unfilled  or  by  some  affirmative 
act  of  negligence  facilitates  fraud.  While 
he  may  be  liable  where  he  draws  the  in- 
strument in  such  incomplete  shape  as  to 
facilitate  or  invite  fraudulent  alterations, 
he  is  not  bound  to  so  prepare  the  check  that 
nobody  else  can  successfully  tamper  with  it. 
A  drawer  does  not  use  ordinary  care  when 
he  fills  in  the  amount  of  a  check  in  the  middle 
of  the  fine  so  that  a  person  can  prefix  an 
increased  amount,  or  when  he  signs  a  check 
in  blank  and  carelessly  leaves  it  lying 
around.  However,  a  drawer  is  not  respon- 
sible where  he  carelessly  leaves  his  check 
book  around  unsigned.  No  judicial  de- 
cision or  statute  exists  at  the  present  time 
which  would  require  the  drawer  of  a  check 
to  use  a  protectograph,  check  punch,  safety 
paper  or  other  protective  device  in  order  to 
absolve  himself  from  the  charge  of  negHgence 
in  case  the  instrument  were  altered  or  forged. 
Nor  have  the  courts  ever  held  the  drawing 


of  a  check  in  lead  pencil  neghgent.  Meyers 
v.  Southwestern  Nat.  Bk.,  193  Pa.  1.  Nat. 
Bk.  V.  Nolting,  94  Va.  263.  {Inquiries 
from  Iowa,  May,  1916,  Sept.,  1910,  Jl.) 

Duty  of  care  of  check-book 

829.  A  customer  carelessly  leaves  his 
check-book  lying  around  the  office,  ac- 
cessible to  clerks,  and  a  blank  check  is 
stolen,  forged  and  paid  by  the  bank.  Opin- 
ion: The  bank  is  responsible  to  its  customer 
for  money  paid  on  his  forged  signature  and 
the  carelessness  of  the  customer  is  not  such 
neghgence  as  will  charge  him  with  responsi- 
bihty.  Mackintosh  v.  ElHot  Nat.  Bk.,  123 
Mass.  393.  Hatton  v.  Holmes,  97  Cal.  208. 
Chicago  Nat.  Bk.  v.  Pease,  168  111.  40. 
WilUams  v.  Drexel,  14  Md.  566.  Armstrong 
v.  Pomeroy  Nat.  Bk.,  46  Ohio  St.  512. 
Seventh  Nat.  Bk.  v.  Cook,  73  Pa.  483.  Otis 
El.  Co.  V.  First  Nat.  Bk.,  163  Cal.  31. 
Morgan  v.  U.  S.  Mtge.  &  Tr.  Co.,  208  N. 
Y.  218.    {Inquiry  from  Mo.,  June,  1914,  Jl.) 

Check  written  and  signed  in  lead  pencil 

830.  An  opinion  is  asked  by  a  bank  as 
to  the  legahty  of  check  written  and  signed 
in  lead  pencil.  Opinion:  There  do  not 
appear  to  be  any  cases  wherein  the  validity 
of  a  check  drawn  and  signed  in  lead  pencil 
has  been  judicially  passed  upon,  or  wherein 
the  right  of  a  bank  to  refuse  payment  of 
such  checks  has  been  decided.  There  are 
cases,  however,  in  which  a  contract  drawn 
in  lead  pencil  has  been  held  valid.  Geary  v. 
Physic  5  B.  &  Co.  234.  Brown  v.  Butchers' 
&  D.  Bank,  6  Hk.  (N.  Y.)  332.  Classon  v. 
Stearns,  4  Vt.  11.  In  this  latter  case  the 
court  said:  "Although  it  may  be  imprudent 
and  unsafe  in  many  cases  to  rely  on  a 
writing  made  with  a  pencil,  yet  the  author- 
ities show  clearly  that  such  writing  has 
been  recognized  as  legal."  From  the  above 
authorities  the  conclusion  to  be  drawn  is 
that  a  check  drawn  in  lead  pencil  is  valid. 
But,  although  valid,  there  is  considerable 
doubt  whether  the  drawee  bank  would  be 
under  any  obfigation  to  pay  same.  In 
view  of  the  fact  that  the  instrument  is  so 
susceptible  of  alteration,  it  would  seem  fair 
to  conclude  that  a  bank  would  be  upheld 
in  refusing  to  honor  a  check  so  written  and 
signed  because  the  bank  could  not  safely 
rely  on  its  genuineness.  No  case  has  yet 
been  so  decided,  but  it  seems  the  better 
course  is  for  bankers  to  take  such  a  stand 
and  refuse  to  pay  lead  pencil  checks  on 
the  ground  that  they  are  unsafe  and  that 


183 


831-837] 


DIGEST  OF  LEGAL  OPINIONS 


they  do  not  come  within  the  impHed 
contract  of  the  bank  with  its  depositor  to 
honor  his  written  orders.  {Inquiry  from 
Wash,  Feb.,  1920.) 

Where  words  and  figures  differ 

831.  A  cheek  is  presented  at  a  bank 
drawn  for  $12  so  stated  in  writing  in  the 
body  of  the  instrument,  but  the  marginal 
figures  are  stated  $16.50.  The  bank  teller 
in  cashing  the  check  paid  out  $16.50. 
Opinion:  The  sum  payable  on  the  check  was 
$12.  The  Negotiable  Instruments  Act  pro- 
vides in  part:  "Where  the  sum  payable  is 
expressed  in  words  and  also  in  figures,  and 
there  is  a  discrepancy  between  the  two,  the 
simi  denoted  by  the  words  is  the  sum  pay- 
able; but  if  the  words  are  ambiguous  or  un- 
certain, reference  may  be  had  to  the  figures 
to  fix  the  amount."  Neg.  Inst.  A.,  Sec.  17 
(Comsr's.  dft.),  Sec.  9089  Q,  Ind.  Act. 
Rochville  v.  Second  Nat.  Bk.  of  Lafayette, 
69  Ind.  479.  {Inquiry  from  Ind.,  Jan., 
1919,  Jl.) 

832.  The  amount  written  in  the  body 
of  a  check  is  $100.89  and  in  the  margin 
$189.  The  presenting  bank  protested  it  for 
non-payment,  as  the  drawee  refused  to  pay 
without  a  guaranty  of  the  amount,  which  the 
presenting  bank  would  not  furnish.  Opin- 
ion: Where  the  amount  written  in  the 
body  of  a  check  is  $100.89  and  in  the  margin 
$189,  the  sum  denoted  in  the  body  is  the 
amount  payable  and  the  check  is  protestable 
upon  refusal  to  pay  that  amount,  though 
not  if  the  refusal  is  to  pay  the  larger  amount 
expressed  in  the  margin.  Neg.  Inst.  A., 
Sec.  17,  Subdiv,  1  (Comsr's,  dft.)  {Inquiry 
from  Cal,  Oct.,  1918,  Jl.) 

833.  A  check  was  drawn  for  the  written 
amount  of  eighty  dollars,  but  the  marginal 
figures  are  $8.00  and  the  words  "not  over 
ten  dollars"  were  stamped  thereon.  The 
instrument  was  negotiated  for  eighty  dollars, 
and  that  amount  paid  by  the  drawee. 
The  drawer  refused  to  be  charged  with  the 
eighty  dollars.  Opinion:  While  no  positive 
conclusion  can  be  arrived  at  as  to  whether 
the  drawee  can  charge  the  full  amount  to  the 
drawer's  account,  it  seems  probable  that  the 
words  "not  over  ten  dollars"  would  be  notice 
to  the  drawee  and  protect  the  depositor.  If 
the  drawee  were  held  responsible,  it  is  prob- 
able that  it  would  have  a  right  to  recover  the 
excess  from  the  bank  receiving  payment. 
Neg.  Inst.  A.,  Sec.  17  (Comsr's  dft.).  Daniel 
Neg.  Inst.,  Sec.  86.  Saunders  v.  Piper,  5 
Bing.  N.  C.  425,  {Inquiry  from  Okla., 
April  1914,  Jl) 


834.  A  bank  refused  to  pay  its  custom- 
er's check,  which  was  written  for  "two 
dollars"  but  which  contained  the  marginal 
figures  of  "$200,"  the  credit  balance  of  the 
customer  being  $190.  The  drawer  threat- 
ened to  sue  the  bank,  although  the  latter  had 
tendered  the  $2  to  the  holder  on  the  same 
day  the  check  was  presented,  which  tender 
was  refused  by  request  of  the  drawer.  Opin- 
ion: Where  there  is  a  discrepancy  between 
the  words  and  figures,  the  words  control,  but 
the  court  may  justify  the  bank's  refusal  to 
honor  the  check  because  the  figures  are  an 
index  of  the  sum  payable  in  the  body  and 
contributed  to  mislead  the  bank.  Nominal 
damages  at  most  might  be  awarded  the  cus- 
tomer.   {Inquiry  from  S.  C,  May,  1914,  J^-) 

835.  A  check  was  presented  for  pajonent 
in  which  the  figures  read  $181.50  and  the 
body  of  the  check  read  One  Eighty  One  and 
50-100,  the  hundred  being  omitted.  Opin- 
ion: It  would  be  safe  for  a  bank  to  pay 
$181.50,  because  where  the  words  are  ambig- 
uous, reference  may  be  had  to  the  figures. 
Neg.  Inst.  A.,  Sec,  17  (Comsr's.  dft.).  Smith 
V.  Smith,  1  R.  I.  398,  {Inquiry  from  Wyo., 
Jan.,  1912,  Jl.) 

Figures  in  body  control  figures  in  margin 

836.  Do  figures  stated  in  the  body  of  a 
check  control  where  a  different  amount  is 
stated  in  the  margin?  Opinion:  The  figures 
in  the  body  prevail  and  denote  the  sum 
payable,  under  the  law  merchant.  {Inquiry 
from  Ohio,  April,  1917.) 

Check  in  figures  only 

837.  A  bank  drew  a  cashier's  check  and 
instead  of  filling  out  amount  in  pen  and  ink 
stamped  in  the  body  of  it  with  a  machine, 
^'Pay  $56  and  25  cents."  It  is  asked  if  this  is 
legal.  Opinion:  While  it  is  customary  in 
drawing  a  check  that  the  amount  be  stated 
both  in  words  and  figures,  and  the  rule  is 
well  recognized  that  in  determining  the 
amount  for  which  a  check  is  drawn  the  words 
will  control  the  figures  where  there  is  a 
discrepancy  between  them,  yet  if  the  amount 
is  stated  solely  in  figures  in  the  body  of  the 
check,  the  instrument  would  not  be  held  in- 
complete and  invahd  for  that  reason.  The 
Negotiable  Instruments  Act  provides  that,  to 
be  negotiable  the  instrument,  among  other 
things,  "must  be  in  writing  and  signed  by  the 
maker  or  drawer",  and  also  provides  that 
"writing"  includes  print.  But  while  "writing" 
is  generally  understood  to  be  the  expression 
of  ideas  by  visible  letters,  the  statement  of 
an  amount  by  figures  would   undoubtedly 


184 


CHECKS 


[838-844 


come  witliin  the  definition  of  writing.  See 
A.B.A.  Journal  May  1915,  p.  892.  Succes- 
sion of  Vanhille,  49  La.  Ann.  107,  21  So.  191, 
62  Am.  St.  Rep.  642;  Northrop  v.  Sanborn, 
22  Vt.  433,  54  Am.  Dec.  83.  {Inquiry 
from  Ariz.,  Oct.,  1919.) 

838.  A  bank  states  that  it  is  using  a 
check  protectograph  that  cuts  only  figures 
in  checks.  The  bank  asks  whether  this  is 
legal,  or  should  the  amount  be  inserted  in 
writing?  Opinion:  A  check  in  which  the 
amount  is  given  in  figures  only,  is  legal  and 
vahd.  The  Negotiable  Instruments  Act 
requires  an  instrument  to  be  in  writing,  but 
it  has  been  held  that  figures  are  writing, 
equally  as  words.  {Inquiry  from  Iowa, 
Aug.,  1918.) 

839  The  amount  of  a  check  was  not 
expressed  in  words  written  in  the  ordinary 
way  but  in  figures  stamped  by  a  machine 
in  the  body  of  the  instrument.  Opinion: 
The  instrimaent  is  vahd  and  negotiable,  and 
the  maker  is  not  negligent  in  so  drawing  the 
check.  Succession  of  Vanhille,  21  So.  (La.) 
191.  Northrup  v.  Sanborn,  22  Vt.  433. 
Norwich  Bk.  v.  Hyde,  13  Conn.  279.  Hollen 
V.  Davis,  59  la.  444.  Witty  v.  Ins.  Co.,  123 
Ind.  411.  Ives  v.  Farmers  Bk.,  2  Allen  236. 
Timbel  v.  Garfield  Nat.  Bk.,  106  N.  Y.  S. 
497.  Crawford  v.  West  Side  Bk.,  100  N.  Y. 
50.  Critten  v.  Chemical  Nat.  Bk.,  171 
N.  Y.  219.  {Inquiry  from  Mass.,  May, 
1915,  Jl.) 

840.  Is  a  check  negotiable  where  the 
amount  is  indicated  by  a  Check  Writer  and 
Protector,  wliich  "cuts  the  filUng  on  checks," 
and  does  not  write  out  in  words  such  amount 
but  uses  figures.  Opinion:  The  check  is 
legal  and  negotiable.  The  Negotiable  In- 
struments Act  requires  that  an  instrument 
to  be  negotiable  must  be  in  writing,  but 
writing  can  be  expressed  by  figures  as  well 
as  by  words.  {Inquiry  from  N.  J.,  Feb., 
1921.) 

841.  Inquiry  is  made  as  to  the  legality 
of  paying  checks  the  body  of  which  is  per- 
forated with  the  word  "Pay"  and  then  the 
numerals  perforated  immediately  after- 
wards. Opinion:  An  instrument,  the 
amount  blank  of  which  is  filled  in  with  the 
word  "Pay"  and  then  the  numerals  per- 
forated immediately  after,  is  valid  and 
negotiable.  The  Negotiable  Instruments 
Act  requires  the  instrument  to  be  in  writing, 
and,  while  it  is  customary  in  drawing  checks 
to  state  the  amount  both  in  words  and 
figures,  the  statement  of  the  amount  by 


figures  only  would  come  within  the  defini- 
tion of  writing.  {Inquiry  from  N.  Y.,  Oct., 
1916.) 

Stamping  amount  in  figures  or  in  words 

842.  A  bank  submits  two  forms  of 
checks,  (a)  containing  amount  stamped  in 
figures,  and  (b)  amount  stamped  in  words, 
and  the  bank  asks  whether,  in  case  the 
amount  were  raised,  the  drawer  would  be  in 
as  good  a  position  with  reference  to  care  in 
execution  if  he  used  form  (a)  as  if  he  used 
form  (b) .  The  amount  in  form  A  is  given  in 
stamped  figures,  "$1,000  and  00  cts.",  and 
in  form  B  the  amount  is  stamped  "One 
thousand  dollars".  Opinion:  The  general 
rule  with  regard  to  the  duty  of  care  of  the 
drawer  of  a  check  has  been  well  expressed 
by  the  Court  of  Appeals  in  Critten  v.  Chem- 
ical National  Bank,  171  N.  Y.  219,  to  the 
effect  that,  while  the  maker  of  a  check  may 
be  liable  to  its  banker  where  he  draws  the 
instrument  in  such  an  incomplete  state  as  to 
facilitate  or  invite  fraudulent  alteration,  he 
is  not  bound  as  to  so  prepare  the  check  that 
nobody  else  can  successfully  tamper  with  it. 
It  does  not  seem  that  the  drawer  would  be 
held  carelewSS  or  negligent  if  either  of  those 
forms  were  used.  There  appear  to  be  no 
decided  cases  involving  the  contention  of 
neghgent  execution  with  reference  to  either 
manner  of  filling  in  the  amount.  {Inquiry 
from  Mo.,  Feb.,  1919.) 

Validity    of   typewriting    body 

843.  Is  it  proper  to  fill  in  the  names  and 
amounts  in  checks  and  drafts  with  a  type- 
writer? Opinion:  Typewriting  in  the  body 
of  checks  and  drafts  instead  of  being  written 
therein  with  a  pen  is  perfectly  legal  and 
valid.  The  Negotiable  Instruments  Act 
requires  that,  to  be  negotiable,  an  instru- 
ment must  be  in  writing,  but  it  also  provides 
that  writing  includes  print.  {Inquiry  from 
Ohio,  Jan.,  1915.) 

Note:     See  Pingree  Nat.  Bank  v.  Mc- 
Farland,  195  P.  (Utah)  313.   Feb.,  1921. 

Pen  line  drawn  through  payee  blank  or 
blank  left  unfilled 

844.  "WTiat  is  the  effect  on  a  check  of 
a  line  drawn  through  the  payee  blank  or  of 
its  being  left  unfilled?  Opinion:  Where  a 
check  has  a  pen  line  drawn  through  the 
payee  blank  or  the  paj'ee  blank  is  unfilled, 
it  is  an  unsafe  instrument  for  a  purchaser  to 
acquire  or  a  drawee  bank  to  pay.  In  the 
present  condition  of  the  law,  it  might  be 
held  to  be  payable  to  the  bearer  or  it  might 


185 


845-849] 


DIGEST  OF  LEGAL  OPINIONS 


bt  held  an  incomplete  and  invalid  instru- 
ment. Where  the  drawer  indorsed  the 
instrument,  it  would  be  extremely  doubtful 
whether  such  indorsement  would  cure  the 
defect.  Under  the  Negotiable  Instruments 
Law,  where  the  drawer  of  a  check  with  payee 
blank  unfilled  entrusts  the  instrument  to 
a  holder  with  authority  to  use  it  for  a 
specified  purpose  and  the  holder  in  breach 
of  trust  fills  in  his  own  name  as  payee  and 
negotiates  it  to  an  innocent  purchaser  for 
value,  the  purchaser  would  be  protected  as 
would  be  the  drawee  bank  which  paid  such  a 
check;  but  if  the  holder  who  committed  the 
breach  of  trust  should  negotiate  it  without 
authority,  lea\dng  the  payee  blank  unfilled, 
the  purchaser  would  take  the  check  subject 
to  the  defense  of  the  drawer  that  it  had  been 
used  without  his  authority  and  if  the  drawee 
bank  paid  such  a  check  with  the  payee  blank 
unfilled,  the  drawer  could  object  to  being 
charged  with  its  amount  for  like  reason. 
Mechanics  Bk.  v.  Stratton,  3  Abb.  Ct. 
of  App.  Dec.  269.  Mcintosh  v.  Lytle,  26 
Minn.  336.  Gordon  v.  Lansing  St.  Sav. 
Bk.,  94  N.  W.  (Mich.)  74L  Neg.  Inst. 
A.,  Sec.  14  (Comsr's.  dft.).  Guerrant  v. 
Guerrant,  7  Va.  L.  Reg.  639.  Hardington 
Nat.  Bk.  V.  Breslin,  128  N.  W.  (Neb.)  659. 
{Inquiry  from  Pa.,  Jan.,  1915,  Jl.) 

845.  May  a  drawee  bank  refuse  pay- 
ment of  a  check  because  of  the  failure  to  fill 
in  the  name  of  the  payee?  Opinion:  The 
bank  was  right  in  refusing  payment  of  a 
check  where  the  name  of  the  payee  had  not 
been  inserted.  True,  under  the  Negotiable 
Instruments  Act  the  holder  has  prima  facie 
authority  to  complete  the  check  by  filhng  in 
the  blank  space  but  "it  must  be  filled  up 
strictly  in  accordance  with  the  authority 
given."  The  check  presented  with  the  payee 
blank  imfiUed,  was  incomplete,  and  the 
bank  did  right  in  refusing  to  pay  it. 
(Inquiry  from  Utah,  Oct.,  1916.) 

Check  payable  to  drawee  and  presented 
by  third  person 

846.  A  customer  drew  a  check  in  which 
the  drawer  ordered  the  bank  to  pay  itself, 
and  delivered  the  check  to  a  third  "person, 
who  presented  it  to  the  bank.  The  bank 
refused  to  pay  without  making  inquiry  from 
the  drawer,  while  the  third  party  contended 
that  the  check  was  in  effect  payable  to  bearer 
and  should  be  paid  without  such  inquiry. 
Opinion :  Under  the  present  condition  of  the 
law,  the  best  course  is  for  the  bank  to  refuse 
to  pay  without  inquiry  as  to  the  authority  of 
the  holder  to  collect  the  money.    Such  check 


is  certainly  not  payable  to  bearer.  Boston 
Steel  &  Iron  Co.  v.  Steurer,  66  N.  E.  (Mass.) 
646.  Brown  v.  Rowan,  154  N.  Y.  S.  1098. 
Shns  V.  U.  S.  Tr.  Co.,  103  N.  Y.  472.  Hatha- 
way V.  County  of  Delaware,  185  N.  Y.  368. 
Kuder  v.  Greene,  72  Ark.  504.  Neg.  Inst. 
A.,  Sec.  52  (Comsr's.  dft.).  (Inquiry  from 
Wis.,  Dec,  1915,  Jl.) 

847.  G  made  his  check  upon  and  payable 

to  the  B Bank  which  he  entrusted  to  H 

who  received  credit  for  the  amount  and  drew 
out  the  proceeds  of  the  draft  which  he 
misappropriated.  Is  the  bank  a  bona  fide 
holder?  Opinion:  The  question  whether 
the  payee  of  a  draft  who  gives  value  to  a 
holder  other  than  the  drawer  can  be  a  bona 
fide  holder  who  takes  the  instrument  free 
from  defenses  of  the  drawer,  seems  to  have 
been  held  afl&rmatively  at  common  law, 
although  the  cases  are  not  uniform.  Under 
the  Negotiable  Instruments  Act  the  ma- 
jority of  cases  (a  few  contra)  are  to  the  effect 
that  the  paj  ee  may  be  a  holder  in  due  course. 
The  point  has  not  been  decided  in  Texas. 
(Inquiry  from  Tex.,  May,  1918.) 

Check  payable  to  A  for  account  ofB 

848.  A  drawee  bank  paid  a  check  drawn 
payable  to  A,  upon  which  was  written  "for 
the  account  of  B"  or  "to  be  placed  to  the 
credit  of  B."  Opinion:  The  drawee  bank 
in  pajdng  the  check  was  not  charged  with  the 
duty  of  seeing  that  A  apphed  the  money  to 
B's  account.  The  bank  was  under  no  duty 
to  procure  B's  indorsement  or  to  see  that  B's 
interest  was  protected.  Ridgely  Nat.  Bk. 
V.  Patton,  109  lU.  479.  U.  S.  FideHty_& 
Guaranty  Co.  v.  First  Nat.  Bk.  of  Monrovia, 
123  Pac.  352.  (Inquiry  from  Cal.,  March, 
1915,  Jl.) 

Unauthorized  amount  inserted  by  agent 

849.  A  certain  horse  buyer  in  Indiana 
had  been  sending  dated  and  signed  checks 
to  his  agent  in  Illinois,  who  had  authority 
to  fin  in  the  amounts.  On  one  occasion  the 
agent  made  out  a  check  for  S668.25  which 
should  have  been  for  $550  and  negotiated 
it  to  a  bank  which  had  been  in  the  habit  of 
cashing  such  checks.  The  drawer  stopped 
payment.  The  purchasing  bank  seeks  to 
hold  the  drawer.  Opinion:  Under  the 
common  law  rule  the  drawer  would  be  Hable 
to  a  bona  fide  holder  for  the  increased 
amount,  but  not  so  liable  under  the  Negoti- 
able Instruments  Law  unless  the  amount 
was  fiUed  in  before  negotiation  and  the  pur- 
chasing bank  had  no  notice  that  the  check 
was  filled  in  for  an  unauthorized  amount. 


186 


CHECKS 


[850-855 


Bk.  of  Pittsburg  v.  Neal,  22  How  (U.  S.) 
107.  Frank  v.  Lilienfield,  33  Grat.  (Va.) 
377.  Neg.  Inst.  A.,  Sec.  14  (Comsr's.  dft.). 
Boston  Steel  Co.  v.  Steiirer,  183  Mass.  140, 
66  N.  E.  646.  Guerrant  v.  Hughes,  Corp. 
Court  of  Danville,  Va.,  1902.  Bk.  of  Hus- 
ton V.  Day,  122  S.  W.  (Mo.)  756.  Madden 
V.  Gaston,  122  N.  Y.  S.  951.  Hermann  v. 
Gregory,  115  S.  W.  (Ky.)  809.  (Inquiry 
from  III.,  June,  1911,  Jl.) 

Unauthorized  arnount  inserted  by  payee 

850.  A  check  was  signed  in  blank  as  to 
amount  and  delivered  in  that  form  by  the 
maker  to  the  payee,  who  was  requested  to 
fill  in  the  amount  due  him  which  was  S8. 
The  payee  disregarded  this  request  and  filled 
in  the  sum  of  S80  and  received  payment 
from  the  bank.  At  the  time  the  bank 
cashed  the  check  the  maker  had  on  deposit 
only  S60.  What  is  the  bank's  habihty  under 
the  facts  stated?  Opinion:  It  seems  in  this 
case  the  bank  can  hold  the  drawer  liable  for 
the  full  $80.  The  drawer  having  intrusted 
the  payee  with  a  check  signed  in  blank,  he 
would  be  liable  although  the  payee  exceeded 
his  authority  and  filled  the  check  up  for  an 
increased  amount.  The  only  question  would 
be  whether,  in  view  of  the  fact  that  the 
account  was  not  good  for  such  an  amount, 
the  bank  should  have  been  put  on  notice; 
but  the  bank  has  a  right  to  pay  an  overdraft 
of  its  depositor  and  it  is  reasonable  to  beheve 
that  the  courts  would  hold  the  drawer  Kable 
to  the  bank  for  the  full  amount  paid.  (In- 
quiry from  Conn.,  April,  1916.) 

Form  of  pay  roll  check  to  protect  against  loss 

851.  A  concern  carrjdng  a  large  pay  roll 
finds  that  three-fourth  of  its  pay  roll  checks 
are  cashed  in  saloons  and  desires  a  check 
drawn  in  such  a  form  that  the  employee 
must  cash  it  at  the  bank.  Opinion:  A 
suggestion  is  made  that  the  check  be  dra^vn 
payable  to  the  payee  only,  and  on  the  back 
print  a  receipt  for  wages  to  be  signed  by 
the  payee  and  the  signature  witnessed  by  the 
paymaster,  and  under  such  signature  add  an- 
other fine  for  the  payee's  indorsement,  which 
he  must  make  in  the  presence  of  the  bank 
officer  before  payment.  Such  a  system  will 
(1)  safeguard  payor  bank  from  risk  of  iden- 
tification; (2)  reheve  payee  from  risk  of  loss, 
and  (3)  remove  saloon-cashing  evil.  (In- 
quiry from  Minn.,  Feb.,  1915,  Jl.) 

Check  to  A  or  order  and  to  ord^r  of  A 

852.  A  bank  refers  to  checks  made  pay- 
able to  the  order  of  John  Jones,  and  checks 


made  payable  to  John  Jones  or  order,  and 
asks  whether,  in  the  first  case,  John  Jones 
can  present  the  check  to  the  bank  and  com- 
pel it  to  cash  same  \vithout  his  indorsement. 
Opinion:  The  courts  have  held  that  there 
is  no  difference  between  a  check  payable  to 
John  Jones  or  order  and  payable  to  the  order 
of  John  Jones;  in  legal  effect  they  are  the 
same.  As  to  the  right  of  bank  to  require 
John  Jones'  indorsement,  when  he  presents 
the  check  at  the  bank,  the  courts  differ, 
some  holding  that  the  bank  cannot  compel 
indorsement  by  the  payee;  others  that  the 
bank  has  a  right  to  such  indorsement.  It 
seems  the  bank's  right  to  require  indorse- 
ment of  the  payee,  should  be  maintained  as 
a  reasonable  banking  custom.  (Inquiry 
from  Mo.,  April,  1916.) 

Effect  of  memorandum  on  check 

853.  A  check  was  dated  Feb.  6th  and  in 
the  left  hand  corner  was  a  pencil  memoran- 
dum "to  be  used  Feb.  8th."  Opinion:  The 
bank  could  not  safely  pay  before  February 
8th.    (Inquiry  from  N.  Y.,  March,  1911,  Jl.) 

Checks  for  less  than  one  dollar 

854.  Is  there  any  prohibition  against  the 
use  of  checks  for  less  than  one  dollar? 
Opinion:  Checks  in  sums  less  than  one 
dollar,  issued  in  the  regular  course  of  busi- 
ness payments,  are  not  prohibited  by  law. 
Section  178  of  the  United  States  Criminal 
Code  of  1909  (substance  of  such  section 
having  been  enacted  in  1862),  which  forbids 
the  making  of  a  check  for  a  less  sum  than 
one  dollar  intended  to  circulate  as  money, 
does  not  apply  to  checks  issued  for  purposes 
of  pajTnent  not  of  circulation.  The  purpose 
of  the  law  is  to  prohibit  the  issue  or  circula- 
tion of  instruments  in  sums  less  than  one 
doUar  designed  to  be  used  as  fractional 
currency.  U.  S.  Crim.  Code,  Sec.  178. 
Knox  on  U.  S.  Notes,  p.  100.  BoUes'  Finan- 
cial Hist,  of  U.  S.,  Vol.  2,  pp.  83,  84.  (In- 
quiry from  Hawaii,  April,  1911,  Jl.) 

Check  indorsed  in  another  state  not  a  foreign 
bill  of  exchange 

855.  A,  living  in  Idaho,  draws  a  check  on 
his  local  bank  payable  to  B,  who  also  resides 
in  that  state.  B  deposits  his  check  with  his 
bank,  which  clears  same  through  its  corre- 
spondent in  a  foreign  state,  and  through 
banking  channels  the  check  eventually 
reaches  A's  bank  and  is  paid.  Is  the  instru- 
ment a  foreign  bill  of  exhange?  Opinion: 
A  check  drawn  by  A  in  Idaho  upon  an  Idaho 
bank,  payable  to  B  in  Idaho,  is  not  a  foreign 


187 


856-861] 


DIGEST  OF  LEGAL  OPINIONS 


bill  of  exchange  because  it  has  been  indorsed 
by  a  bank  in  another  state.  Sec.  129  of  the 
Negotiable  Instruments  Act  defines  an 
inland  bill  as  "a,  bill  which  is,  or  on  its  face 
purports  to  be  both  drawn  and  payable 
within  this  state.  Any  other  bill  is  a  foreign 
bill."  A  check  dated  in  one  state  upon  a 
bank  in  another  state  is  a  foreign  bill.  Man- 
key  V.  Hoyt,  132  N.  W.  (S.  D.)  230.  {In- 
quiry from  Idaho,  May,  1920.) 

856.  Is  a  check  drawn  by  a  person  on  his 
bank  in  the  same  place,  sent  to  the  payee  in 
another  state,  who  indorses  it  and  cashes  it  at 
a  bank  in  such  other  state  an  inland  or 
foreign  bill  of  exchange?  Opinion:  Such  a 
check  is  an  inland  bill  of  exchange;  it  does 
not  become  a  foreign  bill  of  exchange  be- 
cause it  is  made  payable  to  a  person  residing 
in  another  state.  {Inquiry  from  Iowa,  Sept., 
1917.) 

Signatures 

Where  signature  does  not  correspond  with  one 
filed  with  bank 

857.  Is  a  bank  hable  for  refusing  to  pay 
a  check  because  the  signature  dos  not  agree 
with  the  one  left  with  the  bank.  Opinion: 
There  is  no  liability.  For  example,  where 
the  signature  on  file  is  ''J.  Brown  Smith"  a 
bank  would  be  justified  in  refusing  to  pay 
a  check  signed  "J.  B.  Smith"  or  "John  B. 
Smith,"  even  though  genuine.  Morse  on 
Banks  and  Banking,  Sec.  432.  {Inquiry 
from,  D.  C,  May,  1912,  Jl.) 

Signature  made  with  hectograph 

858.  What  is  the  legal  effect  of  making 
a  signature  with  a  hectograph  copy?  Opin- 
ion: The  signature  of  a  depositor  to  a  check 
made  with  a  hectograph  copy,  if  imprinted 
by  the  depositor  or  by  his  authority,  is  vahd 
and  binding;  but  the  payor  bank  would  take 
the  risk  in  paying  the  check  where  the 
imprint  was  unauthorized,  unless  the  de- 
positor was  negligent  or  agreed  not  to  hold 
the  bank  responsible  in  such  case.  Moyers 
V.  McRimmon,  53  S.  E.  (N.  C.)  447.  Robb 
V.  Penn.  Co.,  40  Atl.  (Pa.)  969.  {Inquiry 
from  III,  Dec,  1915,  Jl.) 

Signature  of  drawer  by  hand  of  another 

859.  A  bank  in  Kansas  purchased  a  sight 
draft  on  a  Nebraska  bank,  drawn  by  a 
depositor  of  the  Nebraska  bank  but  signed 
in  his  name  at  his  request  by  his  cousin,  who 
was  a  customer  of  the  Kansas  bank.  The 
draft  was  dishonored.  What  are  the  rights  of 
the  Kansas  bank?  Opinion :  The  Kansas  bank 
has  recourse  upon  the  drawer  only,  and  not 


upon  its  customer  who  introduced  the 
drawer  and  signed  the  drawer's  name  to  the 
draft  on  the  latter's  request.  {Inquiry  from 
Kan.,  Aug.,  1912,  Jl.) 

Indorsement  but  not  signature  in  handwriting 
of  drawer 

860.  A  check  payable  to  self  is  signed 
in  the  depositor's  name  by  the  hand  of 
another,  but  the  depositor  indorses  the 
check  by  his  own  hand.  Is  the  check  good? 
Opinion:  Such  a  point  seems  never  to  have 
been  before  the  courts  for  decision  but,  if  the 
bank  should  pay  such  a  check,  it  is  im- 
possible to  see  how  the  depositor  could  deny 
responsibility.  The  Negotiable  Instruments 
Act  provides  that  "the  signature  of  any 
party  may  be  made  by  a  duly  authorized 
agent"  and  by  indorsing,  the  depositor 
virtually  ratifies  the  signature  of  his  name 
by  hand  of  another.  It  is  a  general  rule  that 
every  indorser  warrants  to  subsequent 
holders  in  due  course  the  genuineness  of  the 
instrument  and  while  ordinarily  this  warran- 
ty does  not  extend  to  the  drawee  as  to  gen- 
uineness of  the  drawer's  signature,  because 
the  drawee  is  bound  to  know  such  signature, 
still  where  the  indorser  is  the  person  named 
as  drawer,  it  cannot  be  seen  how  the  cus- 
tomer could  repudiate  his  check,  if  paid  by 
the  bank.     {Inquiry  from  Me.,  July,  1916.) 

Signature  by  mark  attested  by  witness 

861.  What  is  the  proper  manner  in 
which  to  have  an  illiterate  person  sign  his 
name  in  connection  with  checks,  withdrawal 
shps,  promissory  notes,  etc?  Opinion: 
Wlien  a  man  cannot  write,  the  usual  method 
is  to  have  him  make  his  mark  in  the  form  of 
a  cross  and  to  have  this  mark  attested  by  a 
subscribing  witness.  The  Wisconsin  statute 
(Wis.  Stat.  1917,  Sec.  4971  Subd.  19)  ex- 
pressly provides  that,  if  a  person  is  unable  to 
write,  his  signature  may  be  written  in  his 
presence  by  some  other  person  by  his  direc- 
tion, or  he  may  sign  by  his  mark.  It  does 
not  require  that  the  mark  shall  be  witnessed, 
and  the  court  cannot  add  that  as  requisite. 
(Finlay  v.  Prescott,  104  Wis.  614,  80  N.  W. 
930),  where  the  court  said  on  this  point: 
"The  statute  does  not  enlarge  the  methods 
of  executing  written  instruments,  but  modi- 
fies the  common-law  rule  so  that  a  person 
can  sign  his  mark  only  when  he  is  unable  to 
write.  It  does  not  add  a  requirement  that 
the  mark  shall  be  witnessed."  Notwith- 
standing the  above,  for  all  practical  pur- 
poses, a  subscribing  witness  is  necessary  as 
there  is  no  way  to  identify  a  mark  by  mere 


188 


CHECKS 


[862-868 


inspection.  The  signature  by  mark  would 
be  the  manner  of  execution,  not  only  of 
checks,  notes,  etc.,  but  also  of  deeds  and 
mortgages.  {Inquiry  from  Wis.,  April, 
1919.) 

Signature  hy  mark  with  notary's  certificate  in 
foreign  language 

862.  A  check  was  signed  with  a  mark 
without  a  witness,  and  for  that  reason  was 
dishonored  and  protested.  Notary's  certifi- 
cate in  a  foreign  language  that  the  signature 
was  genuine  was  attached  but  the  bank  was 
not  advised  of  the  nature  of  the  certificate. 
Were  the  dishonor  and  protest  justified? 
Opinion:  Refusal  of  payment  and  protest 
were  justified  because  of  the  lack  of  a  wit- 
ness to  the  mark  and  because  the  drawee 
bank  had  no  translation  or  interpretation  of 
the  certificate  in  the  foreign  language.  DiH- 
gent  search  has  revealed  but  two  cases  bear- 
ing on  the  question.  Meyer  v.  Witter,  25 
Mo.  83,  holds  that  to  make  the  contents  of 
a  document  in  a  foreign  language  evidence,  it 
must  be  translated  and  be  brought  home  to 
the  party  against  whom  it  is  sought  to  be 
used.  Sartor  v.  BoHnger,  59  Tex.  411,  holds 
that  a  deed  authenticated  in  a  foreign 
language,  without  a  translation,  is  properly 
excluded  as  evidence.  It  would  seem  to 
follow  from  these  cases  that  the  refusal  of 
payment  and  the  protest  were  justified. 
(Inquiry  from  Cat.,  June,  1919.) 

Signature  hy  attorney 

863.  A  bank  inquires  as  to  the  usual 
method  to  pursue  when  a  customer  of  the 
bank  desires  to  authorize  another  person  to 
draw  checks  on  his  account.  Opinion :  The 
form  of  signature  maj'^  be  agreed  upon, 
"John  Jones  by  Mary  Jones,  attorney"  is 
the  usual  form.  If  the  bank  agrees  to  honor 
checks  on  the  account  of  John  Jones  when 
signed  by  Mary  Jones,  this  would  be  suffi- 
cient to  protect  the  bank,  although  the 
first  form  is  preferable  as  that  indicates  the 
account  drawn  upon.  Mary  Jones  might 
have  a  separate  account  in  the  bank.  The 
preferable  method  is  for  the  bank  to  have  on 
file  a  power  of  attorney  from  the  depositor 
appointing  the  other  person  as  attorney 
and  providing  that  under  such  power  the 
checks  should  be  signed  in  the  name  of  the 
customer  by  the  attorney.  {Inquiry  from 
Okla.,  March,  1919.) 

864.  A,  who  had  power  of  attorney 
from  B  to  sign  checks  for  B,  signed  B's 
name  and  refused  to  sign  his  own  name  as 
attorney  under  B's  name.    Opinion:    The 


signature  of  B's  name  without  adding  "per 
A,  attorney"  i  sufficient.  Forsyth  v.  Day, 
41  Me.  382.  /irst  Nat.  Bk.  v.  Layhed,  28 
Minn.  396.  1  Daniel  Neg.  Inst.,  Sec.  299. 
1  Parsons  Bills  &  Notes,  91,  92.  {Inquiry 
from  S.  C,  May,  1913,  Jl.) 

865.  An  agent,  acting  under  a  power  of 
attorney,  signed  a  check  in  his  individual 
name,  without  more.  The  agent  had  no 
personal  account  in  the  bank  to  which  the 
check  could  be  charged.  Should  the  bank 
honor  the  check?  Opinion:  Unless  the 
power  of  attorney  is  restrictive  as  to  the 
form  of  signature,  a  check  signed  in  the 
name  of  the  agent  is  good,  although  it  is 
customary  for  the  agent  to  sign  in  the  name 
of  the  principal  by  himself  as  attorney. 
Some  powers  of  attorney  constitute  the 
agent  "my  true  and  lawful  attorney  for  me 
and  in  my  name"  to  draw  checks,  etc.  Such 
a  form  literally  construed  would  confine  the 
authority  to  checks  drawn  in  the  name  of 
the  principal.  Where  the  power  of  attorney 
gives  the  agent  authority  to  sign  checks  "in 
my  own  name  or  in  his  own  name,"  or  gives 
general  authority  to  sign  checks  on  the 
principal's  account,  there  is  no  question  as 
to  the  vahdity  of  a  signature  in  the  agent's 
name.    {Inquiry  from  Pa.,  Feb.,  1921.) 

Check  signed  "John  Doe  per  Jennie  Doe'' 

866.  A  check  signed  "John  Doe  per 
Jennie  Doe"  was  presented  to  a  bank,  which 
carried  an  account  for  John  Doe.  Jennie 
Doe  was  John  Doe's  wife  but  no  authoriza- 
tion to  pay  was  filed  with  the  bank.  Opin- 
ion: In  the  absence  of  authority  from  John 
Doe,  the  bank  should  not  pay  such  check.  If 
checks  so  signed  are  honored,  the  husband 
can  recover  unless  he  has  authorized  or 
ratified  the  act.  {Inquiry  from  N.  Y.,Oct., 
1912,  Jl.) 

Check   signed   "B   hy  A" 

867.  A  check  signed  "B  by  A"  was 
presented  through  the  clearing  house  and 
the  drawee,  ignorant  of  A's  authority  (which 
he  actually  had)  refused  pa>nuent  and  pro- 
tested the  item  because  of  the  signature. 
Opinion:  The  drawee  rightfully  refused 
pajTTient  and  the  check  being  genuine  and 
not  a  forgery,  its  protest  was  justifiable. 
The  presenting  bank  rather  than  the  drawee, 
was  the  proper  one  to  hand  the  check  over 
to  the  notarv  for  protest.  {Inquiry  from 
Miss.,  Feb.,  1910,  Jl.) 

Signature  hy  agent  of  insurance  company 

868.  A  bank's  customer  is  a  representa- 
tive of  a  Philadelphia  insurance  companj'- 


189 


869-874] 


DIGEST  OF  LEGAL  OPINIONS 


and'^has  asked  the  bank  to  procure  him  a 
check  book  for  his  personal  account.  In  the 
corner  thereof  he  desires  to  have  printed  the 
name  of  the  insurance  company,  with  his 
name  as  local  manager.  The  bank  asked 
him  to  procure  from  the  company  a  letter 
authorizing  him  to  use  its  name  on  the  check. 
The  bank  asks  if  it  is  assuming  any  responsi- 
bihty  in  connection  therewith.  Opinion: 
In  the  case  stated,  it  is  a  proper  safeguard  to 
request  and  procure  the  authorization  of  the 
company  to  the  printing  of  its  name  on  the 
margin  of  the  check  to  be  signed  by  the 
local  manager  in  his  personal  capacity.  If 
he  should  deposit  in  this  account  checks 
made  payable  to  him  as  agent  of  the  insur- 
ance company,  it  would  be  safe  to  honor  his 
personal  check  against  the  deposit,  but  if  the 
checks  were  made  payable  to  the  insurance 
company  and  deposited  by  the  local  mana- 
ger, there  would  be  serious  question  as  to 
his  authority  to  indorse  and  check  out  the 
proceeds  and  it  might  be  well,  if  such  de- 
posits are  contemplated,  to  include  in  the 
letter  of  authority,  an  authorization  from  the 
insurance  company  to  the  agent  to  indorse 
checks  payable  to  the  company  and  authoriz- 
ing the  bank  to  honor  the  personal  checks 
of  the  agent  against  such  deposits.  {Inquiry 
from  Pa.,  July,  W17.) 

Corporation  signature 

869.  The  board  of  directors  of  a  corpora- 
tion authorized  its  treasurer  to  open  an 
account  and  sign  merely  the  corporation 
name,  as,  "The  L.  R.  Waist  Co.,  Incorpo- 
rated" in  his  own  handwriting,  submitting  a 
specimen  signature  to  the  bank  together 
with  the  foregoing  authorization.  Opinion: 
The  signature  "The  L.  R.  Waist  Co.",  in  the 
form  quoted  would  be  legal  and  the  bank 
would  be  just  as  well  protected  in  paying  a 
check  so  signed,  as  paying  any  check  on  the 
written  signature  of  an  individual  depositor. 
{Inquiry  from  N.  Y.,  Sept.,  1916.) 

870.  A  bank  asks  whether  it  is  au- 
thorized to  pay  out  money  on  the  signature 
left  with  it  when  an  account  is  opened 
"Gem  Manufacturing  Company,  by  J.  B. 
Jones,  Vice  President"  even  if  it  were  a 
corporation  whose  articles  provided  for  the 
signature  of  two  officers.  Opinion:  Where 
the  bank  has  knowledge  that  the  articles 
provide  for  the  signature  of  two  officers,  it 
would  certainly  be  unsafe  to  pay  on  the 
signature  of  J.  B.  Jones,  Vice  President. 
When  an  officer  deposits  money  in  the  name 
of  a  corporation  the  property  becomes  the 
property  of  the  corporation  and  then  the 


question  is  whether  the  officer  who  makes 
the  deposit  has  the  authority  to  withdraw 
the  money.  There  are,  doubtless,  many  cases 
where  such  is  the  fact,  but  it  would  seem  the 
safer  banking  practice  in  all  cases,  not  to 
rely  on  the  statement  of  the  officer,  but  to 
request  that  the  board  of  directors  of  the 
corporation  pass  a  resolution  naming  the 
officer  or  officers  who  have  the  check-draw- 
ing power,  and  that  same  be  filed  with  the 
bank  for  its  protection.  {Inquiry  from 
Iowa,  Feb.,  1916.) 

Exchange  Clauses 

Efect  of  provision  ''with  exchange" 

871.  A  check  drawn  and  payable  at  the 
same  place  contained  the  words  "with 
exchange."  The  last  indorser  attempted  to 
collect  10  cents  exchange  in  addition  to  the 
face  amount  of  the  check.  Opinion:  The 
words  "with  exchange"  have  no  effect  as  in 
this  case  there  could  be  no  exchange. 
Chandler  v,  Calvert,  87  Mo.  App.  368. 
Buck  v.  Harris,  125  Mo.  App.  365.  Clausen 
v.  Stone,  29  111.  116.  Hill  v.  Todd,  29  111. 
103.     {Inquiry  from  Iowa,  Jan.,  1912,  Jl.) 

872.  Where  a  check  is  drawn  and  pay- 
able at  one  and  the  same  place,  the  words 
"with  exchange"  therein  are  without  effect 
and  meaningless.  Where  A  in  New  York 
draws  his  check  on  his  bank  in  New  York 
"with  exchange"  and  mails  it  to  a  payee  in 
Omaha,  Nebraska,  it  is  presumably  the 
drawer's  intention  that  the  New  York  bank 
should  pay  the  exchange  on  Omaha  so  that 
the  payee  might  receive  the  face  amount; 
but  to  carry  out  that  intention  the  check 
should  specifically  provide  "with  exchange 
on  Omaha."  Garrettson  v.  Bk.,  47  Fed. 
Rep.  467.  See  citations  in  Opinion  No.  871. 
{Inquiry  from  Neb.,  Jan.,  1913,  Jl.) 

''With  exchange"  and  "In  exchange" 

873.  Where  check  is  drawn  merely 
"with  exchange"  without  specif 3dng  ex- 
change on  another  place,  what  amount  is 
payable?  Opinion:  The  face  of  the  check 
is  proper  sum  payable.  {Inquiry  from  S.  D., 
Feb.,  1912,  Jl.) 

874.  A  bank  received  for  collection  a 
check  drawn  "with  exchange,"  on  a  local 
bank.  It  is  instructed  to  remit  par.  On 
presentation  the  drawee  bank  refused  to  pay 
the  check  with  the  exchange  added,  but 
offered  to  pay  the  face.  Is  the  item  pro- 
testable?  Opinion:  The  check  does  not 
provide  for  exchange  on  any  particular  place 
and,  as  the  check  is  payable  at  the  place 
where  the  payor  bank  is  located,  the  words 


190 


CHECKS 


[875-878 


"with  exchange"  should  be  construed  as 
ambiguous  and  indefinite,  not  clearly  indi- 
cating whether  the  exchange  is  on  the  place 
of  the  drawer  or  on  the  place  where  the 
holder  or  payee  is  located.  Tender  of 
amount  of  the  face  of  the  check  should 
satisfy  the  order,  and  the  check  would  not 
properly  be  protestable  for  refusal  by  bank 
to  pay  in  addition  the  amount  of  exchange 
on  the  place  of  payee.  It  has  been  held  in 
several  cases  where  an  instrument  is  issued 
and  payable  at  the  same  place  "with  ex- 
change," that  the  words  "with  exchange" 
are  surplusage  and  have  no  effect.  Mill  v. 
Todd,  29  111.  101.  {Inquiry  from  La.,  March, 
1920.) 

Effect  on  negotiability  of  provision  "in 
exchange" 

875.  A  Chicago  bank  sends  an  Iowa 
bank  for  collection  and  remittance  a  check 
drawn  on  X  bank  in  Iowa  payable  "in 
exchange."  The  collecting  bank  remits  the 
Chicago  bank  the  face  of  the  check,  adds  the 
exchange,  and  presents  to  the  X  bank  which 
refuses  to  pay  the  amount  plus  exchange. 
The  X  bank  contends  the  collecting  bank  has 
no  right  to  charge  it  with  exchange  for  the 
service  of  remitting.  The  latter  contends 
that  on  a  check  so  drawn  the  drawer  agrees 
to  pay  the  exchange  charges  which  would 
otherwise  fall  on  the  payee.  It  asks  as  to  its 
right  to  protest  the  check.  Opinion:  Ac- 
cording to  some  courts  the  check  is  not 
negotiable  because  not  payable  in  money 
and  it  is  therefore  questionable  whether  it  is 
properly  protestable.  (Inquiry  from  Iowa, 
Feb.,  1910,  Jl.) 

876.  Checks  are  sometimes  made  pay- 
able "in  New  York  exchange"  or  "in  New 
York  exchange  at  current  rates"  and  the 
question  frequently  arises  as  to  the  nego- 
tiabihty  of  an  instrument  so  paj'able.  Opin- 
ion: In  Minnesota,  Missouri  and  Illinois  it 
has  been  held  that  the  instrument  is  not 
payable  in  money,  but  in  a  l^ill  of  exchange 
which  is  commodity  or  property  and  there- 
fore is  not  negotiable.  Another  view  taken 
by  a  Federal  Court  holds  that  the  instru- 
ment is  payable  in  money  with  exchange 
added  and  is  therefore  nogotialjle.  A  more 
recent  case  in  the  Federal  Court  holds  that 
the  instrumeut  is  payable  in  money  {i.e.  "in" 
or  by  giving)  a  bill  of  exchange  therefor  on 
New  York  and  is  negotiable  under  the 
Negotiable  Instruments  Act.  It  is  o})vious 
in  view  of  the  above  conflict  that  no  opinion 
can  be  asserted  with  positiveness  either  in 
afl&rmation  or  denial  of  the  negotiability  of 


a  check  payable  "in  New  York  exchange." 
Chandler  v.  Calvert,  87  Mo.  App.  632. 
Hogue  V.  Edwards,  9  111.  App.  153.  First 
Nat.  Bk.  of  Brooklvn  v.  Slette,  67  Minn. 
425.  Bradley  v.  Till,  4  Biss.  473.  Fed.  Cas. 
No.  1783.  Securitv  Tr.  Co.  v.  Des  Moines 
County,  198  Fed.  ^331.  Bull  v.  Bk.,  123 
U.  S.  105.  Haddock  v.  Woods,  46  Iowa  433. 
Dille  V.  White,  109  N.  W.  (Iowa)  909.  Neg. 
Inst.  A.,  Sec.  6,  (Comsr's.  dft.),  Sec.  7645, 
111.  dft.  {Inquiry  from  N.  Y.,  March,  1917, 
Jl.) 

'^Payable  only  in    New    York  exchange  at 
current  rates" 

877.  A  bank  had  imprinted  on  its  cus- 
tomers' checks  "Payable  only  in  New  York 
exchange  at  current  rates"  and  received  a 
circular  issued  by  the  Federal  Reserve 
Board  that  a  check  with  such  wording  was 
not  a  check  acceptable  for  clearing  at  par 
through  Federal  Reserve  Banks.  Can  the 
bank  have  such  wording  imprinted  on  all 
customers'  checks  without  violating  any  rule 
or  law  promulgated  by  the  Federal  Reserve 
Board?  Opinion:  Some  of  the  old  cases 
have  held  that  an  instrument  "payable  in 
New  York  exchange"  is  not  negotiable  be- 
cause not  payable  in  money,  but  in  a  coni- 
modity,  but  in  a  recent  Federal  Court  deci- 
sion it  has  been  held  that  such  an  instrument 
means  the  same  as  if  it  provided  "with  New 
York  exchange,"  and  is  payable  in  money 
and  negotiable.  If  a  customer  of  a  bank 
desires  to  make  his  checks  payable  only  in 
New  York  exchange  at  current  rates  there 
is  nothing  in  the  law  which  would  prevent 
him  from  so  doing,  and  there  is  nothing 
which  would  prevent  a  bank  making  the 
checks  of  its  customers  so  payable,  for,  while 
it  prints  the  checks,  it  is  for  the  convenience 
of  its  customers.  {Inquiry  from  Tenn., 
Aug.,  1916.) 

Bearer  checks 

Possession  prima  facie  evidence  of  title 

878  Does  the  possession  of  a  check 
drawn  to  bearer  constitute  in  every  case 
prima  facie  evidence  of  ownership,  con- 
ferring authority  on  the  bank  to  pay  to  any 
holder?  May  the  drawer  repudiate  the  pay- 
ment on  the  ground  that  the  holder  was  not 
the  bearer  to  whom  he  delivered  the  check 
and  intended  that  it  should  be  paid?  Opin- 
ion: Possession  of  a  bearer  check  consti- 
tutes sufficient  evidence  of  ownership  to 
authorize  payment  to  the  holder,  whoever 
he  mav  be.  In  the  case  of  Newcombe  v. 
Fox,  IN.  Y.  App.  Div.  389,  it  was  held  that 


191 


879-884] 


DIGEST  OF  LEGAL  OPINIONS 


where  the  instrument  is  paj'-able  to  bearer, 
or,  if  payable  to  order,  is  indorsed  in  blank, 
possession  is  sufficient  evidence  of  title  under 
which  to  maintain  an  action  and  the  court 
will  not  inquire  into  the  right  of  possession 
unless  there  is  some  allegation  of  mala  fides. 
Equally  where  the  holder  of  a  bearer  check 
presents  it  for  payinent  and  the  bank  has  no 
knowledge  or  information  that  he  is  a  thief 
or  finder  or  person  other  than  the  one  the 
drawer  intended  to  receive  payment,  the 
bank  will  be  protected  in  making  the  pB,y- 
ment.    (Inquiry  from  N.  Y.,Oct.,  1917.) 

Stranger    entitled    to    payment 

879.  (1)  Is  a  bank  justified  in  refusing 
to  cash  a  check  payable  to  cash,  presented  by 
an  unknown  man,  who  cannot  be  properly 
identified?  (2)  If  the  check  payable  to  cash 
is  indorsed  by  a  person  other  than  the  one 
presenting  the  same,  and  the  bank  does  not 
recognize  the  first  indorsement,  and  does  not 
feel  that  the  person  trjdng  to  cash  the  same 
is  responsible,  may  it  refuse  to  pay  him,  with- 
out having  the  first  indorsement  checked  up? 
Opinion:  (1)  It  is  quite  customary  for  banks 
to  request  the  holder  of  a  check  payable  to 
bearer  (a  check  payable  to  cash  is  payable 
to  bearer)  to  indorse  his  name  on  same  for 
the  purpose  of  identifying  the  person  receiv- 
ing the  money  and  this  request  is  generally 
complied  with.  But  legally  such  checks  do 
not  require  indorsement,  and  if  the  holder 
should  stand  on  his  strict  rights,  the  bank 
would  be  obliged  to  pay  him  without  in- 
dorsement or  else  suffer  the  check  to  be 
protested.  (2)  The  same  observations 
would  apply  to  a  check  payable  to  cash  and 
indorsed  in  blank  by  a  person  other  than  the 
presenting  holder.  It  would  still  be  payable 
to  bearer.    {Inquiry  from  N.  Y.,  Feb.,  1921.) 

Check  payable  to  "cash''  is  payable  to  bearer 

880.  Is  a  bank  protected  in  paying  a 
check  to  "Cash"  to  an  indorser?  Or  is  the 
contention  valid  that  because  the  check  is 
not  payable  to  a  specified  person  or  bearer, 
it  is  not  negotiable?  Opinion:  A  check 
payable  to  '^Cash"  is  payable  to  bearer  and 
the  bank  upon  which  such  check  is  drawn 
must  make  pa3^ment  to  the  bearer  and  is 
absolutely  protected  in  so  doing  against  its 
depositor  in  the  absence  of  a  stop  order  or 
suspicious  circumstances  surrounding  the 
holder  who  presents  the  same  for  payment. 
(Inquiry  from  Wyo.,  Aug.,  1917.) 

881.  A  check  payable  to  the  order  of 
"cash"  contains  several  indorsements  in 
blank  and  one  special  indorsement.    Opin- 


ion: The  instrument  is  payable  to  bearer 
and  is  transferable  by  delivery.  It  does  not 
require  any  indorsement  at  all,  either  of 
maker  or  any  one  else,  to  make  it  transfer- 
able or  payable.  Neg.  Inst.  A.,  Sec.  40 
(Comsr's.  dft.)  {Inquiry  from  Wis.,  Jan., 
1910,  Jl.) 

Check  to  "J.  S.  {bearer^  not  payable  to  bearer 

882.  A  check  was  drawn  payable  to  the 
order  of  "John  Smith  (bearer)."  A  party 
indorsed  it  John  Smith  and  presented  the 
item  to  the  drawee  which  paid  it  without 
identification.  Opinion:  The  check  was  not 
payable  to  any  bearer  but  to  John  Smith, 
who  was  the  bearer,  and  identification  was 
therefore  necessary  for  the  bank's  safety. 
Warren  v.  Scott,  32  la.  22.  {Inquiry  from 
Mass.,  Jan.,  1912,  Jl.) 

Effect  where  "Or  bearer''  struck  out 

883.  Where  the  drawer  uses  a  form  of 

check   "pay  to    or  bearer," 

scratches  out  "or  bearer"  and  makes  the 
check  read  "ps.y  to  John  Jones,"  What 
is  the  nature  of  the  check?  Opinion:  This 
is  neither  a  bearer  check  nor  an  order  check 
but  is  one  payable  to  John  Jones  only  and 
is  not  negotiable.  Miss.  Code  1906,  Sec. 
400L  Craig  v.  Vicksburg,  31  Miss.  216. 
{Inquiry  from  Miss.,  April,  1912,  Jl.) 

Gambling  consideration 

Check    given  for    gambling    debt 

884.  Richard  Roe  issues  his  check  to  his 
own  order  and  after  indorsing  it  delivers  it 
to  John  Doe  in  payment  of  a  gambling  debt. 
The  check  was  presented  by  Doe  and  re- 
turned to  him  by  the  bank  without  notation, 
in  obedience  to  Roe's  stop  order.  Later 
Roe  cashed  the  check  at  another  bank,  which 
had  no  knowledge  of  the  whole  transaction. 
This  bank  regarding  the  instrument  as  a 
bearer  check  seeks  to  hold  the  drawer  re- 
sponsible. Opinion:  In  Illinois  and  many 
other  states  a  check  or  other  instrument 
given  in  payment  of  a  gambhng  debt  is  void 
and  has  been  held  unenforceable  even  in  the 
hands  of  a  bona  fide  holder.  In  some  states 
it  has  been  held  the  Negotiable  Instruments 
Act  protects  the  holder  in  due  course  of  such 
an  instrument,  while  in  other  states  the 
contrary  has  been  held.  Pope  v.  Hanke,  155 
111.  617.  40  N.  E.  839.  Wirt  v.  Stubblefield, 
17  App.  D.  C.  283.  Alexander  v.  Hazelrigg, 
97  S.  W.  (Kv.)  353.  {Inquiry  from  III. 
Nov.,  1918,  Ji.) 


192 


CHECKS 


[885-887 


885.  A  bank  cashed  a  check  in  good  faith. 
Payment  was  stopped  by  the  drawer  who 
declared  that  the  check  was  given  for  a 
gambhng  debt.  Opinion:  Before  the 
Negotiable  Instruments  Act  it  was  held 
that  the  bank  which  innocently  purchased 
a  check  or  note  given  for  a  gambling  debt 
and  declared  void  by  state  statute  had  no 
right  of  recovery.  The  decisions  conflict 
whether  the  Negotiable  Instruments  Act 
protects  a  holder  in  due  course  in  such 
cases.  That  Act  provides  that  ''a  holder  in 
due  course  holds  the  instrument  free  from 
any  defect  of  title  of  prior  parties  and  free 
from  defenses  available  to  prior  parties 
among  themselves,"  and  it  has  not  been  de- 
cided in  West  Virginia  whether  this  provision 

'      repeals  the  state  statute  declaring  gaming 
'>     contracts  void.    West  Va.  Code,  1913,  Chap. 

97,  Sec.  4168    Hulbert  &  Sons  v.  Straub,  54 

W.  Va.  303.    Neg.  Inst.  A.,  Sec.  57  (Comsr's. 

dft.).    Wirt  V.  Stubblefield,  17  App.  D.  C. 

283.    Alexander  v.  Hazelrigg,  97  S.  W.  (Ky.) 

,      353.     {Inquiry  from  W.V a.,  Oct.,  1916,  Jl.) 

f 

i 

Enforceability  of  hank  draft  lost  at  gambhng 

886.  The  customer  of  a  bank  receives 
I      the  bank's  draft  in  exchange  for  his  check, 

which  draft  is  lost  in  a  game  of  poker.  The 
customer  asks  for  and  is  granted  a  stop 
payment  of  the  draft  which  has  been  nego- 
tiated by  the  winner  for  value  to  a  bank 
outside  the  state.  The  customer  agrees  to 
stand  any  loss  resulting  from  the  stop 
payment  order.  May  the  purchasing  bank, 
as  a  holder  in  due  course,  recover  on  the 
draft  from  the  issuing  bank?  Opinion: 
The  New  Mexico  statute  provides:  "All 
securities,  bonds,  bills,  notes  or  convey- 
ances, when  the  consideration  is  money  or 
property  won  at  gambling;  or  at  any  game 
or  gambhng  device,  shall  be  void."  Stat. 
1915  Sec.  2510,  Subd.  4.  Sec.  2511  provides 
that  "the  assignment  of  any  bond,  bill,  note, 
judgment,  convej'^ance  or  other  security, 
shall  not  affect  the  defense  of  the  person 
executing  the  same." 

Prior  to  the  Negotiable  Instruments  Act, 
the  courts  quite  generally  held,  where  a 
statute  made  an  instrument  based  on  a 
gambhng  consideration,  absolutely  void, 
that  it  gathered  no  vitahty  by  negotiation 
to  a  bona  fide  holder  and  remained  void  and 
unenforceable  in  his  hands.  See,  for  exam- 
ple, Birmingham  Trust  &  Savings  Co.  v. 
Curry,  49  So.  (Ala.)  319;  Swinney  v.  Ed- 
wards, 55  Pac.  (Wyo.)  306.  But  a  new 
question  has  arisen  under  that  act,  which 
gives  enforceable  rights  to  a  holder  in  due 


course  free  from  defects  of  title  of  prior 
parties  and  free  from  defense  available  to 
prior  parties  among  themselves  and  the  act 
includes  "an  illegal  consideration"  among 
the  defects  of  title  from  which  a  holder  in  due 
course  is  freed.  Whether  under  the  act  a 
holder  in  due  course  may  enforce  a  note 
given  for  a  gambling  debt  and  whether  to 
that  extent  the  act  has  repealed  the  statutes 
making  such  an  instrument  void  has  not 
been  passed  upon  in  New  Mexico.  Wirt  v. 
Stubblefield,  17  App.  Cas.  D.  C.  283,  holds 
the  defense  unavailable  against  a  holder  in 
due  course.  Alexander  v.  Hazelrigg,  123 
Ky.  67  and  Raleigh  Co.  Bank  v.  Poteet,  74 
W.  Va.  511  hold  the  defense  available  and 
the  note  void.  In  the  case  submitted,  how- 
ever, the  consideration  was  not  money  won 
at  gaming.  The  draft  has  a  vahd  inception 
as  it  was  issued  in  consideration  for  the  cus- 
tomer's check,  and  was  later  transferred  for 
money  won  at  gaming.  This  raises  the 
further  question  whether  an  instrument, 
valid  in  its  inception,  but  transferred  by  the 
payee  for  a  gambling  debt  is  avoided  or 
whether  negotiation  by  the  transferee  to  an 
innocent  purchaser  will  give  the  latter  en- 
forceable rights  against  the  maker.  There 
is  something  to  be  said  for  each  view,  but  the 
better  view  would  seem  to  be  that  the  New 
Mexico  statute  does  not  preclude  enforce- 
ment by  a  holder  in  due  course;  otherwise 
it  could  be  contended  that  even  a  national 
bank  note  lost  by  the  holder  in  a  poker  game 
was  thereby  avoided  and  could  not  after- 
wards be  enforced  by  a  subsequent  holder. 
There  is  a  certain  analogy  in  an  early  Vir- 
ginia case,  Whitworth  v.  Adams,  5  Rand. 
333,  holding  that  an  intermediate  indorse- 
ment of  a  vahd  note  for  an  usurious  con- 
sideration, did  not  vitiate  the  note  in  the 
hands  of  a  subsequent  bona  fide  purchaser 
without  notice  of  the  usury.  The  equities 
of  the  case  are  certainly  with  the  holder  in 
due  course. 

While  it  would  seem  probable  that  the 
bank  drawing  the  draft  is  liable,  yet  in  view 
of  the  uncertainty  of  the  question  and  the 
fact  that  the  customer  will  indemnify  it 
against  any  loss,  its  proper  course  is  to  stand 
suit  upon  the  draft  and  leave  it  to  the  court 
to  decide.    (Inquiry  from  N.  M.,  Feb.,  1921.) 

Negotiability 

Provisions  affecting   negotiability 

To  "order  of  payee  shown  on  back" 
887.     The    following    bank    checks    are 
submitted  for  criticism:  Check  No.  1  is  the 


193 


888-892] 


DIGEST  OF  LEGAL  OPINIONS 


ordinary  form  of  bank  check,  except  that 
the  payee  blank  contains  the  words  "pay  to 
the  order  of  payee  shown  on  back."  The 
payee  blank  of  check  No.  2  contains  the 
words  "pay  to  the  order  of  payee  and  all 
indorsers  shown  on  back."  Opinion:  A 
check  made  payable  "to  the  order  of  payee 
shown  on  back"  designates  the  payee  with 
sufficient  certainty  and  is  negotiable.  The 
use  of  this  form  in  check  No.  1  is  not  prefer- 
able to  the  old  style  of  forms.  The  other 
form  submitted  which  is  made  payable  to  the 
"order  of  payee  and  all  indorsers  shown  on 
back"  would  not  serve  a  useful  purpose  be- 
cause it  provides  for  a  multiplicity  of  payees. 
Neg.  Inst.  A.,  Sec.  8  (Comsr's.  dft.).  Black- 
man  V.  Lehman,  63  Ala.  547.  U.  S.  v. 
White,  2  Hill  59.  {Inquiry  from  Kan.,  Dec, 
1918,  Jl.) 

"Or  order"  erased 

888.  A  check  is  drawn  payable  to  John 
Smith  wherein  the  words  "or  order"  are 
erased.  A  bank  requests  advice  as  whether, 
in  view  of  such  erasure,  it  is  obligatory  upon 
the  bank  to  pay  John  Smith  to  whom 
it  is  made  payable,  or  has  John  Smith  the 
right  to  transfer  the  paper  by  indorsement 
the  same  as  if  those  words  had  not  been 
erased.  Opinion:  A  check  payable  to  John 
Smith,  the  words  order  or  bearer  having 
been  erased  is  non-negotiable  and  is  payable 
to  John  Smith  only.  John  Smith  can  assign 
his  rights  in  the  check  but  the  assignee  takes 
no  greater  title  than  possessed  by  the  payee. 
The  bank  should  not  take  the  risk  of  paying 
the  assignee  and  should  proceed  on  the 
assumption  that  its  authority  is  to  pay  John 
Smith  only.  (Inquiry  from  Ala.,  May, 
1917.) 

"Pay  to  order  of  self" 

889.  Is  a  check  "Pay  to  the  order  of 
self"  and  indorsed  by  the  maker  and  nego- 
tiated negotiable?  Opinion:  (1)  A  check 
"Pay  to  the  order  of  self,"  indorsed  by  the 
maker  and  negotiated,  is  a  negotiable  instru- 
ment. The  Negotiable  Instruments  Act 
expressly  provides  that  the  instrument  may 
be  drawn  payable  to  the  order  of  "the  drawer 
or  maker"  and  such  an  instrument  is  payable 
to  order  within  the  meaning  of  the  Act.  To 
state  the  proposition  in  another  way,  if  a 
check  is  in  form  negotiable,  the  fact  that  it 
is  drawn  "Pay  to  the  order  of  self"  does  not 
make  it  non-negotiable.  {Inquiry  from 
Iowa,  Sept.,  1917.) 

"Payable  if  desired  at"  another  bank 

890.  A  check  is  drawn  upon  a  bank  in 
Vermont  "payable  if  desired  at  the  Blank 


National  Bank,  Boston."  In  view  of  the 
two  places  of  payment,  negotiabiUty  is 
questioned.  Opinion:  The  negotiabiUty  of  a 
check  drawn  on  one  bank  "payable  if  de- 
sired at"  another  bank  is  uncertain.  It  de- 
pends on  whether  the  instrument  is  con- 
strued to  be  drawn  on  two  drawees  in  the 
alternative,  in  which  case  it  would  be  non- 
negotiable,  or  whether  on  one  drawee  with 
two  places  of  payment,  in  which  case  it 
would  probably  be  negotiable.  Checks 
drawn  "payable  if  desired  at"  are  prohibited 
in  the  New  York  Clearing  House.  Mass. 
Neg.  Inst.  Act.,  Sec.  145.  Bartholomew 
V.  First  Nat.  Bk.,  18  Wash.  683.  (Inquiry 
from  Mass.,  Dec.,  1912,  Jl.) 

Where  payable  out  of  particular  fund 

891.  Explanation  is  asked  of  meaning 
of  and  distinction  between  provisions  of 
Negotiable  Instruments  Law  that  (a)  order 
or  promise  to  pay  is  unconditional  though 
coupled  with  indication  of  particular  fund 
out  of  which  reimbursement  is  to  be  made 
and  (b)  order  or  promise  to  pay  out  of 
particular  fund  is  not  unconditional.  Opin- 
ion: The  first  stated  provision  relates  to  an 
instrument  not  payable  out  of  a  particular 
fund  but  payable  generally  and  merely  indi- 
cating such  fund  as  a  source  of  reimburse- 
ment. The  last  stated  provision  covers  a  case 
where  the  instrument  is  payable  only  out  of 
a  particular  fund,  and  payment  depends  up- 
on the  sufficiency  of  the  fund.  Hence,  in  the 
latter  case,  the  instrument  is  non-negotiable 
because  not  payable  absolutely,  while  in  the 
first  stated  case  negotiability  is  not  affected 
because  payment  is  absolutely  and  uncondi- 
tionally promised.  Neg.  Inst.  A.,  Sees.  1,  3 
(Commsr's.  dft.).  Averett  v.  Booker,  15 
Grat.  165.  Worden  v.  Dodge,  4  Denio,  159. 
West  V.  Forman,  21  Ala.  400.  Daniel  on 
Neg.  Inst.,  Sec.  51.  Redman  v.  Adams,  51 
Me.  433.  First  Nat.  Bk.  v.  Lightner,  74 
Kan.  736.  (Inquiry  from  Ala.,  Nov.,  1912 
Jl.) 

Payable  "on  April  1st,  if  then  living" 

892.  A  check  drawn  by  a  Hfe  insurance 
company  reading:  "On  April  1,  if  then 
Hving,  pay  to  order  of  John  Smith,  $800," 
was  cashed  by  a  bank  April  2nd.  The 
drawee  bank  refused  payment,  same  having 
been  stopped  by  the  drawer  for  a  partial 
failure  of  consideration.  What  are  the 
rights  of  the  cashing  bank?  Opinion:  The 
check  is  payable  on  a  condition,  and  is  not  a 
negotiable  instrument.  A  bank  acquiring 
such  a  check  for  full  face  value  from  the 


194 


CHECKS 


[893-896 


payee  takes  simply  the  enforceable  rights  of 
the  payee,  and  holds  the  check  subject  to 
proper  defenses  of  the  drawer.  {Inquiry 
from  Colo.,  Aug.,  1920,  Jl.) 

Restriction  of  channel  of  collection 

893.  Inquiry  is  made  whether  or  not  the 
phrases  (1)  "Payable  only  through  banks  or 
bankers,"  (2)  "Not  payable  through  express 
companies  or  post  offices,"  (3)  "Payable 
only  in  New  York  exchange  at  current 
rates,"  appearing  in  a  check  would  affect  its 
negotiabiHty.  Opinion:  According  to  de- 
cided cases  the  first  two  phrases  would  not 
destroy  negotiability,  but  there  are  con- 
flicting decisions  as  to  whether  or  not  a 
check  payable  in  exchange  is  payable  in 
money  and  negotiable.  A  late  Federal 
decision  upholds  negotiabihty.  (See  A.  B. 
A.  Journal  September,  1916).  (Inquiry 
from  N.  C,  Aug.,  1916.) 

Not  payable  through  express  company 

894.  What  is  the  effect  of  the  phrase 
"not  payable  through  an  express  company" 
on  the  face  of  a  check.  Opinion:  (1)  Such 
provision  is  vahd  and  does  not  affect  the 
negotiabihty,  and  the  check  may  be  presented 
through  other  channels,  (2)  the  duty  of  the 
drawee  is  to  refuse  pa^Tiient  when  the  check 
is  presented  through  the  prohibited  agency, 

(3)  the  drawee  so  refusing  would  not  incur 
hability  either  to  the  drawer  or  the  holder, 

(4)  the  check  could  not  be  lawfully  protested 
and  the  holder  causing  protest  would  be 
hable  to  the  drawer  in  damages.  Commer- 
cial Nat.  Bk.  V.  First  Nat.  Bk.,  118  N.  C. 
783.  Farmers  Bk.  of  Nashville  v.  Johnson, 
King  &  Co.,  134  Ga.  486.  Neg.  Inst.  A., 
Sec.  325  Comsr's.  dft.  {Inquiry  from  N.  Y., 
May,  1917,  Jl.) 

895.  Certain  banks  protest  against  the 
request  made  by  the  Federal  Reserve  Banks 
to  remit  for  collections  at  par,  and  in  order 
to  avoid  the  method  adopted  in  sending 
these  checks  to  some  agent  of  the  Federal 
Reserve  Bank  in  the  particular  city  who 
presents  them  at  the  counter  demanding 
cash  therefor  are  considering  the  advisa- 
bility of  stamping  on  their  checks  phrases 
such  as  these.  (1)  "Not  payable  through 
the  Federal  Reserve  Bank."  (2)  "This 
cheek  will  not  be  paid  through  express 
companies,  post  offices  or  any  Federal  Re- 
serve Bank  or  its  agents."  (3)  "Payable  in 
cash  to  the  payee,  otherwise  in  exchange  at 
current  rates."  (4)  "Payable  in  cash  to  the 
original  payee,  otherwise  in  exchange  at  a 
maximum  service  charge  of  iV  of  !%•"    J^o 


any  of  these  indorsements  restrict  nego- 
tiabihty? Can  payment  be  refused  if  check 
is  presented  in  prohibited  manner?  Opin- 
ion: Provisions  (1)  and  (2)  are  vahd  and 
do  not  render  check  non-negotiable.  Pay- 
ment can  be  refused  if  check  is  presented  in 
prohibited  manner,  and  there  is  no  right  to 
protest  check.  It  is  uncertain  whether  or 
not  provisions  (3)  and  (4)  would  render 
checks  non-negotiable.  There  is  a  conflict 
of  authority  whether  a  check  payable  "in 
exchange"  is  a  negotiable  instrument.  Some 
courts  hold  that  it  is  payable  in  money, 
while  others  hold  that  it  is  not  payable  in 
money  but  in  a  commodity,  namely,  a  bill 
of  exchange.  Furthermore,  there  is  an  al- 
ternative provision,  the  alternative  depend- 
ing on  the  condition  whether  the  check  is 
presented  by  the  payee  himself  or  by  some 
other  holder,  and  this  might  be  construed  by 
the  courts  as  not  calhng  for  the  payment  of 
a  sum  certain  in  money  absolutely.  At  all 
events,  the  negotiabihty  of  checks  containing 
provisions  (3)  or  (4)  is  doubtful.  {Inquiry 
from  III.,  Nov.,  1919.) 

Checks  "not  payable  through  Federal 
Reserve  Bank" 
896.  A  state  bank  in  Louisiana  writes 
that  "The  Federal  Reserve  Bank  of  Dallas, 
Texas  has  undertaken  to  coerce  all  the  State 
banks  of  this  State,  non-members  of  the 
Federal  Reserve  System,  to  remit  all  items 

at  par We  protested  against  this  hne 

of  action  and  dechned  to  par  the  items .  . . . ; 
and  then  the  Federal  Reserve  Bank  began 
to  collect  all  items  drawn  on  us  through  the 
American  Railway  Express  Company  in 
cash  across  our  counter — a  plan  which .... 
was  very  detrimental  to  our  cash  reserve; 
and  made  it  difficult  for  us  to  maintain  the 
reserve  as  required  by  the  laws  of  this 
State.  Then,  in  order  to  protect  our  rights 
in  the  matter,  we  requested  our  depositors 
to  stamp  the  following  across  the  face  of  all 
checks  drawn  on  us:  'This  check  is  not 
payable  through  any  post  office,  express 
company  or  Federal  Reserve  Bank.'"  Does 
such  a  stamp  destroy  the  negotiability  of 
the  checks?  Opinion:  Such  stamp  does 
not  destroy  the  negotiabihty  of  the  check. 
The  following  cases  are  the  basis  of  the 
opinion.  Commercial  Nat.  Bank  v.  First 
Nat.  Bank,  118  N.  C.  783  held  that  a  pro- 
vision stamped  across  the  face  of  a  check, 
"This  check  positively  will  not  be  paid  to 
the  Gastonia  Cotton  Mfg.  Co.,  the  Gastonia 
Banking  Co.,  or  any  of  its  agents,"  was  vaUd 
and  did  not  destroy  negotiability  so  far  as 
other  persons  were  concerned.     The  court 


195 


897] 


DIGEST  OF  LEGAL  OPINIONS 


said:  "In  England  the  system  of  crossed 
checks  has  long  been  recognized  as  valid. 
By  that  system  there  is  stamped  across  the 
face  of  the  check  the  name  of  a  certain 
banker  through  whom  it  must  be  presented 
for  payment,  and  if  presented  by  any  one 
else,  it  will  not  be  honored.  This  does  not 
destroy  negotiabihty  in  any  wise.  The 
present  case  does  not  go  that  far,  but  merely 
stipulates  that  the  check  will  not  be  honored 
if  presented  through  one  agency  named. 
This  cannot  be  deemed  an  unreasonable 
restriction  of  trade.  Nor  is  it  a  boycott. 
There  is  no  evidence  of  a  conspiracy  to 
injure  the  agency  named,  but  it  is  agreed  as 
a  fact  that  it  was  an  effort  on  the  part  of  the 
drawer  firm  to  prevent  its  transactions  and 
the  nature  and  extent  of  its  business  be- 
coming known  to  a  rival  house  by  its  checks 
passing  through  that  channel." 

In  Farmers'  Bank  of  Nashville  v.  John- 
son, 134  Ga.  486,  a  check  was  drawn  on  the 
Bank  of  Nashville,  Ga.,  "payable  through 
the  Citizens  Bank  of  Valdosta,  Ga.,  at 
current  rate."  The  check  was  presented  for 
payment  by  another  bank  and  the  drawee 
bank  wrote  on  the  back  of  the  check  "will 
pay  when  presented  through  the  Citizens 
Bank  of  Valdosta,  Ga."  Thereupon  the 
other  bank  caused  the  check  to  be  protested. 
The  court  held  that  the  bank  was  not  re- 
quired to  pay  the  check  when  presented  by  a 
third  bank,  and  that  the  quaUfied  refusal  to 
pay  the  check  did  not  authorize  the  making 
of  the  protest.  (Inquiry  from  La.,  Oct., 
1919.) 

897.  General  Counsel  for  the  Federal 
Reserve  board  asked  in  connection  with  the 
opinion  in  the  Louisiana  case  (Opinion  No. 
896  whether  the  two  cases  cited  would  have 
been  decided  different^  under  the  Nego- 
tiable Instruments  Act.  He  referred  to  Sec. 
1,  providing  that  a  check  to  be  negotiable 
"must  contain  an  unconditional  promise  or 
order  to  pay  a  sima  certain  in  money,"  and 
"must  be  payable  to  order,  or  to  bearer," 
and  to  Sec.  8,  providing  that  "the  instru- 
ment is  payable  to  order  where  it  is  drawn 
payable  to  the  order  of  a  specified  person  or 
to  him  or  his  order."  He  stated  that  there 
was  nothing  in  the  Act  to  indicate  that  a 
negotiable  instrument  may  be  drawn  pay- 
able to  order  subject  to  restriction,  and  that 
the  cases  cited  were  decided  independently 
of  the  Act.  Opinion:  Under  the  law  mer- 
chant, an  instrument  to  be  negotiable  must 
be  payable  unconditionally  or  absolutely 
and  at  all  events  to  the  order  of  a  specified 
person  or  to  him  or  liis  order  or  to  bearer. 


It  would  seem  that  the  essential  rules  of  the 
Negotiable  Instruments  Act  are  virtually 
the  same  as  those  of  the  law  merchant  and 
if  so  the  North  Carohna  and  Georgia  de- 
cisions rendered  under  the  law  merchant 
would  be  equally  in  point,  as  if  rendered 
under  the  rules  of  the  Negotiable  Instru- 
ments Act.  The  question  is  whether  the 
stamped  provision  detracts  from  the  abso- 
lute payability  of  the  check  so  as  to  render 
the  order  to  pay  conditional.  Of  course,  there 
is  a  condition  expressed  in  the  check  but  is  it 
such  a  condition  as  will  detract  from  abso- 
lute payability  when  properly  presented? 
If  not,  it  would  not  seem  that  the  order  is 
conditional  within  the  meaning  of  the  Act. 

The  condition,  expressed  on  a  certificate 
of  deposit  that  it  is  payable  on  return 
properly  indorsed  does  not  destroy  negotia- 
bility, except  in  Pennsylvania,  and  then  not 
if  suit  is  brought  in  the  federal  courts.  Bank 
of  Saginaw  v.  Title  &  Trust  Co.,  105  Fed. 
491.  For  Pennsylvania  cases,  see  Patterson 
V.  Poindexter,  6  W.  &  S.  and  Lebanon  Bank 
V.  Mangan,  28  Pa.,  St.  452. 

Since  the  Negotiable  Instruments  Act 
was  passed  in  New  York  millions  of  dollars 
of  checks  have,  on  certain  occasions,  daily 
gone  through  the  New  York  Clearing  House 
containing  the  provision  "payable  only 
through  the  New  York  Clearing  House" 
and  no  question  has  ever  been  raised  as  to 
their  negotiabihty.  These  checks  were 
payable  absolutely  and  at  all  events — in 
other  words,  unconditionally — but  had  to 
be  presented  through  a  designated  channel. 

It  would  seem,  therefore,  that  a  check 
drawn  to  John  Smith  or  order  but  providing 
that  it  is  not  payable  if  presented  by  or  through 
a  specified  person  or  agent,  contains  an  un- 
conditional order  to  pay  a  specified  person 
or  order  within  the  meaning  of  the  Nego- 
tiable Instruments  Act,  and  that  the  pro- 
vision restricting  the  channel  of  its  collection 
does  not  make  the  order  conditional  so  as  to 
affect  negotiabihty.  Such  a  check  is  payable 
absolutely  when  properly  presented.  It  is 
susceptible  of  negotiation  by  indorsement 
through  a  line  of  successive  indorsees,  but 
when  the  period  of  its  negotiation  has  ended 
and  the  time  comes  when  it  is  to  be  presented 
for  pajTQent,  certain  designated  agencies  are 
excluded.  It  is  possible,  however,  that  some 
court  may  construe  the  provision  as  de- 
stroying negotiabihty.  {Inquiry  from  D.  C, 
Feb.,  1920.) 


196 


CHECKS 


[898-901 


What  constitutes  payment 

Payment  of  overdraft  to  bona  fi.de  holder  of 
finality 

898.  A  bank  in  the  ordinary  course  of 
business  pays  to  a  bona  fide  holder  a  check 
drawn  on  it,  under  the  mistaken  behef  that 
the  drawer  had  funds  when  he  had  not. 
Opinion:  Payment  cannot  be  recovered, 
and  the  fact  that  the  holder  would  be  in  no 
worse  position  if  compelled  to  refund  than 
if  payment  had  not  been  made  does  not 
authorize  a  recovery.  Hull  v.  Bk.,  Dudley 
(S.  C.)  259.  First  Nat.  Bk.  v.  Burkham,  32 
Mich.  328.  Oddie  v.  Nat.  City  Bk.,  45 
N.  Y.  735.  Mfg.  Nat.  Bk.  v.  Swift,  70  Md. 
515.  Nat.  Bk.  V.  Berrall,  70  N.  J.  L.  757. 
Spokane,  etc.,  Tr.  Co.  v.  Huff,  (Wash.)  115 
Pac.  80.  (Inquiry  from  Mont.,  Nov.,  1917, 
Jl.) 

Where  holder  has  knowledge  that  check  paid 
is  a  kite 

899.  A  bank  which  sends  a  check  direct- 
ly to  the  drawee  bank  receives  in  payment  a 
draft  on  a  third  bank,  which  acknowledges 
that  it  places  the  amount  of  the  draft  to  the 
credit  of  the  collecting  bank.  The  collecting 
bank  then  allows  the  depositor  to  draw  out 
the  amount  of  the  check.  Can  the  drawee 
of  the  draft  thereafter  charge  back  the 
amount  of  the  draft  to  the  bank  collecting 
the  original  check,  because  of  the  state  of 
the  account  between  it  and  the  drawer  of 
the  draft,  equally  as  where  it  has  charged 
back  an  uncollected  draft  upon  the  latter? 
What  effect  would  it  have  if  the  original  de- 
positor for  collection  is  kiting  checks  through 
the  depositary  for  collection  and  the  drawee 
bank,  which  two  banks  clear  through  the 
drawee  of  the  draft?  Opinion:  It  is  a 
general  rule  supported  by  numerous  au- 
thorities, that,  where  a  drawee  bank  pays 
a  check  to  a  bona  fide  holder,  such  payment 
is  a  finaUty  and  the  drawee  cannot  recover 
the  pajTTient  because  it  was  made  in  error 
as  to  the  state  of  the  drawee's  account. 
This  rule  applies  where  the  payment  is  made 
by  credit  to  account  equally  as  if  money  is 
paid  out.  Oddie  v.  National  City  Bank, 
45  N.  Y.  735;  Spokane  &  Eastern  Trust  Co. 
v.  Huff,  115  Pac.  (Wash.)  80;  First  Nat. 
Bank  v.  Sidebottom,  145  S.  W.  (Ky.)  404. 
Under  the  authorities  cited,  assuming  that 
the  collecting  bank  was  a  bona  fide  holder, 
the  credit  was  final  and  irrevocal)le,  not- 
withstanding any  change  in  the  state  of  the 
account  between  the  drawee  and  the  drawer 
of  the  draft.    The  rule  would  be  the  same 


even  if  the  account  of  the  drawer  had  been  in- 
sufficient when  the  credit  was  given.  (Cases 
cited  supra.)  That  the  check  was  a  part  of  a 
kiting  transaction  is  immaterial  if  the  de- 
positary bank  was  ignorant  thereof.  How- 
ever, if  it  had  knowledge,  then  a  question  is 
raised  as  to  its  status  as  bona  fide  holder  of 
the  draft.  If  it  were  not  such  a  holder  the 
pajnnent  would  not  be  final  and  irrevocable. 
The  question  has  not  been  passed  on  judi- 
cially and  the  answer  is  somewhat  uncertain. 
Knowledge  by  the  holder  of  a  check  who 
received  credit  from  the  drawee  bank  that 
the  drawer  liad  no  funds  to  meet  it  was  held 
to  deprive  him  of  the  status  of  a  bona  fide 
holder  and  disentitle  him  from  enforcing  the 
credit.  Peterson  v.  Union  Nat.  Bank,  52 
Pa.  206.    (Inquiry  from  Texas,  June,  1916.) 

Crediting    depositor's    account    with    checks 
on  same  bank 

900.  A  bank  having  a  commercial  and 
savings  department  was  in  the  habit  of 
receiving  checks  from  its  customer  deposited 
to  his  credit  in  his  savings  account,  said 
checks  being  drawn  on  the  commercial  de- 
partment of  the  same  bank.  Occasionally 
the  checks  so  deposited,  when  presented  to 
the  department  on  which  drawn  were  found 
to  be  not  good,  or  that  payment  of  the  same 
had  been  stopped.  In  such  cases  it  was  the 
bank's  practice  to  charge  the  item  back  to  its 
depositor.  Was  it  justified  in  so  doing? 
Opinion:  In  CaUfornia,  contrary  to  the 
majority  of  cases  elsewhere,  it  has  been 
held  that  the  credit  to  a  depositor  of  a  check 
drawn  on  the  same  bank  by  another  depos- 
itor, is  not  equivalent  to  payment,  but  the 
check  is  presumptively  taken  by  the  bank 
for  collection  from  itself  and  may  be  charged 
back  to  the  depositor  at  the  close  of  the  day 
if  the  funds  drawn  against  are  insufficient. 
Same  rule  applied  to  right  of  departmental 
bank  to  charge  back  overdraft  upon  one  de- 
partment deposited  in  another.  Oddie  v. 
Nat.  Citv  Bk.,  45  N.  Y.  735.  Consol.  Nat. 
Bk.,  V.  First  Nat.  Bk.  114  N.  Y.  S.  308. 
Bryan  v.  First  Nat.  Bk.,  205  Pa.  7.  Peter- 
son V.  Union  Nat.  Bk.,  52  Pa.  206.  Nat. 
Gold  Bk.  V.  McDonald,  51  Cal.  64.  Ocean 
Park  Bk.  v.  Rogers,  6  Cal.  App.  678,  92 
Pac.  897.  Newmark  Grain  Co.  v.  Mer- 
chants Nat.  Bk.,  135  Pac.  958.  Gonyer  v. 
Williams,  143  Pac.  736.  Plumas  Co.  Bk.  v. 
Rideout,  131  Pac.  360.  (Inquiry  from  Cat., 
Sept.,  1917,  Jl.) 

Crediting    depositor    with    check    of   drawer 
having  no  account 

901.  A  bank  credited  its  customer  with 


197 


902-905] 


DIGEST  OF  LEGAL  OPINIONS 


the  proceeds  of  a  check  drawn  upon  it, 
and  in  sorting  the  checks  discovered  that 
the  drawer  had  no  account.  The  drawer 
happened  in  the  bank  a  few  minutes  later 
and  instructed  the  cashier  to  change  the 
name  of  the  drawee  to  another  bank.  The 
check  was  presented  to  the  new  drawee  the 
same  afternoon,  but  payment  had  been 
stopped.  The  depositor  of  the  check  objects 
to  being  charged  therewith.  Opinion:  The 
amount  is  not  chargeable  back  to  the  depos- 
itor, if  he  acted  in  good  faith,  because  of  the 
rule  (adopted  by  a  majority  of  courts),  that 
credit  of  a  check  upon  the  depositary  oper- 
ates as  payment  and  is  irrevocable.  The 
fact  that  the  drawer,  after  the  check  had 
been  paid  by  the  credit,  changed  the  check 
and  made  it  payable  at  another  bank  does 
not  affect  the  rights  of  the  payee.  Oddie  v. 
Nat.  City  Bk.,  45  N.  Y.,  735.  Consol.  Nat. 
Bk.  V.  First  Nat.  Bk.,  114  N.  Y.  S.  308. 
City  Nat.  Bk.  v.  Burns,  68  Ala.  267.  Ameri- 
can Exch.  Nat.  Bk.  v.  Gregg,  138  111.  596. 
Titus  V.  Mechanics  Nat.  Bk.,  35  N.  J.  L. 
588.  Bryan  v.  First  Nat.  Bk.  205  Pa.  7. 
Nat.  Gold  Bk.  v.  McDonald,  51  Cal.  64 
Ocean  Park  Bk.  v.  Rogers,  6  Cal.  App.  678. 
Nat.  Exch.  Bk.  v.  Gwin,  78  Atl.  (Md.)  1026. 
Peterson  v.  Union  Nat.  Bk.,  51  Pa.  206. 
(Inquiry  from  Okla.,  March,  1916,  Jl.) 

Point  of  time  when  check  received  through 
mail  is  paid 
902.  At  what  time  is  a  check  received 
through  the  mail  regarded  as  paid?  Opin- 
ion: Where  a  check  against  sufficient  funds 
is  received  by  the  drawee  through  the  mail, 
it  is  paid  at  the  time  it  is  charged  to  the 
drawer's  account  and  cancelled;  so  that 
thereafter  the  drawer  cannot  stop  payment 
nor  can  a  receiver  or  assignee  of  the  drawer 
claim  the  fund,  although  remittance  has  not 
been  made.  Some  courts  hold  the  check 
paid  even  before  charged  to  account,  where 
it  has  been  cancelled  and  filed  as  paid.  But 
where  a  check  against  insufficient  funds  or 
a  forged  check  received  through  the  mail  is 
by  mistake  marked  "paid"  and  the  mistake 
corrected  before  it  is  charged  to  the  account, 
some  authorities  support  the  conclusion  that 
the  check  is  not  finally  paid  but  the  mistake 
can  be  corrected  and  the  check  returned. 
Albers  v.  Commercial  Bk.,  85  Mo.  173. 
American  Nat.  Bk.  v.  Miller,  229  U.  S.  517. 
Nineteenth  Ward  Bk.,  v.  First  Nat.  Bk.,  184 
Mass.  49  Consol.  Bk.  of  N.  Y.  v.  First  Nat. 
Bk.  of  Middletown,  114  N.  Y.  S.  308. 
Carley  v.  Potter's  Bk.,  46  S.W.  (Tenn.)  328. 
Rankin  v.  Colonial  Bk.,  64  N.  Y.  S.  32. 
(Inquiry  from  Iowa,  May,  1919,  Jl.) 


903.  A  check  against  sufficient  funds 
is  received  through  the  mail  by  a  drawee 
bank  for  payment  and  remittance.  At  what 
time  in  the  ph^^sical  handUng  of  the  check  by 
the  drawee  is  it  paid,  after  which  it  will  be 
too  late  for  the  drawer  to  stop  payment,  or 
to  withdraw,  or  control  the  fund?  Opinion: 
The  check  is  paid  at  the  time  the  amount  is 
charged  to  the  drawer's  account,  and  the 
check  is  cancelled ;  thereafter  the  fund  is  held 
for  the  credit  of  the  holder  and  control  of  the 
drawer  ceases  and  he  has  no  right  to  stop 
payment,  even  though  actual  remittance  has 
'not  been  made.     Mitchell  v.  Security  Bk., 

147  N.  Y.  S.  470.  Kellogg  v.  Citizens  Bk., 
162  S.  W.  (Mo.)  643.  First  Nat.  Bk.  v.  School 
Dist.,  120  Pac.  (Okla.)  614.  See  citations  in 
Opinion  No.  902.  State  Nat.  Bk.  v.  Boett- 
cher,  5  Colo.  185.  Liggett  v.  Weed  7  Kan. 
273.  Western  Wheeled  Scraper  Co.  v 
Sadilek,  50  Neb.  105.  Boyd  v.  Emerson,  2 
Adol.  &  El.  184.  (Inquiry  from  Mass.,  May, 
1917,  Jl.) 

Payment   of  unindorsed   check   by  issue   of 
exchange  to  payee 

904.  A  draws  a  check  on  B  bank,  pay- 
able to  C,  and  sends  check  to  the  bank  with 
a  verbal  request  that  N.  Y.  exchange  be 
issued  to  the  order  of  C  for  the  amount  of  such 
check.  Does  the  obhgation  of  bank  B  end 
with  the  issue  of  N.  Y,  exchange  to  the  order 
of  C,  without  C's  indorsement  on  the  check 
drawn  on  bank  B,  or  is  the  indorsement  of  C 
necessary  before  the  N.  Y.  exchange  can  be 
issued?  Opinion:  In  the  case  stated  the 
check  is  an  incomplete  instrument  because 
it  was  never  delivered  to  the  payee,  and  the 
issue  of  the  N.  Y.  exchange  to  C  would  not 
be  in  payment  of  the  incomplete  check,  but  an 
acceding  to  the  request  of  the  depositor  for 
exchange,  of  which  request  such  incomplete 
check  is  evidence;  and,  as  presumably  the 
check  of  this  form  is  sufficient  evidence  of 
such  request  on  which  to  charge  the  cus- 
tomer with  the  amount,  it  would  seem  that 
the  indorsement  of  the  payee  would  not  be 
necessary  for  the  bank's  protection.  Inquiry 
from  N.  C,  Sept.,  1920,  Jl.) 

Deduction  of  exchange 

905.  The  town  of  B  has  a  single  bank 
which  is  located  one  mile  from  the  town  of 
W  in  which  there  are  two  banks.  These 
towns  are  under  separate  governments, 
having  no  connection  with  each  other.  The 
banks  in  the  town  of  W  voluntarily  accept 
checks  drawn  on  the  bank  in  the  town  of  B 
for  collection.  Would  the  drawee  bank  be 
justified  in  decHning  to  pay  such  checks  in 


198 


CHECKS 


[906-910 


full  and  tender  the  amount  less  exchange? 
And  could  the  holder  in  such  case  legally 
protest  the  check  for  non-payment?  Opin- 
ion: The  bank  cannot  legally  refuse  to  pay 
such  a  check  where  the  holder  refuses  a  de- 
duction of  the  exchange.  In  law,  when  a 
check  drawn  on  the  bank  by  its  customer  is 
presented  for  payment  at  the  drawee  bank, 
it  is  obhgatory  for  the  bank  to  pay  the 
amount  called  for  if  in  funds,  and  if  it  re- 
fuses to  pay  the  check  in  full,  but  tenders  the 
amount  less  exchange,  the  holder  can  legally 
protest  the  check  for  non-payment.  Ex- 
change is  the  cost  of  transmitting  funds 
from  one  place  to  another;  but  in  this  case 
the  bank  was  not  called  upon  to  transmit 
the  funds  but  only  to  pay  the  amount  upon 
demand.    (Inquiry  from  Va.,  April,  1916.) 

Conditional  payment  by  check 

906.  A  check  taken  as  absolute  payment 
of  a  note  will  operate  to  extinguish  the  note, 
but,  in  the  absence  of  an  agreement,  the 
giving  and  receipt  of  a  check  is  usually 
considered  a  conditional  pajment  only  and 
not  absolute  until  the  check  itself  is  paid. 
Burkhalter  v.  Erie  Sec.  Nat.  Bk.,  42  N.  Y. 
538.  Morse  on  Banks  and  Banking,  Sec.  247. 
{Inquiry  from  N.  F.,  June,  19 IS,  Jl.) 

907.  A  check  was  received  by  a  bank  to 
take  up  a  note  held  by  it  due  on  the  6th. 
The  note  was  retained  until  payment  of  the 
check  on  the  7th.  Opinion:  The  check  was 
received  as  conditional  payment,  and  the 
stamping  of  the  note  "paid  on  the  7th"  is 
correct  as  indicating  the  date  of  actual 
pajTTient.  Steinhart  v.  D.  O.  Mills  Nat.  Bk., 
94  Cal.  364.  Watervleit  Bk.  v.  White,  1 
Den.  (N.  Y.)  608.  Scott  v.  Betts,  Talor 
(N.  Y.)  363.  Burkhalter  v.  Erie  Sec.  Nat. 
Bk.,  42  N.  Y.  538.  Smith  v.  Harper,  5  Cal. 
329.     {Inquiry  from  Wis.,  Aug.,  1913,  Jl.) 

Order  of  payment  of  checks  for  more 
than   balance 

Holder  of  overdraft  has  no  priority  over  checks 
within  balance 

908.  Where  subsequent  to  the  presen- 
tation of  an  overdraft,  lesser  checks  are 
presented,  which  the  funds  are  sufficient  to 
pay,  should  the  bank  hold  the  amount  on 
deposit  for  the  paj^ment  of  the  overdraft  or 
should  it  pay  the  lesser  checks?  Would  it 
make  any  difference  that  the  drawee  bank 
accepted  the  larger  check  for  collection? 
Opinion:  The  holder  of  the  larger  check  has 
no  claim  to  priority  and  it  is  the  duty  of  the 
bank  to  pay  the  smaller  checks  subsequently 


presented  which  are  within  the  balance. 
Gilham  v.  Merchants  Nat.  Bank,  70  111.  A. 
592. 

Where  a  check  larger  than  the  balance  is 
entrusted  to  the  drawee  for  collection  with 
a  request  to  hold  the  same  a  reasonable  time 
and  pay  out  of  subsequent  deposits,  it  is  the 
duty  of  the  bank  to  pay  smaller  checks 
within  the  balance,  as  the  same  are  presented 
and  it  has  no  right  to  refuse  such  checks  in 
order  to  permit  the  l^alance  to  accumulate  for 
the  payment  of  the  larger  check.  It  cannot 
be  held  liable  in  such  case  for  breach  of  duty 
as  collecting  agent  of  the  owner  of  the  larger 
check.  It  is  only  when  the  balance  does 
become  sufficient  and  the  check  is  still  held 
for  collection,  that  it  may  be  paid.  See  as 
bearing  on  the  question,  First  Nat.  Bk.  v. 
First  Nat.  Bk.  154  S.  W.  (Penn.)  965;  Johns- 
ton V.  Parker  Savings  Bank,  101  Pa.  597; 
(holding  that  a  specific  appropriation  by  the 
depositor  as  to  the  checks  to  be  paid  governs) 
Kraftt  V.  Citizens  Bank,  124  N.  Y.  Supp. 
214.  However,  where  a  check  is  held  for 
collection  at  a  time  where  the  balance  is 
sufficient  to  pay  it,  there  might  be  a  habihty 
to  the  holder  if  the  bank  paid  other  checks 
to  the  exclusion  of  the  one  held  for  collection, 
and  so  reduced  the  balance  that  that  one 
could  not  be  paid.  {Inquiry  from  Kan., 
April,  1921,  Jl.) 

909.  A  bank  is  holding  for  "first  funds" 
a  large  check  of  one  of  its  depositors.  In 
the  meantime  several  smaller  checks  are 
presented  for  payment.  The  bank  asks 
whether  it  would  be  safe  in  paying  them  if 
there  are  insufficient  funds  to  pay  the  larger 
check.  Opinion:  It  is  the  duty  of  a  bank 
to  pay  presented  checks  of  its  depositor 
which  are  within  the  balance  although 
at  the  time  it  has  received  and  is 
holding  a  larger  check  which  exceeds  the 
balance.  The  duty  of  a  bank  is  to  pay  the 
checks  of  its  depositor,  as  presented,  so  long 
as  the  funds  are  sufficient.  The  funds  being 
sufficient  to  pay  the  smaller  checks  they 
should  be  paid.  {Inquiry  from  Conn., 
March,  1919.) 

Drawee  as  collection  agent  for  check  holder 

910.  The  holder  of  a  check  requested  the 
bank  to  hold  it  until  the  maker  had  sufficient 
funds  to  pay  it.  While  it  is  holding  the 
check  for  this  purpose,  there  is  presented  a 
check  for  the  precise  amount  on  hand. 
Should  the  second  check  be  paid  or  should 
the  bank  hold  the  money  for  the  payment  of 
the  first  check?  Opinion:  The  relation  of 
the  bank  to  the  check  holder  was  virtually 


199 


911-917] 


DIGEST  OF  LEGAL  OPINIONS 


that  of  agent  for  collection  by  virtue  of 
which  it  would  be  its  duty,  as  soon  as  the 
account  became  sufficient,  to  collect  the 
check  out  of  the  account  and  charge  the 
amount  to  its  customer.  The  second  check, 
however,  should  be  paid,  as  the  holding  of 
the  first  check,  would  create  no  lien  on  the 
funds.     {Inquiry  from   N.  C,  Feb.,  1921.) 

Bank  holding  check  while  account  depleted  by 
drawer 

911.  A  bank  receives  a  collection  letter 
containing  three  checks  drawn  by  a  de- 
positor upon  it  whose  account  is  good  to  pay 
two  of  them  but  not  sufficient  to  pay  all 
three.  In  such  cases  it  is  the  bank's  custom 
to  hold  all  the  items  for  three  days  until 
deposit  is  made  sufficient  to  cover  all  of  the 
checks.  Should  the  account  be  drawn  down 
by  the  depositor  during  this  time  so  that  the 
fund  would  not  be  sufficient  to  pay  the  two 
checks  originally  good  when  the  letter  was 
received  or  either  one  of  them,  would  the 
bank  be  liable?  Opinion:  It  is  not  a  safe 
custom  to  hold  all  the  items  for  three  days 
in  such  a  case.  A  check  is  payable  on  de- 
mand and  the  bank  should  pay  those  of  the 
checks  which  the  account  is  sufficient  to 
meet,  and  protest  and  return  the  other.  Gen- 
erally speaking,  statutory  provisions  appli- 
cable to  the  acceptance  of  a  bill  do  not  apply 
to  checks,  but  even  though  the  bank  might 
not  be  held  liable  as  acceptor,  because  a 
check  is  presented  for  payment  and  not  for 
acceptance,  it  might  be  held  liable  as  collect- 
ing agent  of  the  holder  for  neghgence  in 
holding  a  check  three  days,  where  the  check 
was  originally  good  where  presented  but 
where  the  bank  afterwards  allowed  the 
account  to  be  depleted  by  the  drawer  so  as 
to  allow  insufficient  funds  for  its  payment. 
{Inquiry  from  Me.,  Oct.,  1917.) 

Selection  where  checks  aggregate  more 
than  balance 

912.  Where  a  number  of  checks  are 
presented  to  a  bank  simultaneously  through 
the  clearing  house  or  by  mail  which  aggre- 
gate more  than  the  amount  to  the  cus- 
tomer's credit,  the  bank  is  bound  to  pay  the 
checks  to  the  extent  of  the  amount  on  de- 
posit and  has  the  option  to  select  which  it 
will  pay  and  which  reject  in  the  absence  of 
a  clearing-house  rule  or  custom  to  the 
contrary.  Reinsch  v.  Consol.  Nat.  Bk., 
45  Pa.  Super.  Ct.  236.  {Inquiry  from 
Fla.,  March,  1919,  Jl.) 

913.  Two  or  more  checks  are  simul- 
taneously    presented     at     a     bank,     each 


taken  separately  for  less,  but  any  two  aggre- 
gating more  than  the  customer's  balance.  M\ 
Opinion:  The  bank  should  not  send  all  the  ^' 
checks  back,  but  should  pay  anj^  one  of  them 
and  return  the  rest.  Morse  on  Banks  and 
Banking,  Sec.  450  b.  Dykers  v.  Leather 
Mfrs.  Bk.,  11  Paige  612.  Zane  on  Banks 
and  Banking,  Sec.  148.  {Inquiry  from 
La.,  Oct.,  1910,  Jl.) 


914.  The  customer  of  a  bank  with 
to  his  credit  drew  four  checks  of  amounts 
of  $10,  $25,  $50  and  $60,  respectively,  in 
favor  of  four  different  parties.  The  checks 
bore  the  same  date  and  were  presented 
through  the  clearing  house  at  the  same  time. 
Opinion:  Where  a  number  of  checks  aggre- 
gating more  than  the  depositor's  balance  are 
presented  at  the  same  time  through  the  clear- 
ing house  and  the  balance  is  sufficient  to  pay 
some  of  them,  the  bank  must  pay  such  of  the 
checks  as  the  deposit  is  sufficient  to  meet  and 
may  choose  which  to  pay  and  which  to  reject, 
but  it  will  be  liable  in  damages  if  it  returns 
all  such  checks  unpaid.  Sherburne  v. 
Rickards,  Superior  Court,  Chicago,  1898. 
Reinisch  v.  Consol.  Nat.  Bk.,  45  Pa.  St. 
Super.  Ct.  236.  Morse  on  Banks  and 
Banldng,  Sec.  354.  {Inquiry  from  S.  C, 
July,  1914,  Jl-) 


915.  Two  checks  of  $30  and  $10,  re- 
spectively were  simultaneously  presented, 
the  smaller  check  being  within  and  the  larger 
check  in  excess  of  the  customer's  balance. 
Opinion:  It  is  the  duty  of  the  bank  to  pay 
the  smaller  check  rather  than  to  dishonor 
both  checks.  Sherburne  v.  Rickards,  Su- 
perior Court,  Chicago,  1898.  {Inquiry 
from  La.,  Sept.,  1910,  Jl.) 

916.  Where  a  bank  receives  through  the 
same  mail  several  checks  of  one  customer 
who  has  sufficient  funds  to  his  credit  to  pay 
all  but  one  of  them,  does  the  law  require  the 
bank  to  return  all  of  the  checks  if  it  returns 
any?  Opinion:  Wliere  several  checks  are 
simultaneously  presented  aggregating  more 
than  the  balance,  the  bank  should  not  return 
all,  but  should  pay  what  it  can  and  return 
the  rest,  and  it  is  optional  with  the  bank 
which  checks  it  will  pay  and  which  it  shall 
leave  unpaid.  It  it  should  refuse  to  pay  all 
the  checks  it  would  be  dishonoring  some 
which  are  good.  {Inquiry  from  Mo.,  Sept., 
1918.) 

Priority  of  checks  in  morning  mail  over  later 
checks  from  clearing  house 

917.  Where  a  niunber  of  checks  aggre- 
gating more  than  the  customer's  balance 


200 


CHECKS 


[918-921 


are  presented  at  the  same  time  and  the 
balance  is  sufficient  to  pay  only  some  of 
them,  what  should  the  bank  do?  Opinion: 
The  bank  must  pay  such  of  the  checks  as  the 
deposit  is  sufficient  to  meet  and  may  choose 
which  to  pay  and  which  to  reject,  but  it 
will  be  hable  in  damages  if  it  returns  all 
such  checks  unpaid.  Checks  presented 
through  the  morning's  mail  have  priority 
over  checks  later  presented  through  the 
clearing  house.  Meyers  v.  Union  Nat.  Bk., 
128  111.  478.  (Inquiry  from  Ky.,  April, 
1915,  Jl.) 

Return  of  overdraft  through  clearing  house  and 

cancellation  of  word  "paid"  stamped 

through  error 

918.  During  the  course  of  a  day  a  bank 
received  checks  through  the  clearings,  by 
mail  and  over  the  counter.  After  paying 
the  checks  received  by  mail  and  over  the 
counter,  some  of  which  were  received  after 
the  checks  through  the  clearings,  the  funds 
were  insufficient  to  pay  the  checks  through 
the  clearings.  Through  mistake,  however,  a 
clerk  without  authority  marked  them  "paid" 
These  checks  were  then  returned  "Stamped 
'paid'  in  error."  Is  the  drawee  bank  hable 
on  these  checks  on  the  theory  that  they 
were  accepted  or  paid?  Opinion:  Assuming 
that  the  checks  w^ere  returned  within  the 
time  allowed  by  the  rules  or  custom  of  the 
clearing  house,  the  drawee  bank  is  not 
liable.  The  stamp  "paid"  placed  upon  the 
check  by  mistake  prior  to  actual  payment 
is  subject  to  revocation.  Fernandez  v. 
Glynn,  1  Camp.  (Eng.)  426n. 

Some  Illinois  cases  hold  that  as  between 
holders  of  checks,  the  one  who  first  presents 
his  check  for  payment  is  entitled  to  priority 
(Jacobson  v.  Bank,  66  111.  A.  470),  and  that 
a  bank  cannot  after  presentment  of  one 
check  pay  other  checks  or  demands,  later 
presented,  in  preference.  Clark  v.  Chicago 
Title  etc.,  Co.,  85  111.  A.  293,  affd.  186  111. 
440.  These  cases  are  not  applicable  under 
the  Negotiable  Instruments  Law  (in  force 
now  in  both  Ilhnois  and  Washington) 
providing  that  "A  check  of  itself  does  not 
operate  as  an  assignment  of  any  part  of  the 
funds  to  the  credit  of  the  drawer  with  the 
bank  and  the  bank  is  not  liable  to  the  holder 
unless  and  until  it  accepts  and  certifies 
the  check."  The  checks  through  the  clear- 
ings were  not  accepted  nor  paid  and  the 
drawee  bank  is  not  hable  on  them.  {Inquiry 
from  Wash.,  Jan.,  1918.) 


Use  of  "paid"  stamp 

Responsibility   of  collecting   hank   stamping 
check  "paid"  where  indorsement  forged 

919.  A  collecting  bank  stamps  checks 
"Paid"  and  receives  payment  from  the 
drawee.  What  is  the  responsibility  of  the 
stamping  bank  in  cases  of  forged  or  un- 
authorized indorsements.  Opinion:  In  the 
event  the  checks  have  been  indorsed  "for 
collection"  or  otherwise  restrictively  in- 
dorsed so  as  to  indicate  that  the  collecting 
bank  is  an  agent  and  not  an  owner,  the 
"Paid"  stamp  would  not  be  sufficient  and 
the  drawee  should  require  an  express 
guaranty  of  genuineness  for  its  protection. 
White  V.  Continental  Nat.  Bk.,  64  N.  Y. 
316.     (Inquiry  from  Neb.,  Nov.,  1911,  Jl.) 

Right  of  presenting  bank  to  stamp 
check  "paid" 

920.  A  bank  receiving  payment  of  a 
check  stamped  the  same  "Paid;"  the 
drawee  bank  which  paid  the  check  objected 
to  such  stamp  and  questioned  the  au- 
thority of  the  presenting  bank  to  place  it  on 
the  check.  Opinion:  The  stamping  of  the 
word  "Paid"  would  seem  to  come  within  the 
rights  of  the  presenting  bank  and  drawee's 
refusal  to  pay  because  of  objectionable 
stamp  would  probably  be  held  unjustifiable. 
(Inquiry  from  S.  D.,  May,  1914,  Jl-) 

Checks  issued  and  paid  to  strangers 

Drawee  entitled  to   require   identification  of 
payee  or  holder  before  payment 

921.  A  presents  check  of  B  payable  to 
order  of  A  and  demands  payment.  A  is  a 
stranger  to  bank.  Bank  refuses  to  pay 
without  identification  wliich  A  does  not  or 
will  not  furnish.  Is  bank  entitled  to  with- 
hold payment  until  A  procures  satisfactory 
identification  or  can  A  have  a  notary  protest 
the  check  and  would  the  bank  be  hable  in 
such  case  to  its  customer  B  whose  account 
is  good? 

Opinion:  The  drawee  bank  is  entitled  to 
have  satisfactory  identification  before  it  is 
under  obhgation  to  pay  a  check;  refusal  to 
pay  because  the  payee  is  unknown  to  the 
bank  is  not  a  dishonor  which  would  justify 
protest  and  the  bank  would  not  be  liable  to 
the  customer  in  damages  because  of  such 
refusal. 

In  Citizens  National  Bank  of  Evansville 
V.  Reynolds,  126  N.  E.  (Ind.)  234,  the  court 
said : 

"Where  a  check  is  presented  for  payment 
by  a  person  who  is  unknown  to  the  bank,  it 


201 


922-924] 


DIGEST  OF  LEGAL  OPINIONS 


becomes  the  imperative  duty  of  the  bank 
to  require  him  properly  to  identify  himself 
as  the  payee  named  in  the  check.  For  its 
own  protection  the  bank  may  go  further. 
It  may  refuse  pajonent  until  the  stranger 
brings  in  a  person  whom  the  bank  knows  to 
be  financially  responsible  and  who  is  wilhng 
to  become  an  indorser." 

Whether  all  courts  would  go  to  the  extent 
of  holding  that  the  bank  can  refuse  payment 
until  the  stranger  can  get  another  person  to 
assume  the  obligation  of  indorser  on  the 
check  might  possibly  be  questioned,  as  it 
might  be  beyond  the  power  of  the  payee  to 
procure  such  indorsement,  but  at  all  events 
the  bank  is  entitled  to  require  the  payee  to 
satisfactorily  identify  himself  before  making 
payment.  {Inquiry  from  Ind.,  July,  1920, 
Jl.) 

Identification  of  holder  of  check  indorsed  in 
blank 

922.  Is  a  check  indorsed  by  the  payee  in 
blank  payable  to  bearer?  Can  the  bank 
require  identification  of  the  person  pre- 
senting it?  Opinion:  While  a  check  in- 
dorsed by  the  payee  in  blank  is  payable  to 
bearer,  the  bank  before  paying  the  check  has 
the  right  to  ascertain  the  genuineness  of  A's 
indorsement;  for,  if  the  instrument  were  a 
forgery,  the  check  would  not  be  payable  to 
bearer.    {Inquiry  from  N.  Y.,Feb.,  1917.) 

Identification  of  distant  payee 

923.  The  payee  indorsed  a  check,  mailed 
it  directly  to  the  bank  on  which  it  is  drawn, 
and  requested  that  a  draft  be  sent  him  for 
the  amount.  Should  it  do  so  without  identi- 
fication? Opinion:  It  is  not  quite  clear  what 
the  practice  is,  but  it  would  seem  to  be  the 
better  procedure  to  require  some  further 
identification  of  the  payee  who  sends  a 
check  by  mail  directly  to  the  bank  on  which 
drawn  with  request  for  return  draft.  Should 
it  turn  out  that  the  payee's  name  had  been 
forged  by  the  sender,  or  if  the  payee's  in- 
dorsement was  genuine  that  the  check  had 
been  lost  or  stolen  from  him  and  forwarded 
by  the  sender  in  his  name,  and  a  draft 
had  been  mailed  the  sender  for  the  amount, 
a  troublesome  question  of  responsibihty  of 
the  bank  might  arise.  There  is  a  line  of 
cases  to  the  effect  that,  where  a  person 
makes  his  draft  payable  to  A  and  mails  it 
to  B,  thinking  B  is  A,  and  B  who  imperson- 
ates A,  indorses  and  negotiates  the  draft 
in  A's  name,  the  indorsement  is  not  a 
forgery  but  by  the  precise  person  intended 
to  receive  the  money.  There  are  some 
cases  to  the  contrary  of  this,  but  it  seems 


that,  if  a  draft  is  mailed  to  the  payee  without 
further  identification  and  it  turned  out  that 
the  person  to  whom  mailed  was  not  entitled 
to  the  money,  that  the  bank  might  be  in- 
volved in  a  troublesome  law  suit  and  that 
the  best  procedure  would  therefore  be  to 
have  some  further  assurance  or  identifica- 
tion of  the  payee  before  maihng  him  the 
draft.    {Inquiry  from  Mo.,  May,  1916.) 

Check  issued  to  stranger  payee 

924.  A  person  claiming  to  be  the  payee 
of  a  cashier's  check  presents  the  same  to  the 
bank,  properly  indorsed,  without  proof  of 
his  identity  and  requests  the  issue  of  two 
checks  to  the  same  payee  in  Heu  thereof. 
Can  the  bank  safely  comply?  Opinion: 
The  bank  in  the  absence  of  suspicious 
circumstances  may  rely  on  the  presumption 
that  the  holder  is  rightfully  entitled  thereto, 
and  may  issue  the  substitute  checks  to  the 
same  payee,  without  habihty  thereon  in  the 
event  the  stranger  is  not  the  true  payee  and 
negotiates  such  checks  upon  indorsement 
of  the  name  of  the  payee.  Should  the 
holder  prove  an  impostor  and  if  the  indorse- 
ment of  the  original  check  proved  a  forgery, 
the  bank  would,  of  course,  be  hable  to  the 
true  payee  of  the  original  but  would  not  be 
hable  upon  forged  indorsements  of  the 
substitute  checks.  Yatesville  Banking  Co. 
V.  Fourth  Nat.  Bk.,  72  S.  E.  (Ga.)  528. 
Gallo  V.  Brooklyn  Sav.  Bk.,  129  App.  Div. 
698,  reversed  in  199  N.  Y.  222.  Crawford 
V.  West  Side  Bk.,  100  N.  Y.  50,  2  N.  E.  881, 
53  Am.  Rep.  152.  Graves  v.  Am.  Exch.  Bk., 
17  N.  Y.  205.  Hohnes  v.  Trumper,  22 
Mich.  427,  7  Am.  Rep.  661.  {Inquiry  from 
III,  Oct.,  1917,  Jl.) 

Note:  The  above  opinion  was  chiefly 
based  on  the  decision  of  the  N.  Y.  Court  of 
Appeals  in  Gallo  v.  Brooklyn  Sav.  Bank, 
199  N.  Y.  222,  where  an  impostor  presented 
an  order  on  a  savings  bank  and,  not  being 
able  to  satisfactorily  identify  himself  as  the 
depositor,  received,  instead  of  money,  a 
check  payable  to  the  order  of  the  depositor. 
The  Appellate  Division  held  the  drawer 
hable  to  an  innocent  purchaser  on  the 
ground  (1)  the  delivery  of  the  check  to  the 
person  claiming  to  be  the  payee  was  a 
representation  that  he  was  the  payee  and 
the  drawer  was  estopped  as  against  an 
innocent  purchaser;  (2)  the  drawer  was 
culpably  neghgent  in  issuing  a  check  pay- 
able to  a  stranger  whom  it  could  not  itself 
identify,  putting  in  his  hands  an  instrument 
to  defraud  innocent  persons.  The  Court  of 
Appeals  reversed  the  judgment,  the  Chief 


202 


CHECKS 


[925-927 


Justice  saying:  "I  am  not  prepared  to 
admit  the  proposition  that  when  a  bank  or 
individual,  not  being  satisfied  of  the  rights 
or  identity  of  the  party  claiming  payment 
from  it  or  him,  declines  to  pay  the  party  in 
money,  but  gives  a  check  to  the  order  of  the 
known  creditor,  it  or  he  is  thereby  necessarily 
guilty  of  neghgence  or  fraud."  Werner,  J., 
said:  "The  facts  brought  to  the  knowledge 
of  the  bank  were  such  that  it  had  quite  as 
good  a  right  to  rest  upon  the  presumption 
that  the  check  would  be  properly  used  as  to 
suspect  that  it  would  be  criminally  altered." 

But  in  March,  1920,  the  Court  of  Errors 
and  Appeals  of  New  Jersey  in  Montgomery 
Garage  Co.,  v.  Manufacturers  Liability 
Insurance  Co.,  109  Atl.  296,  where  one 
Ennis,  representing  himself  to  be  Turner, 
delivered  a  bogus  check  to  the  insurance 
company  and  received  from  the  company 
its  check,  payable  to  Turner,  the  court  held 
the  company  liable  to  an  innocent  pur- 
chaser who  had  received  the  check  from 
Ennis,  indorsed  by  him  as  Turner.  The 
court  laid  down  this  rule:  "Where  the 
drawer  of  a  check  dehvers  it,  for  a  consider- 
ation which  turns  out  to  be  fraudulent,  to 
an  impostor  under  the  belief  that  he  is  the 
person  whose  name  he  has  assumed  and  to 
whose  order  the  check  is  made  payable, 
a  bona  fide  holder  for  a  valuable  consider- 
ation, paid  to  the  impostor  upon  his  in- 
dorsement of  the  payee's  name,  is  entitled 
to  recover  from  the  drawer;  it  appearing 
that  the  person  to  whom  the  check  was 
deUvered  was  the  very  person  whom  the 
drawer  intended  should  indorse  it  and 
receive  the  money,  and  that  the  drawer 
made  no  inquiry  before  issuing  the  check 
concerning  the  identity  or  credit  of  the 
named  payee,  who  was  unknown  to  the 
drawer." 

In  view  of  this  conflict  in  the  decisions, 
the  practice  is  dangerous  to  issue  a  check  to 
a  stranger,  without  identification,  payable 
to  the  same  payee  as  that  of  an  original 
check  presented  by  a  stranger,  and  the 
above  opinion  is  modified  accordingly. 

Check  to  impersonator 

925.  A  bank  received  a  telegram  signed 
H.  T.  McCabe — a  depositor,  asking  it  to 
remit  his  balance  to  Houston,  Texas,  and  a 
cashier's  check  was  sent  to  a  Houston 
bank  for  said  sum,  payable  to  the  order  of 
H.  T.  McCabe,  and  a  man  impersonating 
H.  T.  McCabe  drew  and  appropriated  the 
money.  What  is  the  legal  result?  Opinion : 
Assuming  this  check  got  into  the  hands  of, 


and  was  appropriated,  by  a  man  imper- 
sonating the  real  H.  T.  McCabe,  the  ques- 
tion would  be  whether  under  the  circum- 
stances such  indorsement  would  be  held  a 
forgery  or  by  the  precise  person  intended  to 
receive  the  money.  If  a  forgery,  then  the 
drawer  of  the  draft  is  not  liable,  and  the 
bank  paying  the  draft  has  right  of  recovery 
from  prior  indorsers  and  the  loss  would  fall 
on  the  indorser  who  took  the  check  from  the 
forger.  But  there  are  a  line  of  cases  holding 
that,  where  one  man  impersonates  another 
and  writes  a  letter  or  sends  a  telegram  in 
the  name  of  that  other,  asking  that  money 
be  forwarded  him,  and  a  check  is  drawn 
payable  to  the  name  of  the  party  imperson- 
ated, and  this  is  sent  to  the  impersonator 
who  indorses  and  cashes  the  same,  the 
indorsement  is  not  a  forgery,  but  is  by  the 
precise  person  intended  to  receive  the  money. 
There  are  conflicting  cases  on  this  proposi- 
tion.   {Inquiry  from  Tex.,  June,  1915.) 

Cashier's  checks 

Innocent  purchaser  may  enforce 

926.  A  bank  which  purchases  a  cashier's 
check  from  the  holder,  assuming  it  is 
properly  indorsed  and  within  a  reasonable 
time  after  its  issue,  can  recover  the  amount 
from  the  issuing  bank  free  from  any  defense 
which  that  bank  may  have  against  the  payee. 
The  innocent  purchaser  of  a  stopped  check 
may  enforce  payment  from  the  drawer. 
{Inquiry  from  Iowa,  March,  1914,  JI-) 

927.  A  bank  wishes  to  be  advised  what 
to  do  in  this  case:  Its  former  cashier  was 
caught  embezzHng  bank  funds,  was  arrested 
and  thereafter  permitted  to  go  free  after 
setthng  with  the  bank.  It  was  afterwards 
noticed  in  the  cashier's  register  that  a  con- 
siderable number  of  small  cashier's  checks 
had  been  drawn  in  amounts  ranging  from 
50  to  75  cents,  which  he  appears  to  have 
retained  when  he  left  for  parts  unknown. 
It  is  feared  that  he  will,  as  he  did  while  in 
the  bank's  employ,  raise  these  small  checks 
to  large  amounts,  and  negotiate  them. 
Opinion:  The  outstanding  cashier's  checks, 
being  negotiable  instruments,  would  have 
to  be  paid  by  the  bank  if  cashed  by  an 
innocent  purchaser,  unless  originally  issued 
for  small  amounts  and  subsequently  raised. 
But  if  originally  drawn  for  larger  amounts 
than  entered  on  the  register,  the  bank 
would  be  Uable  to  an  innocent  purchaser. 
The  bank  should  endeavor  to  locate  the 
former  cashier  and  gain  possession  of  the 
checks.    {Inquiry  from  Mont.,  Dec,  1917.) 


203 


928-931] 


DIGEST  OF  LEGAL  OPINIONS 


Possession  by  bank  presumes  payment — 
Slatute  of  limitations 

928.  Cashier's  checks  obtained  by  a 
member  of  a  firm,  since  deceased,  which  are 
in  the  possession  of  the  bank,  bear  the  rubber 
stamp  indorsement  of  the  firm,  and  the 
rubber  stamp  of  the  bank  indicating  the 
number  or  name  of  the  receiving  teller 
handling  the  item  which  tends  to  show 
payment.  Can  the  bank  be  held  responsible 
to  the  firm  after  seven  years  for  inabihty 
to  show  that  either  the  firm's  or  the  partner's 
personal  account  received  credit  for  the 
amount  of  these  items?  Is  such  claim  barred 
by  the  statute  of  limitations?  Opinion: 
Where  cashier's  checks  are  made  payable  to 
a  firm  and  dehvered  to  a  partner,  who 
presents  same  to  the  bank  bearing  the 
rubber  stamp  indorsement  of  the  firm,  but 
no  credit  is  given  to  either  firm  or  partner 
therefor,  possession  of  the  checks  by  the 
bank  raises  a  presumption  of  their  payment, 
and  throws  the  burden  of  proof  on  the 
firm  to  rebut  such  presumption.  (Conway 
V.  Case,  22  111.  127;  Healy  v.  Gihnan,  1 
Bosw.  [N.  Y.]  235.  Kincaid  v.  Kincaid, 
8  Hump.  [Tenn.]  17.  Pickle  v.  Peoples 
Nat.  Bank,  88  Tenn.  380.  Lancaster 
Bank  v.  Woodward,  18  Pa.  St.  361.  Fletcher 
v.  Manning,  12  M.  &  W.  577.)  Where  the 
transaction  occurred  seven  years  ago,  it  is 
now  too  late  in  any  event  to  charge  the 
bank  with  liabiHty  as  suit  on  a  cashier's 
check  is  barred  after  six  years  from  date. 
(Curran  v.  Witter,  68  Wis.  16;  Wis.  Rev. 
St.  Sec.  4222.)  {Inquiry  from  Wis.,  May, 
1920,  Jl.) 

Counter  checks 

Refusal  of  payment  to  payee  other  than~l 
drawer  where  contrary  to  terms  of  check 

929.  A  bank  refused  payment  to  a 
second  person  of  a  counter  check  marked 
"not  negotiable"  and  ''to  be  used  only  at 
the  counter  of  the  bank  by  the  drawer 
personally."  The  bank  inquires  whether 
such  action  was  justified.  Opinion:  The 
bank  is  perfectly  justified  in  refusing  to 
pay  such  a  check  to  other  than  the  drawer 
personally.  While  the  bank  printed  and 
furnished  the  blank  of  the  check,  it  is  the 
drawer's  order  and  subject  to  the  conditions 
which  he  imposes.  The  drawer,  then,  orders 
the  bank  to  pay  the  check  only  at  the  bank 
and  to  him  personally  and  while  he  virtually 
contradicts  this  order  by  making  the  check 
payable  to  another  person,  still  the  original 
condition  thereon  remains  and  it  seems  the 
bank  has  a  perfect  right  and  in  fact  it  is  its 


duty  to  pay  only  in  accordance  therewith. 
(Inquiry  from  Ind.,  March,  1917.) 

Receipt  as  substitute  for  counter  check 

930.  Should  a  bank  paying  a  deposit 
require  a  receipt  or  a  counter  check? 
Opinion:  A  receipt  signed  by  a  depositor 
acknowledging  payment  of  a  deposit  would 
not  be  of  equal  protection  to  the  bank  as  a 
counter  check,  where  payment  was  made  to 
one  other  than  the  depositor  personally,  for 
should  the  receipt  be  presented  by  a  wrong- 
ful holder  it  would  not  be  binding  on  the 
depositor,  as  would  a  check  which  contains 
an  order  and  authority  to  the  bank  to  pay. 
In  case  of  savings  deposit  payable  only  on 
presentation  of  book,  payment  to  a  wrongful 
holder  upon  presentation  of  book  and  receipt 
might  be  vaUd  if  reasonable  care  was  used. 
{Inquiry  from  N.  Y.,  June,  1918,  Jl.) 

Checks  "in  fuU" 

Decisions  upon  legal  effect 

931.  A  bank  desires  judicial  decisions, 
etc.,  in  reference  to  binding  legahty  of 
notations  on  the  face  of  checks  similar  to 
"In  fuU  settlement  of,"  or  "Pajment  in  full 
for,"  etc.  Opinion:  Acceptance  by  creditor 
of  check  containing  notation  "In  full  settle- 
ment," or  words  of  like  import,  in  settle- 
ment of  a  liquidated  claim  does  not  bar 
recovery  of  the  balance.  (Tucker  v.  Martin, 
2  Pa.  Dist.  Ct.  97.  Hussey  v.  Crass,  [Tenn.] 
53  S.  W.  986.  Fire  Ins.  Co.  v.  Wickham, 
141  U.  S.  564.  Chicago,  etc.,  R.  Co.  v. 
Clark,  178  U.  S.  353.  See  also  Bingham  v. 
Browning,  97  111.  App.  442.)  But  where 
the  claim  is  unhquidated,  further  recovery 
is  barred,  even  though  the  payee  negatives 
the  condition  and  asserts  that  the  check  is 
received  as  part  pajonent  only.  (Cunning- 
ham Co.  V.  Ross-Darragh  Grain  Co.,  98 
Ark.  269.  Hand  Lumber  Co.  v.  Hall,  147 
Ala.  561.  Lapp-Gifford  Co.  v.  Water  Co., 
166  Cal.  25.  Bassick  Gold  Min.  Co.  v. 
Beardsley,  49  Colo.  275.  Andrews  v. 
Haller  Wall  Paper  Co.,  32  App.  D.  C.  392. 
Elrod  V.  Kiser,  13  Ga.  App.  471,  79  S.  E. 
375.  Smelting,  etc.,  Co.  v.  Fence  Co.,  204 
111.  App.  312.  Neubacher  v.  Perry,  57  Ind. 
App.  362.  Ferguson  v.  I.  L.  H.,  174  Iowa 
61,  156  N.  W.  176.  Sentel  v.  Wilcox,  3  La. 
Ann.  503.  Scheffenacker  v.  Hoopes,  [Md.] 
77  Atl.  130.  Tread  Co.  v.  Supply  Co., 
216  Mass.  104.  Hoey  v.  Ross,  189  Mich. 
193.  Decker  v.  Smith,  83  N.  J.  \..  630,  96 
Atl.  915.  Nassoiy  v.  Tomhnson,  148  N.  Y. 
326.  Neely  v.  Thompson,  68  Kan.  193. 
Cunningham  v.  Standard  Const.  Co.,  134 


204 


CHECKS 


[932-934 


Ky.  196,  119  S.  W.  765.  Richardson  v. 
Taylor,  lOJ  Me.  175.  Bogert  v.  Mfg.  Co., 
172  N.  C.  248.  Seeds,  etc.,  Co.  v.  Conger, 
83  Ohio  St.  169,  93  N.  E.  892.  Schumacher 
V.  Moffit,  71  Ore.  79,  142  Pac.  353.  Wash- 
ington Nat.  Gas  Co.  v.  Johnson,  123  Pa.  St. 
576.  Hull  V.  Johnson,  22  R.  I.  66.  Produce 
Co.  V.  Brown,  [Tex.  Civ.  App.  1915],  174 
S.  W.  554.  Granite  Co.  v.  Monument  Co. 
[Vt.],  99  Atl.  875.  Thomas  v.  Columbia 
Phonograph  Co.,  144  Wis.  470,  129  N.  W. 
522.)  Creditor  accepting  check  for  un- 
liquidated claim  is  bound  despite  protest. 
(Rose  V.  LiUy,  [Ark.  1914]  170  S.  W.  483 
[holding  that  if  creditor  is  not  willing  to 
accept  check  in  full  pajnnent,  it  is  his  duty 
to  return  it  without  using  it].  Levenstein 
V.  Dalton,  202  111.  App.  300  Ryan  v. 
Pubhshing  Co.,  16  Ga.  App.  83,  84  S.  E. 
834.  Simmons  v.  Supreme  Council,  178 
N.  Y.  263.  U.  S.  Bobbin,  etc.,  Co.  v.  Thissell, 
137  Fed.  1)  Dissenting  creditor  must  return 
check  within  reasonable  time.  (Longstreth 
V.  Halter,  122  Ark.  212,  183  S.  W.  177. 
Jenkins  v.  Nat.  Mut.  Bid.,  etc.,  Assn.,  Ill 
Ga.  732.  Day-Luellwitz-Lumber  Co.  v. 
Serrell,  177  111.  App.  30.  Patten  v.  Lynett, 
118  N.  Y.  S.  185.)  Creditor's  erasure  of 
condition  before  collection  is  unavailing. 
(Ryan  v.  Pub.  Co.,  16  Ga.  App.  83.  Wor- 
cester Color  Co.  V.  Henry  Wood's  Sons  Co., 
1209  Mass.  105,  95  N.  E.  392.  Smith  v. 
Bronstein,  107  N.  Y.  S.  875.  Kerr  v.  San- 
ders, 122  N.  C.  635.)  (Inquiry  from  Conn., 
Jan.,  1920,  Jl.) 

Check  for  less  amount  where  account  liquidated 

932.  The  correct  amount  due  to  a 
bank  on  a  note  was  $150  and  the  debtor 
tendered  in  payment  a  check  for  $140,  con- 
taining the  words  "in  full  payment  of  the 
note."  The  bank  accepted  the  check  and 
apphed  it  as  a  partial  payment.  Opinion: 
The  check  did  not  settle  the  entire  debt  and 
the  bank  can  recover  $10  more.  Had  the 
bank's  claim  been  uncertain  as  to  amount,  its 
acceptance  would  have  barred  recovery  of 
the  balance.  (Inquiry  from  Cal.,  Jan., 
1912,  Jl.) 

Release  of  balance  due  upon  liquidated  debt 
written  by  drawer  on  back  of  check  ineffectual 

933.  A  bank  held  a  note  having  five 
makers,  one  of  whom  mailed  the  bank  a 
check  for  one-fifth  of  the  amount  of  the 
note  with  interest,  with  the  following 
written  on  the  back  of  the  check:  "It  is 
agreed  that  the  payment  of  this  check  does 
release   (name)    of   any  further  obligation 


on  the  note."  What  would  be  the  legal  effect 
of  the  cashing  of  the  check.  Opinion: 
The  law  is  well  settled  that  each  maker  of  a 
note  is  hable  for  the  whole  amount,  and  one 
of  them  may  not  in  the  above  described 
way  relieve  himself  from  hability  for  the 
balance  because  there  would  be  no  consider- 
ation for  such  release.  There  are  numerous 
cases  in  which  a  man.  owing  an  undisputed 
debt  for  a  stated  amount,  as  upon  a  note, 
has  tendered  his  check  for  a  less  amount 
"in  full  of  amount  due"  in  which  the  courts 
have  held  that  the  acceptance  by  the 
creditor  of  the  check  did  not  operate  as  a 
bar  to  recovery  of  the  balance  due.  If  the 
amount  was  unhquidated  or  in  dispute, 
the  result  would  be  different;  but  in  a  case 
like  the  present,  the  acceptance  of  the  check 
for  one-fifth  could  not  reheve  the  maker 
from  liability  for  the  remaining  four-fifths 
of  the  note,  and  the  indorsement  and  collec- 
tion of  the  check  by  the  bank  would  not 
deprive  it  of  the  right  to  look  to  the  maker 
for  the  balance,  notwithstanding  the  stipu- 
lation written  by  him  on  the  back  of  the 
check.    (Inquiry  from  Wash.,  May,  1917.) 

Check  in  full  for  less  than  price  of  car 

934.  A  sells  a  car  to  B  for  $500,  but 
before  B  pays  A  he  finds  the  car  it  not 
worth  that  amount.  B  draws  a  check  to  A 
for  $400  and  writes  upon  its  face  the 
words  "In  full  payment  for  one  car."  A 
indorses  and  cashes  the  check  and  after- 
wards tries  to  collect  from  B  the  remaining 
$100.  Can  B  collect  the  $100?  Should  the 
words  "In  full  for  one  car"  have  been  put 
on  the  back  of  the  check  to  make  it  binding? 
Opinion:  The  decisions  quite  generally 
hold  where  a  check  for  a  less  amount  is 
given  "in  full  of  account"  or  "in  full  of  all 
claims"  and  the  claim  for  which  the  check 
is  given  is  unhquidated  and  in  dispute,  that 
the  acceptance  by  the  creditor  of  the  check 
constitutes  an  accord  and  satisfaction  and 
bars  him  from  recovering  anything  further. 
But  where  a  check  for  less  amount  and 
stated  to  be  "in  full"  is  given  for  a  claim 
which  is  hquidated,  the  acceptance  by  the 
creditor  of  the  check  is  not  an  accord  and 
satisfaction  and  does  not  bar  recovery  of 
the  balance  due.  Such  being  the  general 
law,  the  question  in  the  present  case  depends 
chiefly  upon  whether  the  $500  was  a 
liquidated  or  an  unliquidated  claim.  If 
the  parties  agreed  that  the  price  of  the  car 
was  $500,  then  the  mere  fact  that  the  pur- 
chaser subsequently,  after  dehverj^  of  the 
car,  comes  to  the  conclusion  that  it  is  worth 


205 


935-938] 


DIGEST  OF  LEGAL  OPINIONS 


only  $400,  would  not,  it  seems,  constitute 
an  unliquidated  claim.  If  after  the  delivery 
of  the  automobile,  the  purchaser  should 
discover  that  certain  misrepresentations 
had  been  made  concerning  parts  thereof, 
this  might  create  an  equity  which  would 
entitle  him  to  defend  payment  of  the  full 
amount;  but  unless  there  is  something 
of  this  kind  in  the  case,  if  B  agrees  to  pay 
$500  for  a  car  and  accepts  dehvery  and 
there  is  no  fraud,  misrepresentation  or 
concealment,  B  owes  $500  to  A,  and  A's 
claim  is  hquidated  for  that  amount;  so  that 
if  B  tenders  his  check  for  $400  "in  full  for 
one  car,"  its  acceptance  by  A  would  not 
bar  him  from  recovering  the  balance.  On 
the  other  hand,  if  there  is  a  bona  fide 
dispute  as  to  the  amount  due  and  the  claim 
is  unliquidated,  the  acceptance  by  A  of  B's 
check  for  $400  "in  full  for  one  car"  would 
bar  him  from  recovering  anything  more  and 
it  would  not  be  necessary  that  these  words 
be  indorsed  on  the  back  to  make  it  binding 
upon  A.    {Inquiry  from  Okla.,  May,  1919.) 

Negative  indorsement  hy  'payee 

935.  The  drawer  of  a  check  made  a 
notation  thereon  to  the  effect  that  the  check 
was  in  full  payment  of  account  on  a  certain 
contract.  The  payee  indorsed  the  check  and 
added  "This  is  to  apply  on  account  amount- 
ing to  $ and  is  not  payment  in  full." 

Opinion:  Where  the  payee  accepts  and 
collects  check  stated  to  be  "in  full  of 
account"  for  less  than  amount  of  his  claim, 
he  is  not  debarred  from  recovering  balance  if 
amount  of  claim  is  liquidated  or  undisputed, 
but  if  amount  is  the  subject  of  honest  dis- 
pute, his  acceptance  and  collection  of  check 
operate  as  a  bar  to  further  recovery,  even 
though  payee  negatives  condition  and 
asserts  check  is  received  as  part  payment 
only.  Barham  v.  Bk.  of  Delight,  126  S.  W. 
(Ark.)  394.  Springfield  &  Memphis  Rd. 
Co.  V.  Allen,  46  Ark.  217.  Green  v.  Laws, 
56  Ark.  37,  18  S.  W.  1038.  Nassoiy  v. 
Tomhnson,  148  N.  Y.  326,  42  N.  E.  715, 
51  Am.  St.  Rep.  695.  Ostrander  v.  Scott, 
161  111.  339,  43  N.  E.  1089.  {Inquiry  from 
Idaho,  Feb.,  1916,  Jl.) 

936.  A  check  which  had  marked  on  its 
face,  "In  full  of  account,"  was  indorsed, 
"Accepted  as  part  pajonent  of  account 
only."  The  bank  receiving  the  check  for 
deposit  in  sending  the  check  to  its  corre- 
spondent used  its  regular  stamp  guaranteeing 
indorsement.  The  check  was  paid  by  the 
drawee  bank.  Is  the  bank  receiving  the 
check  for  deposit  hable  for  its  amount  to 


the  drawer?  Should  the  drawee  bank  have 
paid  the  check?  Opinion:  If  the  check  in 
question  was  given  for  a  hquidated  or  un- 
disputed debt,  the  statement  that  it  was  "in 
full"  would  not  debar  the  payee  from  re- 
covering the  balance  due,  while  on  the 
other  hand  if  the  amount  for  which  the 
check  was  given  was  the  subject  of  an  honest 
dispute,  the  payee's  acceptance  and  collec- 
tion of  the  check  would  operate  as  a  bar  to 
further  recovery  by  the  payee  notwith- 
standing his  conditional  indorsement  "part 
payment  only."  In  either  event,  the  check 
having  been  paid,  it  is  impossible  to  see 
upon  what  ground  the  drawer  can  look  to 
the  bank  for  return  of  the  amount.  There 
is  no  question  of  forgery  or  alteration 
involved.  It  would  be  better  for  the 
drawee  bank  to  refuse  payment  of  such  a 
check,  as  such  bank  represents  the  drawer 
and  where  the  drawer  states  that  the  check 
is  "in  full"  the  bank  should  not  pay  an 
instrument  where  the  payee  attempts  by 
indorsement  to  negative  such  condition, 
even  though  the  indorsement  may  not  in 
law  have  such  effect.  It  might  be  better 
also  for  the  bank  of  deposit  to  refuse  to 
receive  such  a  check,  because  an  instrument 
so  indorsed  may  lead  to  disputes  and 
complications,  as  have  arisen  in  this  case, 
although  as  the  bank  of  deposit  represents 
the  payee,  there  is  not  the  same  reason  for 
refusing  as  in  case  of  the  bank  of  payment 
which  represents  the  drawer,  namely,  that 
the  conditional  indorsement  attempts  to 
frustrate  his  object  that  the  check  shall  be 
accepted  in  full  payment.  {Inquiry  from 
Mo.,  Feb.,  1916.) 

Check  for  less  amount  where  claim  disputed 

937.  A  debtor  and  creditor  had  an 
honest  dispute  as  to  the  amount  due  upon 
an  open  account  as  shown  by  their  respective 
books.  The  debtor  sent  a  check  for  less  than 
the  amount  claimed,  stated  to  be  "in  full  of 
account."  Opinion:  Where  the  dispute  be- 
tween the  debtor  and  creditor  is  bona  fide, 
the  acceptance  of  the  check  for  the  less 
amount  would  bar  recovery  of  any  further 
amount.  See  citations  in  Opinion  No.  939. 
Hussey  v.  Cross,  53  S.  W.  (Tenn.)  986. 
Gribble  v.  Raymond  Van  Praag  Supply 
Co.,  109  N.  Y.  S.  242.  Fuller  v.  Kemp,  138 
N.  Y.  231.  San  Juan  v.  St.  Johns  Gas  Co., 
195  U.  S.  510.  Chicago,  etc.,  Rv.  Co.  v. 
Clark,  178  U  S.  353.  Bingham  v.  Browning, 
97  111.  App.  442.  {Inquiry  from  III.,  May, 
1915,  Jl.) 

938.  The  maker  of  a  check  given  for 


206 


CHECKS 


[939-943 


a  debt  has  written  thereon  "in  full  to  March 
1,  1911."  The  payee  desires  to  know 
whether  the  acceptance  by  him  of  the  check 
will  operate  as  an  acknowledgment  on 
his  part  that  the  amount  of  the  check  is  in 
full  to  March  1st.  Opinion:  Where  the 
check  is  given  for  an  unliquidated  debt  or 
claim,  acceptance  by  the  payee  bars  further 
recovery;  but  it  is  otherwise  where  the 
amount  is  not  in  dispute  and  the  check  is  less 
than  the  sum  due.  {Inquiry  from  Mass., 
Oct.,  1911,  Jl.) 

939.  Where  check  "in  full"  is  given  for  a 
fixed  and  undisputed  claim  of  greater 
amount,  acceptance  by  creditor  does  not 
bar  recovery  of  balance — but  where  claim 
is  disputed  and  unhquidated,  acceptance  by 
creditor  prevents  further  recovery.  Tucker 
V.  Marvin,  2  Pa.  Dist.  Rep.  97.  St.  Regis 
Paper  Co.  v.  Tonawanda  Board  &  Paper  Co., 
107  App.  Div.  (N.  Y.)  90.  Scheffenacker  v. 
Hooper,  113  Md.  111.  {Inquiry  from  Md., 
March,  1913,  Jl.) 

Checks  without  funds 

Criminal  liability  for  issuing  bad  checks 

Note:  A  statute  recommended  by  the 
American  Bankers  Association  to  punish 
the  giving  of  checks  or  drafts  without 
sufficient  funds  in  bank  and  making  the 
issue  of  the  insufficient  check  prima  facie 
evidence  of  intent  to  defraud  has  been  passed 
in  nearly  all  the  states,  with  various  modifi- 
cations. Its  effect  is  weakened  in  some 
states  where  payment  within  ten  days  re- 
lieves the  drawer.     See  opinion  No.  1005. 

Worthless  check  for  existing  debt 

940.  Where  a  person  gave  a  worthless 
check  and  obtained  money  or  anything  of 
value  therefor,  he  could  be  prosecuted 
criminally,  but  if  he  simply  gave  the  check 
in  pa5Tnent  of  some  existing  indebtedness, 
there  would  not  be  a  criminal  offense.  See 
opinion  No.  953.  {Inquiry  from  Ark., 
July,  1913,  Jl.) 

Remedy  against  California  depositor  who 
continually  overdraws 

941.  Is  there  any  legal  method  to 
restrain  a  depositor  from  continually  and 
intentionally  overdrawing  his  account?  Opin- 
ion: A  bank  has  a  right  to  close  a  customer's 
account  if  it  chooses,  and  the  bank  would 
be  justified  and  within  its  rights  under  the 
law  in  closing  the  account  of  this  particular 
depositor,  handing  him  the  balance  to  his 
credit.    A  law  was  passed  in  California  in 


1907,  making  it  a  crime  for  a  person  to  issue 
willfully,  with  intent  to  defraud,  a  check  on 
a  bank  knowing  that  he  has  not  sufficient 
funds  or  credit  with  the  bank  to  pay  the 
same.  In  1915  the  legislature  amended  the 
penalty  by  making  the  crime  punishable 
"by  imprisonment  in  the  County  Jail  for 
not  more  than  one  year  or  in  the  State 
Prison  for  not  more  than  fourteen  years." 
{Inquiry  from  Cal.,  April,  1918.) 

Habitual  overdrafts  by  Colorado  corporation 

942.  A  corporation  having  its  account 
in  a  Colorado  bank  has  been  in  the  habit  of 
overdrawing.  The  bank  seeks  to  punish 
the  president  and  treasurer  of  the  cor- 
poration, although  none  of  the  checks  bears 
their  signatures.  Opinion:  Where  a  statute 
makes  it  a  misdemeanor  for  any  person, 
with  intent  to  defraud,  to  issue  a  check  upon 
a  bank  wherein  the  maker  has  insufficient 
funds,  and  a  corporation  depositor  habitu- 
ally overdraws  its  account,  the  corporation 
as  well  as  the  issuing  officer  is  liable  to 
prosecution,  and  the  president  and  treasurer 
who  do  not  sign  such  checks  but  have 
knowledge  of  and  power  to  prevent  their 
issue  are,  probably,  also  subject  to  prosecu- 
tion. Sess.  L.  Colo.,  1915,  Chap.  71,  p.  196. 
People  V.  Clark,  14  N.  Y.  S.  642.  Amer. 
Fork  City  v.  Charlier,  43  Utah  231.  U.  S.  v. 
Winslow,  195  Fed.  578.  St.  v.  Carmean, 
126  Iowa  291.  Crall  v.  Com.,  103  Va.  855. 
Overland  Cotton  Mill  Co.  v.  People,  32 
Colo.  263.  St.  V.  Parsons,  12  Mo.  App. 
205.    {Inquiry  from  Colo.,  July,  1918,  Jl.) 

Return  of  bogus  check  through  clearing  house 

943.  Where  a  bank  has  inadvertently 
cashed  a  check  drawn  by  a  person  having  no 
account  with  the  bank  and  it  returns  the 
check  to  the  collecting  bank  fifteen  minutes 
after  the  time  limit  fixed  by  the  Clearing 
House  rules  for  the  return  of  dishonored 
checks,  does  the  failure  to  return  the 
check  within  the  precise  time  limit  fixed  by 
the  rules  constitute  an  irrevocable  payment? 
Opinion:  While  payment  of  a  "not  good" 
check  to  a  bona  fide  holder,  whether  such 
payment  be  made  over  the  counter  or  by 
credit  to  the  account  of  a  depositor,  is 
ordinarily  held  a  finality  and  irrevocable,  in 
the  case  of  presentment  through  the  Clearing 
House  there  is  a  conflict  of  authority,  some 
courts  holding  that  failure  to  return  the 
check  within  the  precise  time  limit  fixed 
by  the  rules  of  the  Clearing  House  consti- 
tutes an  irrevocable  pa\anent  (State  Bank 
V.  Weiss,  91  N.  Y.  Suppl.  276.    Nat.  Exch. 


207 


944-949] 


DIGEST  OF  LEGAL  OPINIONS 


I 


Bank  v.  Ginn  [Md.],  78  Atl.  1026.  Preston 
V.  Canadian  Bank,  23  Fed.  179)  while  others 
hold  that  such  rules  are  sufficiently  elastic  to 
permit  of  return  to  the  presenting  bank 
within  a  few  minutes  after  the  expiration 
of  the  time  Hmit  in  case  such  bank  would 
lose  no  rights  by  the  delay,  in  which  case 
the  return  and  refusal  of  payment  is  valid. 
Citizens  Central  Nat.  Bank  v.  New  Amster- 
dam Nat.  Bank,  112  N.  Y.  Suppl.  973. 
{Inquiry  from  Colo.,  Feb.,  1920,  Jl.) 

Worthless  check  to  Florida  bank  for 
advance  interest 

944.  A  owed  a  bank  S500,  evidenced  by 
a  note  which  at  maturity  the  bank  agreed 
to  renew.  A  sent  a  renewal  note  upon 
which  the  bank  surrendered  the  original.  A 
also  sent  a  worthless  check  for  the  advance 
interest.  Opinion:  The  giving  of  the 
worthless  check  did  not  violate  the  Florida 
criminal  laws,  because  A  did  not  obtain 
anything  of  value  thereby.  (Inquiry  from 
Fla.,  Sept.,  1912,  Jl.) 

Note:  The  "Check  without  Funds" 
statute  has  been  declared  constitutional  in 
Florida.    McQuagge  v.  State  87  So.  60. 

Necessity  of  notification  under  Florida  statute 

945.  Where  a  person  has  a  Florida 
bank  cash  his  check  on  a  bank  in  another 
state,  in  which  he  does  not  have  funds 
sufficient  to  pay  it,  but  the  letter  of  the 
cashing  bank  advising  him  of  the  non-pay- 
ment and  demanding  reimbursement  was 
returned  undehvered,  is  a  criminal  prosecu- 
tion proper?  Opinion:  Under  the  "Checks 
without  Funds"  statute  advocated  by  the 
American  Bankers  Association  and  passed 
in  a  number  of  states,  the  non-dehvery  of  the 
letter  of  notification  would  not  bar  a  prosecu- 
tion. But  the  Florida  law  includes  as  a  part 
of  the  definition  of  the  crime  the  failure  to 
"make  full  and  complete  restitution"  *  *  * 
"within  twenty-four  hours  after  written 
notice  of  the  presentation  to  and  nonpayment 
by"  the  drawee  bank.  The  act  further  pro- 
vides that  "a  receipt  from  the  Registry  De- 
partment of  any  tlnited  States  Post-Office 
shall  be  deemed  prima  facie  evidence  of  the 
actual  deUvery  of  notice  as  provided  in  this 
Act."  Until  the  person  is  served  with  written 
notice  of  non-payment  and  he  does  not 
make  good  within  twenty-four  hours  he 
cannot  be  prosecuted.  The  statute  rec- 
ommended by  the  American  Bankers 
Association  should  be  substituted  for  the 
existing  statute.  {Inquiry  from  Fla.,  March, 
1921) 


Check  paid  from  account  subsequently  opened 

946.  An  active  official  of  a  bank  took  an 
assignment  of  John  Doe's  check  and  later, 
when  John  Doe  opened  an  account,  he 
presented  the  check  and  received  payment. 
Was  this  proper?  Opinion:  In  one  view 
the  bank  should  not  have  paid  this  check, 
it  having  been  dated  and  drawn  at  a  time 
when  John  Doe  had  no  account.  Neverthe- 
less, the  check  was  an  order  on  the  bank  to 
pay,  and  it  would  seem  that  the  holder  who 
had  given  value  for  it  had  a  right  from  his 
standpoint  to  present  it  and  receive  pay- 
ment and  from  the  bank's  standpoint,  it 
might  be  contended  the  check  was  properly 
chargeable  to  John  Doe's  account,  as  the 
check  constituted  an  order  to  the  bank  to 
pay,  although  dated  and  delivered  before  he 
opened  the  account.  {Inquiry  from  III., 
June,  1918.) 

Overdraft  on  Nebraska  bank  negotiated  in  Iowa 

947.  Is  the  drawer  of  a  check  on  a 
Nebraska  bank  subject  to  the  "Checks 
Without  Funds"  Act  of  that  state  where 
although  it  is  dated  "Jackson,  Nebraska", 
it  is  issued  and  negotiated  in  Iowa?  Opin- 
ion: Whether  the  maker  of  such  a  check 
against  insufficient  funds  could  be  pro- 
secuted under  the  Nebraska  Bad  Check  Law 
is  doubtful.  The  check  was  actually  drawn 
and  negotiated  in  Iowa,  and  it  would  seem 
that  the  offense  was  committed  in  that 
state.  If  the  maker,  although  drawing  the 
check  in  Iowa,  negotiated  it  in  Nebraska,  he 
would  be  clearly  amenable  to  the  Nebraska 
law  although  it  was  drawn  in  Iowa.  {In- 
quiry from  Iowa,  May,  1917.) 

Bogus  check  on  Kansas  bank 

948.  A  person  issued  a  check  on  a 
Kansas  bank  where  he  never  carried  an 
account.  The  bank  seeks  to  hold  him  hable 
for  obtaining  money  under  false  pretenses. 
Opinion:  The  burden  is  upon  the  state  to 
prove  the  drawer's  intent  to  defraud,  but  it 
establishes  a  prima  facie  case  where  it  shows 
that  the  drawer  issued  a  check  on  a  bank 
where  he  never  carried  an  account.  Gen.  St. 
Kan.  (1909),  Chap.  31,  Sec.  2584.  St.  v. 
McCormick,  57  Kan.  440.  In  re  Snyder, 
17  Kan.  542.  {Inquiry  from  Kan.,  July, 
1913,  Jl.) 

Overdraft  on  Washington  bank  negotiated 
in  Michigan 

949.  A  man  drew  two  checks  on  his 
bank  in  Washington  without  having  suffi- 
cient funds  to  meet  them,  and  obtained  cash 


208 


CHECKS 


[950-954 


thereon  from  a  bank  in  Michigan.  The 
drawer  has  returned  to  Washington.  Opin- 
ion: The  purchasing  bank  can  bring  an 
action  to  recover  the  amount  of  the  pro- 
tested checks.  If  the  drawer  can  be  located 
in  Michigan,  he  probabl}^  can  be  punished 
criminall}'  for  obtaining  money  under  false 
pretenses.  Mich.  Comp.  Laws,  Sec.  11575. 
{Inquiry  from  Mich.,  April,  1911,  Jl.) 

Bogus  check  on  Connecticut  hank  negotiated 
in  Mississippi 

950.  A  Mississippi  bank  submits  copy  of 
unpaid  draft  for  $100,  given  by  Mr.  Smith  on 
a  New  London,  Conn.,  bank,  marked  "No 
account."  Is  there  any  way  of  collecting 
same  or  punishing  the  drawer.?  Opinion: 
The  bank's  only  recourse  on  this  draft  is 
against  the  drawer  who  issued  it  and  if  he 
is  worth  suing  the  bank  should  bring  an 
action  against  him  for  the  amount.  Mr. 
Smith  can  be  punished  criminally  under  the 
Mississippi  Code  (Sec.  897)  if  he  obtained 
cash  thereon  from  the  bank.  The  statute 
gives  him  ten  days  after  receipt  of  written 
notice  of  non-payment  to  make  payment; 
otherwise  the  burden  of  proof  is  on  the  bank 
to  show  that  the  money  was  obtained  under 
false  pretenses.  The  statute  provides  that 
the  failure  of  the  drawer  to  pay  the  amount 
within  ten  days  after  receipt  of  written 
notice  of  non-payment  shall  be  prima  facie 
evidence  of  obtaining  the  amount  under 
false  pretenses.  (Inquiry  from  Miss.,  March, 
1919.) 

Missouri  hank  officer  allowing  overdraft 

951.  Is  there  a  law  in  Missouri  punishing 
a  bank  officer  for  allowing  an  overdraft? 
Opinion:  There  appears  to  be  no  law  in 
Missouri  which  would  punish  the  bank 
ojfficer  who  allows  an  over-draft.  There  is 
a  law  passed  in  1917,  by  the  Missouri 
Legislature,  punishing  a  person  issuing  an 
over-draft,  but  the  same  does  not  extend  to 
bank  officers  who  pay  them.  The  National 
Bank  Act  has  a  provision  which  punishes 
the  certification  of  an  over-draft  but  this 
does  not  applj--  to  a  state  bank.  {Inquiry 
from  Mo.,  Sept.,  1917.) 

Overdraft  on  New  York  hank  cashed 
in  New  Jersey 

952.  A  New  York  business  man  residing 
in  New  Jersey  induced  a  bank  in  the  latter 
state  to  cash  a  check  for  him  drawn  on  a 
New  York  bank.  The  check  came  back 
protested.  "What  can  be  done  to  him  be- 
cause  of   his   failure   to    pay   the   amoimt 


thereof?  Opinion:  Where  money  is  ob- 
tained upon  a  bad  check  in  New  Jersey, 
the  maker  who  negotiates  his  worthless 
check,  which  came  back  protested,  could  be 
criminally  punished  for  obtaining  money 
under  false  pretenses.  This,  of  course,  upon 
the  assumption  that  the  check  was  negoti- 
ated to  the  bank  by  the  maker  and  not  by  a 
man  to  whom  the  check  was  made  payable. 
If  the  latter  was  the  case,  the  payee  may  not 
have  known  that  the  check  was  bad  when 
he  negotiated  it,  assuming  also  that,  at  the 
time  the  check  was  negotiated  by  the 
drawer,  or  maker,  his  account  in  bank  was 
not  good  for  the  amount.  If  his  account 
was  good  for  the  amount  at  the  time  he 
cashed  the  check,  but  later,  before  it  was 
presented,  same  was  withdrawn,  it  might 
be  a  more  difficult  matter  to  prove  him 
guilty  of  a  crime.  {Inquiry  from  N.  J,. 
Jan.,  1916.) 

Check  without  funds  in  payment  of  account 

953.  In  payment  of  an  account  at  the 
end  of  a  month  a  merchant  gave  a  check  on 
his  bank  in  which  there  were  no  funds  to 
make  payment.  Is  he  criminally  liable? 
Opinion:  The  New  Mexico  statute  provides 
that  any  person  who  with  intent  to  defraud 
makes  or  delivers  a  check  on  a  bank  knowing 
at  the  time  that  the  maker  has  not  sufficient 
funds  for  its  pajonent,  is  guilty  of  attempted 
larceny  and  if  money  or  property  is  obtained 
thereon,  is  guilty  of  larceny.  The  Supreme 
Court  of  New  Mexico  in  State  v.  Davis, 
194  Pac.  882,  held  that  it  was  not  a  violation 
of  this  statute  for  one  to  issue  a  check  in 
payment  of  an  outstanding  account,  where 
credit  was  not  given  on  the  strength  of  the 
check  so  issued,  because  in  such  case  "there 
can  be  no  intent  to  defraud,  which  is  the 
gist  of  the  offense.  A  check  so  given  in 
pa.yment  of  the  account  does  not  pay  the 
account  until  the  check  is  paid  and  as 
nothing  of  value  is  obtained  in  such  a  case, 
or  could  be  obtained,  there  could  be  no  such 
fraudulent  intent."  {Inquiry  from  N.Mex., 
March,  1921.) 

The  Ohio  had  check  statute 

954.  What  are  the  provisions  of  the  law 
in  Ohio  declaring  it  to  be  a  crime  to  draw 
a  check  on  a  bank  without  sufficient  funds? 
When  passed?  What  is  the  penalty  attach- 
ed? Opinion.  A  law  to  punish  the  giving 
of  checks  without  funds,  was  first  passed  in 
Ohio  in  1915.  It  now  constitutes  Section 
]  76  of  the  new  Banking  Code  passed  in 
1019,  and  is  as  follows:    "Any  person  who, 


209 


955-957] 


DIGEST  OF  LEGAL  OPINIONS 


with  intent  to  defraud,  shall  make  or  draw 
or  utter  or  dehver  any  check,  draft  or  order 
for  the  payment  of  money  upon  any  bank 
or  other  depositary,  who,  at  the  time  there- 
of has  insufficient  funds  or  credit  with  such 
bank  or  depositary,  shall  be  guilty  of  a  fel- 
ony, and  upon  conviction  thereof  shall  be 
fined  not  less  than  fifty  dollars  and  not 
more  than  two  hundred  dollars,  or  impris- 
oned in  the  Ohio  State  Penitentiary  for  not 
less  than  one  year  nor  more  than  three 
years  or  both"  *  *  *  (Inquiry  from  Ohio 
April  1920). 

Deposit  by  payee  of  maker^s  had  check 

955.  The  payee  of  a  check  deposited  it 
and  drew  against  it  as  uncollected  funds. 
The  maker  had  insufficient  funds  on  deposit 
to  meet  it  and  it  was  returned  to  the  bank  in 
which  it  had  been  deposited.  Both  maker 
and  payee  were  financially  unable  to  make 
good  the  loss.  Is  there  criminal  liabihty? 
Opinion:  The  legislature  of  Pennsylvania 
passed  a  law  in  1919,  providing:  "That 
any  person  who,  with  intent  to  defraud, 
shall  make  or  draw  or  utter  or  deliver  any 
check,  draft,  or  order  for  the  payment  of 
money,  upon  any  bank,  banking  institution, 
trust  company,  or  other  depositary,  knowing 
that  the  maker  or  drawer  has  not  sufficient 
funds  in,  or  credit  with,  such  bank  ^  ^  ^^ 
for  the  payment  of  such  check,  although 
no  express  representation  is  made  in 
reference  thereto,  shall  be  guilty  of  a 
misdeameanor."  The  law  further  provides 
that  in  any  prosecution,  the  making  of  a 
check  which  is  refused  because  of  lack  of 
funds  shall  be  prima  facie  evidence  of 
intent  to  defraud  "unless  such  maker  or 
drawer  shall  have  paid  the  drawee  thereof 
the  amount  due  thereon,  together  with  the 
interest  and  protest  fees,  within  ten  days 
after  receiving  notice  that  such  check, 
draft  or  order  has  not  been  paid  by  the 
drawee."  It  seems  under  this  statute  the 
maker  can  be  prosecuted  if  he  had  insuffi- 
cient funds  at  the  time  he  gave  the  check 
but  the  burden  of  proving  fraudulent 
intent  is  on  the  prosecution  unless  there  is 
proof  of  notice  to  the  maker  and  non- 
payment by  him  within  ten  days  after 
notice.  Successful  prosecution  of  the  payee 
would  depend  upon  whether  it  could  be 
proved  that  he  knew  the  check  was  bad 
when  he  deposited  and  checked  against  it. 
(Inquiry  from  Pa.,  March,  1920.) 


Checks  drawn  and  indorsed  in 
representative  capacity 

Check   of  third  person  payable  to  agent   or 
fiduciary  negotiated  or  deposited  to 
personal  credit 

956.  The  question  involved  is  whether 
a  Kentucky  bank  took  a  good  and  enforcible 
title  to  a  check  from  the  payee  or  was  put 
upon  inquiry,  the  same  being  as  follows: 

"Pay  to  the  order  of  Constable  in 

full    payment    of    judgment,    interest    and 

costs  in  favor  of  v.  on  the 

docket   of  J.    P.    (Signed)    

(Signed)    ."     Opinion:     The  courts 

have  differed  on  this  question,  some  holding 
that  where  a  check  is  made  payable  to  a 
person  as  agent  or  trustee  and  is  negotiated 
by  the  trustee,  the  purchaser  takes  an 
enforcible  title  free  from  equities.  For 
example,  in  Central  State  Bank  v.  Spurlin, 
82  N.  W.  (Iowa)  493,  it  has  been  held  that 
the  word  "Trustee"  attached  to  the  name 
of  the  paj^ee  is  simply  descriptive  of  the 
person  and  does  not  affect  the  negotiability 
of  the  instrument  by  carrying  notice  that 
some  person  other  than  the  named  payee  is 
interested  in  the  proceeds;  hence  the  note 
was  negotiable  by  the  individual  named 
as  payee,  and  one  purchasing  from  him  was 
not  put  upon  inquiry  by  reason  of  the 
suffix  "trustee."  See,  also,  Zellner  v. 
Cleveland,  69  Ga.  633;  Thornton  v.  Rankin, 
19  Mo.  193.  But  in  Tennessee  and  Missis- 
sippi the  indorsee  is  put  on  inquiry.  Thus  in 
U.  S.  FideHty  &  Guaranty  Co.  v.  Peoples 
Bank,  157  S.  W.  (Tenn.)  414  a  check  paya- 
ble to  a  guardian  was  deposited  in  his 
personal  account  and  the  proceeds  mis- 
appropriated. The  bank  was  put  on  notice 
and  held  hable.  See  also.  Bank  of  Hickory 
V,  McPherson,  59  So.  (Miss.)  934  where  a 
similar  ruling  was  held  with  reference  to  a 
check  made  payable  to  "A.  B.,  Commis- 
sioner."   (Inquiry  from  Tenn.,  March,  1916.) 

Drawee  not  liable  if  payee  misappropriates 
money 

957.  A  bank  on  which  a  check  is  drawn 
payable  to  John  Jones,  Agent,  Frisco  Rail- 
way Co.,  asks  whether  it  has  the  right  to 
pay  the  amount  to  John  Jones  without 
incurring  hability  in  case  he  misappropriates 
the  money.  Opinion:  The  bank  will  not 
be  Hable  if  Jones  misappropriates  the 
money.  The  bank  makes  payment  as 
ordered  and  is  not  responsible  for  his 
disposition  of  the  proceeds.  (Inquiry  from 
Ark.,  March,  1915.) 


210 


CHECKS 


[958-960 


Payment  of  check  upon  payee  bank  to 

confidential  clerk  of  drawer —  Notice 

from  for yn  of  check — Apparent 

authority  of  clerk 

958.  A  bank  carries  a  company's  ac- 
count, and  the  latter's  confidential  clerk 
has  been  stealing  for  some  time.  His 
method  has  been  to  draw  a  check  on  and 
make  same  payable  to  the  bank,  stating 
to  the  officer  of  the  company  authorized 
to  sign  checks,  that  the  same  was  in  pay- 
ment of  a  draft  or  for  pay  roll,  and  in  the 
latter  case  the  words  "for  pay  roll"  were 
written  in  corner  of  check.  The  bank's 
custom  was  to  have  the  clerk  indorse  his 
name  thereon  and  give  him  the  cash.  The 
company  is  endeavoring  to  hold  the  bank 
liable  for  negligence  for  paying  checks 
made  to  its  own  order.  Opinion:  There  is 
a  conflict  of  authority  under  the  Negotiable 
Instruments  Act  whether  the  payee  of  a 
check  can  be  a  holder  in  due  course.  In  a 
few  states  it  has  been  held  that  the  payee, 
who  gives  value  to  the  holder  of  a  check, 
can  enforce  same  free  from  equities,  but  in 
other  states,  among  them  Missouri,  the 
contrary  has  been  held.  The  INlissouri 
cases  are:  Long  v.  Shafer,  185  Mo.  App. 
641.  Charles  Sav.  Bk.  v.  Edwards,  243  Mo. 
553.  In  the  case  of  Sims  v.  U.  S.  Trust 
Co.,  103  N.  Y.  472,  a  depositor  drew  his 
check  on  his  bank  for  S5,000  payable  to  the 
order  of  a  trust  company,  his  intention  being 
to  transfer  the  deposit  from  one  institution 
to  another.  He  entrusted  the  check  to  his 
confidential  clerk  with  directions  to  deposit 
it  to  his  credit  with  the  trust  company. 
The  clerk  disobeyed  instructions  and  him- 
self received  the  proceeds  from  the  trust 
company  which  he  misappropriated.  The 
court  held  that  the  check  drawn  to  the 
order  of  the  trust  company,  imported 
ownership  of  the  money  by  the  drawer  and 
his  desire  that  the  custody  of  the  money 
should  be  transferred  from  the  bank  on 
which  the  check  was  drawn  to  the  trust 
companj\  This  did  not  warrant  the  trust 
company  in  supposing  that  the  drawer 
intended  to  pay  the  money  to  holder.  From 
the  above  it  would  appear  that  the  bank 
would  have  no  standing  as  a  bona  fide 
holder  of  the  check  payalile  at  the  bank's 
order  to  look  to  the  drawer  for  the  amount. 
But  there  is  another  phase  of  the  question 
in  this  particular  case,  namely,  that  the 
drawer  of  the  check  is  a  depositor  in  the 
bank.  As  a  guide  for  future  transactions  it 
would  be  well  not  to  honor  checks  of  this 
kind    when    presented    by    an    officer    or 


employee  not  authorized  to  draw  such  a 
check  and  insist  that  checks  for  pay-roll 
and  other  purposes  be  made  payable  to 
bearer.  But  as  a  matter  of  defending 
against  liabihty  in  this  particular  case,  the 
fact  appears  that  it  was  the  custom  of  the 
company  to  make  their  checks  for  payroll 
purposes  payable  directly  to  the  bank,  and 
also  to  draw  checks  in  like  manner  for 
amounts  of  petty  cash  and  to  intrust  such 
checks  to  the  employee  in  question  for  the 
purpose  of  procuring  the  cash  thereon.  It 
seems,  therefore,  that  the  employee  was 
invested  with  apparent  authority  from  this 
course  of  dealing  to  receive  the  cash  on  the 
check  in  this  instance  although  he  in  fact 
had  no  actual  authority  in  the  particular 
case.  The  general  rule  would  seem  to  apply 
that  where  one  of  two  innocent  persons 
must  suffer  for  the  fraud  of  a  third,  he  who 
has  reposed  the  confidence  must  bear  the 
loss.    {Inquiry  from  Mo.,  Feb.,  1917.) 

959.  Some  of  the  customers  of  a  bank 
send  their  checks  to  the  bank  for  the  purpose 
of  purchasing  drafts  or  to  draw  money  for 
payrolls,  making  their  checks  payable  to 
the  bank.  The  question  has  arisen  whether 
the  bank  would  be  hable  if  a  clerk  should 
wrongfully  apply  the  check.  Is  the  bank 
safe  in  cashing  checks  or  issuing  drafts 
payable  to  parties  other  than  its  customers, 
without  an  order  stating  the  purpose  of  the 
check  when  same  does  not  indicate  purpose 
for  which  it  is  drawn.  Opinion:  It  is  an 
unsafe  practice  for  the  bank  to  cash  checks 
of  customers  made  paj^able  to  the  bank's 
order  when  presented  by  clerks  to  the  bank, 
unless  the  customer  files  a  letter  of  authority 
authorizing  pajTuent  of  such  checks  in  this 
way.  If  the  clerk  should  misappropriate 
the  money  there  might  be  a  liability  on  the 
part  of  the  bank.  In  view  thereof  the  bank 
should  insist  on  having  the  checks  drawn 
payable  to  bearer  or  to  the  order  of  the 
withdrawing  clerk  or  if  made  payable  to 
the  bank  that  a  letter  of  authority  should  be 
filed  as  suggested.  (Inquiry  from  Wash., 
April,  1916.) 

Payment  by  drawee  to  corporation  officer 
of  official  check  to  officer's  order 

960.  A  check  was  presented  to  a  bank 
by  an  officer  of  a  corporation  who  had 
authority  to  check  on  the  company's  funds 
and  who  had  signed  same  officially  to  his 
own  order.  He  was  paid  the  cash,  but  did 
not  indorse  the  check.  The  corporation 
failed,  and  a  receiver  was  appointed.  A 
claim  is  made  that  the  bank  is  responsible 


211 


961-966] 


DIGEST  OF  LEGAL  OPINIONS 


because  the  instrument  was  not  indorsed 
by  the  party  who  received  the  money 
thereon.  Opinion:  The  check  having 
been  signed  by  a  duly  authorized  officer, 
and  the  money  having  been  paid  by  the 
bank  to  a  person  authorized  by  the  cor- 
poration to  receive  payment,  this  con- 
stituted a  complete  acquittance  to  the  bank 
even  though  the  check  was  not  indorsed, 
and  it  was  not  responsible  for  the  application 
of  the  money,  even  assuming  it  was  mis- 
appKed  in  whole  or  in  part.  {Inquiry  from 
Kan.,  June,  1918.) 

Payment  of  treasurer's  check  to  personal  order 

961.  Should  a  drawee  bank  pay  the 
check  of  a  treasurer  of  a  corporation  on  its 
account  drawn  to  his  personal  order  without 
inquiry?  Opinion:  The  latter  view  is  that 
where  an  officer  of  a  corporation  has  the 
check-signing  power,  the  bank  is  safe  in 
paying  his  official  checks  drawn  to  his 
personal  order.  But  in  view  of  the  language 
of  some  of  the  cases  it  would  be  safer  for  a 
bank  paying  such  checks  to  require  a 
resolution  of  the  corporation  authorizing 
the  bank  to  pay  its  checks  when  made  out 
to  the  official's  own  order  or  to  bearer  as 
well  as  to  third  persons.  Havana  Central 
Rd.  V.  Knickerbocker  Tr.  Co.,  198  N.  Y. 
422.  Claffin  v.  Bk.,  25  N.  Y.  293.  Gale  v. 
Chase  Nat.  Bk.,  43  C.  C.  A.  496.  State  v. 
Miller,  85  Pac.  (Ore.)  81,  82.  Goshen  Nat. 
Bk.  V.  State,  141  N.  Y.  379.  {Inquiry  from 
III,  April,  1911,  Jl.) 

Check  drawn  by  supervisor  to  ''myself 

962.  A  bank  paid  a  check  of  a  supervisor 
drawn  on  pubHc  funds  to  the  order  of 
"myself,"  and  indorsed  by  him.  He  mis- 
appropriated the  money  and  the  surety 
company  on  his  bond  sues  the  bank  for 
reimbursement.  Is  the  bank  liable?  Opin- 
ion: The  bank  is  not  liable  to  the  surety 
company  as  the  supervisor  presumably 
had  the  right  to  draw  out  the  money  himseK, 
as  well  as  to  order  it  paid  to  third  persons, 
and  the  bank  was  not  responsible  for  his 
misappropriation  thereof.  {Inquiry  from 
N.  Y.,  April,  1915.) 

Form  of  check  to  corporation 

963.  A  depositor  makes  out  a  check 
payable  to  the  treasurer  of  a  life  insurance 
company,  without  any  addition  to  the 
individual  name  of  the  officer.  Does  this 
insure  that  only  the  companj^  will  receive 
the  money?  Is  it  sufficient  to  add  to  the 
name,  the  designation,  "Treasurer."    Opin- 


ion: If  the  check  is  made  out  in  the  in- 
dividual name  of  the  treasurer,  there  is 
notliing  to  prevent  the  payee  from  negotiat- 
ing the  check  for  his  own  purposes.  If  the 
proceeds  of  the  check  are  turned  over  to  the 
company  well  and  good.  The  check  should 
be  drawn  payable  to  the  company  itself. 
{Inquiry  from  Ga.,  Feb.,  1920.) 

Unauthorized  indorsement  by  secretary  of 
check  payable  to  trust  company 

964.  A  check  made  payable  to  and 
owned  by  the  N  Trust  Company  was  in- 
dorsed without  authority  in  the  name  of  the 
trust  company  by  its  secretary  to  his  in- 
dividual order,  followed  by  his  personal 
indorsement,  and  then  was  negotiated  by 
him  to  the  P  Banking  Company,  which 
paid  him  part  thereof  in  currency,  credited 
the  balance  to  his  personal  account  and 
thereafter  collected  the  draft.  Opinion: 
The  P  Banking  Company  was  liable  to  the 
N  Trust  Company  for  the  proceeds,  as  the 
indorsement  of  the  secretary  was  without 
express  or  implied  authority  of  the  trust 
company  and  the  bank  took  no  title. 
Knoxville  Water  Co.  v.  East  Tenn.  Nat.  Bk., 
131  S.  W.  447.  Blood  v.  Maveuse,  38  Cal. 
590.  First  Nat.  Bk.  v.  Hogan,  47  Mo.  472. 
{Inquiry  from  S.  D.,  Dec,  1912,  Jl.) 

Unauthorized  indorsement  by  agent  of 
check  payable  to  company 

965.  A  customer  gave  his  check  drawn 
payable  to  a  company  to  the  company's 
agent,  who  had  the  same  certified  at  the 
bank  before  indorsement.  After  certifi- 
cation the  agent  indorsed  the  company's 
name  and  then  his  own  name  individually, 
and  thereupon  John  Jones  also  indorsed  the 
check  and  the  same  was  cashed  for  the  agent 
by  a  bank  where  John  Jones  had  a  personal 
account,  relying  upon  John  Jones's  warranty. 
The  check  was  paid  by  the  drawee,  but  the 
company  did  not  receive  the  amount.  Opin- 
ion: Assuming  the  agent  had  no  authority 
to  indorse  for  the  company,  the  cashing 
bank  which  paid  the  check  upon  the  un- 
authorized indorsement  is  liable  to  certifying 
bank,  and  can  recover  from  John  Jones 
upon  his  indorsement.  If  the  agent's 
indorsement  was  authorized,  the  amount  is 
chargeable  against  the  drawer's  account. 
Goshen  Nat.'Bk.  v.  Bingham,  118  N.  Y. 
349.    {Inquiry  from  Conn.,  Jan.,  1915,  Jl.) 

Authorized  indorsement  by  agent 

966.  The  agent  of  B  the  payee  of  a 
check,  indorsed  it  and  presented  it  for  pay- 


212 


CHECKS 


[967-9G9 


ment,  receiving  in  payment  thereof  a  cer- 
tificate of  deposit.  The  same  day,  after 
banking  hours,  the  drawer  of  the  check 
called  at  the  bank  to  stop  payment  and 
stated  that  he  would  not  accept  the  in- 
dorsement of  the  payee's  agent.  The  cer- 
tificate of  deposit  was  deposited  in  another 
bank  with  the  indorsement  "For  deposit  to 
credit  of  B"  When  the  certificate  was 
presented  to  the  issuing  bank  for  payment 
it  refused  to  pay  because  it  was  not  indorsed 
by  the  payee,  but  later  paid  when  the 
indorsement  was  supplied.  Is  the  drawee 
bank  Uable  to  the  drawer  of  the  check? 
Opinion:  There  is  no  liability  to  the 
drawer.  After  the  bank  had  paid  the  check 
it  was  too  late  for  the  drawer  to  countermand 
the  order.  The  fact  that  the  check  was  not 
indorsed  by  the  payee  in  person  but  by  the 
agent  does  not  affect  the  validity  of  the 
payment.  The  Negotiable  Instruments 
Act  provides  "that  the  signature  of  a  party 
may  be  made  by  a  duly  authorized  agent." 
It  might  have  been  proper  for  the  bank  to 
refuse  to  honor  its  certificate  of  deposit 
until  indorsed  by  the  payee  in  person  or 
until  the  authority  of  the  agent  was  estab- 
hshed;  but  the  bank  was  liable  on  the  cer- 
tificate as  soon  as  issued  and  was  under 
obhgation  to  pay  same  when  presented 
properly  indorsed.  Kahn  v.  Walton,  46 
Ohio  St.  195.  Albers  v.  Com.  Bank,  85 
Mo.  173.  Loan,  etc.,  Bk.v.  Farmers,  etc.,  Bk., 
74  S.  C.  210.  {Inquiry  from  S.  C,  Jan., 
1917.) 

Abuse   of  check-signing  power  by  authorized 
agent 

967.  The  agent  for  a  grain  elevator  was 
given  plenary  power  to  draw  checks.  He 
permitted  a  third  person  to  purchase 
options  from  a  commission  house  in  the 
name  of  the  elevator  and  deposited  the 
margin  required  from  such  purchaser  to  the 
credit  of  the  elevator.  Sometimes  the 
buyer  had  a  profit,  in  which  case  he  with- 
drew his  profits  by  having  the  agent  issue 
regular  grain  checks,  except  that  no  bushels 
were  filled  in,  but  the  word  "option,"  or 
"opt"  appeared  on  some  of  them.  The 
agent  also  took  options  from  the  commission 
house,  purporting  to  be  using  the  credit  that 
this  third  person  had  with  the  elevator  as 
margin  on  his  deal.  This  option  was  also 
taken  in  the  name  of  the  elevator  and  when 
the  agent  had  a  profit  on  the  deal,  he 
closed  it  out  and  issued  to  himself  a  cash 
grain  check,  without  any  bushels  marked, 
but   with   the   word    "option,"    or   "opt," 


marked  thereon.  The  bank  did  not  know 
the  nature  of  the  margin  deposits,  neither 
did  it  notice  the  marks  "option"  or  "opt." 
The  agent  absconded  and  left  the  elevator 
company  insolvent.  Is  the  bank  liable 
for  the  repayment  of  these  checks?  Opin- 
ion: Since  the  agent  had  full  authority  to 
draw  checks,  the  bank  cannot  be  held  liable 
for  the  checking  out  of  money  without 
right,  in  the  absence  of  notice  of  excess  of 
authority.  Nat.  Bank  v.  Chfton  IMfg.  Co., 
33  S.  E.  (S.  C.)  750.  The  terms  "option" 
or  "opt."  are  not  sufficient  to  charge  the 
bank  with  notice.  {Inquiry  from  N.  D., 
June,  1916.) 

Official  check  to  personal  order  deposited 
in  personal  account 

968.  John  Jones  presented  for  credit  to 
his  individual  account  a  check  for  $7,000 
drawn  on  another  bank  to  his  own  order 
by  himself  as  treasurer  of  a  company. 
The  check  was  indorsed  by  him  in  blank.  It 
afterwards  develops  that  the  treasurer  is  mis- 
appropriating the  company's  funds.  Opin- 
ion: It  has  been  held  by  the  Appellate  Di- 
vision of  the  New  York  Supreme  Court  in  a 
similar  case  that  the  mere  form  of  the  check 
charged  the  bank  of  deposit  with  notice  that 
the  treasurer  was  using  corporate  funds  for 
his  private  purposes  and  made  it  hable  to  the 
corporation  therefor.  Havana  Central  Rd. 
V.  Knickerbocker  Tr.  Co.,  198  N.  Y.  422. 
{Inquiry  from  Mo.,  Avril,  1910  Jl.) 

Note:  The  above  decision  was  subse- 
quently reversed  by  the  New  York  Court  of 
Appeals  which  held  that  if  it  be  conceded 
a  duty  of  inquiry  rested  upon  the  bank  of 
deposit,  such  inquiry  was  sufficiently  made 
and  the  duty  discharged  b}^  presentment  to 
the  drawee  bank,  and  payment  of  the  check 
was  an  answer  to  the  inquir3^ 

Cashier's  check  for  private  debt 

969.  Is  it  improper  for  a  creditor  to 
take  a  cashier's  check  for  his  personal  debt? 
Opinion:  One  who  receives  a  bank's  check 
signed  by  its  cashier  in  payment  of  the 
personal  debt  of  the  cashier  must  refund  the 
money  to  the  bank.  Gale  v.  Chase  National 
Bank,  104  P'cd.  Rep.  213.  Where  a  cashier 
paid  his  personal  note  by  drawing  and 
delivering  a  draft  in  the  name  of  a  bank, 
it  was  held  that  the  bank  could  recover 
from  the  creditor.  Home  Savings  Bank  v. 
Otterbach,  135  Iowa  157.  {Inquiry  from 
N.  F.,  April,  1917.) 


213 


970-976] 


DIGEST  OF  LEGAL  OPINIONS 


Treasurer'' s  official  check  for  'private  debt 

970.  The  check  of  a  corporation  is 
signed  in  the  name  of  the  corporation  by  "A, 
Treasurer,"  or  by  A  in  some  other  official 
capacity,  and  given  in  payment  of  a  draft 
drawn  on  A  individually.  What  is  the 
habihty  of  a  bank  accepting  such  a  check? 
Opinion:  Such  a  check  would  carry  notice 
from  its  form  and  charge  the  holder  with  the 
duty  of  inquiry  as  to  the  authority  of  A  to 
use  the  corporate  funds  to  pay  his  private 
debt.  Kenyon  Realty  Co.  v.  Nat.  Deposit 
Bk.,  140  Ky.  33.  Empire  State  Surety 
Co.  v.  Nelson,  126  N.  Y.  S.  453.  Emerado 
Farmers  El.  Co.  v.  Farmers  Bk.  of  Emerado, 
127  N.  W.  522.  Havana  Central  Rd.  v. 
Knickerbocker  Tr.  Co.,  198  N.  Y.  422. 
{Inquiry  from  Ga.,  Sept.,  1912,  Jl.) 

Partnership  check  for  partner^ s  private  debt 

971.  A  bank  asks  whether  it  can  be  held 
responsible  to  a  firm  when  it  accepts  the 
firm's  check  in  pajonent  for  indebtedness  of 
one  of  the  individual  members.  Opinion: 
It  is  generally  held  by  the  courts  that  a 
check  or  note  signed  in  the  name  of  a 
partnership  by  one  of  the  partners  tendered 
in  payment  of  a  personal  debt  carries  notice 
to  the  creditor  and  puts  him  on  inquiry  as 
to  the  partner's  authority.  If  the  partner 
exceeded  his  authority,  the  creditor  will  be 
liable  to  refund.  This  principle  also  applies 
to  officers  of  corporations  who  issue  official 
checks  to  their  personal  order  and  use  them 
in  payment  of  a  private  debt,  as  well  as  to  all 
fiduciaries  who  use  trust  moneys  to  pay 
personal  debts.  See  Noyes  v.  Crandall,  6 
So.  Dak.  460.  {Inquiry  from  III.,  Nov., 
1919.) 

Undated  checks 

972.  What  is  the  effect  of  leaving  a 
check  undated?  Opinion:  A  check,  though 
not  dated,  is  a  valid  and  negotiable  order  on 
the  bank  to  pay  on  demand,  but  the  absence 
of  date  may  (although  the  point  has  not  been 
decided)  afford  justification  for  drawee's 
refusal  to  pay  until  reasonable  time  for 
inquiry  as  to  age  of  check,  for,  if  check  has 
been  outstanding  an  unreasonable  length 
of  time,  payment  is  at  bank's  peril.  Neg. 
Inst.  A.,  Sec.  6  (Comsr's.  dft.).  Bk.  of 
Houston  V.  Day,  122  S.  W.  (Mo.)  756. 
Lancaster  Bk.  v.  Woodward,  18  Pa.  357. 
{Inquiry  from  Ga.,  Aug.,  1914,  Jl-) 

973.  Should  an  undated  check  be  paid 
upon  presentation?  Opinion:  Under  the 
Negotiable  Instruments  Law  "the  vahdity 
and  negotiable  character  of  an  instrument 


are  not  affected  by  the  fact  that  it  is  not 
dated."  The  undated  check  being  a  valid 
order  to  pay  on  demand  can  be  paid  by  the 
bank  upon  presentation.  Neg.  Inst.  A.,  Sec. 
6  (Comsr's.  dft.).  {Inquiry  from  N.  Y., 
Jan.,  1911,  Jl.) 

Stale  checks 

974.  A  check  dated  October  10,  1911, 
was  presented  for  payment  June  25,  1913. 
The  drawee  refused  payment  on  the  ground 
that  the  check  was  "stale."  Opinion:  The 
bank's  refusal  was  justified.  Until  the 
"reasonable  time"  rule  of  the  Negotiable 
Instruments  Law  is  more  fully  interpreted 
the  exact  period  of  time  required  to  make  a 
check  stale  remains  uncertain.  Merchants 
&  Planters  Bk.  v.  CHfton  Co.,  56  S.  C.  320. 
Lancaster  Bk.  v.  Woodward,  18  Pa.  357. 
Neg.  Inst.  A.,  Sees.  53,  71,  186  (Comsr's. 
dft.).     {Inquiry  from  Ariz.,  Sept.,  1913,  Jl.) 

975.  Should  a  bank  cash  a  check,  pre- 
sented several  months  after  its  date,  without 
notifying  the  drawer?  Opinion:  No  rule 
has  been  established,  either  by  law  or 
custom,  fixing  the  precise  time  at  which  a 
check  becomes  stale  so  that  the  bank  upon 
which  drawn  would  be  hable  if  it  paid  without 
inquiry  and  loss  resulted.  In  the  absence  of 
a  positive  rule  of  law  or  custom,  it  would 
seem  reasonable  for  a  bank  to  adopt  a  six 
months'  period  in  which  to  pay  a  check 
without  inquiry,  and  where  presented  after 
such  period  to  communicate  with  the 
drawer  before  making  payment.  See  Lan- 
caster Bank  v.  Woodward,  18  Pa.  St.  357. 
Morse  on  Banks  &  Banking,  Sec.  443. 
Daniel  on  Negotiable  Instruments,  Sec. 
1632.     {Inquiry  from  Ore.,  April,  1920,  Jl.) 

976.  When  does  a  check  become  stale, 
and  what  are  the  duties  of  a  bank  respecting 
pajTuent  of  stale  checks?  Opinion:  There 
is  a  dearth  of  authority  upon  this  question. 
In  Merchants  &  Planters  Nat.  Bk.  v. 
CHfton  Mfg.  Co.,  56  S.  C.  320  (33  S.  E.) 
750,  it  was  held  that  a  check  drawn  on 
Christmas  eve  "at  the  beginning  of  the 
season  when  business  is  suspended  for  a 
greater  or  less  period  everywhere"  does  not 
become  stale  in  six  daj's  so  as  to  put  the 
bank  upon  inquiry  when  the  check  is 
presented  at  the  end  of  that  period.  It  is, 
however,  customary  for  banks  to  pay  checks 
without  inquiry  though  presented  a  much 
longer  period  after  date.  In  Lancaster  Bk. 
V.  Woodward,  18  Pa.  St.  357,  where  a  bank 
paid  a  check  more  than  a  year  after  its 
date  at  a  time  when  the  drawer's  deposit 


214 


CHECKS 


[977-979 


was  not  sufficient  and  it  appeared  that  the 
drawer  had  in  the  meantime  paid  the  debt 
for  which  the  check  was  given,  it  was  held 
that  the  bank  could  not  recover  in  an  action 
against  the  drawer  for  the  overdraft.  It  is 
said  (Daniel  on  Negotiable  Instruments) 
that  "the  certain  age  at  which  a  check  may 
be  said  to  be  stale  is  as  uncertain  as  the 
fixing  of  a  day  on  which  a  young  lady  be- 
comes an  old  maid."  The  same  question 
arises  as  to  the  period  of  time  when  the 
check  becomes  stale  or  overdue  so  as  to 
subject  a  purchaser  thereafter  taking,  to 
equities.  The  Supreme  Court  of  the 
United  States  has  held  that  negotiation  six 
months  after  date  did  not  subject  the 
holder  to  equities  of  the  drawer  against  the 
payee.  Bull  v.  Bank  of  Kasson,  123  U.  S. 
105.    {Inquiry  from  Mass.,  Sept.,  1917.) 

Rights  of  holder 

Deduction  of  debt  of  presenting  check  holder 

977.  The  cashier  of  a  bank,  who  is  also 
a  notary,  was  permitted  to  act  as  such  in 
the  bank  under  an  arrangement  that  the 
fees  were  to  become  a  part  of  his  salary  as 
cashier.  Such  fees  were  not,  however,  to 
be  paid  to  him  when  earned,  but  were  to 
be  deposited  in  a  special  account  in  the 
bank's  books  and  credited  to  his  account  at 
the  end  of  the  year.  A  person  for  whom  the 
cashier  rendered  notarial  service  failed  to 
pay  charges  therefor,  and  several  months 
thereafter  such  person  presented  a  check 
over  the  bank's  counter  and  the  cashier 
deducted  from  the  check  the  amount  of  his 
bill.  The  person  has  brought  suit  against 
the  bank  to  recover  the  amount  so  deducted. 
Opinion:  Assuming  the  holder  presenting 
a  check  drawn  on  the  bank  for  payment  was 
indebted  to  the  bank,  the  bank  had  no  right 
to  deduct  the  amount  of  his  indebtedness 
from  the  amount  of  the  check  presented  for 
payment,  and  deliver  him  the  balance.  It 
cannot  collect  its  debt  in  this  way.  This 
has  been  held  in  several  cases.  See  for 
example,  Percival  v.  Stratham,  112  Iowa 
747.  Brown  v.  Lecke,  43  111.  497.  The 
drawer  of  the  check  has  the  right  to  have 
the  check  paid  the  payee,  without  any 
such  deduction.  His  contract  with  the 
bank  is  that  it  will  paj^  his  checks  according 
to  his  order  and  direction  and  if  the  bank 
could  deduct  a  debt  to  itself,  owing  by  the 
payee,  it  would  be  violating  its  contract 
with  the  drawer.  But  while  the  bank  has 
no  right  to  deduct  the  debt  to  the  bank, 
having  done  so,  a  further  interesting  ques- 
tion arises  in  a  suit  by  the  check  holder  for 


the  money,  whether  he  can  hold  the  bank 
liable.  In  Texas,  as  elsewhere,  the  rule  is  a 
check  does  not  assign  the  amount  drawn 
for  to  the  holder  and  if  bank  refuses  to  pay 
the  holder,  the  latter  must  look  to  the 
drawer  for  redress.  Games  v.  Thomson, 
79  S.  W.  Rep.  1083.  Now  if  in  this  case,  the 
bank  paid  part  of  the  check,  but  did  not 
pay  all  of  it,  it  is  questionable  whether  the 
holder  has  any  right  of  action  against  the 
bank  on  the  check  for  the  unpaid  portion. 
But  if,  on  the  other  hand,  the  bank  charges 
the  whole  of  the  amount  to  the  drawee's 
account,  then  the  whole  of  the  check  was 
paid  and,  having  turned  over  only  a  portion 
of  the  check  to  the  holder,  it  might  be  held 
hable  to  him  for  conversion  of  the  unpaid 
portion.  The  holder's  right  of  action 
against  the  bank  is  a  somewhat  uncertain 
question;  but  there  would  probably  exist 
a  liability  to  the  drawer  of  the  check,  its 
depositor,  because  of  a  part  dishonor  of 
his  check.     {Inquiry  from  Tex.,  Oct.,  1916.) 

Conversion  of  check  by  bank 

978.  The  holder  of  a  check  presents  it  to 
a  bank  for  certification  and  the  bank, 
instead  of  returning  it  to  the  holder  un- 
certified, there  being  insufficient  funds  and 
the  drawer  also  having  stopped  payment, 
hands  the  check  over  to  the  drawer.  The 
original  holder  threatens  to  bring  suit 
against  the  bank  to  recover  the  check.  Opin- 
ion: The  bank  is  liable  to  the  holder  for 
conversion  of  the  check,  unless  it  can  affirm- 
atively prove  that  the  drawer  had  a  good 
defense  thereon  against  the  holder.  It  is 
doubtful  whether  the  bank  could  be  held  as 
acceptor  under  the  Negotiable  Instruments 
Act.  Precker  v.  London,  73  N.  Y.  S.  145. 
Lowell  V.  Hammond  Co.,  60  Conn.  500. 
Neg.  Inst.  A.,  Sec.  137  (Comsr's.  dft.), 
Sec.  156  (Md.  dft.).  Wisner  v.  First  Nat. 
Bk.,  220  Pa.  21.  Amendment  of  Sec.  137 
supra  by  Laws  of  Pa.  1909,  No.  169. 
{Inquiry  from  Md.,  April,  1919,  Jl.) 

Holder  cannot  sue  drawee 

979.  Has  the  holder  of  an  unaccepted 
and  uncertified  check  any  right  of  action 
against  the  bank  which  refuses  to  pay  same? 
Opinion:  Except  in  few  states  where  check 
is  an  assignment,  the  holder  of  a  check  (not 
certified)  has  no  right  of  action  against  the 
bank  which  refuses  to  pay  same  but  sole 
recourse  is  upon  drawer  and  prior  parties. 
Marble  v.  Merchants  Nat.  Bk.,  115  Pac. 
(Cal.)  59.  Neg.  Inst.  A.,  Sec.  189  (Comsr's. 
dft.).    {Inquiry  from  Wash.,  Dec,  1912,  Jl.) 


215 


980-984] 


DIGEST  OF  LEGAL  OPINIONS 


Note:  With  the  aknost  universal  enact- 
ment of  the  Negotiable  Instruments  Law, 
the  rule  that  a  check,  of  itself,  constitutes 
an  assignment  of  the  deposit  to  the  payee, 
disappears.  But  there  may  be  an  equitable 
assignment  of  a  deposit  by  drawer  to  holder, 
accompanied  by  delivery  of  a  check,  upon 
which  the  assignee  may  recover  of  the  bank. 
See  Dunlap  v.  Commercial  National  Bank 
of  Los  Angeles,  195  Pac.  (Cal.  A.) 


Obligation  of  drawee  to  indorse  reasons 
for  refusal 

980.  A  drawee  bank  returned  a  check  and 
declined  to  indorse  thereon  the  reasons  for 
its  refusal.  Is  there  any  law  which  would 
compel  the  drawee  bank  to  so  indorse  the 
check?  Opinion:  There  appears  to  be  no 
law  which  would  compel  it  to  do  so.  In  the 
absence  of  some  Clearing  House  rule  that 
the  drawee  must  indorse  the  reason  for  its 
refusal  upon  the  check,  there  seems  to  be  no 
requirement  which  would  compel  the  drawee 
to  indorse  the  check  before  returning  same 
as  insufficient.  It  might  be  customary  for 
banks  to  mark  the  reasons  of  non-pajonent 
upon  checks  before  returning  same,  even  if 
there  is  no  Clearing  House  rule  on  the 
subject  but  there  is  no  legal  requirement 
that  they  must  do  so  and  unless  there  is  a 
Clearing  House  agreement  so  to  do,  the 
return  without  indorsement  of  reasons  for 
non-payment  is  within  the  bank's  rights. 
(Inquiry  from  Idaho,  April,  1920.) 

Liability  of  parties 

Drawer^ s  liability  on  unpaid  check 

981.  John  Doe  drew  two  checks  of  the 
amounts  of  $196.50  and  $53.50,  which  he 
gave  to  Smith  in  payment  of  a  note  held  by 
Smith.  Smith  surrendered  the  note  and 
received  the  proceeds  of  the  smaller  check 
but  the  larger  check  was  dishonored  because 
of  insufficient  funds.  Doe  afterwards  in- 
dorsed the  larger  check  "O.  K.  after  January 
11,  1913,"  but  subsequently  refused  to  pay 
same.  Opinion:  Smith  has  a  right  of  action 
against  Doe  based  on  the  unpaid  check  and 
Smith's  possession  of  the  note  is  not  neces- 
sary. Doe's  indorsement  did  not  alter  his 
obligation  on  the  check.  {Inquiry  from 
Okla.,  April,  1916,  Jl.) 

Right  of  bank  to  look  to  indorser  or  drawer 

982.  A  check  drawn  on  a  bank  outside 
the  state  was  cashed  by  a  bank  for  the  payee 
named  who  indorsed  it.  Payment  being 
stopped  it  was  protested  and  the  indorser 
notified.    The  latter  then  requested  bank  to 


take  the  check  on  its  return  to  another 
bank  in  same  town  where  he  would  make 
arrangements  to  have  it  paid.  On  the  day 
the  check  was  returned  the  drawer  tele- 
graphed the  holding  bank  to  again  send  the 
check  to  the  drawee  bank  where  it  would  be 
paid.  This  the  bank  did,  and  the  indorser 
threatens  it  with  suit  for  damages  for 
returning  check  without  first  notifying  him. 
Opinion:  The  bank  holding  check  was 
perfectly  within  its  rights  in  doing  as  it  did. 
It  owned  the  check,  and  not  only  the  indorser 
but  the  drawer  of  the  check  was  liable  to  it, 
and  it  had  the  right  to  look  to  either  party 
for  payment.  If  it  chose  to  look  to  the 
drawer,  it  was  none  of  the  endorser's  con- 
cern, and  he  certainly  has  no  ground  for  an 
action  for  damages.  {Inquiry  from  Mo., 
March.,  1919.) 

Drawee's  liability  on  check  deposited  in 
insolvent  bank 

983  The  payee  of  a  check  deposited  it 
in  a  Philadelphia  bank  which  closed  its 
doors.  When  it  was  presented  to  the  drawee 
bank  through  another  bank  in  Philadelphia, 
payment  thereof  had  been  stopped  by 
drawer  in  order  to  protect  payee  from  loss. 
The  collecting  bank  threatens  suit.  Is  the 
drawer  liable?  Opinion:  The  drawer  is 
liable  on  this  stopped  check  to  the  bona 
fide  owner  thereof,  whoever  he  may  be.  If 
the  payee  has  parted  with  title  to  this 
check  to  the  Philadelphia  bank  and  the 
latter,  before  closing  its  doors,  had  parted 
with  title  to  the  other  bank  who  claims  to  be 
the  rightful  owner,  and  threatens  suit,  the 
drawer  is  liable  to  it.  It  may  be  that  the 
check  was  merely  deposited  with  the  failed 
bank  for  collection  and  the  payee  still 
retains  title,  and  then  the  money  would  be 
owing  by  the  drawer  to  the  payee.  {Inquiry 
from  N.  J.,  July,  1919.) 

Recovery  of  overpayment 

984.  A  check  for  $3.00  was  presented  to 
drawee  bank  for  payment  by  the  clerk  of  a 
merchant  who  did  not  do  business  with  it. 
The  figures  $3.00  were  written  very  poorly, 
and  taken  to  be  $7.00,  and  check  was  paid 
in  latter  amount.  When  called  upon  to 
return  $4.00,  the  merchant  refused  to  do  so, 
although  the  clerk  who  cashed  the  check 
told  him  he  had  actually  received  $7.00. 
Does  the  bank  have  to  stand  the  loss?  Opin- 
ion: The  bank  upon  which  a  check  is 
drawn  is  no  more  responsible  for  the 
amount  than  the  holder  who  presents  it  for 
pajTnent,   and  where  it  paj^s  $7.00  on  a 


216 


CHECKS 


[985-988 


$3.00  check,  the  figures  being  so  poorly 
written  as  to  lead  to  the  mistake,  it  has  a 
right  of  recovery  of  the  excess  from  the 
person  receiving  payment.  If  the  clerk  was 
acting  within  the  scope  of  his  authority  and 
used  the  money  in  his  employee's  business, 
the  merchant  would  be  liable;  but  if  acting 
on  his  own  account,  sole  recourse  would  be 
upon  the  clerk.  {Inquiry  from  Ga.,  May, 
1916.) 

Dealings  with  paid  checks 

Return  of  cancelled  vouchers  without 
receipt  unsafe 

985.  Should  a  bank  return  cancelled 
vouchers  without  a  receipt  therefor?  Opin- 
ion: Under  the  statement  (new)  system  as 
distinguished  from  the  pass-book  (old) 
system  the  pass-book  is  simply  used  for  the 
entry  of  deposits,  and  the  cancelled  vouchers 
with  the  list  of  amounts  thereof  showing 
total  and  balance  are  returned  to  the 
depositor  without  any  entrj^  in  the  pass- 
book, the  depositor  receipting  for  the  same. 
Any  bank  which  adopts  this  system  would 
be  unsafe  in  mailing  or  otherwise  parting 
with  possession  of  the  cancelled  vouchers 
before  it  obtains  a  receipt  therefor.  It 
would  not  be  an  impracticable  method  for  a 
bank  to  make  a  monthly  statement  and 
mail  a  notice  to  its  depositor  to  call  and 
receipt  for  the  same  with  cancelled  vouchers. 
Morse  on  Banks  and  Banking  (4th  Ed.), 
Vol.  2,  Sec.  4G0.  In  re  Brown  2  Story  502, 
519.  Regina  v.  Watts,  2  Den.  (Crown  C.) 
14.  Burton  v.  Payne,  2  Car.  &  P.  520. 
Partridge  v.  Coates,  Ry.  &  Mood.  153. 
{Inquiry  from  Ore.,  Oct.,  1913,  Jl.) 

986.  A  bank  claims  to  have  paid  a  check 
and  to  have  returned  it  to  the  depositor  as 
a  paid  voucher.  The  latter  claims  he  never 
drew  such  a  check  and  never  received  such 
a  voucher.  What  is  the  liability  of  the 
bank?  Opinion:  If  the  case  comes  into 
court,  it  will  resolve  itself  into  a  question  of 
fact  for  the  jury.  It  is  unsafe  to  return  a 
canceled  voucher  without  a  receipt,  for  this 
is  parting  with  the  bank's  evidence  of  pay- 
ment, and  all  it  has  left  is  its  book  entries 
which  very  often  do  not  prevail  against  the 
positive  testimony  of  a  customer  that  no 
such  transaction  took  place.  {Inquiry 
from  III.,  Jan.,  1918.) 

Second  payment  of  check 

987.  The  drawer  of  a  check,  after  pay- 
ment and  return  to  him  as  a  cancelled 
voucher,  sends  same  to  the  paj'ee  as  proof 


of  payment.  The  latter,  designedly  or 
inadvertently,  sends  the  check  through  the 
same  channels  and  it  is  paid  a  second  time. 
What  steps  should  be  taken  to  adjust  the 
matter?  Opinion:  A  check  once  paid  is 
discharged  and  becomes  functus  officio ;  and 
where  a  cheek,  after  payment,  falls  into  the 
hands  of  the  payee,  who  negotiates  it  a 
second  time,  and  it  is  again  paid  by  the 
drawee  bank,  the  latter  cannot  charge  the 
amount  to  the  drawer's  account,  but  can 
recover  from  the  forwarding  bank,  and  the 
ultimate  liabihty  to  refund  rests  with  the 
payee.  Aurora  State  Bank  v.  Hayos-Eames 
El.  Co.,  88  Nebr.  187,  129  N.  W.  279. 
Balsam  v.  Mut.  Alhance  Trust  Co.,  132 
N.  Y.  S.  325.  See  also  Nat.  Bank  Com.  v. 
Farmers  etc.  Nat.  Bank.  87  Nebr.  841. 
Inquiry  from  III.,  April,  1920,  Jl.) 

Drawee's  liability  where  check,  after  payment 

on  unauthorized  indorsement,  re-delivered 

as  evidence 

988.  B  owed  an  account  to  A  company. 
B  gave  a  check  to  the  duly  authorized  agent 
of  A  company,  drawn  on  the  U  bank.  The 
agent  indorsed  the  check  "A  Company  by 
D,  Manager,"  procured  it  to  be  cashed  by 
one  N,  and  absconded.  After  the  check  was 
honored  by  the  U  bank,  the  A  company 
claimed  that  the  indorsement  by  the  agent 
was  without  authority,  and,  therefore,  a 
forgery.  After  the  cancelled  check  was 
returned  to  B,  it  was  borrowed  by  an  agent 
of  the  A  company  to  be  used  as  evidence  in 
a  controversy  with  the  surety  company 
which  bonded  the  agent.  The  check  is 
now  in  the  hands  of  the  P  bank,  which 
cashed  the  check  for  N,  and  subsequently 
had  to  refund  same  to  the  drawee,  the  U 
bank.  The  A  company  has  entered  suit 
against  B  on  the  book  account.  B  refuses 
to  pay  as  long  as  the  check  is  outstanding, 
in  the  hands  of  one  who  may  bring  suit  upon 
it,  and  prevail  in  case  B  failed  to  prove  want 
of  authority  in  the  agent  to  indorse  the 
check.  What  are  B's  rights  in  the  premises? 
Opinion:  It  is  doubtful  if  the  drawer  could 
be  held  hable  on  the  check,  even  though  he 
failed  to  prove  the  indorsement  unauthor- 
ized. The  check  came  back  to  him,  and  he 
never  redelivered  it  as  a  check;  it  was  simply 
l)orrowed  from  him  for  other  purposes. 
Furthermore,  after  the  P  bank  refunded  the 
money  because  of  claim  of  unauthorized  in- 
dorsement, they  would  probably  be  estopped 
from  asserting  the  indorsement  was  au- 
thorized against  the  drawer  who,  relying 
upon  such  refund,  had  paid  the  debt  for 


217 


989-991] 


DIGEST  OF  LEGAL  OPINIONS 


which  the  check  was  given.  If  this  point 
were  doubtful,  a  bond  of  indemnity  could 
be  asked  as  a  prerequisite  to  paying  the 
account,  to  protect  against  liabihty  on  the 
check.  (See  Silverman  v.  Nat.  Butchers' 
etc.  Bank,  98  N.  Y.  Suppl.  209,  50  Misc. 
169,  as  having  an  indirect  bearing  on  the 
point).    {Inquiry  from  Pa.,  Aug.,  1916.) 

Check  on  another  hank  paid  through  error  and 
charged  to  customer's  account 

989.  A  bank  has  paid  and  charged  to  the 
account  of  and  returned  to  its  customer, 
a  township  trustee,  a  check  not  drawn  by 
him,  but  by  a  trustee  of  another  township 
on  another  bank,  the  error  being  due  to 
similarity  in  appearance  of  the  checks  of 
the  two  trustees  and  not  being  discovered 
by  the  customer  for  a  year,  at  which  time 
he  is  unable  to  produce  the  check.  The 
customer  asks  credit  for  the  amount. 
Opinion:  Of  course,  originally  the  stated 
payment  was  not  properly  chargeable  to  the 
customer's  account  and  the  only  question 
would  be  whether,  by  a  year's  delay  in 
acquiescing  in  the  correctness  of  the  account, 
it  is  too  late  now  for  him  to  dispute  it.  This 
is  a  very  unusual  case.  If  it  was  a  case  of  a 
forged  or  altered  check,  there  are  decisions 
to  the  effect  that  it  is  the  depositor's  duty  to 
examine  the  returned  statement  and  voucher 
within  a  reasonable  time  and  if  he  fails  to  do 
this  and  the  bank  would  suffer  an  injury 
from  which  it  might  have  protected  itself  if 
it  had  been  required  to  correct  the  error  in 
time,  the  depositor  cannot  recover.  See,  for 
example.  First  Nat.  Bk.  v.  Allen,  100  Ala. 
476,  14  So.  Rep.  335.  Janin  v.  London  & 
San  Fran.  Bk.,  92  Cal.  14,  27  Pac.  1100.  Crit- 
ten  V.  Chem.  Nat.  Bk.,  171  N.  Y.  219,  63  N. 
E.  969.  Weinstein  v.  Nat.  Bk.  of  Jefferson, 
69  Tex.  38,  6  S.  W.  171.  But  the  check  in 
this  case  is  not  forged  or  raised  and  it 
presents  a  Httle  different  proposition.  It 
was  paid  and  charged  through  error.  It  is 
impossible  to  cite  any  decision  involving  a 
similar  case.  It  is  very  doubtful,  however, 
whether  the  bank  can  escape  liabihty  to  its 
customer.  Although  the  check  in  question 
is  lost,  it  would  seem  that  the  bank  could 
procure  a  copy  to  be  made  and  proceed 
thereon  by  first  presenting  the  same  to  the 
bank  on  which  drawn  and  in  case  of  refusal 
of  payment  look  to  the  trustee  who  drew 
the  check  for  reimbursement.  This  check 
evidently  has  never  been  paid  but  has  been 
cashed  by  the  bank  under  mistaken  supposi- 
tion that  it  was  the  drawee,  and  lost.  It 
would  seem  on  a  proper  presentation  of  the 


facts,  the  trustee  who  drew  the  check  would 
admit  liability  and  reimburse  the  bank. 
(Inquiry  from  Ind.,  Oct.,  1914-) 

Stipulation  acknowledging  correctness  of  ac- 
count on  non-report  of  errors 

990.  What  is  the  effect  of  printing  on  the 
outside  of  envelopes,  containing  statements 
of  account  and  canceled  vouchers,  the 
following  provision?  "If  any  error  in  this 
statement  is  not  reported  within  twenty 
days  after  its  receipt,  it  shall  be  regarded  an 
acknowledgment  that  the  balance  shown 
on  this  statement  is  correct."  Opinion: 
In  order  that  such  provision  should  take 
effect  as  an  agreement  it  would  have  to  be 
proved  that  it  was  brought  to  the  attention 
of  the  depositor  and  that  he  acquiesced 
therein.  Furthermore,  even  if  the  depositor 
so  agreed,  it  is  doubtful  if  he  would  be 
debarred  from  afterwards  proving  an  error 
in  the  statement.  The  courts  construe  such 
agreements  most  strongly  against  the  bank. 
Many  banks  do  attempt  to  protect  them- 
selves in  this  way  and  there  is  no  harm  in 
printing  such  a  provision.  (Inquiry  from 
Mass.,  July,  1918.) 

Voucher  checks 

Negotiability  where  clause  requires  payee's 
receipt 

991.  A  folded  voucher  check  is  used  on 
the  inside  of  which  is  a  ruled  statement 
form  for  making  up  the  statement  and  on 
the  face  of  the  check  is  the  clause  "Upon 
the  payee  executing  in  ink  the  receipt  on 
left  end  of  this  voucher-check  and  indorse- 
ment on  back".  Is  the  instrument  negoti- 
able? Opinion:  If  the  clause  simply  read, 
"Upon  the  payee  indorsing  on  back  pay  to 
the  order  of,"  etc.,  it  would  doubtless  be 
held  negotiable  because  certificates  of  de- 
posit which  provide  for  payment  on  return 
of  receipt  properly  indorsed  are  quite 
generally  so  held,  but,  in  addition,  the  clause 
makes  the  check  payable  only  on  condition 
that  the  payee  executes  the  receipt  on  the 
left  end.  If  the  payee  indorsed  the  check 
on  the  back  and  negotiated  same  but 
omitted  to  execute  the  receipt,  the  check 
would  not  be  payable.  Therefore,  it  is 
quite  Hkely,  should  ever  a  question  arise  in 
which  the  negotiabiUty  of  the  check  was  an 
important  element,  that  the  court  might 
hold  it  not  negotiable  because  payable  only 
on  a  condition.  (Inquiry  from  Miss.,  Dec, 
1918.) 


218 


CHECKS 


[992-995 


Effect  of  clauses  "Given  in  payment  of  %" 

"when  properly  indorsed,  correctness 

acknowledged" 

992.  A  form  of  voucher-check  is  used 
with  imprint  at  the  bottom:  "This  check 
given  in  payment  of  account  as  per  state- 
ment above.  When  properly  indorsed  it 
shall  constitute  an  acknowledgment  of  its 
correctness,  and  receipt  for  the  payment  of 
account.  No  other  receipt  is  necessary. 
Return  if  incorrect."  The  check  is  an 
ordinary  check,  ruled  on  the  face  of  which  is 
a  form  for  making  up  a  statement.  Ques- 
tion is  raised  as  to  its  negotiabihty  and  it  is 
asked  if  an  ordinary  form  of  check  with  a 
blank  hne  headed  by  the  word  "For,"  the 
line  to  be  filled  out  by  a  specific  statement 
of  transaction,  would  be  considered  a  proper 
voucher  check  to  be  used  as  a  substitute? 
Opinion:  The  form  of  check  used  contains 
a  memorandum  that  it  is  "given  in  pa\Tiient 
of  account  as  per  statement."  These  words 
would  not  affect  negotiability,  being  simply 
a  statement  of  the  transaction  which  gave 
rise  to  the  instrument.  The  further  words, 
"When  properly  indorsed,  it  shall  constitute 
an  acknowledgment"  etc.,  would  not  make 
the  instrument  non-negotiable.  There  seems 
to  be  nothing  objectionable  in  this  form  of 
check.  An  ordinary  bank  check  with  the 
addition  of  a  blank  line  headed  by  the 
word  "For"  when  filled  out  with  a  specific 
statement  such  as  "For  your  invoice 
December  1st,  1918,"  would  be  considered 
an  abbreviated  form  of  voucher  check,  and, 
of  course,  negotiable.  (Inquiry  from  Miss., 
Dec,  1918.) 

Indorsement  acknowledging  receipt  in  full 

993.  The  A.  E.  R.  Co.,  whose  principal 
office  is  in  Tucson,  Arizona,  pays  bills  by 
voucher  drafts  drawn  upon  the  company 
in  Tucson,  on  the  backs  of  which  are  the 
words,  "This  voucher  is  indorsed  as  an 
acknowledgment  of  the  receipt  of  paj^ment 
in  full  of  account  as  stated  within."  The 
bank  asks:  Does  this  constitute  a  receipt 
for  payment  in  full  of  account  as  stated 
within?  Opinion:  The  above  indorsement 
signed  by  the  payee  of  the  draft,  or  creditor, 
would  constitute  a  receipt  in  full.  Where 
the  claim  for  which  the  voucher  draft  is 
given  is  unliquidated  or  the  subject  of 
dispute,  such  receipt  in  full  would  bar  the 
creditor  from  recovering  anything  more. 
Wliere,  however,  the  amount  of  the  claim 
was  settled,  hquidated,  or  undisputed,  if  the 
vouchor  draft  was  for  less  than  the  real  debt, 
it  would  not  bar  the  creditor  from  after- 


wards recovering  the  full  amount.    {Inquiry 
from  Ariz.,  Jan.,  1919.) 

Form  of  non-negotiable  voucher  check 

994.  A  bank  sends  a  form  of  voucher 
check,  both  sides  of  which  are  intended  for 
use — the  printed  side  being  a  check  on  the 
bank  for  the  amount  of  an  invoice  and  the 
reverse  side  containing  bill  for  invoice  with 
form  of  signature  acknowledging  receipt  of 
pajTTient  and  statement  that  when  dated 
and  properly  receipted  the  voucher  is 
payable  at  the  bank.  Opinion:  Presumably 
the  matter  on  the  reverse  side  of  the  paper 
would  form  a  part  of  the  terms  of  the  check, 
in  which  event  it  would  be  a  non-negotiable 
instrument,  not  being  payable  absolutely 
and  at  all  events  but  on  condition  that  the 
voucher  be  properly  receipted.  A  bank 
whose  customer  used  this  form  would 
assume  responsibihty  for  complying  with 
the  condition  respecting  the  receipting  of 
the  voucher,  and  would  have  no  right  to 
pay  it  without  such  receipt.  {Inquiry  from 
N.  Y.,  Aug.,  1917.) 

Wrongful  dishonor 

Note:  The  following  law  recommended 
by  the  American  Bankers  Association  has 
been  passed  in  the  states  below  named: 
"No  bank  shall  be  hable  to  a  depositor 
because  of  the  non-payment  through  mis- 
take or  error  and  without  maUce  of  a  check 
which  should  have  been  paid,  unless  the 
depositor  shall  allege  and  prove  actual 
damage  by  reason  of  such  non-pajnnent  and 
in  such  event  the  habihty  shall  not  exceed 
the  amount  of  damage  so  proved."  1915, 
Idaho,  Montana,  New  Jersey,  Oregon;  1917, 
California;  1919,  Alabama,  Michigan,  Mis- 
souri, North  CaroHna,  Ohio,  Penn.,  West 
Virginia;  1921,  Arkansas  fdifferent  from 
A,  B.  A.  Measure),  Illinois,  Tenn. 

Liability  of  bank  for  substantial  damages 

995.  What  is  the  liability  of  a  bank 
which  wrongfully  refuses  to  pay  a  check 
drawn  on  it?  Opinion:  "Where  a  bank 
through  error  and  without  mahce  refuses  to 
paj^  the  check  of  a  customer  drawn  against 
sufficient  funds,  all  the  courts  which  have 
passed  on  the  question  except  those  of  New 
York  hold  that  the  customer,  if  a  merchant 
or  trader,  may  recover  sul>stantial  damages 
without  proving  actual  damage.  Where  the 
customer  is  a  non-trader  most  cases  require 
proof  of  substantial  damage  as  a  basis  of 
recovery.  The  best  method  to  abrogate  the 
rule    that    substantial    damages    will    be 


^19 


996-1001] 


DIGEST  OF  LEGAL  OPINIONS 


presumed  without  proof  of  actual  damage 
would  be  in  procuring  legislation  which 
will  provide  that  damages  will  be  limited  to 
such  as  the  customer  can  prove.  See 
decisions  in  opinion  No.  996.  (Inquiry 
from  III.,  June,  1912,  Jl.) 

996.  A  bank  through  error  and  without 
malice  refused  to  pay  its  customer's  check 
for  $11.40,  although  in  sufficient  funds. 
The  check  was  presented  a  second  time  and 
paid  at  the  request  of  the  payee,  who  stated 
that  the  drawer's  credit  with  him  was  not 
damaged.  The  customer  sued  the  bank  for 
$1,000  damages.  Opinion:  Assuming  that 
the  customer  was  a  merchant  or  trader,  the 
bank  would  probably  be  held  liable  for  sub- 
stantial damages,  without  proof  of  actual 
damage  or  any  malice  on  the  part  of  the 
bank.  Schaffner  v.  Ehrman.  139  111.  109. 
Third  Nat.  Bk.  v.  Ober,  178  Fed.  678. 
Marzetti  v.  Wilhams,  1  Barn.  &  Ad.  415. 
Rolin  V.  Stewart,  14  Com.  Bk.,  595.  Birchall 
V.  Tliird  Nat.  Bk.,  15  Weekly  Notes  174. 
Patterson  v.  Marine  Nat.  Bk.,  130  Pa.  419. 
Goos  V.  Bk.  of  Commerce,  39  Neb.  437. 
First  Nat.  Bk.  v.  Railsl^ack,  58  Neb.  248. 
Svensden  v.  St.  Bk.  of  Duluth,  64  Minn.  40. 
James  v.  Continental  Nat.  Bk.,  105  Tenn. 
Amer.  Nat.  Bk.  v.  Morey,  113  Ky.  857. 
Western  Nat.  Bk.  v.  White,  131  S.  W. 
(Tex.)  828.  Levine  v.  St.  Bk.,  141  N.  Y.  S. 
596.  Siminoff  v.  Goodman  Bk.,  121  Pac. 
(Cal.)  939.  Reeves  v.  First  Nat.  Bk.  of 
Oakland,  129  Pac.  (Cal.)  800.  Winkler  v. 
Citizens  St.  Bk.,  131  Pac.  (Kan.)  597. 
Atlanta  Nat.  Bk.  v.  Davis,  96  Ga.  334. 
First  Nat.  Bk.  of  Huntsville  v.  Stewart 
85  So.  (Ala.)  529.  {Inquiry  from  III.,  June 
1912,  Jl.) 

997.  A  postdated  check  is  by  mistake 
paid  prematurely.  Subsequently  but  prior 
to  the  date  of  the  first  mentioned  check 
another  check  is  presented  for  payment  and 
payment  is  refused  for  insufficient  funds. 
The  funds  would  have  been  sufficient  but 
for  the  error  above  mentioned.  The 
depositor  sues  for  S10,000  damages.  What 
is  the  liability  of  the  bank?  Opinion: 
The  bank  is  hable  in  substantial  damages, 
wliich  will  be  fixed  by  a  jury  at  such  sum 
as  they  think  proper.  Of  com'se,  anything 
like  $10,000  is  out  of  the  question.  Should 
the  jury  award  an  excessive  sum,  past 
experience  shows  the  higher  court  will 
reduce  it  and  affirm  only  on  condition  that 
plaintiff  accepts  the  modification.  {Inquiry 
from  Ariz.,  March,  1921.) 


Refusal  of  checks  drawn  against  Liberty 
Bond  credit 

998.  A  bank  arranged  a  credit  with  its 
customer  of  the  value  of  $300  in  Liberty 
Bonds  against  which  he  was  permitted  to 
draw  checks,  the  same  as  if  the  money  was 
on  general  deposit.  The  bank  asks  whether 
it  would  be  hable  in  damages  for  faiHng  to 
honor  checks  to  the  full  extent  of  the  credit. 
Opinion:  In  view  of  the  case  as  presented 
by  the  bank,  it  appears  that  it  was  under 
obligation  to  honor  the  customer's  checks 
to  the  amount  of  his  credit  and  for  refusal 
to  honor,  although  by  mistake,  it  would  be 
hable  in  damages  to  its  customer  for  injury 
to  his  credit.  Damages,  however,  would  be 
hmited  to  such  amount  as  reasonably  and 
fairly,  in  the  natural  course  of  things,  would 
result  from  such  refusal.  {Inquiry  from  Ark., 
March,  1920.) 

Habit  of  overdrawing  can  be  shown 
in  mitigation 

999.  A  depositor  who  was  in  the  habit 
of  overdrawing  his  account  made  a  small 
deposit,  for  which  a  credit  shp  was  placed 
on  file.  Later  in  the  day  a  check  was  pre- 
sented and  payment  refused  although  drawn 
against  sufficient  funds.  Opinion:  Assum- 
ing that  the  depositor  was  a  trader,  he  can 
recover  damages  for  dishonor  of  the  check 
without  proving  special  damage,  but  the 
fact  that  he  had  been  in  the  habit  of  over- 
drawing his  account  could  be  used  in  mitiga- 
tion of  damages.  {Inquiry  from  La.,  June, 
1913,  Jl.) 

1000.  A  bank,  through  a  mistake  in  its 
bookkeeping,  refused  the  pajTnent  of  two 
checks  of  its  depositor,  one  for  $10,  another 
for  $25.  The  depositor  sued  the  bank  for 
$10,000  for  not  paying  his  checks  when  there 
were  sufficient  funds.  Opinion:  The  bank 
was  hable  to  the  depositor  (1)  if  a  merchant 
or  trader,  for  substantial  damages  though 
no  actual  damage  is  proved;  (2)  if  not  a 
merchant  or  trader,  for  such  actual  damages 
as  are  alleged  and  proved.  Levin  v.  Com- 
mercial German  Tr.  &  Sav.  Bk.,  63  So.  (La.) 
601.  Hooper  v.  Herring,  63  So.  (Ala.)  785. 
Birchall  v.  Third  Nat.  Bk.,  15  Weekly 
Notes  (Pa.)  174.  Western  Nat.  Bk.  v. 
White,  130  S.  W.  (Tex.)  828.  {Inquiry 
from  Miss.,  Oct.,  1914,  Jl.) 

Exclusion  of  evidence  of  habitual  over- 
drawing erroneous 

1001.  Through  an  error  of  a  trust 
company's  bookkeeper  a  check  for  $42  was 


220 


CHECKS 


[1002-1005 


returned  marked  "N.  S."  Suit  was  brought 
and  a  judgment  recovered  for  SI 200  against 
the  trust  company.  The  court  refused  to 
receive  evidence  showing  circumstances  in 
mitigation  of  damages  and  would  not  permit 
the  introduction  of  evidence  showing  the 
fact  that  depositor  had  at  least  half  a  dozen 
checks  returned  to  him  for  want  of  sufficient 
funds.  The  depositor  (plaintiff)  suffered 
no  actual  damages  through  the  return  of 
check.  The  trust  company  calls  for  such 
suggestions  as  may  be  useful  on  the  appeal 
taken  to  the  superior  court.  Opinion: 
The  attitude  taken  by  the  Courts  of 
Pennsylvania  and  of  some  other  states  on 
this  subject  is  very  unjust  to  the  banks;  so 
much  so,  that  two  years  ago  the  American 
Bankers  Association  prepared  a  draft  of  a 
,  proposed  law  for  enactment  in  various 
states  to  correct  the  judicial  rule  so  that 
recovery  would  be  denied  the  depositor 
unless  he  affirmatively  proved  actual  dam- 
ages, the  proposed  law  limiting  the  amount 
of  recovery  to  the  actual  damages  so  proved. 
There  seems  to  be  no  particular  suggestion 
to  offer,  unless  it  be  that  you  should  urge 
that  it  was  error  to  exclude  testimony  of 
the  depositor's  habit  of  overdrawing,  in 
mitigation  of  damages.  Damages  in  these 
cases  are  awarded  on  the  theory  of  slander 
of  the  depositor  and  should  be  subject  to  the 
rule  that  facts  and  circumstances  may  be 
offered  in  mitigation  to  show  want  of  malice 
and  good  faith.  The  best  remedy  is  through 
legislation.  (Inquiry  from  Pa.,  Feb.,  1917.) 
Note:  The  law  above  referred  to  was 
passed  in  Pennsylvania  in  1919. 

Suit  for  damages  by  non-trading  depositor 

1002.  A  customer  who  was  a  carpenter 
threatened  suit  against  a  bank  for  failure  to 
pay  a  check  drawn  against  sufficient  funds. 
The  bank  credited  a  deposit  by  the  cus- 
tomer to  the  wrong  account  through  a 
clerical  error.  Opinion:  Where  a  check  is 
refused  payment  because  of  clerical  error, 
and  the  depositor  is  a  merchant  or  trader, 
substantial  damages  are  by  most  courts 
presumed  without  his  proving  actual  dam- 
ages, but  where  a  non-trader,  some  courts 
hold  he  must  prove  actual  damage  to  recover 
anything  more  than  nominal  damages.  In 
Pennsylvania  the  question  has  not  been 
passed  upon.  Third  Nat.  Bk.  of  St.  Louis  v. 
Ober,  178  Fed.  See  note  in  preceding  opin- 
ion.    {Inquiry  from  Pa.,  Sept.,  1913,  Jl.) 

Where  check  returned  unpaid,  without 
presentment 

1003.  A    bank    received    for    deposit 


from  its  customer  a  check  drawn  on  a  small 
country  bank,  and  it  immediately  sent  the 
item  to  its  correspondent  bank  for  collection. 
The  check  was  returned  unpaid  by  the 
correspondent  and  the  bank  collected  the 
amount  from  its  depositor  who  in  turn  col- 
lected the  amount  from  the  drawer.  It  after- 
wards developed  that  the  check  had  never 
been  presented.  The  drawer  claims  damages 
for  wrongful  dishonor  of  the  check  on  ground 
that  check  was  never  presented.  Opinion: 
Where  a  check  which  has  never  been  pre- 
sented is  returned  unpaid,  implying  lack  of 
funds,  there  is  an  injury  to  the  credit  of  the 
drawer  for  which  the  holder  will  be  responsi- 
ble to  him  in  damages.  In  this  case  the  bank 
would  be  held  hable  to  the  drawer  for  the 
wrongful  act  of  its  correspondent  and  in  turn 
would  have  recourse  on  such  correspondent 
whose  act  caused  the  injury.  Lorick  v. 
Pahnetto  Bk.  &  Tr.  Co..  74  S.  C.  185. 
Peabody  v.  Citizens  St.  Bk.  of  St.  Charles, 
108  N.  W.  (Minn.)  272.  Bk.  v.  Bowdre 
Bros.,  72  Tenn.  723.  Harter  v.  Bk.  of 
Brunson,  92  S.  C.  440.  {Inquiry  from  S.  C, 
Nov.,  1917,  Jl.) 

Liability  for  wrongful  dishonor  not 
decided  in  Washington 

1004.  Is  the  statement  that  actual 
damages  only  are  allowed  as  claimed  by  the 
Attorney  General's  office,  where  the  bank 
through  error  does  not  pay  a  check,  correct? 
Opinion :  It  does  not  seem  that  the  Supreme 
Court  of  Washington  has  had  before  it  a 
case  involving  liability  of  a  bank  to  a 
depositor  for  damages  for  erroneously 
refusing  pa\Tnent  of  his  check.  But  the 
courts  elsewhere  quite  generally  hold  that 
the  depositor  is  entitled  to  substantial 
damages  without  proving  actual  damage. 
{Inquiry  from  Wash.,  March,  1919.) 

Postdated  checks 

Issuer  of  subsequently  dishonored  postdated 
check  not  punishable  criminally 

1005.  A  bank  asks  (1)  whether  it  is 
criminal  to  issue  a  bad  postdated  check, 
and  (2)  if  funds  are  not  in  bank  to  pay  such 
a  check  on  its  date,  should  the  depositor 
take  the  same  action  for  recovery  as  in  the 
case  of  check  dated  on  the  day  it  is  given? 
Opinion:  1.  It  is  not  criminal  to  issue  a 
postdated  check,  subsequently  refused  be- 
cause of  insufficient  funds.  The  statute, 
which  punishes  the  issue  of  checks  without 
funds  docs  not  apply  to  a  postdated  check. 
Section  12  of  the  Negotiable  Instruments 
Act  expressly  provides  that:    "The  instru- 


221 


1006-1013] 


DIGEST  OF  LEGAL  OPINIONS 


ment  is  not  invalid  for  the  reason  only  that 
it  is  antedated  or  postdated,  provided  this 
is  not  done  for  an  illegal  or  fraudulent 
purpose.  The  person  to  whom  an  instru- 
ment so  dated  is  delivered  acquires  the  title 
thereto  as  of  the  date  of  delivery."  2.  The 
action  taken  should  be  the  same.  A  post- 
dated check  is  presentable  and  payable  on 
the  day  of  its  date  or  for  a  reasonable  time 
thereafter  and  if  it  is  not  paid  when  pre- 
sented because  of  insufficient  funds,  the 
holder  should  have  the  same  protested  and 
due  notice  of  dishonor  given  and  can  bring 
action  against  the  drawer  and  prior  parties 
for  the  amount  of  the  check  and  protest  fees. 
See  Smith  v.  State  226  S.  W.  (Ark.)  531. 
(Inquinj  from  N.  Y.,  Nov.,  1919.) 

Duty  of  collecting  hank 

1006.  What  should  a  bank  do  with  a 
postdated  check  delivered  to  it  for  collec- 
tion? Opinion:  Where  a  bank  receives 
for  collection  and  returns  a  postdated  check, 
it  is  no  part  of  its  duty  to  present  the  same 
for  acceptance.  It  can  either  hold  it,  pre- 
sent it  at  maturity,  or,  if  time  permits,  may 
return  it  at  once  with  advice  that  it  is  not 
yet  due.   {Inquiry  from  N.  C,  Dec,  1909,  Jl.) 

1007.  What  course  should  the  holder  of 
a  postdated  check  take  with  respect  to  its 
payment?  Opinion:  A  postdated  check 
should  be  held  until  the  day  of  maturity, 
and  then  presented  and  protested  if  not  paid. 
{Inquiry  from  Tenn.,  Dec,  1911,  Jl.) 

Payment  before  date  unauthorized 

1008.  Should  a  bank  pay  a  postdated 
check  before  its  date?  Opinion:  It  is  not 
illegal  to  date  a  check  ahead  but  if  a  post- 
dated check  is  paid  before  its  date,  the 
payment  is  at  the  risk  of  the  bank.  Bk.  v. 
Ringel,  51  Ind.  393.  {Inquiry  from  Ind., 
Feb.,  1911,  Jl.) 

1009.  A  bank  pays  a  postdated  check 
and  subsequently  checks  correctly  dated  are 
presented  and  refused  on  account  of  in- 
sufficient funds.  What  is  the  liability  of  the 
bank?  Opinion:  Payment  of  the  post- 
dated check  before  its  date  is  at  the  risk 
of  the  bank,  which  has  no  right  to  charge  it 
up  against  the  customer  before  the  due  date, 
nor  to  refuse  checks  which  would  be  good  but 
for  such  premature  charge.  Morse  on 
Banks  and  Banking  Sec.  389.  Bolles  on 
Modern  Law  of  Banking  ,Sec.  184.  {Inquiry 
from  Mo.,  Jan.,  1912,  Jl.) 

1010.  May  payment  be  demanded  upon 
a  postdated  check  regardless  of  the  fact  that 


the  date  has  not  yet  arrived,  and  is  a  bank  in 
any  danger  by  paying  it  before  the  date 
thereof?  Opinion:  A  postdated  check  can 
be  negotiated  before  its  date,  but  it  is  not 
payable  or  protestable  until  the  day  of  its 
date  arrives.  If  the  bank  pays  it  before 
its  date  it  takes  the  risk  of  payment  being 
stopped  before  the  due  date.  {Inquiry 
from  Mo.,  Sept.,  1918.) 

1011.  A  bank  inquires  whether  there  is 
authority  for  banks  to  pay  postdated  checks 
before  arrival  of  actual  date  of  check. 
Opinion:  A  postdated  check  is  not  pre- 
sentable, payable  or  protestable  until  the 
day  of  its  date  arrives.  If  the  bank  upon 
which  a  postdated  check  is  drawn  pays  same 
before  the  date  arrives,  it  does  so  at  its  own 
risk  for  the  drawer  has  the  perfect  right  to 
draw  out  the  money  before  the  date  of  such 
check.  Of  course,  a  postdated  check  is 
negotiable  before  the  day  of  its  date  and  is 
subject  of  purchase  and  if  the  drawee  bank 
desires  to  purchase  same  and  advances  the 
money  before  the  day  of  its  date,  it  can  do 
so;  but  the  sole  recourse  would  be  on  the 
drawer  and  not  upon  the  fund  in  bank  in 
the  event  the  deposit  was  withdrawn  before 
the  date  of  the  check.  {Inquiry  from  N.  J., 
March,  1920.) 

1012.  A  bank  paid  its  customer's  post- 
dated check  for  $100  seven  days  before  its 
date.  When  a  second  check  of  $3  was 
presented  the  bank  refused  payment  be- 
cause of  insufficient  funds.  The  customer 
sued  the  bank  for  damages.  Opinion:  The 
postdated  check  was  not  payable  or  charge- 
able to  the  drawer's  account  until  the  day  of 
the  date  and  if  prematurely  paid  and 
charged,  a  refusal  to  pay  a  subsequent  check, 
good  but  for  the  erroneous  charge,  is  a 
wrongful  dishonor.  Smith  v.  Maddox- 
Rucker  Bk.  Co.,  (GA.)  68  S.  E.  1092. 
{Inquiry  from  N.  C,  July,  1916,  Jl.) 

1013.  On  November  30  a  bank  paid  a 
check  dated  December  7  and  afterward  on 
the  same  day  dishonored  a  check  dated 
November  29  because  of  "insufficient  funds." 
There  would  have  been  sufficient  funds  but 
for  the  payment  of  the  postdated  check. 
Opinion:  The  bank  had  no  right  or  author- 
ity to  pay  the  postdated  check  before  the  day 
of  its  date  arrived,  and  no  right  to  refuse 
payment  of  another  check  where  the  funds 
would  have  been  sufficient  except  for  pre- 
mature payment  of  the  postdated  check. 
The  wrongful  refusal  to  pay  the  check  sub- 
jects the  bank  to  damages  recoverable  by  the 
drawer,  but  the  holder  of  the  dishonored 


222 


CHECKS 


1014-1020 


check  has  no  recourse  upon  the  bank  but 
must  look  to  the  drawer  and  prior  indorsers. 
{Inquiry  from  Ohio,  Feb.,  WIS,  Jl.) 

1014.  A  check  dated  June  1  was  paid 
on  May  31 .  The  maker  notified  the  bank  on 
the  morning  of  June  1,  before  banking 
hours,  to  stop  payment.  Opinion:  The 
money  prematurely  paid  by  the  bank  to  a 
bona  fide  holder  of  the  check  is  non-recover- 
able, but  the  bank,  notwithstanding  the  stop 
order  before  the  due  date,  would  probably 
have  the  right  to  charge  the  amount  to  the 
drawer's  account,  if  the  holder  had  an  en- 
forceable right  against  the  drawer.  Bedford 
Bk.  V.  Ocoam,  125  Ind.  184.  Unaka  Nat. 
Bk.  V.  Butler,  113  Tenn.  574.  {Inquiry 
from  Tenn.,  Sept.,  1916,  Jl.) 

Negotiation  before  date 

1015.  A  gave  his  postdated  check  in 
payment  for  supplies.  The  holder  indorsed 
it  for  value  to  B,  who  presented  it  on  its 
date.  Payment  was  refused  hy  the  drawee 
because  A  had  previously  stopped  payment. 
Opinion:  The  check,  although  postdated, 
was  negotiable  before  the  day  of  its  date, 
and  B  who  purchased  before  maturity  took 
an  enforceable  title.  B  had  no  recourse  upon 
the  drawee  but  only  upon  the  drawer  and 
prior  indorser.  Albert  v.  Hoffman,  117  N. 
Y.  S.  1043.  Smith  v.  Maddox-Rucker  Bk. 
Co.,  (Ga.)  68  S.  E.  1092.  Hitchcock  v. 
Edwards,  60  L.  T.  Rep.  636.  {Inquiry  from 
Wash.,  April,  1915,  Jl.) 

Recovery  from  drawer 

1016.  A  shipper  of  poultry  had  the 
purchaser  make  him  an  additional  check  on 
the  false  representation  that  the  shipment 
was  larger  than  it  really  was.  The  check 
was  postdated  and  before  the  date  the 
payee  deposited  it  in  his  bank,  which 
accepted  it  in  order  that  the  payee  might 
have  sufficient  credit  to  pay  checks  pre- 
sented. Later  pajinent  was  stopped  on  the 
check  and  it  was  returned.  The  payee's 
bank  did  not  have  sufficient  balance  in  his 
account  to  charge  up  the  check.  May  it 
recover  from  the  drawer?  Opinion:  The 
bank  is  a  holder  in  due  course  and  may 
recover  the  full  amount  from  the  drawer. 
Under  the  Negotiable  Instruments  Act,  an 
instrument  is  not  invahd  because  it  is 
postdated,  provided  it  is  not  done  for  an 
illegal  or  fraudulent  purpose;  a  postdated 
check  is  negotiable  prior  to  its  date  and  an 
indorsee  for  value  is  not  put  on  inquiry 
because  of  negotiation  of  such  a  check  prior 
to  its  date.  Albert  v.  Hoffman,  117  N.  Y. 
Supp.   1043.     Triphonoff  v.  Sweeney,   130 


Pac.  (Ore.)  979.  The  bank  gave  value  by 
crediting  the  check  to  the  payee's  account 
and  using  the  proceeds  to  pay  his  checks. 
The  stopping  of  payment  does  not  preclude 
recovery.  {Inquiry  from  Ohio,  May,  1921, 
Jl.) 

Premature  protest 

1017.  A  check  dated  the  15th  of  the 
month  was  presented  on  the  12th  and  pay- 
ment was  refused.  Should  the  check  be 
protested?  Opinion:  There  is  no  legal  au- 
thority for  protesting  a  postdated  check, 
payment  of  which  has  been  refused  on  pre- 
sentment before  the  due  date.  The  bank  on 
which  the  check  is  drawn  has  no  authority 
to  pay  the  same  until  the  day  of  its  date  ar- 
rives. Harden  v.  Birmingham,  etc.,  Bk. 
(Ala.)  55  So.  943.  {Inquiry  from  Ga.,  Dec., 
1916,  Jl.) 

1018.  The  inquiry  is  made  as  to  whether 
a  postdated  check  should  be  protested  before 
date,  instructions  having  been  sent  to  pro- 
test, if  not  paid.  Opinion:  While  a  date  is 
not  essential  to  the  validity  of  a  check  and 
an  undated  check  is  payable  on  demand  and 
protestable  as  soon  as  presented,  still  where 
the  check  bears  a  postdate  (although  such 
postdate  may  be  inadvertent),  it  is  not 
presentable  and  protestable  until  the  day 
of  its  date  arrives.  {Inquiry  from  Ga.,  July, 
1916.) 

1019.  A  firm  received  a  check  dated 
fifteen  days  after  it  was  received,  which  it 
deposited  for  collection.  The  check  was 
presented  before  it  was  due  and  was  pro- 
tested by  the  drawee.  Opinion:  A  post- 
dated check  is  not  payable  until  the  day  of 
its  date  arrives,  and  a  drawee  bank  which 
prematurely  protests  the  postdated  check 
of  its  customer  does  so  without  legal  right 
and  is  probably  liable  to  him  in  damages 
therefor.  Godin  v.  Bk.  of  Com.,  6  Duer 
(N.  Y.)  76.  Triphonoff  v.  Sweeney,  (Ore.) 
130  Pac.  978.  Winkler  v.  Citizens  St.  Bk., 
(Kan.)  131  Pac.  597.  {Inquiry  from  Tenn., 
June,  1913,  Jl.) 

1020.  A  customer  of  bank  A  dated  a 
check  six  days  ahead  and  sent  it  to  an  out 
of  town  creditor  with  the  request  to  hold 
check  until  date.  On  the  day  of  its  date 
the  customer  deposited  in  the  drawee  bank 
A  where  he  runs  an  account,  funds  in  excess 
of  check.  The  creditor  inadvertently  depos- 
ited the  check  as  cash,  and  it  reached  bank  A 
two  days  before  date.  The  bank  protested 
the  check  because  of  insufficient  funds.  Is  the 
check  sui)ject  to  protest,  and  if  not,  is  the 
bank    liable    for    damages?     Opinion:     A 


223 


1021-1028] 


DIGEST  OF  LEGAL  OPINIONS 


postdated  check  is  not  due  until  the  day  of 
its  date  arrives,  and  it  is  not  protestable 
before  that  time.  The  bank  should  not  have 
protested  the  check.  Courts  often  hold 
banks  liable  in  damages  to  depositors  for 
mistakenly  refusing  payment,  and  pro- 
testing good,  regularly  dated  checks,  on  the 
theory  that  the  customer's  credit  is  injured 
thereby.  It  would  seem  the  same  ruhng 
would  apply  to  a  postdated  check,  unless 
the  fact  that  the  date  of  the  protest,  ante- 
dating that  of  the  check,  would  itself  carry 
notice  to  the  holder,  that  it  was  the  bank's 
mistake,  and  that  there  could  be  no  dis- 
honor of  a  postdated  check  before  its  date, 
so  as  to  negative  any  basis  for  damages. 
{Inquiry  from  Va.,  July,  1915.) 

1021.  Would  it  be  proper  to  protest  a 
postdated  check  sent  as  a  cash  item  before 
the  due  date,  provided  the  instructions  on 
the  remittance  sheet  called  for  the  protest 
of  all  items  of  over  ten  dollars,  the  check 
being  in  excess  of  that?  Opinion:  It  would 
not  be  proper  to  protest  a  check  before  its 
due  date.  A  postdated  check  is  not  payable 
until  the  day  of  its  date  arrives,  and  hence 
before  its  date,  there  can  be  no  dishonor 
which  would  authorize  a  protest.  {Inquiry 
from  Wyo.,  Nov.,  1913.) 

Premature  protest  fees  not  chargeable 

1022.  A  postdated  check  was  received 
by  a  bank  for  collection  thirty  days  before 
the  due  date  and  was  protested  and  returned 
in  accordance  with  printed  advice  accom- 
panying the  check.  The  forwarding  bank 
refuses  to  pay  the  fees  and  contends  the 
collecting  bank  was  in  error  in  protesting 
Opinion:  The  drawee  causing  the  protest 
cannot  charge  protest  fees.  The  printed 
advice  to  protest  should  not  be  construed  to 
cover  a  postdated  check  before  the  time 
when  the  check  becomes  payable.  {Inquiry 
from  La.,  June,  1913,  Jl.) 

1023.  May  a  bank,  with  which  a  post- 
dated check  is  deposited  for  collection, 
recover  for  the  customer,  the  amount  of 
protest  fees,  which  have  been  charged  by  the 
drawee  where  protest  is  made  prior  to  the 
date  of  the  check?  Opinion:  A  postdated 
check  is  not  payable  or  protestable  before 
the  day  of  its  date  and  cannot  be  duly 
presented  for  payment  before  such  date. 
Hence  the  drawee  is  not  entitled  to  the 
fees  and  they  may  be  recovered?  {Inquiry 
from  Iowa,  Jan.,  1921.) 

1024.  A  postdated  check  reached  the 
drawee  bank  two  days  before  its  date  and 
was  protested  by  that  bank  which  refused 


to  waive  protest  fees.  Opinion:  A  post- 
dated check  is  not  payable  until  the  day  of 
its  date  arrives,  and  the  drawee  bank  is  not 
entitled  to  any  fees  for  causing  premature 
protest  to  be  made.  (See  A.  B.  A.  Journal 
for  June  1913,  pp.  829,  830).  {Inquiry 
om  Md.,  June,  191 4-) 

Not  protestable  for  non-acceptance 

1025.  May  a  postdated  check  be 
protested  for  non-acceptance?  Opinion:  A 
postdated  check  is  not  presentable  until  the 
day  of  its  date  arrives  and  if  presented  before 
such  date,  it  cannot  be  protested  for  non- 
acceptance.  {Inquiry  from  Okla.,  Oct., 
1912,  Jl.) 

Protest  at  maturity 

1026.  After  the  day  of  its  date  arrives 
is  a  postdated  check  protestable  for  non- 
payment? Opinion:  Such  check  is  pro- 
testable  the  same  as  an  ordinary  check. 
{Inquiry  from  Mich.,  Oct.,  1911,  Jl.) 

Set  off  of  postdated  check 

1027.  A  bank  purchased  a  postdated 
check  drawn  on  another  bank,  from  an 
indorser  in  due  course  before  maturity. 
In  due  time  it  was  returned  marked  "Pay- 
ment stopped."  The  drawer  had  an  ac- 
count in  the  purchasing  bank.  Opinion: 
The  bank  purchasing  the  check  can  set  off 
the  drawer's  deposit  against  his  indebtedness 
upon  the  check.  Albert  v.  Hoffman,  117 
N.  Y.  S.  1043.  Blair  v.  Allen,  Fed.  Gas.  No. 
1483,  3  Dill.  101.  {Inquiry  from  Utah,  Oct., 
1915,  Jl.) 

Instrument  payable  at  future  date 

1028.  An  instrument  drawn  on  a  check 
form,  bearing  date  May  16,  1918,  was 
presented  at  a  bank  and  paid  May  20th.  In 
the  body  of  the  check  form  was  written,  "Due 
and  payable  Tuesday,  May  21,  1918."  Opin- 
ion: The  instrument  is  not  a  postdated 
check  but  a  bill  of  exchange  drawn  by  a  cus- 
tomer upon  the  bank,  payable  on  May  21. 
The  bank  is  governed  by  the  words  "due  and 
payable  Tuesday,  May  21,  1918,"  contained 
in  the  body  over  the  drawee's  signature,  and 
should  not  pay  it  before  that  time.  The  in- 
strument is  a  bill  of  exchange  and  is  subject 
to  the  rule  governing  bills  of  exchange  which 
gives  the  holder  the  right  to  present  for  ac- 
ceptance and  protest  for  non-acceptance  at 
any  time  after  he  receives  the  instrument 
and  before  its  maturitv.  Neg.  Inst.  A.,  Sec. 
185  (Comsr's.  dft.). "  Nat.  Park  Bk.  v. 
Saitta,  127  App.  Div.  (N.  Y.)  624.  Lawson 
V.  Richards,  6  Phila.  Rep.  479.  {Inquiry 
from  Ark.,  June,  1918,  Jl.) 


224 


[1029-1030 


CLEARING  HOUSES 


Incorpora  tion 


1029.  Is  it  legal  for  banks  to  incorporate 
as  a  clearing  house?  Opinion:  Very  likely 
it  would  be  held  that  there  is  sufficient 
incidental  power  in  a  national  or  state  bank 
to  become  an  incorporator  or  member  of  a 
clearing  house  corporation,  assuming  that 
the  general  corporation  laws  of  the  state  are 
sufficiently  broad  to  permit  the  organization 
of  corporations  without  capital  stock  for 
such  purposes;  but  the  functions  of  the 
corporation  thus  formed,  would  have  to  be 
hmited  to  such  operations  as  would  facilitate 
the  legitimate  business  of  the  banks  in  the 
clearing  of  checks,  the  making  of  examina- 
tions of  members  and  such  other  operations 
as  are  now  lawfully  done  by  the  unincor- 
porated clearing  house  associations  and  could 
not  extend  to  any  business  undertaken  by 
or  on  behalf  of  the  Associated  banks,  nor  to 
anything  which  would  be  construed  as  a 
combination  in  violation  of  the  Anti-Trust 
Law  or  against  pubHc  policy.  It  has  been 
held  that  it  is  within  the  power  of  a  national 
bank  to  join  with  other  banks  in  an  un- 
incorporated clearing  house  association. 
This  being  so,  the  conclusion  is  reasonable 
that  there  is  also  power  to  become  a  member 
of  a  corporate  association,  assuming  there 
are  state  laws  broad  enough  in  scope  to 
permit  the  formation  of  such  a  corporation. 
There  are  no  direct  decisions  on  the  subject; 
although  there  is  a  statement  in  the  Ameri- 
can and  English  Encyclopedia  of  Law, 
without  citation  of  authorities  to  the  effect 
that  clearing  houses  may  be  incorporated. 
{Inquiry  from  Ga.,  Sept.,  1912.) 

Note:  By  statute  in  Mississippi  (Code 
Sec.  3628  et  seq.)  banks  are  prohibited  from 
becoming  members  of  unincorporated  clear- 
ing house  associations  and  are  required  to 
incorporate  under  the  general  corporation 
law  and  the  charter  must  prohibit  the  banks 
from  making  and  enforcing  regulations 
upon  certain  enumerated  subjects. 

Right  of  majority  to  dissolve 

1030.  Have  the  majority  of  the  mem- 
bers of  an  unincorporated  clearing  house 
association  the  right  to  dissolve  the  asso- 
ciation and  make  provision  for  the  division 
of  the  assets?  Opinion:  Concerning  un- 
incorporated, non-profit  associations  gen- 
erally, it  has  been  held  that  one  who  leaves 


the  association  abandons  his  interest  in  the 
property  and  those  who  remain  succeed  to 
it.  Curtiss  v.  Hoyt,  19  Conn.  154,  167; 
also  that  when  a  number  of  members  secede 
from  the  association,  even  though  they  are 
a  majority,  they  lose  all  interest  in  its 
property.  McLaughhn  v.  Wall,  105  Pac. 
(Kan.)  33.  Alchenburgs  v.  Lodge,  138  111. 
App.  204,  209;  also  that  members  have  no 
right  to  sue  for  a  dissolution  and  a  distri- 
bution of  assets.  Robertson  v.  Walker,  3 
Baxt.  (Tenn.)  316,  318.  In  Moore  v.  Hills- 
dale Co.  Tel.  Co.  137  N.  W.  (Mich.)  241  the 
right  of  a  majority  of  the  members  of  an 
unincorporated  association  to  dissolve  it  and 
transfer  its  interests  to  a  corporation  was 
denied.  The  court  said:  "It  was  not 
intended  by  those  associating  that  the 
withdrawal  of  a  member  should  work  a 
dissolution  *  *  *.  It  was  intended  and 
agreed  that  the  internal  affairs  of  the 
association  should  be  controlled  directly 
by  its  officers,  ultimatel}'^  by  a  majority  of 
its  members.  There  is  no  reason  why  these 
mutual  and  innocent  agreements  and  under- 
standings of  members  should  not  be  given 
effect,  and  we  find  in  them  and  in  the 
business  carried  on,  no  foundation  for  the 
claim  that  less  than  all  the  members  may,  by 
withdrawal,  or  by  an  attempted  transfer 
of  interests  to  a  third  party,  compel  either  a 
sale  of  the  property  of  the  association  or  a 
dissolution." 

In  Peoples'  Sav.  Bank  v.  First  Nat. 
Bank,  Superior  Court  of  Washington  for 
King  County,  Nov.  24,  1916,  the  members 
of  a  clearing  house,  in  order  to  get  rid  of  an 
objectionable  member,  planned  to  retire 
from  the  association  and  organize  a  new 
clearing  house,  excluding  such  member 
therefrom.  His  suit  to  enjoin  them  from 
so  doing  was  denied.  The  court  held  no 
property  rights  were  insolved  and  the  right 
to  membership  was  not  a  property  right. 
The  court  said:  "To  successfully  restrain 
the  dissolution  of  the  Clearing  House 
Association,  plaintiff  must  show  that  its 
members  are  doing  an  unlawful  act  in 
dissolving  their  association.  It  must  be 
conceded  that  any  one  member  singly, 
could  resign,  even  two  or  three  might 
withdraw  lawfully  and  they  might  thereafter 
organize  a  Clearing  House  Association  of 
their  own  and  prescribe  such  arbitrary  and 
exclusive  tests  of  membership  as  to  exclude 


225 


1031-1032] 


DIGEST  OF  LEGAL  OPINIONS 


many  others.  If  a  few  can  lawfully  with- 
draw, then  all  can  lawfully  withdraw,  or  in 
other  words,  dissolve  the  Association." 

From  the  law,  so  far  as  developed,  it 
would  appear  that  even  a  majority  of 
members  of  a  voluntary  association  cannot 
dissolve  it,  in  the  absence  of  organic  agree- 
ment to  that  end,  and  make  disposition  of 
the  assets,  against  the  wishes  of  the  minority 
but  it  is  competent  for  them  to  withdraw 
from  the  association  and  form  a  new  asso- 
ciation of  their  own;  and  if  such  withdrawal 
is  by  virtually  all  of  the  membership,  this 
practically  works  a  dissolution.  {Inquiry 
from  Wash.,  Sept.,  1916.) 

Clearing-house  collection  charges  and 
the   anti-trust  law 

1031.  The  clearing  house  of  New  Or- 
leans fixed  a  minimum  scale  of  uniform 
charges  for  the  collection  of  out-of-town 
items  and  provided  for  penalties  for  non- 
compliance therewith,  A  dissatisfied  in- 
dividual had  the  United  District  attorney 
at  New  Orleans  lay  the  matter  before  the 
federal  grand  jury,  contending  that  there 
had  been  a  violation  of  the  Sherman  Anti- 
Trust  Act.  The  District  Attorney  con- 
sented to  be  guided  by  the  advice  of  the 
Attorney  General  of  the  United  States,  who 
advised  that  the  prosecution  be  dropped. 
While  the  investigation  was  pending,  the 
New  Orleans  Clearing  House  Association 
requested  the  general  counsel  of  the  Ameri- 
can Bankers  Association  to  formulate  his 
opinion  and  forward  it  to  the  Attorney 
General.  Opinion:  A  contention  that  the 
out-of-town  rules  of  the  New  York  Clearing 
House,  which  in  their  essential  features  are 
the  same  as  those  of  the  New  Orleans 
Clearing  House,  were  in  violation  of  the 
Sherman  Act  was  made  successively  to 
Attorneys-Generals  Knox,  Moody,  and  Bon- 
aparte, with  a  request  that  proceedings  be 
instituted  for  a  restraining  order,  but  such 
contention  was  not  deemed  worthy  of 
affirmative  action.  Apparently  the  De- 
partment of  Justice  considered  that  the 
decision  of  the  United  States  Supreme 
Court  in  the  Live  Stock  cases  (Hopkins  v. 
U.  S.  171  U.  S.  578;  Anderson  v.  U.  S.,  171 
U.  S.  604)  demonstrated  that  the  rules  did 
not  violate  the  act.  Those  cases  held  that 
the  adoption  by  the  Kansas  City  Live 
Stock  Exchange  of  a  rule  fixing  minimum 
rates  of  commission  to  be  charged  for 
selling  live  stock  did  not  violate  the  act  as  it 
had  only  an  indirect  relation  to  interstate 
commerce.     The  court  said :    "The  contract 


condemned  Ijy  the  statute  is  one  whose 
direct  and  immediate  effect  is  a  restraint 
upon  that  kind  of  commerce  which  is 
interstate."  The  distinction  made  in  the 
Hopkins  case  between  agreements  fixing 
minimum  charges  for  facihties  or  services 
in  connection  with  interstate  commerce 
which  relate  to  or  affect  such  commerce 
only  indirectly  and  are  not  in  restraint 
thereof  and  agreements  whose  direct  and 
immediate  effect  is  to  restrain  interstate 
commerce,  is  recognized  by  the  Supreme 
Court  in  all  the  subsequent  cases  under  the 
Sherman  Act.  Montague  v.  Lowry,  193 
U.  S.  38.  Northern  Securities  Case,  193 
U.  S.  197.  Field  v.  Barber  Asphalt  Paving 
Co.,  194  U.  S.  618.  Swift  v.  U.  S.  196  U.  S. 
375.  Loewe  v.  Lawlor,  208  U.  S.  274. 
The  subject  of  the  agreement  here  is  much 
more  remote  than  in  the  Hopkins  case. 
It  is  not  a  charge  for  service  in  selHng  an 
article  of  commerce — which  charge  itself 
has  only  an  indirect  relation  to  commerce — 
but  a  charge  for  collecting  payment  of 
negotiable  instruments,  which  by  decision 
of  the  supreme  court  of  the  United  States, 
equally  with  contract  of  insurance,  are  not 
subjects  of  commerce  nor  transactions  of 
commerce,  but  at  most  mere  instrumentali- 
ties or  incidents  thereof.  See  Nathan  v. 
Louisiana,  8  How.  73,  Paul  v.  Virginia,  8 
Wall.  168;  Hoopes  v.  California,  155  U.  S. 
648.  The  case  is  not  within  the  Federal 
Anti-Trust  Law.  {Inquiry  from  Texas, 
Feb.,  1911,  Jl.) 

Collection  charges  as  violation  of  anti- 
trust laws,  state  and  federal 

Effect  of  incorporation 

1032.  Is  an  agreement  between  the 
members  of  a  clearing  house  regarding  ex- 
change or  interest  charges  a  violation  of  the 
anti-trust  laws?  What  effect  would  the 
incorporation  of  the  association  have? 
Opinion:  The  federal  Anti-Trust  Law 
would  not  be  violated.  The  Texas  Anti- 
Trust  Law  (White's  Penal  Code  Tex.  [1916] 
Chap.  7,  art.  976)  provides  in  part,  "That  a 
trust  is  a  combination  of  capital,  skill  or 
acts  by  two  or  more  persons,  firms,  corpora- 
tions or  associations  of  persons,  or  either 
two  or  more  of  them  for  either,  any,  or  all 
of  the  following  purposes:  1.  To  create  or 
which  may  tend  to  create  or  carry  out 
restriction  in  trade  or  commerce  or  aids  to 
commerce,  or  to  create  or  carry  out  re- 
striction in  the  free  pursuit  of  any  business 
authorized  or  permitted  by  the  laws  of  this 
state."    The  courts  have  not  passed  upon 


226 


CLEARING  HOUSES 


1033-1035 


the  legality  of  such  an  agreement  as  that  in 
question. 

The  question  whether  the  banks  could 
escape  the  prohibition  of  anti-trust  laws  by 
incorporation  has  not  come  before  the  courts. 
The  Mississippi  statute  (Chap.  124,  Laws  of 
1914,  Section  65)  requires  clearing  houses  to 
incorporate  and  also  requires  that  the 
charter  prohibit  the  enforcing  of  rules  fixing 
fees  for  collections,  rates  of  discount  or 
interest  on  loans  or  deposits  and  rates  of 
exchange. 

Probably  if  the  fixing  of  uniform  charges 
by  agreement  of  members  of  an  unincor- 
porated clearing  house  would  violate  anti- 
trust laws,  the  same  charges  provided  by  an 
incorporated  clearing  house  would  be  held 
a  like  violation.  See  Attorney-General  v. 
A.  Booth  &  Co.,  106  N.  W.  868.  (Inquiry 
from  Tex.,  April,  1917.) 

Inter-city     clearing-house     collection 
charges  agreement 

1033.  Is  it  a  violation  of  the  Sherman 
Anti-Trust  Law  for  the  clearing  houses  of 
different  cities  to  enter  into  an  agreement, 
with  penalties  for  non-comphance,  that 
their  meml^ers  will  maintain  fixed  uniform 
charges  for  the  collection  of  out-of-town 
checks?  Opinion:  An  agreement  among 
banks  of  a  clearing  house,  or  even  among 
clearing  houses  of  different  cities,  fixing 
reasonable  uniform  charges  for  making 
collections,  does  not  violate  the  Anti-Trust 
Act.  In  all  the  cases  down  to  the  very 
latest,  the  case  of  Hopkins  v.  United  States, 
171  U.  S.  578  has  been  recognized  and  re- 
affirmed. That  case  held  that  the  adoption 
by  the  Kansas  City  Live  Stock  Exchange  of 
a  rule  fixing  minimum  rates  of  commission 
to  be  charged  for  selling  live  stock  did  not 
violate  the  Anti-Trust  Act,  as  it  has  only  an 
indirect  relation  to  interstate  commerce. 
Standard  Oil  Co.  v.  United  States,  221  U. 
S.  1,  reaffirms  the  principle  that  contracts 
which  have  only  an  indirect  relation  to 
interstate  commerce  are  not  within  the 
purview  of  the  Sherman  Act.  In  view  of 
the  recent  enactment  of  the  Federal  Re- 
serve Act  under  which  a  clearing  system  will 
be  established,  and  charges  fixed  by  the 
Federal  Reserve  Board,  the  question  may 
not  be  of  as  much  importance  as  formerly. 
{Inquiry  from  Va.,  Jan.,  191 4-) 

Uniform  interest  rates  as  violation  of 
anti-trust  law 

1034.  Does  a  rule  of  a  clearing  house 
providing  uniform  interest  rates  to  be  ob- 


served by  all  members  violate  the  Sherman 
Anti-Trust  Act?  Opinion:  The  Sherman 
Anti-Trust  Act  is  not  violated.  The  leading 
authority  on  the  subject  is  Hopkins  v. 
United  States,  171  U.  S.  578,  in  which  the 
Kansas  City  Live  Stock  Exchange  adopted 
rules  with  penalties  for  violation,  fixing 
minimum  rates  of  commission  to  be  charged 
for  selHng  Uve  stock.  It  was  held  that  such 
charges  were  not  in  violation  of  the  Sherman 
Anti-Trust  Act,  as  they  had  only  an  indirect 
relation  to  interstate  commerce  and  were 
not  a  direct  restraint  upon  such  commerce. 
Under  the  principles  of  this  case,  which  have 
been  recognized  in  subsequent  decisions  of 
the  supreme  court,  an  agreement  between 
clearing  house  members  fixing  uniform  rates 
of  interest  is  not  in  violation  of  the  Sherman 
Act.    (Inquiry  from  N.  Y.,Feb.,  1918.) 

Inter-city     agreement     for    maximum 
interest  rates 

1035.  Would  the  Sherman  Anti-Trust 
Law  be  violated  by  an  agreement  between 
banks  in  various  clearing  house  cities  in 
different  states  as  to  maximum  interest 
rates  on  deposits?  Opinion:  The  Sherman 
Act  (Act  of  July  2,  1890)  provides:  "Sec.  1. 
Every  contract,  combination  in  the  form  of 
trust  or  otherwise,  or  conspiracy,  in  restraint 
of  trade  or  commerce  among  the  several 
states,  or  with  foreign  nations,  is  hereby 
declared  to  be  illegal".  What  is  made  un- 
lawful and  punishable  by  this  Act  is  the 
restraint,  monopoly  or  attempted  monopoly 
"of  trade  or  commerce,  among  the  several 
states  or  with  foreign  nations."  The  re- 
straint must  be  direct  and  not  merely  inci- 
dental, and  also  undue,  that  is,  unreasonable. 
U.  S.  V.  Keystone  Watch  Case  Co.,  218  Fed. 
502;  Standard  Oil  Co.  v.  U.  S.,  221  U.  S.  1. 
The  case  bearing  the  nearest  analogy  to  the 
clearing  house  agreement  is  Hoplcins  v. 
United  States,  171  U.  S.  578  considered  in 
Opinion  No.  1031.  The  Hopkins  case  was 
quoted  with  approval  in  the  Standard  Oil 
case  supra. 

Even  assuming  that  the  depositors  of 
money  are  engaged  in  interstate  commerce, 
the  agreement  would  at  most  only  indirectly 
affect  such  commerce  and  possibly  enhance 
the  expense  to  those  engaged  in  the  business. 
Such  an  agreement  is  too  remote  from  in- 
terstate commerce  to  fall  within  the  pro- 
hibition of  the  Federal  Anti-Trust  Act  as 
interpreted  by  the  Supreme  Court.  (In- 
quiry from  Va.,  June,  1916.) 


227 


m 


1036-1038] 


DIGEST  OF  LEGAL  OPINIONS 


Penalty  for  violation  of  maximum  rate 
of  interest  rule 

1036.  Has  a  clearing  house  association 
the  right  to  enforce  a  fine  for  violation  of  a 
clearing  house  rule  with  respect  to  rates  of 
interest  on  time  deposits?  Opinion:  The 
question  of  the  right  of  a  clearing  house  to 
enforce  a  fine  or  penalty  against  one  of  its 
members  for  violation  of  a  rule  prescribing  a 
rate  of  interest  for  deposits  or  uniform 
charges  for  collections,  has  never  been  con- 
sidered or  decided  by  any  of  the  higher 
courts  in  any  of  the  states,  not  by  any  of  the 
federal  courts.  The  enforcement  of  such  a 
penalty  would  not  violate  the  Federal  Anti- 
Trust  Law.  See  Opinion  No.  1031  in- 
volving the  New  Orleans  Clearing  House 
rules,  and  Opinion  No.  1033  involving 
agreements  between  clearing  houses  of 
different  cities  as  to  uniform  charges  for  the 
collection  of  out-of-town  checks. 

There  are  cases  to  the  effect  that  the  rules 
adopted  by  the  members  of  a  clearing  house 
are  in  the  nature  of  contracts  between  and 
binding  upon  members,  but  all  these  cases 
relate  to  some  appKcation  of  such  rules  with 
respect  to  the  primary  function  of  clearing 
checks.  There  is  no  case  which  passes  upon 
the  validity  and  enforceability  of  such  rules 
as  compel  uniform  interest  and  exchange 
charges. 

A  member  might  contend  that  the  rule 
was  against  pubhc  policy,  unreasonable, 
and  void.  Certain  analagous  cases  bear  on 
this  contention.  Under  the  by-laws  of  build- 
ing and  loan  associations  fines  imposed  upon 
stockholders  for  default  in  payment  have 
been  upheld  when  reasonable  in  amount  and 
equitable  in  application.  Roberts  v.  Ameri- 
can Building  &  Loan  Association,  36  S.  W. 
(Ark.)  1085.  Although  Vierhng  v.  Mechan- 
ics and  Traders  Savings,  Loan  &  Building 
Association,  53  N.  E.  (111.)  979  holds  that  a 
fine  of  ten  cents  a  share  for  failure  to  pay  a 
monthly  installment  of  ten  dollars  is  un- 
reasonable and  will  not  be  enforced,  a 
majority  of  the  cases  are  inconsistent  with 
this  ruling  and  in  accord  with  the  Roberts 
case.  See,  for  example,  Iowa  Savings  & 
Loan  Association  v.  Heidt,  77  N.  W.  (la.) 
1050.  Leahy  v.  Mooney,  81  N.  Y.  Supp. 
360,  39  Misc.  829  indicates  that  an  agree- 
ment between  members  of  an  unincor- 
porated association  imposing  a  reasonable 
fine  upon  any  member  who  violates  an 
agreed  rule  is  vahd  and  enforceable.  (In- 
quiry from  Wash.,  Aug.,  1916.) 


Uniform   service   charge   for  small   ac- 
counts and  for  return  of  items 
not  good 

1037.  Would  it  be  in  conflict  with  the 
Clayton  or  the  Sherman  law  for  a  local 
bankers  association  to  call  on  all  its  members 
to  make  a  service  charge  of  a  particular 
amount  on  small  accounts?  What  about  a 
charge  for  checks  returned  not  good?  Opin- 
ion: An  agreement  for  such  a  uniform  ser- 
vice charge  would  not  be  a  violation  of 
either  of  the  statutes  mentioned.  The  lead- 
ing authority  on  the  subject  is  Hopkins  v. 
United  States,  171  U.  S.  578,  in  which  the 
Kansas  City  Live  Stock  Exchange  adopted 
rules  with  penalties  for  violation,  fixing 
maximum  rates  of  commission  to  be  charged 
for  selling  hve  stock.  It  was  held  that  such 
charges  were  not  in  violation  of  the  Sherman 
Anti-Trust  Act,  as  they  had  only  an  in- 
direct relation  to  interstate  commerce  and 
were  not  a  direct  restraint  thereon.  {In- 
quiry from  D.  C,  Feb.,  1918.) 

Inter-city    agreement  of  members    to 
purchase  notes  through  each  other 
rather  than  through  note- 
brokers 

1038.  Would  the  Sherman  Anti-Trust 
Law  be  violated  by  an  agreement  between 
banks  in  various  clearing  house  cities  in 
different  states  for  the  purchase  of  paper 
through  each  other  rather  than  through 
note  brokers?  The  bank  asking  advice 
states  that  there  is  now  ruinous  competition 
between  banks  and  note-brokers  for  paper; 
that  the  banks  through  the  large  purchases 
of  paper  are  increasing  the  note-brokers' 
business  at  the  expense  of  the  business  of 
the  banks  themselves;  and  that  some  ad- 
justment of  this  situation  must  be  made 
if  the  banks  are  to  continue  earning  reason- 
able profits  for  their  stockholders.  Opin- 
ion: There  is  more  question  as  to  the 
legahty  of  such  an  agreement  than  as  to  one 
respecting  the  rate  of  interest  on  deposits. 
Commercial  paper  originating  in  one  state 
and  sold  in  another  would  very  likely  now 
be  held  a  subject  of  interstate  commerce. 
In  Bracey  v.  Drast,  218  Fed.  482,  the  court 
said.  "We  do  not  think  it  can  be  longer 
questioned  that  stocks,  bonds,  debentures 
and  other  securities  are  subject-matters  of 
interstate  commerce,"  citing  a  long  hst  of 
supporting  authorities.  If  this  be  true,  the 
question  is  whether  the  agreement  is  an 
undue  or  unreasonable  restraint  of  trade  or 
commerce,  as  to  which  there  are  no  judicial 
precedents.    So  far  as  commodities  are  con- 


i 


228 


CLEARING  HOUSES 


[1039-1041 


cemed  ,  U.  S.  v.  Southern  Wholesale  Gro- 
cers Ass'n.,  207  Fed.  434,  held  that  a  con- 
tract between  many  engaged  in  the  same 
business,  to  refrain  from  selUng  to  an  indi- 
vidual or  a  class  violated  the  act.  Standard 
Sanitary  Mfg.  Co.  v.  U.  S.  226  U.  S.  20,  held 
that  agreements,  embracing  85%  of  the 
manufacturers  and  90%  of  the  jobbers  in 
enameled  iron  ware  which  provided  for  the 
regulating  of  prices,  sales  only  to  jobbers  in 
the  combination,  and  prohibition  of  pur- 
chases from  manufacturers  not  in  the 
combination  violate  the  act.  It  would  seem 
that  a  condition  of  "ruinous  competition," 
such  as  that  described  in  the  case  in  question 
might  be  regulated  by  the  suggested  agree- 
ment without  violating  the  Anti-Trust  Act. 
Such  an  agreement  would  probably  be 
regarded  as  a  legitimate  arrangement  for 
self-protection  and  not  unreasonable.  Un- 
less it  would  constitute  an  unreasonable 
restraint  of  trade  it  would  not  violate  the 
act.    {Inquiry  from  Va.,  June,  1916.) 

Pledge    of    securities    to    secure    draft 
in  settlement  of  debtor  balanees 

1039.  The  suggestion  is  made  that 
clearing  house  settlements  be  made  by 
drafts  on  Reserve  City  banks.  To  meet  the 
danger  that  the  drafts  should  not  be  good 
in  the  case  of  the  failure  of  a  bank  it  is 
further  suggested  that  each  bank  deposit 
with  the  clearing  house  association,  securi- 
ties sufficiently  large  to  protect  such  drafts. 
Is  such  a  deposit  legal  or  would  this  consti- 
tute a  preference  so  that  the  securities  would 
have  to  be  returned  to  the  general  funds  of 
the  insolvent  bank?  Opinion:  In  the  ab- 
sence of  a  statute  to  the  contrary  such  a 
deposit  would  be  legal  and  would  not  con- 
stitute a  preference.  So  far  as  national 
banks  are  concerned,  the  National  Bank 
Act  (Rev.  Stat.  Sec.  5242)  provides  in  effect 
that  all  transfers  of  securities  after  the  com- 
mission of  an  act  of  insolvency  or  in  con- 
templation thereof  with  a  view  to  the  pref- 
erence of  one  creditor  to  another,  shall  be 
void.  But  this  does  not  make  invalid  a 
pledge  of  securities  by  a  going  concern  to 
secure  its  indebtedness.  Rev.  Stat.  Sec. 
5236  provides  for  ratable  dividends  to  credi- 
tors of  insolvent  national  banks;  but  it  has 
been  held  that  a  secured  creditor  of  an  in- 
solvent national  bank  may  prove  and  receive 
dividends  upon  the  face  of  his  claim  as  it 
stood  at  the  time  of  the  declaration  of  insol- 
vency, without  crediting  collaterals  held  by 
him,  subject  always  to  the  proviso  that 
dividends  must  cease  when  from  them  and 


the  collaterals  realized  the  claim  has  been 
paid  in  full.  Merrill  v.  National  Bank  of 
Jacksonville,  173  U.  S.  131.  The  con- 
templated pledge  of  assets  to  secure  drafts 
in  payment  of  debtor  balances,  made  at  a 
time  when  the  bank  was  a  going  concern 
and  not  in  contemplation  of  insolvency, 
would  be  vahd  and  not  preferential.  Philler 
V.  Patterson,  168  Pa.  468  (involving  a 
national  bank)  {Inquiry  from  Pa.,  Nov., 
1920.) 

Modification  of  rule  by  custom 

1040.  Under  the  rules  of  a  clearing 
house  "not  good"  checks  presented  through 
the  clearing  house  must  be  adjusted  directly 
between  the  banks  before  two  o'clock.  In 
the  case  of  a  suburban  institution,  this 
method  of  adjustment  proved  inconvenient 
or  impracticable,  and  instead  of  it  sending 
"not  good"  checks  directly  back  to  the 
presenter  banks,  located  in  town,  and  they 
in  turn,  sending  "not  good"  checks  directly 
back  to  it  before  two  P.  M.  on  the  day  of 
presentment,  under  the  clearing  house  rule, 
the  custom  was  adopted  of  returning  checks 
presented  by,  and  drawn  upon,  the  bank, 
through  the  following  day's  clearing.  Does 
this  constitute  a  waiver  of  the  clearing 
house  rule?  Opinion:  The  banks  are  bound 
by  the  custom  as  a  modification  of  the 
written  constitution.  A  written  contract 
(the  clearing  house  rules  constitute  an 
agreement  binding  the  members)  may  be 
modified  by  a  parol  agreement  founded  on  a 
sufficient  consideration.  Beatty  v.  Larze- 
lere,  194  Pa.  St.  605,  Whitehill  v.  Schwarts, 
27  Pa.  Super.  Ct.  526.  Where  the  parties 
mutually  agree  to  a  subsequent  modifica- 
tion of  their  contract,  the  promise  of  each 
is  supported  bv  a  sufficient  consideration. 
Thomason  v.  Dill,  30  Ala.  444.  In  Pennsyl- 
vania a  written  contract  may  be  modified  by 
parol,  Chalfant  v.  Wilhams,  35  Pa.  St.  212. 
Where  the  suburban  bank  has  acted  in 
accordance  with  the  custom  and  not  re- 
turned a  "not  good"  check  until  the  day 
following  its  presentation,  court  of  equity 
would  estop  the  other  banks  in  the  clearing 
house  from  urging  the  rule  to  the  prejudice 
of  the  suburban  bank,  in  view  of  their  con- 
duct and  custom  for  a  long  number  of  years 
in  modification  thereof.  {Inquiry  from  Pa., 
Feb.,  1917.) 

.4rticles  of  association 

1041.  Note. — The  following  has  been 
prepared  by  General  Counsel  American 
Bankers  Association  as  a  general  form  of 


229 


1041] 


DIGEST  OF  LEGAL  OPINIONS 


Articles  of  Association  to  be  used  in  the  or- 
ganization of  clearing  houses  in  the  smaller 
cities  and  towns.  Details  therein  may,  of 
course,  be  changed  to  suit  local  conditions. 
Before  framing  by-laws,  it  is  recommended 
that  new  Associations  operate,  at  first,  under 
temporary  rules,  until  experience  indicates 
the  particular  form  of  by-laws  that  may  be 
required : 

The  undersigned,  banks  of 

do  hereby  associate  together  as  a  clearing 
house  for  the  purpose  of  effecting  at  one 
place,  the  daily  exchange  of  checks  between 
the  several  members  and  of  settling  balances 
with  each  other  (and  also  of  providing  such 
safeguards  in  their  intercourse  with  each 
other  and  the  public  at  large  as  may  be 
desirable)  and  agree  to  be  governed  by  the 
following  articles  of  association : 

1  The  name  of  this  Association  shall  be 
the Clearing  House  Associa- 
tion. 

2.  The  officers  shall  be  a  president,  vice- 
president,  secretary  and  treasurer,  who 
shall  be  elected  by  ballot  on  the  organization 
of  the  Association  and  annually  thereafter 
on  the  second  Monday  in  January  at  (fix 
hour),  or  failing  a  meeting  at  that  time,  at  a 
special  meeting  thereafter  called  by  the 
president  for  the  purpose  and  shall  hold 
office  until  their  successors  are  elected. 

3.  The  officers  shall  constitute  an  execu- 
tive committee  to  arrange  for  the  place  and 
manner  of  the  exchanges  and  the  details  of 
the  same,  and  to  enforce  the  by-laws  or  rules 
of  the  Association.  They  shall  assess  the 
cost  of  the  worldng  of  the  Association  upon 
the  members  in  proportion  to  capital  and 
surplus  (or  according  to  total  resources  or 
total  clearings).  The  treasurer  shall  make 
a  report  of  receipts  and  expenditures  at  the 
end  of  each  fiscal  year. 

4.  The  president  shall  call  meetings  of  the 
Association  whenever  in  his  opinion  its 
interests  may  require  or  whenever  requested 
so  to  do  by  the  executive  committee,  or  upon 
request  of  any  two  members,  and  at  all 
meetings  each  member  shall  be  entitled  to 
one  vote.  There  shall  be  no  quorum  unless 
a  majority  of  members  are  present  by  duly 
authorized  representatives. 

5.  The  secretary  (acting  as  manager) 
shall  have  immediate  charge  of  the  business 
of  the  clearing  house  and  his  decisions  con- 
cerning questions  of  practice  and  details  at 
the  clearing  house  shall  rule  until  modified 
by  the  executive  committee. 

6.  The  hour  for  making  exchanges  shall 
be  eleven  o'clock  a.m.  of  each  business  day, 
when  the  settling  clerks  from   all  of  the 


associated  banks  shall  report  with  their 
respective  demands,  separately  made  out 
against  each  bank  in  detail  and  the  totals 
summed  up.  The  work  of  clearing  shall  not 
be  delayed  longer  than  five  minutes  after 
eleven  a.  m.  on  account  of  the  failure  of  any 
bank  to  be  represented  at  that  time.  At 
twelve  o'clock  the  setthng  clerks  shall  return 
for  settlement,  when  the  manager  shall 
issue  his  checks  or  warrants  upon  the  debtor 
banks  in  favor  of  creditor  banks  for  the 
balances,  which  checks  shall  immediately 
be  presented,  and  on  presentation  be 
settled  by  the  debtors  to  the  satisfaction  of 
the  creditors  in  whose  hands  only  they  are 
available. 

7.  In  case  of  failure  to  respond  promptly 
to  the  checks  of  the  manager  on  the  part  of 
any  member  of  the  Association,  they  shall 
be  immediately  returned  to  the  manager, 
who  shall  call  upon  the  other  members  to 
make  up  the  sum  for  which  payment  has 
been  refused  in  proportion  to  the  amount 
of  checks  upon  the  defaulting  member  sent 
into  the  clearing  house  at  the  preceding 
settlement,  which  sums  so  furnished  shall 
constitute  a  claim  in  the  hands  of  the  re- 
sponding members  and  all  checks  received 
from  the  clearing  house  by  the  defaulting 
member  shall  be  delivered,  if  required,  to  the 
members  owning  the  same  without  mutila- 
tion. The  agency  of  the  clearing  house  in 
the  matter,  it  is  understood,  is  only  as  trus- 
tee and  in  no  case  is  the  Association  to  be 
held  responsible  for  any  loss  that  may  occur. 

8.  Errors  in  the  exchanges  and  claims 
arising  from  return  of  checks  or  from  any 
other  cause  are  to  be  adjusted  directly 
between  the  members  who  are  parties  to  the 
same  and  not  through  the  clearing  house. 

9.  All  checks  in  the  exchanges,  returned 
as  "not  good"  or  "mis-sent"  shall  be  re- 
turned by  two  p.  m.  directly  to  the  bank 
from  whom  received  and  said  bank  shall 
immediately  refund  to  the  bank  returning 
the  same,  the  amount  which  it  had  received 
through  the  clearing  house  settlement 
therefor.  If  not  returned  by  two  p.  m.  the 
responsibility  of  the  Imnk  which  sent  said 
checks  through  the  exchanges  shall  cease. 

10.  These  articles  of  association  shall 
become  binding  upon  the  respective  mem- 
bers from  the  time  they  are  signed  by  each 
respectively,  provided  that  at  the  time  of 
such  signature  there  shall  be  deposited  with 
the  secretary  a  properly  certified  copy  of  a 
resolution  of  the  board  of  directors  of  an 
incorporated  meml)or,  or  a  certificate  of 
assent  of  an  imincorporated  meml^er  au- 
thorizing the  signing  of  said  articles.    New 


330 


COLLECTION 


1042-1045 


members  may  be  admitted  to  the  Associa- 
tion at  any  meeting  by  a  two-thirds  vote  of 
all  the  members  and  these  articles  shall 
become  binding  on  such  new  members  when 
signed  and  assented  to  as  above  provided. 

11.  Amendments  to  these  articles  of 
association  may  be  made  at  any  meeting 
by  vote  of  a  majority  of  all  the  members. 
Notice  of  proposed  amendments  shall  be 
given  in  writing  to  each  member  at  least 
ten  days  previousl3\ 

12.  By-laws  governing  the  business  of  the 


Association  in  the  making  of  exchanges, 
providing  for  the  imposition  of  fines  and 
other  details  (and  also  fixing  exchange  and 
collection  charges  and  providing  for  ex- 
amination of  members)  may  be  adopted  at 
any  meeting  of  the  Association  by  vote  of  a 
majority  of  all  the  members  and  may  be 
amended  by  like  vote.  Notice  of  the  pro- 
posed adoption  of  by-laws  or  of  proposed 
amendments  thereto  shall  be  given  in  writing 
to  each  member,  at  least  ten  days  previously. 
(Sept.,  1911.) 


COLLECTION 


Bank's  obligation  to  undertake 
collection 

Bank's  obligation  where  return  postage  not 
enclosed 

1042.  Can  a  bank  be  held  liable  in  any 
way  for  not  presenting  and  reporting  on  a 
sight  draft  mailed  to  it  for  collection  when 
no  stamped  envelope  is  enclosed  for  return 
of  report?  Opinion:  In  the  absence  of 
contract  or  agreement,  express  or  impHed, — 
or  controlling  usage,  a  bank  which  receives 
paper  for  collection  is  under  no  obligation 
to  accept  the  agency.  But  if  the  bank  is 
unwilhng  to  undertake  the  collection  "the 
duty  ought  to  be  declined."  Bank  of 
Washington  v.  Triplett,  1  Pet.  (U.  S.)  37. 
Such  declination,  it  would  seem,  should  be 
by  an  immediate  return  of  the  paper;  but 
where  return  postage  is  not  forwarded,  the 
bank  would  probaljly  incur  no  liability  in 
faihng  to  return  same.  {Inquiry  from  III., 
July,.  1916) 

Bank's  obligation  where  no  fee  enclosed 

1043.  We  receive  drafts  from  firms 
quite  frequently  having  no  fee  enclosed.  Do 
we  take  any  chance  in  throwing  them  in  the 
waste  basket?  We  always  return  a  draft 
received  from  a  bank  even  though  no  fee  is 
enclosed  but  do  not  care  even  to  waste  as 
small  a  thing  as  a  stamp  on  some  firms.  If 
the  drafts  were  paid  we  could  collect  a  fee, 
but  when  not  paid,  what  should  we  do?  The 
firms  ignore  our  letter  when  we  return  the 
unpaid  draft  and  request  a  fee,  small  though 
it  be,  for  handling.  Opinion:  A  bank  which 
receives  a  draft  for  collection  through  the 
mail  is  under  no  oljligation  to  accept  the 
agency  in  the  aV)sence  of  an  agreement 
express  or  implied  or  controlling  usage.  But 
its  duty  in  such  ease  is  to  promptly  decHnc 
the  agency  by  returning  the  paper.  But 
where  return  postage  is  not  forwarded  there 


would  probably  be  no  liabihty  in  faihng  to 
return  same.  The  point  has  never  come 
before  the  courts  for  decision.  {Inquiry 
from  Tenn.,  May,  1921.) 

Notice  to  remitter  that  draft  held  awaiting  fee 

1044.  Does  a  bank  incur  any  legal 
liabihty  when  a  sight  draft  drawn  on  a  local 
business  firm  or  individual,  with  protest 
waived,  is  received  for  collection  from 
another  firm,  and  the  bank  does  not  enter 
it  for  collection  or  notify  the  drawee,  or 
present  it,  but  notifies  the  remitter  that  it 
will  be  held  awaiting  an  advance  fee  of 
fifteen  cents  to  cover  cost  of  entering,  pre- 
senting or  notifying  and  returning?  Opin- 
ion: Under  such  circumstances  a  bank  is 
within  its  rights  and  does  not  incur  legal 
liability  by  holding  the  draft  and  notifying 
the  remitter  that  it  will  be  held  awaiting  the 
advance  payment  of  fifteen  cents  to  cover 
cost  of  entering,  presenting  or  notifying  and 
returning.  Such  a  draft  is  merely  a  method 
adopted  by  a  creditor  of  obtaining  payment 
from  his  debtor  through  the  services  of  a 
bank  as  collecting  agent,  and  is  not  governed 
by  the  strict  rules  governing  presentment, 
demand  and  notice  which  apply  to  drafts 
issued  or  negotiated  for  value.  (See  Crouse 
V.  First  Nat.  Bank  of  Penn  Yan.  137  N.  Y. 
383.)    {Inquiry  from  III,  June,  1920,  Jl.) 

Right  to  return  draft  and  refuse  collection 

1045.  A  bank  receives  a  draft  on  its 
customer  paj^able  "with  exchange  and 
collection",  and,  as  its  customer  refuses  to 
pay  these  charges,  it  asks  whether  it  can 
return  the  draft  and  refuse  to  handle  same, 
or  whether  it  must  stand  the  expense  itself. 
Opinion:  A  bank  is  not  obliged  to  under- 
take a  collection  and  can  return  a  draft  and 
refuse  to  handle  same.  But  if  it  accepts  the 
agency,  its  duty  as  collecting  agent  imme- 


231 


1046-1051] 


DIGEST  OF  LEGAL  OPINIONS 


diately  attaches.  In  the  present  ease  the 
bank,  by  presenting  the  draft  to  the  cus- 
tomer, probably  undertook  the  collection 
and  its  duty  then  would  be  to  protest  and 
promptly  return,  {Inquiry  from  Mont., 
May,  1920.) 

Duty  of  drawee  hank  to  act  as  collection  agent 

1046.  Is  a  drawee  bank  bound  by  in- 
structions contained  in  a  letter  inclosing 
checks  for  payment,  sent  direct  to  it  by 
mail,  or  can  it  claim  that  it  is  not  the  agent 
of  the  sender,  having  received  checks  for 
payment,  not  for  collection?  Opinion:  It 
is  customary  and  lawful  for  the  drawee  bank 
to  act  in  the  dual  capacity  as  agent  of  the 
drawer  to  make  payment  or  refuse  payment, 
and  as  agent  of  the  holder  to  remit  the  funds, 
or  make  protest,  or  otherwise  follow  in- 
structions. Having  accepted  the  agency  to 
collect,  it  would  be  Hable  the  same  as  an  in- 
dependent agent  who  had  no  relation  to  the 
drawee.  But  in  the  absence  of  agreement, 
express  or  implied,  or  a  controlling  usage,  a 
bank  may  decline  to  undertake  a  collection 
and  return  the  paper.  Where  a  check  is 
forwarded  by  mail  direct  to  the  drawee  and 
the  bank  does  not  care  to  assume  the  duties 
of  collection  agent,  it  might  probably  rely 
on  its  strict  rights  as  payor,  and  notify  the 
sender  that  it  pays  the  check  and  holds  the 
funds  ready  for  delivery  to  him  or  his 
authorized  agent  at  the  counter  of  the  bank. 
Just  what  the  status  and  duty  of  the  bank 
would  be  under  such  circumstances  has 
never  been  decided.  {Inquiry  from  Wash., 
Jan.,  1920.) 

Collection  agencies  generally 

Power  of  express  company  to  act 

1047.  May  an  express  company  engage 
in  the  practice  of  collecting  checks?  Opin- 
ion: It  would  seem  that  express  companies 
have  the  power  to  engage  in  such  practice; 
there  is  nothing  in  the  ruhng  of  the  Inter- 
state Commerce  Commission  of  Jan.  5,  1909 
to  preclude  them  from  so  doing.  {Inquiry 
from  Tenn.,  May,  1911,  Jl.) 

When  express  company  not  a  suitable  agent 

1048.  A  collecting  bank  forwards  items 
by  express  for  collection  which  it  has  been 
instructed  to  have  protested  in  the  event 
of  non-payment;  the  bank  knows  that  the 
express  company  does  not  undertake  to  have 
the  items  protested.  Opinion:  The  com- 
pany is  not  a  suitable  agent  for  collection  of 
protestable  items  and  the  bank  is  neghgent 
in  selecting  such  agent.  {Inquiry  from  Ala., 
Oct.,  1911,  Jl.) 


Bank  supervisor  cannot  compel  hank  to  pay 
express  company 

1049.  Can  the  Superintendent  of  Banks 
in  the  case  of  private  or  state  banks  or  the 
Comptroller  of  the  Currency  in  the  case  of 
national  banks,  compel  such  banks  to  pay 
items  presented  through  express  companies? 
Opinion:  There  is  nothing  in  the  law  which 
would  authorize  the  Superintendent  of 
Banks  or  the  Comptroller  of  the  Ciu-rency 
to  compel  banks  within  their  supervision  to 
pay  checks  drawn  on  them  when  presented 
by  express  companies.  Payment  of  a  check 
is  a  matter  of  contract  between  bank  and 
drawer,  and  a  bank  supervising  officer  has 
no  mandatory  power  over  the  bank  as  to 
how  it  shall  perform  its  contract  obligations. 
Presentation  by  an  express  company  is 
lawful  unless  the  check  itself  excludes  pre- 
sentment by  that  agency.  The  bank  could 
rightfully  refuse  to  pay  to  an  express  com- 
pany if  a  check  was  presented  by  it  that  had 
stamped  on  it  "Not  payable  through  an 
express  company,"  but  if  there  is  no  such 
restriction  a  check  presented  by  an  express 
company  and  refused  payment  would  be 
protestable  and  the  bank  liable  for  damages. 
{Inquiry  from  Ala.,  Dec,  1918.) 

Drawee  as  collection  agent 

1050.  What  is  the  legal  status  of  a 
drawee  bank  to  which  a  check  is  forwarded 
directly?  Opinion:  A  drawee  bank  which 
receives  a  check  for  collection  acts  in  a  dual 
capacity,  (1)  as  agent  of  the  drawer  to  pay 
or  refuse  payment,  (2)  as  agent  of  the  holder 
to  collect  and  remit  or  to  take  the  necessary 
steps  upon  dishonor  to  hold  parties  contin- 
gently liable.  {Inquiry  from  Wis.,  Mar., 
1916,  Jl.) 

Duty  of  drawee  where  depositor  provides  list 
of  checks  to  be  paid 

1051.  When  a  customer  of  a  bank  makes 
deposits  he  gives  the  bank  a  list  of  the  checks 
he  wishes  paid,  with  instructions  to  pay  no 
others.  Is  it  proper  for  the  bank  to  permit 
such  a  practice?  One  of  such  checks  sent  to 
the  drawee  bank  for  collection  was  not  paid 
because  not  listed  as  a  check  to  be  paid. 
However,  it  was  not  protested,  nor  was  it 
returned  promptly.  What  is  the  liability 
of  the  drawee  bank?  Opinion:  Where  a 
bank  receives  a  deposit  with  instructions  to 
apply  it  only  on  certain  specified  checks,  it 
must  obey  such  instructions  if  it  receives  the 
deposit  at  all.  Judy  v.  Farmers  &  Traders 
Bank,  81  Mo.  404;  Myers  v.  Twelfth  Ward 
Bank,  58  N.  Y.  Supp.  1065,  Dolph  v.  Cross, 


232 


COLLECTION 


[1052-1054 


133  N.  W.  (Iowa)  669.  However,  the 
practice  seems  unbusinesslike  and  the  bank 
should  insist  on  its  discontinuance  or  the 
closing  of  the  account.  The  following  con- 
siderations apply  to  the  relation  between 
the  holder  of  the  check  refused  payment  and 
the  bank :  were  it  presented  by  an  independ- 
ent agent,  the  sole  function  of  the  bank 
would  be  to  refuse  payment,  but  in  the 
case  stated  it  was  forwarded  by  mail  and 
the  drawee  bank  became  an  agent  of  the 
holder.  As  such  agent  it  is  its  duty  to  pre- 
sent the  check  for  payment  and  its  duty  as 
drawee  is  to  pay  the  check  if  the  drawee  has 
a  sufficient  deposit.  First  Nat.  Bk.  v.  First 
Nat.  Bk.,  154  S.  W.  (Tenn.)  965.  Where, 
as  here,  there  is  no  deposit  appUcable  for 
the  payment  of  the  check,  the  collecting 
bank  must  give  notice  of  dishonor  to  its 
principal  promptly  (Jefferson  County  Sav. 
Bank  v.  Hendrix,  39  So.  (Ala.)  295  and 
protest  for  non-payment  where  this  is  re- 
quired to  preserve  the  rights  of  the  owner 
against  parties  to  the  check  or  where  it  has 
been  instructed  to  protest.  Chapman  v. 
McCrea,  63  Ind.  360;  McBride  v.  111.  Nat. 
Bk.,  121  N.  Y.  Supp.  1041.  Failure  of  duty 
renders  the  bank  liable  for  any  resulting 
loss. 

The  decision  in  Wisner  v.  First  Nat.  Bank, 
68  Atl.  (Pa.)  955,  that  the  provision  of  the 
Negotiable  Instruments  Act  that  "Where  a 
drawee  to  whom  a  bill  is  dehvered  for 
acceptance ....  refuses  witliin  24  hours .... 
to  return  the  bill  accepted  or  non-accepted 
to  the  holder,  he  will  be  deemed  to  have 
accepted  the  same"  apphed  to  checks,  and 
that  a  failure  to  return  a  check  within  24 
hours  was  an  acceptance,  was  nullified  by 
the  amendment  of  April  27,  1909,  providing 
that  the  mere  retention  of  the  bill  by  the 
drawee,  unless  its  return  has  been  demanded, 
will  not  amount  to  an  acceptance  and  that 
the  above  quoted  provision  "shall  not  apply 
to  checks."  Hence,  there  was  no  acceptance 
in  the  case  submitted,  but  the  drawee  bank 
would  be  liable  for  any  damage  resulting 
from  its  failure  to  protest  and  return  the 
check  promptly.  {Inquiry  from  Pa.,  June, 
1921,  Jl.) 

Is  mailing  to  drawee  a  demand  of  payment  or 
entrustment  for  collection? 

1052.  A  draft  drawn  in  Iowa  on  an 
Iowa  bank  was  sent  by  a  bank  in  a  neigh- 
boring state  to  drawee  for  collection  and 
there  being  insufficient  funds  to  the  credit 
of  the  drawer  the  latter  bank  asks  if  it  can 
legally  hold  the  item  and  protest  on  the 


third  day.  Opinion:  The  Iowa  law  (Supp. 
Code  Iowa  1913,  Sec.  3060a  198)  provides 
that  demand  made  on  any  one  of  the  three 
days  following  the  day  of  maturity  shall  be 
as  effectual  as  though  made  on  the  day  on 
which  demand  may  be  made  under  the  pro- 
vision of  the  Act.  There  has  been  some 
difference  of  judicial  view  whether  the 
drawee  is  to  be  regarded  as  collecting  agent 
of  the  sender  or  whether  the  sending  by 
mail  constitutes  in  itself  a  demand  of  pay- 
ment of  the  drawee;  if  the  latter,  then  the 
draft  would  have  to  be  protested  on  the 
day  received,  but  if  the  drawee  is  to  be 
deemed  a  collecting  agent,  to  collect  the 
draft  of  itself,  then  the  receiving  through  the 
mail  would  not  be  a  demand,  but  simply  an 
entrustment  for  collection,  and  the  collect- 
ing agent  might  hold  for  the  three  following 
days  and  then  protest.  {Inquiry  from  Iowa, 
Oct.,  1915.) 

Necessity   of  bank   license   at   place   where 
collection  made 

1053.  Has  an  out-of-town  bank  which 
has  no  Hcense  to  do  business  at  the  place 
where  the  drawee  bank  is  situated  a  right 
to  send  a  personal  representative  to  collect 
checks  drawn  on  latter?  Opinion:  For  the 
purpose  of  collecting  checks  a  hcense  is  not 
required  as  collection  is  not  exclusively  a 
banking  function.  Banks  have  the  power  to 
act  as  agents  in  making  collections  as  an 
incidental  branch  of  their  business,  but  it 
would  not  be  held  that  an  individual  would 
have  to  take  out  a  hcense  in  order  to  qualify 
himself  to  demand  payment  of  a  check.  It 
is  perfectly  competent  for  a  personal  repre- 
sentative of  a  bank  to  present  items  for 
payment  under  the  conditions  stated.  {In- 
quiry from  N.  C,  Dec,  1913.) 

Restriction  in  check  of  channel  of 
collection 

''Not  payable  through  any  post  office,  express 
company  or  federal  reserve  bank" 

1054.  Where  checks  have  stamped 
across  their  face:  "This  check  is  not  pay- 
able through  any  post  office,  express  com- 
pany or  federal  reserve  bank"  may  the  bank 
refuse  pa>Tnent  when  they  are  presented 
across  the  counter  by  an  express  company 
or  a  federal  reserve  bank?  Opinion:  The 
depositors  have  the  legal  right  to  so  stamp 
their  checks  and  the  bank  may  refuse  pay- 
ment of  checks  so  stamped  when  presented 
across  the  counter  by  a  postmaster,  an 
express  company  or  a  federal  reserve  bank. 
{Inquiry  from  La.,  Oct.,  1919.) 


233 


1055-1060] 


DIGEST  OF  LEGAL  OPINIONS 


"Not  payable  through  express  company" 

1055.  Has  a  drawer  a  right  to  insert 
words  in  his  check  restricting  the  collection 
through  specified  channels,  as,  for  example, 
"Not  vahd  if  paid  through  the  Y  Express 
Company?"  Opinion:  He  has  such  a 
right.  Farmers  Bk.  v.  Johnson,  68  S.  E. 
(Ga.)  85.  Commercial  Nat.  Bk.  of  Char- 
lotte V.  First  Nat.  Bk.  of  Gastonia,  118  N. 
C.  783.     {Inquiry  from  Tenn.,  May,  1911, 

U  I,  J 

"Not  payable  through  express  company 
or  postmaster" 

1056.  Does  the  stamp,  "Not  payable 
through  any  express  company  or  post- 
master" affect  the  negotiabihty  of  checks? 
May  the  bank  refuse  payment  when  checks 
are  presented  by  such  excluded  agents? 
Opinion:  The  decisions  on  the  subject  are 
not  numerous,  but  such  as  exist  are  to  the 
effect  that  a  check  upon  which  the  drawer 
has  stamped  "Not  payable  through  an 
express  company"  is  vahd  and  negotiable; 
the  addition,  "nor  to  a  postmaster,"  would 
be  vahd  equally,  and  the  bank  can  legally 
refuse  to  pay  either  a  postmaster  or  express 
agent.  (Inquiry  from  S.  D.,  Sept.,  1916,  Jl, 
and  Jan.,  1918,  Jl.) 

1057.  Does  the  placing  of  the  words, 
"not  payable  through  an  express  company 
or  post-office"  affect  its  negotiabihty?  If 
presented  by  either  of  these  agents  may 
payment  be  refused?  If  so,  is  protest  prop- 
er? Opinion:  Where  the  drawer  of  a  check 
stamps  or  writes  thereon  a  provision  "Not 
payable  through  an  express  company  or 
post  office,"  such  provision  is  valid  and  does 
not  affect  the  negotiabihty  of  the  check  but 
it  is  the  duty  of  the  drawee  bank  to  obey  the 
direction  of  the  drawer  and  refuse  to  pay 
such  a  check  so  presented,  and  the  bank  so 
refusing  to  pay  would  not  incur  any  lia- 
bility to  the  drawer  of  the  check  or  to  the 
holder  or  owner  by  reason  of  such  refusal 
nor  could  the  check  be  lawfully  protested 
upon  refusal  to  pay  for  such  reason, — on  the 
contrary,  if  protested  under  such  circum- 
stances the  holder  or  owner  causing  protest 
would  be  subject  to  an  action  for  damages 
at  the  suit  of  the  drawer.  (Inquiry  from 
Tex.,  See  A.  B.  A.  Journals  May  1913,  521, 
Nov.,  1913,  371,  Sept.,  1916,  234,  May  1917, 
902.) 

"Payable  through  A.  B.  bank'^ 

1058.  May  a  bank  have  its  customers 
stamp  on  their  checks  at  the  time  of  issue, 
"Payable  through  the  A.  B.  Bank"?    Opin- 


ion:  Such  a  provision  is  vahd  and  does  not 
destroy  the  negotiability  of  the  check,  and 
a  check  so  drawn  can  be  refused  payment  if 
presented  through  another  channel.  See 
Journal  September  1916,  pp.  234-235.  Farm- 
ers Bank  of  Nashville  v.  Johnson  King  & 
Co.,  134  Ga.  486,  68  S.  E.  85.  (Inquiry 
from  Mich.,  Nov.,  1916.) 

Custom   to  ignore   "payable  through  A.  B. 
bank"  invalid 

1059.  Is  evidence  admissible  to  show  a 
custom  to  ignore  the  notation  "payable 
through  (specified  bank)"  on  demand  drafts 
with  bill  of  lading  attached,  unless  a  special 
letter  of  instruction  accompanies  the  draft? 
Opinion:  Such  a  notation  is  a  material  part 
of  the  draft  which  can  not  be  disregarded, 
and  the  legal  effect  of  which  can  not  be 
changed  by  custom.  Evidence  of  custom 
is  admissible  to  explain  the  meaning  of  a 
provision  in  a  contract,  but  such  evidence 
is  not  admissible  to  change  the  legal  charac- 
ter of  an  instrument.  A  bank  would  be 
taking  a  risk  in  ignoring  such  direction 
See  First  Nat.  Bank  v.  Tahafarro,  72  Md. 
164,  19  Atl.  364.  Farmers  Bank  of  Nashville 
V.  Johnson  King  &  Co.,  134  Ga.  486,  68 
S.  E.  85.  Commercial  Nat.  Bank  v.  First 
Nat.  Bank,  118  N.  C.  783,  24  S.  E.  524,  32 
L.  R.  A.  712,  54  Am.  St.  Rep.  753.  Barthol- 
omew V.  First  Nat.  Bank,  18  Wash.  683,  52 
Pac.  239.    (Inquiry  from  Iowa,  Aug.,  1915.) 

"Payable  at  par  through    N.    Y.  Clearing 
House" 

1060.  Is  a  bank  justified  in  placing  upon 
its  checks,  "This  check  is  payable  at  par 
through  the  collection  department  of  the 
New  York  Clearing  House?"  Opinion: 
There  appears  to  be  no  reason  why  it  would 
not  be  proper  for  a  bank  to  place  upon  its 
checks  the  clause  suggested;  the  practice 
was  common  in  New  York  a  few  years  ago 
and  there  did  not  appear  to  be  any  difficulty 
attending  the  payment  of  checks  so  drawn. 
At  the  same  time,  the  imprinting  of  such 
clause  might  possibly  give  rise  to  certain 
questions.  It  has  been  held  by  the  courts 
that  where  a  check  has  imprinted  thereon  a 
clause  making  it  payable  through  a  desig- 
nated agency  or  channel  of  collection,  if  the 
check  is  presented  through  another  agency 
the  bank  is  justified  in  refusing  payment. 
If  one  of  the  checks  bearing  such  clause  was 
presented  over  the  counter  or  by  mail 
through  another  bank,  the  bank  would  not 
be  obhged  to  pay  it,  and  the  refusal  to  pay 
might  raise  the  question  of  the  propriety  of 


234 


COLLECTION 


[1061-1065 


such  refusal,  and  if  it  paid  and  the  drawer 
should  for  example  stop  payment,  the 
question  might  come  up  whether  payment 
other  than  through  the  New  York  Clearing 
House  was  vahd  and  chargeable.  {Inquiry 
from  N.  J.,  Sept.,  191  o.) 

Title  to  paper  in  process  of  collection 

Right  to  check  against  uncollected  funds 

1061.  What  is  the  law  with  respect  to 
the  title  to,  and  the  right  to  check  against 
the  credit  of,  paper  in  process  of  collection? 
Opinion:  The  majority  of  courts  hold 
(some  decisions  contra)  that  upon  credit  to 
a  depositor  of  a  check  indorsed  in  blank, 
title  passes  to  the  bank  and  the  depositor 
has  an  immediate  right  to  check  against  the 
credit  unless  there  is  a  contrary  under- 
standing or  agreement  based  on  (1)  general 
usage  not  to  pay  against  uncollected  funds, 
(2)  notice  printed  in  pass-book  or  on  deposit 
shp,  (3)  special  agreement  with  particular 
depositor,  (4)  the  crediting  of  the  deposit  as 
paper  and  not  as  cash.  Taft  v.  Quinsiga- 
mond  Nat.  Bk.,  172  Mass.  363.  Cragie  v. 
Hadley,  99  N.  Y.  133.  St.  Louis  v.  Johnston 
27  Fed.  243.  {Inquiry  from  Conn.,  Feb., 
1910,  Jl.) 

1062.  A  bank  received  for  deposit  a 
check  of  its  customer  drawn  on  an  out-of- 
town  point  and  credited  him  with  the 
amount.  Before  the  check  was  paid,  the 
customer  demanded  certification  of  a  check 
against  his  deposit.  Opinion:  The  authori- 
ties are  in  conflict  whether  the  giving  of 
credit  for  a  deposited  check  makes  the  bank 
debtor  or  agent  for  collection,  but  the  rela- 
tion is  generally  controlled  by  custom  or 
agreement  making  bank  an  agent  and  not 
obliged  to  pay  against  uncollected  funds. 
Certification  as  distinguished  from  pajonent 
is  optional  with  bank  and  not  obhgatory. 
Lauterman  v.  Travons,  73  111.,  App.  670, 
aff'd  174,  111.  459.  {Inquiry  from  III.,  July, 
1915,  Jl.) 

1063.  A  bank  credited  its  depositor  with 
a  check  on  an  out-of-town  place,  still  un- 
collected. The  depositor  presented  his 
check  against  said  item  for  certification. 
Opinion:  The  bank  is  not  obliged  to  certify 
the  check  in  any  event.  As  to  payment 
against  uncollected  funds,  under  the  law 
of  Illinois,  in  the  absence  of  a  contrary  agree- 
ment or  usage,  a  bank  ])ecomes  a  debtor  for 
deposited  items  immediately  upon  credit, 
but  the  custom  there  is  quite  universal  not  to 
pay  checks  against  such  credit  prior  to  the 
collection  of  the  items  it  represents.    Lauter- 


man V.  Travons,  73  111.  App.  670  aff'd  in 
174  111.  459.  {Inquiry  frorti  III.,  June, 
1915,  Jl.) 

1064.  What  is  the  legal  right  of  a  bank 
to  decline  payment  of  checks  drawn  against 
uncollected  funds?  Opinion:  (1)  Where 
the  checks  are  credited  as  cash  and  received 
under  unrestricted  indorsement  without 
any  understanding  that  they  are  received 
for  collection,  so  that  the  bank  takes  title, 
the  depositor  has  the  right  to  check  against 
the  credit  before  collection.  In  this  case 
the  bank  takes  title  at  the  time  of  deposit 
and  becomes  immediately  indebted  to  its 
depositor  for  the  amount.  (2)  Where,  how- 
ever, checks  are  provisionally  credited  under 
an  agreement  that  the  bank  takes  them  as 
agent  for  collection  to  draw  against  the  pro- 
visional credit,  before  collection,  that  is  a 
mere  privilege  and  is  not  a  right,  so  that, 
should  the  collectibiUty  of  a  particular 
deposited  check  be  questionable,  the  bank 
would  have  the  right  to  refuse  payment  of  a 
check  drawn  against  the  provisional  credit 
of  such  deposit.  (3)  Where,  however,  the 
bank  charges  interest  for  the  time  the  un- 
collected check  is  afloat,  this  would  evidence, 
it  seems,  an  agreement  or  understanding 
that  the  depositor  had  the  right  to  the  use 
of  the  money  in  the  interim,  as  that  is  what 
he  is  paying  for.  {Inquiry  from  Minn., 
Sept.,  1920.) 

Status  of  agent  hank  allowing  depositor  to 
check  against  paper  prior  to  collection 

1065.  In  view  of  decision  of  the  Supreme 
Court  of  Washington  in  American  Sav.  Bank, 
etc.,  Co.  V.  Dennis,  [Wash.  1916]  156  Pac. 
559,  is  it  safe  for  a  bank  in  that  state  to  pay 
out  money  on  checks  deposited  with  it, 
where  the  accompanying  deposit  slip  con- 
tains the  clause:  "Checks  on  this  bank 
will  be  credited  conditionally.  If  not  found 
good  at  close  of  business,  they  will  be 
charged  back  to  depositors  and  latter  noti- 
fied of  the  fact?"  Opinion:  In  the  Wash- 
ington decision  referred  to  a  check  was  de- 
posited l)y  the  payee  with  a  deposit  shp 
agreeing  that  the  bank  acted  only  as  agent. 
The  check  was  credited  to  the  payee's 
account  and  he  was  allowed  to  immediately 
check  against  it  for  nearly  its  entire  amount. 
Payment  having  been  stopped  the  bank 
sued  drawer  and  payee,  and  while  judgment 
(by  default)  was  obtained  against  the  payee, 
the  case  was  dismissed  as  against  the  drawer 
on  the  ground  that  the  bank  was  agent  and 
not  owner  of  the  check,  and  that  "allowing 
a  depositor  to  check  against  such  paper  is  a 


235 


1066-1068] 


DIGEST  OF  LEGAL  OPINIONS 


n 


mere  gratuitous  privilege."  The  court 
makes  no  reference  to  the  N,  I.  Act  which 
provides:  "Where  the  holder  has  a  hen  on  the 
instrument  arising  either  from  contract  or 
by  implication  of  law,  he  is  deemed  a  holder 
for  value  to  the  extent  of  his  lien."  Cer- 
tainly an  agent  who  receives  a  check  for 
collection  and  who  advances  value  thereon 
prior  to  collection  has  a  lien  on  the  instru- 
ment to  the  extent  of  the  amount  advanced, 
and  if  this  point  were  urged  in  a  subsequent 
case,  it  might  lead  to  a  different  decision. 
The  case  of  Jefferson  Bank  v.  Merchants, 
etc.,  Co.  (Mo.  1911)  139  S.  W.  545  is  directly 
contrary  to  the  Washington  decision.  There 
a  bank  allowed  a  depositor  to  draw  against 
a  check  prior  to  collection  without  notice 
it  had  been  given  without  consideration. 
In  a  suit  against  the  drawer  the  court  said: 
"We  are  not  able  to  see  how  defendant 
could  be  entitled  to  submit  to  the  jury  the 
issue  of  whether  or  not  the  check  was 
indorsed  to  the  plaintiff  for  collection,  be- 
cause the  evidence  is  uncontroverted  that 
plaintiff  allowed  the  Produce  Company 
(depositor)  to  draw  out  the  whole  amount 
of  the  check  so  deposited,  on  the  very  day 
of  said  deposit  and  this  constituted  the 
plaintiff  a  purchaser  of  said  check  for  value." 
Judgment  was  given  against  the  drawer 
despite  the  fact  that  the  deposit  book  con- 
tained an  agreement  that  as  to  out-of-town 
checks,  the  bank  would  act  only  as  agent. 
Under  the  Washington  decision,  unless 
overturned,  it  would  not  be  safe  for  a  bank 
holding  a  check  as  agent  for  collection,  to 
allow  it  to  be  checked  against  prior  to 
collection  because,  if  not  paid  and  the  payee 
was  irresponsible,  the  bank  would  have  no 
recourse  against  the  drawer.  (Inquiry 
from  Wash.,  Feb.,  1917.) 

Provisional  credit  of  b/l  draft 

1066.  A  customer  shipped  a  car  of  corn 
and  deposited  with  his  bank  a  draft  drawn 
on  the  consignee  with  bill  of  lading  attached, 
with  instructions  that  the  same  should  be 
sent  to  the  First  National  Bank  of  X, 
Kansas,  for  collection.  The  draft  was  col- 
lected and  remitted  for  by  the  collecting 
bank's  draft,  which  was  dishonored  because 
of  insolvency.  Opinion:  The  customer's 
bank  because  of  the  special  instructions  took 
the  draft  not  as  owner  but  as  agent  for  collec- 
tion and  can  charge  the  amount  back  to  the 
customer.  Although  the  customer  received 
credit  for  the  draft,  it  would  be  regarded 
merely  as  provisional,  which  could  be  re- 
voked upon  non-payment.     The  customer 


would  be  entitled  to  pajnnent  of  the  proceeds 
in  full  by  the  receiver  of  the  collecting  bank. 
Bk.  V.  Bk.,  62  Kan.  788.  Peak  v.  EUicott, 
30  Kans.  156.  (Inquiry  from  Kan.,  Apr,. 
1909,  Jl.) 

Suit  for  negligence  in  collection  of  bjl  draft 

1067.  A  customer  gave  a  bill  of  lading 
draft  to  A,  a  South  Carolina  bank,  drawn  on 
an  Ohio  concern.  A  forwarded  draft  to 
bank  B  in  same  state,  for  collection  and 
credit.  B  returned  draft  over  three  months 
afterwards,  with  statement  that  it  could 
get  no  word  from  bank  C  in  Ohio  to  which 
draft  had  been  sent  for  collection.  Who 
should  be  the  parties  in  a  suit  against  bank 
C?  Opinion:  The  owner  of  the  draft 
should  be  made  the  party  plaintiff.  If  A 
discounted  the  draft  and  became  owner 
without  right  to  return  same  to  customer  if 
unpaid,  then  A  would  be  the  party  plaintiff. 
If  on  the  other  hand,  A  acted  merely  as 
agent  for  the  customer,  giving  him  a  condi- 
tional credit  subject  to  be  charged  back,  the 
customer  would  be  the  party  injured  by  the 
neghgence  of  bank  C  and  the  one  to  bring 
suit.  There  might  also  be  a  habihty  of  bank 
B  for  negligence  in  failing  sooner  to  trace 
and  report  the  item.  (Inquiry  from  S.  C. 
June,  1918.) 

Collection  of  real  estate  paper 

Real  estate  contracts 

1068.  What  responsibiUty  is  incurred 
by  a  bank  in  accepting  real  estate  contracts 
for  collection  of  principal  and  interest? 
Opinion:  So  far  as  the  collection  of  com- 
mercial paper  is  concerned,  a  bank  is  bound 
to  exercise  reasonable  skill,  care  and  dili- 
gence, and  is  liable  for  negligence  in  making 
the  collection.  But  the  question  here  re- 
lates to  real  estate  contracts.  It  is  not 
exactly  clear  as  to  nature  of  the  contracts 
involved.  Assuming  they  are  installment 
notes  secured  by  mortgage,  so  that  it  would 
be  within  the  power  of  the  bank  to  under- 
take such  collections,  it  would  seem  that  the 
bank's  duty  and  responsibihty  would  be 
governed  by  the  same  general  rules,  namely, 
the  exercise  of  due  care  and  diligence  in 
making  presentment  of  the  paper  at  maturi- 
ty and,  assuming  the  notes  were  negotiable 
instruments,  causing  protest  if  not  paid; 
also  demanding  payment  on  the  due  date 
of  any  installment  of  interest  and  notifying 
parties  contingently  hable  of  dishonor. 
(Inquiry  from  Col.,  Nov.,  1920.) 


f 


236 


COLLECTION 


[1069-1071 


Mortgage  notes 

1069.  (1)  A  mortgage  note  is  left  at  a 
bank  for  collection.  Does  the  mere  collec- 
tion of  the  note  and  the  turning  of  the  pro- 
ceeds over  to  the  owner  make  the  bank  liable 
for  the  securing  of  a  release  of  the  mortgage? 
(2)  Where  a  bank  takes  a  real  estate  contract 
for  collection,  and  payments  are  collected  in 
accordance  with  the  terms  of  the  contract, 
and  turned  over  to  the  vendor  or  his  assig- 
nee, does  this  undertaking  of  the  bank  make 
it  liable  for  the  carrying  out  of  other  provi- 
sions in  the  contract,  in  the  absence  of  any 
specific  agreement  that  the  bank  is  to  as- 
assume  any  such  habihty?  Opinion:  (1) 
An  entry  of  satisfaction  of  a  mortgage  may 
be  made  by  the  person  appearing  of  record 
to  be  entitled  to  receive  and  receipt  for  the 
debt,  (Summers  v.  Kilgus,  14  Bush  [Ky.] 
449)  or  by  his  attorney  in  fact,  or  by  a  duly 
accredited  agent,  although  his  authority 
does  not  take  the  form  of  a  power  of  attor- 
ney. (Storch  V.  McCain,  85  Cal.  304. 
Douglass  V.  Douglass  Bagging  Co.,  94  Mo. 
226.  Rem.  Codes  &  St.  Wash.,  1915,  Ch. 
IV,  Sees.  8798,  8799).  The  bank  is  only 
the  agent  for  collection  of  the  mortgage  note, 
and  while  it  might,  as  agent  of  the  mortgagee 
or  his  assignee,  execute  a  satisfaction  piece 
of  the  mortgage,  the  Washington  statute 
nowhere  makes  it  the  duty  of  an  agent  to 
perform  such  office;  indeed,  the  mortgagor 
is  given  ample  remedy  against  the  mort- 
gagee, or  his  assigns,  in  case  of  refusal  to 
comply  with  a  vahd  demand  to  execute  such 
release.  (2)  The  ordinary  duty  of  a  bank 
receiving  a  note,  or  other  instrument  em- 
bodying a  contract,  for  collection  extends  no 
further  than  to  make  proper  demand  of 
payment,  and  some  times  in  case  of  non- 
payment, to  take  such  further  action  as 
necessary  to  secure  and  preserve  the  lia- 
bihty  of  all  parties,  by  protest  and  notice  as 
may  be  required  by  the  law  of  the  juris- 
diction. (Carpenter  v.  Nat.  Shawmut 
Bank,  187  Fed.  1).  In  the  absence  of 
a  specific  agreement,  the  bank  becomes 
the  agent  of  the  payee  to  receive  pay- 
ment, and  the  agency  extends  no  further. 
Cheney  v.  Libby,  134  U.  S.  68.  Ward 
v.  Smith,  7  Wall.  [U.  S.]  447.  Rudolph 
Wurhtzer  Co.  v.  Rhea,  147  Iowa  382,  126 
N.  W.  345.  Crow  v.  Mechanics,  etc.,  Bank, 
12  La.  Ann.  692.  {Inquiry  from  Wash., 
July,  1919.) 

Clearance  of  checks  in  same  town 

Form  of  indorsejnent  by  collecting  hank  and 
time  when  check  irrevocably  paid 

1070.  (1)  In  the  clearance  of  checks  in 


small  towns  where  they  have  no  clearing 
house,  should  the  collecting  bank  indorse 
checks  collected  from  other  banks  with  their 
regular  paid  stamp  (marked  "Paid"),  or  with 
their  regular  indorsement  stamp  (marked 
"Pay  to  order  of  any  bank,  banker  or  trust 
company,  previous  indorsements  guaran- 
teed")? (2)  As  between  clearing  banks, 
when  is  a  check  considered  paid,  after  which 
time  it  cannot  be  returned  for  want  of  in- 
sufficient funds.  When  the  checks  are  de- 
livered to  the  other  bank  and  the  money 
received  in  payment  or  when  the  item  is 
charged  to  the  account  of  the  drawer  by  the 
drawer  bank?  Opinion:  (1)  It  is  proper 
for  a  bank  presenting  a  check  to  the  drawee 
to  stamp  the  same  "Paid,"  or  "Received 
pajonent,"  with  name  and  date,  as  an  ac- 
knowledgment of  the  receipt  of  the  money. 
(First  Nat.  Bank  v.  City  Nat.  Bank,  182 
Mass.  130.  White  v.  Continental  Nat.  Bank, 
64  N.  Y.  316.  Figuers  v.  Fly,  [Tenn.]  193 
S.  W.  117.  See  Nat.  Park  Bank  v.  Sea- 
board Bank,  114  N.  Y.  28).  (2)  Where  a 
representative  of  the  drawee  bank  receives 
checks  on  his  bank  at  the  bank  which  holds 
such  checks,  and  takes  same  back  to  the 
bank  upon  which  drawn,  and  thereafter 
returns  to  the  holder  bank  and  dehvers  cash 
or  exchange  in  settlement,  such  checks  in 
the  absence  of  agreement,  are  paid  at  the 
time  of  such  delivery  and  the  drawee  bank 
cannot  thereafter  return  such  checks  be- 
cause of  insufficient  funds  up  to  the  time  the 
checks  are  posted  to  the  account  of  the 
drawer.  (Columbia-Knickerbocker  Trust 
Co.  V.  Miller,  [N.  Y.]  109  N.  E.  179).  (In- 
quiry from  Tex.,  Feb.,  1920,  Jl.) 

Circuitous    routing    of    checks 

Statutory  rule  in  Florida,  Georgia,  Vermont 
and  South  Dakota 

1071.  What  legal  authority  is  there  in 
Florida  covering  the  question  of  indirect 
routing  of  out-of-town  items  taken  for 
collection.  Opinion:  The  legislature  of 
Florida  enacted  a  statute  approved  June  8, 
1909,  Chap.  5951,  which  provides  in  part 
"that  when  a  check  *  *  *  is  deposited  in  a 
bank  for  credit  or  for  collection,  it  shall  be 
considered  due  diligence  on  the  part  of  the 
bank  in  the  collection  of  any  check  *  *  *  so 
deposited,  to  forward  en  route  the  same 
without  delay  in  the  usual  commercial  way 
in  use  according  to  the  regular  course  of 
business  of  banks."  This  would  seem  to  be 
a  legislative  sanction  for  a  bank  in  Florida 
indirectly,  routing  items  for  collection 
through   correspondents   according   to   the 


237 


1072-1075] 


DIGEST  OF  LEGAL  OPINIONS 


usual  course  of  business  of  banks,  so  thai,  if 
loss  resulted  therefrom,  the  collecting  bank 
would  not  be  Uable  to  its  customer.  {In- 
quiry from  Fla.,  Aug.,  1915.) 

Note:  Sec.  35,  Georgia  Banking  Law, 
1919,  is  similar  to  above.  Sec.  2853  Gen. 
Laws  Vermont  provides:  "If  a  person  or 
bank  owning  a  check  or  draft,  or  to  whom  it 
has  been  forwarded  or  with  whom  deposited 
for  collection,  forward  the  same  in  the  usual 
course  of  business,  it  shall  be  considered  due 
diligence  in  the  collection  of  such  check  or 
draft,  and  the  maker,  indorser,  guarantor 
or  surety  of  the  same  shall  be  holden." 

Sec.  1898,  Rev.  Code  South  Dakota,  1919, 
provides:  In  order  to  hold  the  maker,  in- 
dorser, guarantor  or  surety  of  any  check  or 
draft  deposited  with  or  forwarded  to  any 
individual  or  bank  for  collection,  or  owned 
by  any  individual  or  bank,  it  shall  be  suffi- 
cient for  said  individual  or  bank  to  forward 
the  same  to  their  direct  correspondents  in 
the  usual  commercial  way,  according  to  the 
regular  course  of  business;  and  the  same 
shall  be  considered  due  diHgence  in  the 
collection  of  such  check  or  draft." 

Routing    through    a    correspondent 

1072.  A  bank  sends  checks  upon  other 
banks  in  the  county  to  its  correspondent  for 
collection  instead  of  sending  them  directly 
to  the  various  banks.  By  adopting  this 
course  there  is  a  delay  of  about  a  day.  Does 
such  delay  release  the  indorsers?  Opinion: 
The  sending  of  the  checks  to  the  bank's 
correspondents  for  presentment  to  the 
drawee  at  another  place  in  the  same  county 
would  not  violate  the  requirement  of  reason- 
able time.  In  Plover  Sav,  Bank  v.  Moodie, 
110  N.  W.  (Iowa)  29,  a  bank  in  Iowa  re- 
ceived a  check  drawn  upon  a  bank  45  miles 
distant  and  mailed  it  to  its  Des  Moines 
correspondent  for  collection.  The  indorser 
pleaded  delay  by  reason  of  the  circuitous 
method,  but  he  was  held  liable.  The  court 
held  that  the  method  of  banks  in  presenting 
checks  through  a  chain  of  correspondents  is 
a  matter  of  common  knowledge  and  pre- 
sentment according  to  that  method  is 
within  a  reasonable  time.  {Inquiry  from 
III,  Aug.,  1919.) 

Check   on    Kentucky,    deposited   in   Illinois 
forwarded  through    New   York 

1073.  A  check  drawn  on  a  bank  in 
Kentucky  was  deposited  Dec.  17  by  payee 
in  Bank  A  in  Ilhnois  for  collection.  It  was 
forwarded  to  New  York  City,  thence  to  a 
Kentucky  bank,  then  to  another  Kentucky 


bank  wliich  sent  it  to  drawee  bank  for  pay- 
ment Dec.  23.  Payment  was  refused,  and 
on  Dec.  29  the  drawee  bank  sent  the  check 
back  for  better  indorsement.  The  drawer 
then  had  sufficient  funds  in  bank  to  meet 
the  check.  Bank  A  having  reindorsed  the 
check,  sent  it  back  through  the  same  chan- 
nels. The  latter  bank  again  refused  payment 
because  in  the  meanwhile  the  drawer  had 
failed  and  his  funds  had  been  attached. 
The  payee  seeks  to  hold  Bank  A  responsible 
because  of  delay  in  unusual  routing.  Opin- 
ion: Many  authorities  in  the  past  have 
held  that  a  collecting  bank  is  negligent  where 
instead  of  sending  check  direct,  it  has  for- 
warded it  circuitously,  and  the  drawer  had 
failed  or  his  funds  had  been  attached  in  the 
interim  between  the  time  of  possible  and 
actual  presentment  and  under  these  author- 
ities the  forwarding  bank  in  IlHnois  would  be 
responsible.  But  later  authorities  are  recog- 
nizing and  sanctioning  as  sufficient  diligence, 
the  custom  of  banks  of  circuitous  present- 
ment. In  this  case  there  seems  to  have  been 
no  delay  connected  with  the  forwarding  or 
re-forwarding  of  the  check,  and  assuming 
that  this  method  of  routing  was  customary 
the  payee  would  probably  have  no  case  of 
neghgence  against  Bank  A.  See  Wilson  v. 
Carhnsville  Nat.  Bank,  187  111.  222,  58 
N.  E.  250,  52  L.  R.  A.  632.  Hilsinger  v. 
Wickett,  86  Ohio  St.  286,  99  N.  E.  305. 
{Inquiry  from  III.,  March,  1913.) 

Sending  through  Federal  Reserve  Bank 

1074.  A  bank  has  a  correspondent  in 
Des  Moines,  Iowa  and  asks  if  it  will  be  liable 
for  neghgence  if,  instead  of  sending  a  check 
drawn  on  a  bank  in  Des  Moines  to  its  corres- 
pondent there,  it  sends  it  to  the  Federal 
Reserve  Bank  for  collection  and  credit? 
Opinion:  The  Supreme  Court  of  Iowa  has 
held  that  it  is  not  negligence  for  a  collecting 
bank,  instead  of  sending  a  check  direct  to 
the  town  on  which  drawn  for  collection,  to 
mail  the  same  to  its  correspondent  in  a 
central  city,  because  this  is  the  usual  custom 
of  banks  and  will  be  held  reasonable  dih- 
gence.  Plover  Savings  Bank  v.  Moodie  135 
Iowa  685,  110  N.  W.  29,  113  N.  W.  476. 
Therefore,  the  bank  in  this  case  would  not 
be  held  negligent  if  it  forwarded  checks 
drawn  on  Des  Moines  or  other  Iowa  points 
to  the  Federal  Reserve  Bank  of  its  district 
instead  of  to  its  regular  correspondent  in  Des 
Moines.     {Inquiry  from  Iowa,  April,  1920.) 

The  rule  in  Minnesota 

1075.  What  do  the  courts  of  Minnesota 
hold  with  respect  to  the  indirect  routing  of 


238 


COLLECTION 


[1076-1080 


checks  drawn  on  other  points,  deposited  in 
Minnesota  banks  for  collection.  Opinion: 
The  Supreme  Court  of  Minnesoa  in  Richard- 
son Grain  Separator  Co.  v.  East  Hennepin 
State  Bank  (1919)  174  N.  W.  (Minn.)  415, 
416  holds  that  "When  a  bank  receives  an 
out-of-town  check  for  collection,  it  must 
forward  it  for  presentment  by  a  reasonably 
direct  and  not  a  circuitous  route.  See  8 
Corpus  Juris,  542.  Gregg  &  Co.  v.  Beane, 
69  Vt.  22,  37  Atl.  248.  First  Nat.  Bank  v. 
Miller,  43  Neb.  791.  62  N.  W.  195.  The 
usual  commercial  route  is  sufficient.  Sub- 
lette Exchange  Bank  v.  Fitzgerald,  168  111. 
App.  240.  When  the  holder  of  a  check 
utilizes  the  agency  of  a  bank  to  make  his 
collections,  he  may  expect  the  customary 
speed  of  banks  and  no  more."  {Inquiry 
from  Minn.,  Oct.,  1919.) 

Forwarding    through    commercial    center 

1076.  A  city  in  southern  Montana  is  a 
commercial  center  for  points  along  two  forks 
of  a  railroad  running  from  there  south  into 
Wyoming.  A  bank  at  the  southern  end  of 
one  of  these  forks  holds  a  check  on  a  town 
along  the  same  line,  a  little  distance  to  the 
north.  Instead  of  sending  direct  to  the 
town  of  the  drawee,  the  check  is  forwarded 
to  the  central  clearing  point  in  southern 
Montana.  The  question  arises  whether 
this  is  reasonable  dihgence.  Opinion:  Such 
circuitous  method  of  presentment,  although 
declared  negligent  in  some  early  cases,  has 
been  held  reasonable  dihgence  under  the 
Negotiable  Instruments  Act.  A  special 
state  statute  legalizing  the  customary  mode 
of  presentment  through  bank  correspond- 
ents is  desirable  in  the  interest  of  certainty. 
Gregg  V.  Beane,  69  Vt.  22.  Givan  v.  Bk.  of 
Alexandria,  52  S.  W.  (Tenn.)  923.  Plover 
Sav.  Bk.  V.  Moodie,  135  la.  635.  {Inquiry 
from  Mont,  Sept.,  1909,  Jl.) 

Check  on  North  Dakota  forwarded  from  there 
through  Chicago 

1077.  A  check  was  deposited  in  a  bank 
at  B,  fifteen  miles  distant  from  the  drawee 
bank  and  forwarded  to  a  bank  at  Chicago 
for  collection;  had  the  check  been  sent  direct, 
a  return  would  probably  have  been  made 
within  four  days.  The  check  was  returned 
fifteen  days  after  sent,  marked  "payment 
stopped."  Can  it  be  charged  back  to  the 
customer's  account?  Opinion:  The  Nego- 
tiable Instruments  Act  of  North  Dakota 
requires  that  presentment  for  payment 
must  be  made  within  a  reasonable  time,  and 
it  has  been  held  that  a  bank  is  authorized 


to  forward  a  check  by  a  reasonably  circui- 
tous route.  Forw^arding  the  check  to 
Chicago  might  be  held  justified,  but  it 
would  seem  that  a  delay  of  fifteen  days 
before  notice  of  dishonor  was  given  to  the 
indorser,  the  depositor,  would  be  unreason- 
able and  he  probably  would  be  held  dis- 
charged by  the  delay,  and  the  bank  at  B, 
therefore  would  be  unable  to  charge  the 
check  back  to  his  account.  (See  A.  B.  A. 
Journal  September  1913).  {Inquiry  from 
N.  D.,  Nov.,  1916.) 

Check   on   interior   Pennsylvania  forwarded 
through  Pittsburgh 

1078.  Where  a  bank  in  Baltimore,  hold- 
ing for  collection  a  check  on  an  interior  city 
in  Pennsylvania,  mails  same  to  its  Pitts- 
burgh correspondent  and  the  latter  after 
making  the  collection  defaults  as  to  the  pro- 
ceeds, is  the  routing  through  Pittsburgh 
instead  of  direct  to  an  agent  in  the  city  of 
the  drawee  neghgent?  Opinion:  Such 
routing  is  not  neghgent.  First  Nat.  Bk.  v. 
Miller,  37  Neb.  500.  Gregg  v.  Beane,  69 
Vt.  22.  First.  Nat.  Bk.  of  Grafton  v.  Buck- 
hannon  Bk.,  80  Md.  475.  Plover  Sav.  Bk. 
V.  Moodie,  135  la.  635.  First  Nat.  Bk.  v. 
Mackey,  157  111.  App.  484.  {Inquiry  from 
Pa.,  Sept.,  1913,  Jl.) 

Check  on  South  Dakota  forwarded  from  there 
through  Chicago 

1079.  A  bank  in  South  Dakota  receives 
from  the  payee  a  check  drawn  on  a  bank 
eighteen  miles  distant.  Instead  of  forward- 
ing direct  to  a  bank  in  the  drawee's  town,  the 
collecting  bank  mails  the  check  to  its  Chica- 
go correspondent  and  it  reaches  the  drawee 
by  a  ciruitous  route.  Paj-ment  was  refused 
and  the  notice  of  dishonor  does  not  reach 
the  payee  until  five  days  after  the  payee 
delivered  the  check.  Did  the  collecting 
bank  exercise  due  diligence?  Opinion: 
Under  the  state  statute  which  defines  due 
diligence  in  making  collections,  the  collect- 
ing bank  did  in  this  case  exercise  due  dili- 
gence in  adopting  such  method  of  present- 
ment. The  payee  is  responsible  as  indorser. 
Givan  v.  Bk,  of  Alexandria,  52  S.  W.  (Tenn.) 
923.  Plover  Sav.  Bk.  v.  Moodie,  135  la. 
635.     {Inquiry  from  S.  D.,  Sept.,  1910,  Jl.) 

Forwarding  direct   to  drawee  or  payor 

State  statutes  authorizing  forwarding  direct 
to  payor 

1080.  Note:  The  American  Bankers 
Association  has  drafted  legislation  in  the 


239 


1081-1082] 


DIGEST  OF  LEGAL  OPINIONS 


following  form:  "Any  bank,  banker  or 
trust  company,  hereinafter  called  bank, 
organized  under  the  laws  of,  or  doing  busi- 
ness in,  this  State,  receiving  for  collection  or 
deposit,  any  check,  note  or  other  negotiable 
instrument  drawn  upon  or  payable  at  any 
other  bank,  located  in  another  city  or  town 
whether  within  or  without  this  State,  may 
forward  such  instrument  for  collection 
directly  to  the  bank  on  which  it  is  drawn  or 
at  which  it  is  made  payable  and  such  method 
of  forwarding  direct  to  the  payor,  shall  be 
deemed  due  diligence  and  the  failure  of  such 
payor  bank,  because  of  its  insolvency  or 
other  default,  to  account  for  the  proceeds 
thereof,  shall  not  render  the  forwarding 
bank  liable  therefor,  provided,  however, 
such  forwarding  bank  shall  have  used  due 
dihgence  in  other  respects  in  connection  with 
the  collection  of  such  instrument."  Such 
legislation  has  been  adopted  in 

Alabama  (1919). 

Arkansas  (1921)  provides  that  bank 
having  exercised  reasonable  care  to  select 
proper  correspondent  "neghgence  shall  not 
be  predicated  upon  the  fact  that  it  may  have 
forwarded  such  instrument  or  account 
directly  to  the  bank  on  which  it  is  drawn  or 
at  or  by  which  it  is  payable" 

Georgia  (1919). 

Idaho  (1921). 

Illinois  (1921). 

Michigan  (1919). 

Minnesota  (1919);  statute  limited  to 
cases  where  drawee  is  only  bank  in  place 
where  located. 

Missouri  (1919). 

Nebraska  (1919). 

Nevada  (1919). 

New  Hampshire  (1919) 

New  Jersey  (1919). 

New  Mexico  (1919). 

North  Carohna  (1919) 

Ohio  (1919). 

Oregon  (1919). 

South  Dakota  (1919). 

A  similar  law  was  passed  in  Louisiana  in 
1916  and  in  Montana  in  1917. 

In  the  absence  of  statutory  permission, 
the  weight  of  American  authority  (a  few 
cases  contra)  is  that  it  is  neghgent  for  a 
collecting  bank  to  send  a  check  or  other 
item  direct  to  the  drawee  or  payor  and  in 
case  of  loss,  the  collecting  bank  is  liable; 
except  where  such  method  of  forwarding 
has  been  authorized  or  instructed  by  the 
principal.  The  basis  of  the  judicial  rule  is 
that  the  debtor  is  not  a  proper  agent  to 
entrust  with  his  own  obhgation  to  collect 
from  himself.    But  the  custom  to  send  direct 


to  payor  outweighs  judicial  considerations, 
and  statutes,  as  shown  above,  have  been 
enacted  to  legalize  the  custom  and  overturn 
the  judicial  rule. 

Tennessee   hank   liable  for  loss  from  direct 

presentment  but  administrator  depositing 

check  not  liable 

1081.  A,  as  administrator  of  an  estate, 
received  from  B  his  check  certified  by  an 
Alabama  bank,  C,  and  deposited  it  in  a 
Tennessee  bank,  D,  which  forwarded  it 
directly  to  the  drawee  bank  C,  and  that 
bank  issued  its  New  York  draft  in  payment 
to  D.  Upon  presentation  payment  was 
refused  because  of  no  funds,  and  in  the 
meantime  C  failed.  The  inquiry  is  as  to  the 
Habihty  of  A  to  the  estate.  Opinion:  In 
Tennessee  it  has  been  held  improper  and 
negligent  for  the  collecting  bank  to  forward 
a  check  directly  to  the  payor  bank,  and  the 
collecting  bank  is  liable  for  any  loss  which 
results.  Winchester  Milhng  Co.  v.  Bank  of 
Winchester,  120  Tenn.  225,  111  S.  W.  248. 
A,  the  administrator,  therefore,  would  have 
recourse  upon  bank  D,  and  B,  the  drawer 
of  the  check,  would  be  discharged  as  his  own 
check  after  being  certified,  was  taken  up 
and  paid  by  C  which  issued  the  New  York 
exchange.  Upon  the  question  of  the  ad- 
ministration liability  to  the  estate,  he  has 
simply  employed  the  customary  bank  chan- 
nels and,  probably,  is  not  responsible  in  case 
of  loss.  It  has  been  held,  for  example,  that 
an  executor  or  administrator,  instead  of 
receiving  payment,  may  in  the  exercise  of 
good  faith  and  due  prudence,  settle  with  the 
debtor  by  accepting  other  security  or  proper- 
ty. Even  if  A  were  unable  to  collect  from 
bank  D,  he  probably  would  not  be  held 
liable  to  the  estate.  Hastings  Estate,  4  Pa.  L. 
J.  Rep.  471.  (Inquiry  from  Ala.,  April,  1917.) 

Collecting  bank  liable  for  loss  from  forwarding 

direct   to   drawee,    unless   authorized   or 

permitted  by  statute 

1082.  A  number  of  checks  on  bank  A 
are  forwarded  by  B  to  C  and  by  C  to  D,  in 
Arkansas,  who  forwards  them  direct  to  A 
for  payment  and  they  are  charged  to  the 
accounts  of  the  drawers.  A  is  in  the  hands 
of  bank  examiner  and  does  not  remit.  Bank 
B  objects  to  being  charged  back  with  the 
amount  of  the  checks  unless  returned  prop- 
erly protested.  Opinion:  Under  the  general 
rule,  bank  D  would  be  responsible  for  for- 
warding the  checks  direct  to  the  drawee,  for 
loss  resulting  therefrom  and  could  not 
charge  the  checks  back  to  prior  correspond- 
ents, unless  it  was  authorized  to  send  direct 


I 


* 


240 


COLLECTION 


[1083-1086a 


or  such  method  of  forwarding  has  been 
sanctioned  by  statute.  Auten  v.  Bank,  67 
Ark.  243.  {Inquiry  from  Ark.,  March,  1920) 
Note:  The  legislature  of  Arkansas,  in 
1921  passed  the  law  authorizing  forwarding 
direct  to  payor  but  such  statute,  of  course, 
is  not  retroactive. 

Liability  of  Maryland  hank  forwarding  direct 
to  payor 

1083.  Bank  A  forwarded  to  its  corres- 
pondent B  in  Pennsylvania,  a  check  drawn 
on  a  North  Carolina  bank.  B  sent  it  to  C, 
a  Maryland  bank,  which  advised  B  that  the 
drawee  bank,  to  which  the  check  had  been 
forwarded,  had  failed  and  had  not  remitted. 
B  charged  the  amount  of  check  to  A's 
account,  and  the  latter  asks  if  it  has  not  the 
right  to  look  to  C  for  the  loss,  and  if  B 
also  would  not  have  the  same  right. 
Opinion:  The  same  rule  has  been  held  in 
Maryland  as  in  Pennsylvania,  that  a  deposi- 
tory bank  is  not  liable  for  the  defaults  of 
correspondents,  but  merely  undertakes  to 
use  due  care  in  selecting  a  sub-agent,  and  if 
it  exercises  such  care  it  is  not  responsible 
for  the  sub-agent's  acts  and  defaults.  Citi- 
zens Bank  of  Baltimore  v.  Howell,  8  Md. 
530.  Farmers  Nat.  Bank  v.  Nelson,  100 
Atl.  (Pa.)  136.  Under  the  Maryland  law, 
therefore,  C  is  a  sub-agent  of  A,  and  if  it  had 
used  due  care  in  sending  the  collection  to 
another  correspondent,  it  would  not  have 
been  responsible.  But  having  forwarded 
direct  to  the  drawee,  this  was  not  due  care 
under  the  rule  of  a  majority  of  courts,  and 
makes  it  responsible,  and  A  would  have  the 
right  to  look  directly  to  it  for  the  loss.  As 
A  cannot  hold  B  liable  that  bank  would 
probably  have  no  right  of  action  against  C. 
{Inquiry  from  Conn.,  Feb.,  1916.) 

Liability  of  Illinois  bank  for  forwarding  direct 
and  delay  in  reporting  non-payment 

1084.  Bank  A  sent  to  its  correspondent 
B  an  item  for  collection  and  credit.  In  its 
two  following  monthly  statements  B  credit- 
ed A's  account  with  it,  but  a  month  later 
reported  inability  to  collect.  Investigation 
showed  that  B  had  sent  check  direct  to 
drawee,  a  private  bank,  which  had  charged 
the  check  to  its  customer  l)ut  had  failed  to 
remit  to  B.  Several  years  later  B  charged 
the  item  to  A's  account  and  A  disclaims 
responsibility.  Opinion:  B  should  have 
promptly  reported  non-payment  to  A  and 
would  be  liable  in  damages  for  its  failure  to 
do  so.  But  B  also  forwarded  the  item  direct 
to  the  drawee  and  the  courts  have  many 
times  held  that  a  collecting  bank  is  negUgent 


in  so  doing  and  is  liable  for  any  loss  resulting. 
See  opinion  No.  1080.  Drovers  Nat.  Bank  v. 
Anglo-American  Co.,  117  111.  222,  58  N.  E. 
250.  B,  therefore,  is  liable  to  A  for  the  amount 
of  the  check  and  must  look  to  the  payor  for 
recourse.  First  Nat.  Bank  v.Whittier,  221  111. 
319,  77  N.  E.  563.  {Inquiry  from  III,  Sept., 
1916.) 

Liability  of  Texas  bank  to  drawer  of  check 
forwarded  direct 

1085.  A  person  gave  a  bank  his  personal 
check  on  another  bank,  which  the  former 
handled  for  collection.  The  drawee  bank  in 
payment  of  the  check  forwarded  to  the 
collecting  bank  a  draft  payable  to  it.  Pay- 
ment was  refused  because  the  drawer  bank 
had  been  closed.  Has  the  drawer  of  the 
check  a  right  of  action  against  the  collecting 
bank?  Opinion:  When  the  check  was 
charged  to  the  account  of  the  drawer  and 
the  drawee's  draft  was  forwarded,  the  check 
was  paid  and  the  drawer  was  discharged. 
Smith  Roofing  &  Contracting  Co.  v.  Mit- 
chell, 45  S.  E.  (Ga.)  47.  Planters  Mercan- 
tile Co.  V.  Armour  Packing  Co.,  69  So. 
(Miss.)  293.  Pinkney  v.  Kanawha  Valley 
Bank,  69  S.  E.  (  W.  Va.)  1012.  Winchester 
Milling  Co.  v.  Bank  of  Winchester,  111 
S.  W.  (Tenn.)  248.  The  Texas  rule  is  that 
it  is  negligent  for  a  collecting  bank  to  mail 
a  check  directly  to  the  drawee  and  that  in 
case  of  loss  the  collecting  bank  is  liable. 
First  Nat.  Bank  of  Corsicana  v.  Bank,  34 
S.  W.  (Tex.)  458.  A  violation  of  this  rule 
would  make  the  bank  liable  in  the  absence 
of  authorization  by  the  drawer.  The  fact 
that  the  collection  was  undertaken  for  the 
drawer  of  the  check,  instead  of  the  paj^ee, 
would  seem  to  make  no  difference  in  the 
application  of  this  rule.  {Inquiry  from  Tex., 
March,  1921.) 

Texas  bank  liable  for  forwarding  direct 

1086.  Is  it  neghgence  for  a  Texas 
collecting  bank  to  forward  a  check  directly 
to  the  drawee  bank?  Opinion:  Such  an 
act  is  negligent  under  the  Texas  law  and  if 
loss  results  the  sending  bank  is  liable.  Bk. 
V.  Bk.,  34  S.  W.  (Tex.)  458.  {Inquiry  from 
La.,  July,  1909,  Jl.) 

Colorado  bank  liable  for  forwarding  direct 
1086a.  A  Colorado  bank  forwarded  a 
check  direct  to  the  drawee  which  failed  and 
its  remittance  draft  was  dishonored.  Can 
it  charge  the  amount  back  to  the  corres- 
pondent from  whom  it  received  the  check. 
Opinion:  Under  the  rule  in  Colorado  the 
collecting   bank   is   Uable.      German   Nat. 


241 


1087-1092] 


DIGEST  OF  LEGAL  OPINIONS 


Bank  v.   Burns,    12   Colo.   539.      {Inquiry 
from  Colo.,  Feb.,  1921.) 

No  statutory  -prohibition  of  forwarding  direct 
to  payor 

1087.  Is  there  a  statute  in  any  state 
which  forbids  making  the  drawee  bank  an 
agent  for  the  collection  of  checks  on  itself? 
Opinion:  There  does  not  appear  to  be  any 
such  prohibitive  statute;  but  the  judicial 
rule  adopted  in  a  large  number  of  states  is 
that  the  collecting  bank  is  negligent,  if  it 
forwards  direct,  and  is  liable  for  any  result- 
ing loss,  unless  such  method  of  forwarding 
is  authorized  or  instructed  by  the  principal. 
Statutes  legalizing  the  method  of  forwarding 
direct  have  now  been  passed,  however,  in  a 
considerable  number  of  states.  {Inquiry 
from  Mass.,  April,  1920.) 

Mississippi  bank  liable  for  forwarding  direct 

1088.  A  bank  sent  a  check  received  for 
collection  direct  to  the  drawee.  The  collect- 
ing bank  received  in  payment  the  drawee's 
draft,  which  was  protested  because  of  the 
latter's  failure.  Opinion:  Sending  check 
direct  to  drawee  is  negligent  and  sending 
bank  is  hable  for  resultant  loss.  Pickett  v. 
Thomas  J.  Baird  Inv.  Co.,  133  N.  W.  (N. 
D.)  1026.  {Inquiry  from  Miss.,  April, 
1914,  Jl.) 

Pennsylvania  bank  liable  for  forwarding  direct 

1088.  A  Pennsjdvania  bank  forwarded 
a  check  direct  to  the  drawee  whose  remit- 
tance draft  was  dishonored.  Opinion:  In 
the  absence  of  authority  to  send  direct,  the 
Pennsylvania  bank  is  liable  to  its  principal. 
Citing  Merchants  Nat.  Bk.  v.  Goodman, 
129  Pa.  422.  Wagner  v.  Crook,  167  Pa.  259. 
{Inquiry  from  Pa.,  Sept.,  1913,  Jl.) 

Correspondent    liable  for  forwarding    direct 

1089.  The  payee  of  a  check  deposited  it 
in  a  bank  for  collection  and  the  bank  mailed 
it  to  a  correspondent,  which  latter  bank 
mailed  check  directly  to  the  drawee.  After 
charging  the  amount  to  the  drawer,  the 
drawee  failed  without  remitting  to  the 
correspondent.  Opinion:  The  drawer  is 
discharged;  the  payee  is  relieved  from  re- 
sponsibility and  the  correspondent  of  the 
first  bank  is  responsible  because  of  mailing 
the  check  direct  to  the  drawee.  Power  v. 
Bk.,  6  Mont.  251.  Minneapolis  Sash  & 
Door  Co.  V.  Metropolitan  Bk.,  76  Minn. 
136.  Bk.  of  Rocky  Mt.  v.  Floyd,  142  N.  C. 
187.     {Inquiry  from  Mont.,  Oct.,  1911,  Jl.) 


Liability   of   Virginia   bank  for  forwarding 
direct 

1090.  A  check  was  forwarded  by  bank 
A  to  drawee  which  received  it  and  charged 
it  to  depositor's  account  and  then  drew  a 
draft  to  the  order  of  A  which  received  it  next 
day  when  drawee  went  into  the  hands  of  a 
receiver.  Where  does  the  liability  rest? 
Opinion:  While  the  courts  of  Virginia  do 
not  seem  to  have  passed  upon  the  question, 
the  courts  generally  hold  that  it  is  neghgent 
to  forward  checks  directly  to  the  drawee 
bank  and  that  the  forwarding  bank  is  hable 
for  any  resulting  loss.  It  would  appear 
that  bank  A  would  be  the  loser  from  draw- 
ee's failure.  See  for  example,  Pinkney  v. 
Kanawha  Valley  Bank,  68  W.  Va.,  254,  69 
S.  E.  1012;  American  Nat.  Bank  v.  Savan- 
nah Trust  Co.,  90  S.  E.  (N.  C.)  302.  Wagner 
V.  Crook,  167  Pa.  St.  259,  31  Atl.  576, 46  Am. 
St.  672.     {Inquiry  from  Va.,  March,  1920.) 

Liability    of    Wisconsin    bank    forwarding 
savings  pass-book  direct  to  payor 

1091.  A  Wisconsin  bank  accepted  fox 
collection  over  its  counter  a  savings  pass- 
book of  an  Oregon  bank.  This  item  was 
sent  direct  to  the  bank  issuing  the  pass- 
book, which  bank  remitted  its  draft  on  a 
Chicago  bank.  This  draft  was  never  paid 
because  the  drawer  bank  was  placed  in  the 
hands  of  the  state  superintendent  of  banks. 
What  is  the  liability  of  the  Wisconsin  bank 
handling  the  item  for  collection?  Opinion: 
The  state  of  Wisconsin  has  not  yet  passed 
the  law  authorizing  banks  to  send  items 
direct  to  the  payor  bank;  therefore  the 
general  rule  operates  that  it  is  negligent  for 
a  collecting  bank  to  mail  an  obHgation  direct 
to  the  payor  and  in  case  of  loss  the  collecting 
bank  is  liable.  {Inquiry  from  Wis.,  Feb., 
1921.) 

Forwarding  direct  to  payor  where  only 
bank  in  place 

States  where  custom  not  sanctioned  and  where 
sending  to  only  bank  justified 

1092.  Is  it  negligent  for  a  collecting 
bank  to  mail  a  check  directly  to  the  drawee 
bank,  which  is  the  only  bank  in  the  place? 
Opinion:  In  a  number  of  states  it  has  been 
held  that  the  fact  that  the  drawee  is  the  only 
bank  in  the  place,  and  that  it  is  customary 
in  such  case  to  mail  to  the  drawee,  does  not 
remove  the  negligence  in  so  sending. 
Minneapolis  etc.  Co.  v.  Metropolitan  Bank, 
76  Minn.  336.  Pinknev  v.  Kanawha  Vallev 
Bank,  68  W.  Va.  254.     Winchester  MiUing 


242 


COLLECTION 


1093-1094 


Co.  V.  Bank  of  Winchester,  120  Tenn.  225. 
On  the  other  hand,  some  courts  have  held 
to  the  contrary;  see  Wilson  v.  Carlinsville 
Bank,  187  111.  222,  58  N.  E.  250  (where  there 
was  a  custom  to  send  direct  to  the  only  bank 
in  the  place  and  the  depositor  knew  of  the 
custom)  Hillsinger  v.  Triekett,  86  Ohio 
St.  286,  99  N.  E.  305.  First  Nat.  Bank  of 
Shreveport  v.  City  Nat.  Bank,  106  Tex.  297, 
166  S.  W.  689.  The  courts  of  Mississippi  do 
not  seem  to  have  passed  upon  the  point,  but 
because  of  the  conflicting  opinions  of  the 
courts  of  other  states  it  would  hardly  be  safe 
to  send  an  item  direct  to  the  drawee  even 
though  the  only  bank  in  the  place.  If  a 
bank  should  print  on  its  deposit  slip  a  clause 
.  by  which  the  depositor  would  agree  to 
sending  items  direct,  this  would  probably 
protect  it.  {Inquiry  from  Miss.,  June, 
1914.) 

Note:  The  Shreveport  Bank  case  has 
been  followed  in  Waggoner  Bank  &  Trust 
Co.  V.  Gainer  Co.  213  S.  W.  (Tex.)  927.  In 
Wingfield  v.  Security  Nat.  Bank  162  N. 
W.  (S.  Dak.)  309  it  was  held  negligent  to 
forward  direct  to  the  only  bank  in  the  place, 
but  in  1919  the  South  Dakota  legislature 
passed  the  A.  B.  A.  Act  authorizing  for- 
warding direct.  In  Minnesota,  the  rule  that 
it  is  neghgent  to  send  direct  has  been  modi- 
fied by  statute,  passed  in  1919,  authorizing 
such  method  where  the  payor  is  the  only 
bank  in  the  place. 

Minnesota  bank  not  liable  for  sending  direct 
if  payor  only 'bank  in  place 

1093.  A  bank  owning  a  certificate  of 
deposit  indorsed  before  delivery  by  a  person 
living  in  North  Dakota  sent  it  to  its  corres- 
pondent in  Minnesota  for  collection,  which 
sent  it  directly  to  the  issuing  bank  in  Mon- 
tana. After  a  delay  of  several  days  the  issu- 
ing bank  issued  a  draft  in  pajmient,  which 
was  dishonored  because  of  the  closing  of  the 
doors  of  that  bank.  The  certificate  of 
deposit  was  not  protested  because  of  the 
issuance  of  the  draft.  (1)  Is  the  indorser 
lia])lc?  (2)  Is  the  Minnesota  correspondent 
bank  liable?  Opiyiion:  The  indorser  is  not 
liable.  Under  the  Negotiable  Instruments 
Law  (in  force  in  every  state  of  the  Union 
except  Georgia)  an  indorser  before  delivery 
is  liable  as  an  indorser,  rather  than  as  a  joint 
maker,  surety  or  guarantor.  An  indorser  is 
discharged  by  payment,  and  even  in  case  of 
non-payment  his  liability  is  conditioned 
upon  due  notice  of  dishonor.  Presumably 
the  certificate  of  deposit  would  l>t^  held  paid 
by  the  action  of  the  issuing  bank.    Winches- 


ter Mining  Co.  v.  Bank  of  Winchester,  111 
S.  W.  (Tenn.)  248.  However  this  may  be, 
failure  to  give  due  notice  of  dishonor  would 
discharge  the  indorser.  (2)  The  rule  of 
Minneapohs  Sash  &  Door  Co.  v.  Metropoli- 
tan Bank,  78  N.  W.  (Minn.)  980  that  it  is 
negligence  to  send  an  item  direct  to  the 
payor  bank,  whether  or  not  there  is  another 
bank  of  good  standing  in  the  place  was 
limited  by  Laws  Minn.,  (1919)  c.  319  which 
authorizes  forwarding  direct  where  there  is 
no  other  bank  in  the  place  where  the  payor 
bank  is  located.  The  liabihty  of  the  Minne- 
sota correspondent  will  therefore  depend 
upon  whether  there  was  another  bank  in  the 
place  where  the  bank  issuing  the  certificate 
was  located.  If  there  was,  it  will  be  liable, 
but  if  the  issuing  bank  was  the  only  bank  in 
the  place,  the  Minnesota  collecting  bank  will 
not  be  responsible.  {Inquiry  from  Minn., 
June,  1921,  Jl.) 

Sanctioned  by  custom  in  Texas 

1094.  A  customer  deposited  for  col- 
lection a  check  which  was  forwarded  by  mail 
by  a  correspondent  bank  in  Dallas  to  the 
drawee  bank,  the  only  bank  in  the  place. 
The  drawee  sent  the  Dallas  bank  its  draft, 
but  in  the  meantime  failed.  Opinion:  As- 
suming a  custom  can  be  proved  of  sending 
a  check  to  the  drawee  where  the  only  bank 
in  the  place,  the  Texas  courts  will  probably 
hold  the  Dallas  bank  free  from  negligence, 
and  the  customer  would  have  to  look  solely 
to  the  assets  of  the  drawee.  Schumacher  v. 
Trent,  44  S.  W.  (Tex.)  460.  First  Nat.  Bk. 
V.  Quinby,  131  S.  W.  (Tex.)  429.  First  Nat. 
Bk.  V.  City  Nat.  Bk.,  34  S.  W.  (Tex.)  458. 
First  Nat.  Bk.  of  Memphis  v.  First  Nat.  Bk. 
of  Clarendon,  134  S.  W.  (Tex.)  831.  Mer- 
chants Nat.  Bk.  V.  Dorchester,  136  S.  W. 
(Tex.)  551.  {Inquiry  from  Tex.,  July,  1913, 
Jl.) 

Note:  This  opinion  is  confirmed  by  First 
Nat.  Bank  of  Shreveport  v.  City  Nat.  Bank, 
166  S.  W.  (Tex.)  689,  decided  May,  1914. 
followed  in  Waggoner  Bank  &  Trust  Co.  v. 
Gamer  Co.,  213  S.  W.  (Tex.)  927.  In  this 
latter  case  the  court  said:  "The  Dallas 
correspondent,  in  keeping  with  its  custom 
and  having  no  reason  to  apprehend 
that  by  the  means  adopted  the  check 
would  not  be  duly  remitted  for,  sent  it  for 
collection  to  the  drawee  bank.  It  was  the 
only  bank  at  the  place  of  payment.  Under 
this  condition  the  Gamer  Company  (paj'^ee) 
had  no  right  to  expect  that  a  tiifTerent  means 
of  collection  would  be  u.sed  or  to  require  a 
different  method.    The  correspondent  bank 


243 


1095-1097] 


DIGEST  OF  LEGAL  OPINIONS 


was  not  guilty  of  negligence,  under  the 
circumstances,  in  sending  the  check  for 
collection  to  the  drawee  bank." 

When  sanctioned  by  custom  in  Illinois 

1095.  Is  it  negligent  for  a  collecting 
bank  to  forward  checks  directly  to  the 
drawee  bank  when  it  is  the  only  l^ank  in  the 
place,  so  as  to  render  it  liable  to  its  principal 
when  the  draft  of  the  drawee  bank  is  dis- 
honored? Opinion:  The  sending  bank 
seems  to  be  protected  when  there  is  a  long 
established  custom  to  send  direct  to  the  only 
bank  in  the  place  where  the  drawee  is 
located  and  the  depositor  knows  of  such 
custom.  See  opinion  No.  1080.  Wilson  v. 
Carhnsville  Nat.  Bank,  187  111.  222,  58  N. 
E.  250.  Such  custom,  however,  must  be 
specially  pleaded  and  proved  or  it  will  not 
avail.  First  Nat.  Bank  v.  Whittier,  221  111. 
219,  77  N.  E.  563.  Whether  the  bank  would 
be  protected  if  the  depositor  is  ignorant  of 
the  custom  is  left  uncertain.  (Inquiry  from 
III,  Aug.,  1915,  March,  1914,  Jl.) 

Assent  of  depositor  to  forwarding  direct 
to  payor 

Agreement   or  instruction  to   send  direct   to 
payor 

1096.  A  Georgia  bank  uses  the  following 
form  in  acknowledging  cash  letters:     "All 

items  payable  outside  of, received 

by  this  bank  for  credit  or  collection,  are 
taken  at  the  sender's  risk.  Should  returns 
sent  by  collection  agents  for  such  items 
be  dishonored,  the  amount  will  be  charged 
back  to  the  bank  or  banker  from  which  the 
items  were  received.  This  bank  assumes  no 
liability  for  neglect  or  default  of  collecting 
agents;  nor  for  items  lost  in  the  mails,  and 
hereby  gives  notice  to  that  effect.  When 
instructions  to  the  contrary  are  not  given, 
items  may  be  sent  to  the  bank  upon  which 
they  are  drawn,  and  when  so  sent,  the  above 
conditions  are  not  waived  or  suspended." 
The  same  clause  is  printed  on  its  deposit 
slip,  and  the  inquiry  is  as  to  whether  the 
bank  would  be  held  liable  for  negligence  in 
forwarding  items  direct  in  view  of  such 
provision.  Opinion:  It  has  been  held  in 
certain  cases  that  a  bank  can  protect  itself 
in  sending  direct  by  agreement  with  its 
customer.  In  First  Nat.  Bank  of  Mur- 
freesboro  v.  First  Nat.  Bank  of  Nashville, 
154  S.  W.  (Tenn.,  year  1913)  965  the  court 
said:  "It  is  shown  in  the  proof  that  both 
the  holder  and  the  drawer  of  these  checks 
agreed  with  the  Nashville  bank  that  re- 
mittance might  be  made  directly  to  the 


drawee,  and  they,  of  course,  cannot  now 
complain  that  such  was  done.  So  where  a 
bank  forwarded  a  certificate  of  deposit  for 
collection  to  another  bank  saying  'We  note 
you  have  a  correspondent  at  Burr  Oak,'  the 
place  of  the  issuing  bank,  and  there  was  no 
other  bank  there,  this  was  held  equivalent  to 
an  instruction  to  forward  to  the  payor  and 
reheved  the  collecting  bank."  First  Nat. 
Bank  v.  Citizens  Sav.  Bank,  123  Mich.  336. 
But  in  Bank  of  Rocky  Mount  v.  Floyd,  142 
N.  C,  187,  where  forwarding  direct  to  drawee 
was  held  negligent,  the  court  held  an  agree- 
ment to  send  direct  to  payor  would  be 
invalid  as  it  would  relieve  the  bank  of 
responsibility  for  its  own  negligence  in  not 
using  due  care  in  selecting  a  suitable  sub- 
agent.  The  Georgia  courts  do  not  appear 
to  have  passed  upon  the  point.  In  view, 
however,  of  the  growing  custom  and  necessi- 
ty for  sending  items  direct,  the  validity  of 
such  clauses  would  probably  be  upheld. 
The  form  of  agreement  stated  is  about  as 
good  as  can  be  made,  and  all  that  the  bank 
can  do  under  the  present  conditions  to 
protect  itself.    {Inquiry  fromGa.,  Feb,,  1915.) 

1097.  A  bank  submits  a  form  of  agree- 
ment to  be  signed  by  depositors,  authorizing 
the  collecting  bank  to  mail  checks  direct  to 
the  drawee  where  there  is  only  one  bank  in 
the  place.    The  agreement  is  as  follows: 

"Astoria,   Oregon 

To  the  First  National  Bank  of  Astoria: 

Having  deposited  with  you  a  check  drawn 

by on at 

for  $ ,  and  there  being  no  other  bank 

in  the  said  town  to  which  you  can  send  this 
check  for  collection,  you  are  instructed  to 
send  it  direct  to  the  bank  on  which  it  is 
drawn,  and  I  assume  all  responsibihty  for 
any  failure  on  your  part  to  receive  full  and 
final  payment  from  the  said  bank,  either  by 
failure  of  said  bank  to  make  returns  or  by  the 
return  of  a  draft  which  you  are  unable  to 
collect."  Opinion:  In  view  of  the  numer- 
ous decisions  which  hold  sending  to  the 
drawee  negligent,  such  agreement  might 
possibly  be  held  to  contravene  public  policy 
as  a  stipulation  by  the  bank  to  be  relieved  of 
its  own  neghgence,  but  this  would  be  an  ex- 
treme position  in  view  of  the  fact  that  some 
courts  justify  such  method  of  collection  and 
the  agreement  would  probably  be  held  vahd. 
{Inquiry  from  Ore.,  Sept.,  1909,  Jl.) 

Note:  The  Oregon  legislature  in  1919 
passed  a  law  providing  that  the  forwarding 
of  items  direct  to  the  payor  shall  be  deemed 
due  diligence.  » 


244 


COLLECTION 


[1098-1099 


Ratification  of  act  of  hank  in  sending  check 
direct  to  drawee 

1098.  The  bank  with  which  a  check  was 
deposited  for  collection  sent  it  directly  to 
the  drawee  bank  and  received  in  return  a 
check  on  another  bank,  which  was  dis- 
honored because  of  the  failure  of  the  last 
named  bank.  The  depository  bank  cancelled 
all  indorsements  on  the  check  and  dehvered 
it  to  its  depositor.  Should  the  depository 
bank  comply  with  the  demand  of  the  de- 
positor that  it  indorse  the  dishonored  check 
to  him  so  as  to  give  him  title?  Opinion:  The 
bank  which  drew  the  draft  on  the  failed 
bank  would  be  responsible  assuming  it  was 
duly  charged,  as  drawer,  and  the  collecting 
bank  should  comply  with  its  depositor's 
request  and  indorse  the  draft  over  to  him 
without  recourse.  Should  any  loss  ultimate- 
ly result  because  of  the  forwarding  of  the 
original  check,  direct  to  the  drawee,  the 
primary  liability  of  the  forwarding  bank 
would  be  relieved  by  ratification  of  the  de- 
positor. In  Winchester  Milling  Co.  v.  Bank 
of  Winchester,  120  Tenn.  225,  where  the 
owner  accepts  return  of  the  drawee's  dis- 
honored remittance  draft,  it  is  held  he 
ratifies  the  neghgent  act  of  the  collecting 
bank  and  cannot  recover.  So  in  Hazlett  v. 
Commercial  Nat.  Bank,  132  Pa.  118,  where 
the  collecting  bank  notifies  the  owner  that 
it  holds  the  dishonored  draft  of  the  drawee, 
subject  to  his  order,  and  the  owner  does  not 
repudiate  the  collecting  bank's  action  but 
rephes  instructing  that  the  draft  be  held  a 
few  days  and  it  will  be  paid,  he  condones  the 
original  negUgence  and  cannot  hold  the 
collecting  bank  liable.  (Inquiry  from  Wash., 
Dec,  1914.) 

Liability  or  non-liability  of  collecting 
bank  for  default  of  correspondent 

1099.  Inquiries  have  been  received  at 
different  times  from  many  states  as  to  whe- 
ther a  bank,  receiving  out  of  town  paper  as 
agent  for  collection,  is  liable  for  the  defaults 
of  its  correspondents. 

Where  the  correspondent  is  payor  of  the 
item  to  whom  it  has  been  forwarded  direct, 
questions  as  to  the  hability  of  the  collecting 
bank,  based  on  the  prevaihng  judicial  view 
that  the  payor  is  not  a  suitable  agent  and 
that  it  is  negligent  to  entrust  the  paper 
directly  to  such  an  agent,  unless  such  en- 
trustment  is  by  instruction  or  agreement  or 
controlhng  custom,  or  is  authorized  by 
statute,  or  is  ratified,  have  been  elsewhere^ 
grouped. 

But  the  questions  here  referred  to  relate  for 


the  most  part  to  the  default  of  a  corre- 
spondent other  than  the  paj^or  and  involve 
mainly  the  failure  to  remit  or  the  remittance 
by  a  check  or  draft  which  is  dishonored  or 
some  neghgence  of  the  correspondent  re- 
sulting in  loss.  In  most  cases  the  defaults 
are  caused  by  the  insolvency  of  the  corre- 
spondent, but  in  some  they  are  due  to  the 
defalcations  of  its  officers. 

As  these  inquiries,  which  are  numerous, 
present  the  same  legal  question  whether  or 
not  a  collecting  bank  is  liable  for  the  defaults 
of  its  correspondents,  it  has  been  thought 
best  to  make  no  digest  of  the  specific  in- 
quiries but  to  group  the  substance  of  the 
rephes  as  to  the  governing  rule,  according 
to  the  states.  Upon  the  question  stated,  the 
courts  of  over  thirty  states  are  irreconcil- 
ably divided. 

The  courts  in  eighteen  states  have  held 
that  the  collecting  bank  is  responsible  only 
for  due  care  in  the  selection  of  a  suitable 
correspondent  or  agent,  who  becomes  the 
agent  of  the  owner  of  the  paper,  and  where 
due  care  is  exercised  and  the  collecting  bank 
is  not  itself  negligent  in  any  particular, 
there  is  no  hability  for  the  default  of  the 
correspondent. 

The  courts  in  thirteen  states  and  the 
supreme  court  of  the  United  States  have 
held,  to  the  contrary,  that  the  collecting 
bank  undertakes  to  collect  the  paper  and  is 
an  independent  contractor,  responsible  for 
the  acts  and  defaults  of  the  agents  whom  it 
employs,  unless  by  agreement  it  relieves  it- 
self from  such  liability. 

In  two  of  these  thirteen  states,  Florida 
and  Arkansas,  the  judicial  rule  has  been 
changed  by  act  of  legislature;  and  in  a  third, 
Georgia,  where  the  judicial  rule  was  orig- 
inally codified  as  a  part  of  the  Georgian 
Code,  the  legislature  has  recently  changed 
the  rule  in  favor  of  the  "due  care"  theory. 
The  "due  care"  rule  is,  therefore,  now 
estabhshed  in  twenty-one  states,  in  eighteen 
by  the  courts  and  in  three  by  the  legislatures, 
while  only  ten  states  hold  to  the  rule  that 
the  collecting  bank  is  liable  for  correspond- 
ents' defaults.  In  seventeen  remaining 
states,  however,  and  in  the  District  of 
Columljia  the  rule  is  uncertain,  except  that 
the  courts  of  the  District  would  probably 
follow  the  federal  rule. 

Where  there  are  a  chain  of  correspondents 
in  different  states  the  hability  of  each  bank 
.is,  of  course,  determined  by  the  law  of  the 
fstate  where  the  bank  is  located. 


245 


II 


1100] 


DIGEST  OF  LEGAL  OPINIONS 


Collecting  bank  responsible  only  for  due  care 
in  selection  of  suitable  correspondent 

The  courts  in  the  following  states  hold 
that  the  collecting  bank  is  responsible  only 
for  due  care  in  the  selection  of  a  suitable 
correspondent  or  agent,  who  becomes  the 
agent  of  the  owner  of  the  paper  and  where 
due  care  is  exercised  and  the  collecting  bank 
is  not  itself  negligent  in  any  particular, 
there  is  no  liability  for  default  of  the  corre- 
spondent. 

Alabama,  Stones  River  Nat.  Bank  v. 
Lerman  Mill  Co.,  63  So.  (Ala.)  776.  Eufau- 
la  Grocery  Co.  v.  Missouri  Nat.  Bank,  24 
So.  (Ala.)  390. 

California,  Davis  v.  First  Nat.  Bank  of 
Fresno,  118  Cal.  600,  50  Pac.  666.  San 
Francisco  Nat.  Bank  v.  American  Nat. 
Bank  5  Cal.  App.  408.    90  Pac.  558. 

Connecticut,  Haddam  Bank  v.  Scovil,  12 
Conn.  303. 

Illinois,  Wilson  v.  Carlinsville  Nat.  Bank, 
187  111.  222,  58  N.  E.  250,  52  L.  R.  A.  632. 
Waterloo  Milling  Co.  v.  Kuenster,  158  111. 
259,  41  N.  E.  906,  29  L.  R.  A.  794,  49  Am. 
St,  Rep.  156.  Fay  v.  Strawn,  32  111.  295. 
Anderson  v.  Alton  Nat.  Bank,  59  111.  App. 
587. 

Indiana,  Irwin  v.  Reeves  Pulley  Co.,  20 
Ind.  App.  101. 

Iowa,  Guehch  v.  Nat.  Bank  of  Burhng- 
ton,  56  Iowa  434,  9  N.  W.  328,  41  Am.  Rep. 
110. 

Kentucky,  Farmers  Bank  and  Trust  Co. 
V.  Newland,  97  Ky.  464.  Second  Nat.  Bank 
v.  Merchants  Nat.  Bank,  111  Ky.  930.  65 
S.  W.  4. 

Maryland,  Citizens  Bank  v.  Howell,  8  Md. 
530. 

Massachusetts,  Lord  v.  Hingham  Nat. 
Bank,  186  Mass.  161,  71  N.  E.  312. 

Mississippi,  Third  Nat.  Bk.  of  Louisville 
v.  Vicksburg  Bk.,  61  Miss.  112. 

Missouri,  Daly  v.  Butchers  &  Drovers 
Bank,  56  Mo.  94,  17  Am.  Rep.  663. 

Nebraska,  First  Nat.  Bank  v.  Sprague, 
34  Neb.  318.  First  Nat.  Bank  v.  First  Nat. 
Bank,  55  Neb.  303. 

North  Carolina,  Planters  and  Farmers 
Nat.  Bank  v.  First  Nat.  Bank,  75  N.  C.  534. 
Bank  of  Rocky  Mount  v.  Murchison  Nat. 
Bank,  55  S.  E.  95. 

Pennsylvania,  Mechanics  Bank  v.  Earp, 
4  Rawle  (Pa.)  384.  Merchants  Nat.  Bank 
v.  Goodman,  109  Pa.  422,  2  Atl.  687,  58 
Am.  Rep.  728.  Farmers  Nat.  Bank  v. 
Nelson,  100  Atl.  (Pa.)  136. 

South  Dakota,  Fanset  v.  Garden  City 
State  Bank,  24  S.  Dak.  248,  123  N.  W.  686. 


Tennessee,  Second  Nat.  Bank  v.  Cum- 
mings,  89  Tenn.  609.  Givan  v.  Bank  of 
Alexandria,  52  S.  W.  923.  Bank  of  Louis- 
ville V.  First  Nat.  Bank,  67  Tenn.  101. 
Winchester  Milhng  Co.  v.  Bank  of  Win- 
chester, 120  Tenn.  225,  111  S.  W.  248. 

Texas,  Waggoner  Bank  &  Trust  Co.  v. 
Gamer  Co.,  213  S.W.  (Tex.  Sup.)  927.  (The 
court  does  not  cite  earlier  inconsistent  rulings 
of  intermediate  Texas  courts.) 

Wisconsin,  Stacy  v.  Dane  County  Bank, 
12  Wis.  629. 

Due  care  rule  substituted  by  statute  for 
liability  rule 

1100.  In  the  following  three  states,  the 
rule  formerly  prevailing  that  a  collecting 
bank  is  hable  for  its  correspondents  defaults, 
has  been  changed  by  statute  and  the  due 
care  rule  substituted. 

Arkansas.  In  Second  National  Bank  of 
Ahna,  138  S.  W.  (Ark.)  472  the  rule  was  de- 
clared that  a  bank  accepting  paper  for 
collection,  is  liable  for  any  default  or  breach 
of  duty  made  by  a  subagent  to  whom  it 
transmits  the  paper  for  collection.  This  rule 
has  been  overturned  by  Act  of  the  Legisla- 
ture passed  in  1921  which  provides:  "Any 
bank,  whether  within  or  without  this  State, 
receiving  for  collection,  or  for  deposit  and 
recharge  if  not  collected  or  remitted  for,  any 
check,  note,  bill,  draft,  certificate  or  other 
instrument  or  account,  payable  in  another 
city  or  town,  whether  within  or  without  this 
State,  having  exercised  reasonable  care  to 
select  a  proper  correspondent  for  the  col- 
lection of  such  instrument  or  account,  shall 
not  be  liable  for  the  default  of  such  corre- 
spondent or  of  any  sub-correspondent  se- 
lected by  the  latter." 

Florida.  Brown  v.  Peoples  Bank  for 
Savings  of  St.  Augustine,  59  Fla.  163,  52 
So.  719,  held  that  in  the  absence  of  a  con- 
trolhng  statute  or  agreement  a  bank  which 
receives  an  item  for  collection  payable  in 
another  city  selects  its  agents  for  collection 
at  its  own  risk  and  is  Hable  for  defaults  of 
correspondents. 

To  offset  this  judicial  rule  the  Legislature 
of  Florida  enacted  chap.  No.  5951  approved 
June  5,  1909,  which  contains  the  following 
provisions: — "Section  1.  That  when  a 
check,  draft,  note  or  other  negotiable  in- 
strument is  deposited  in  a  bank  for  credit, 
or  for  collection,  it  shall  be  considered  due 
diligence  on  the  part  of  the  bank  in  the 
collection  of  any  check,  draft,  note  or  other 
negotiable  instrument  so  deposited,  to  for- 
ward and  route  the  same  without  delay  in 


246 


J 


COLLECTION 


[1101 


the  usual  commercial  way  in  use  according 
to  the  regular  course  of  business  of  banks, 
and  that  the  maker,  indorser,  guarantor  or 
surety  of  any  check,  draft,  note  or  other 
negotiable  instrument,  so  deposited,  shall 
be  liable  to  the  bank  until  actual  final  pay- 
ment is  received,  and  that  when  a  bank 
receives  for  collection  any  check,  draft,  note 
or  other  negotiable  instrument  and  forwards 
the  same  for  collection  as  herein  provided, 
it  shall  only  be  liable  after  actual  final  pay- 
ment is  received  by  it,  except  in  case  of  want 
of  due  dihgence  on  its  part  as  aforesaid." 

Georgia.  The  Supreme  Court  of  Georgia 
in  Bailie  v.  Augusta  Savings  Bank,  95  Ga. 
277  adopted  the  rule  that  a  collecting  bank 
is  liable  for  the  defaults  of  its  agents  and 
correspondents  and  this  rule  was  included 
as  Section  2362  of  the  Georgia  Code  which 
provides:  "In  the  absence  of  a  contract 
expressed  or  imphed,  to  the  contrary,  a 
bank  taking  paper  for  collection  is  liable  for 
the  defaults  of  agents  and  correspondents 
:  to  whom  the  paper  has  been  indorsed  for 
collection."  In  Youmans  Jewelry  Co.  v. 
Blackshear  Bank,  80  S.  E.  1005  the  rule  was 
applied  under  this  statute  and  it  was  held  it 
was  proper  to  submit  to  the  jury  the  ques- 
tion whether  there  was  an  implied  contract 
exempting  the  bank,  it  appearing  that  the 
check  received  for  collection  had  been  ac- 
knowledged on  a  card  by  the  collecting  bank 
stating  that  the  bank  assmned  no  responsi- 
bihty  for  the  defaults  of  its  collecting  agents. 

But  by  Section  35  of  the  Banking  Act  of 
1919,  which  Act  repeals  all  laws  and  parts 
of  laws  in  conflict  therewith,  it  is  provided: 

"When  a  check,  draft,  note,  or  other  nego- 
tiable instrument  is  deposited  in  a  bank  for 
credit,  or  for  collection,  it  shall  be  considered 
due  diligence  on  the  part  of  the  bank  in  the 
collection  of  such  check,  draft,  note  or  other 
negotiable  instrument  so  deposited,  to  for- 
ward and  route  the  same  without  delay  in 
the  usual  commercial  waj^,  according  to  the 
regular  course  of  business  of  banks,  and  the 
maker,  indorser,  guarantor,  or  surety  of  any 
check,  draft,  note  or  other  negotiable  in- 
instrument  so  deposited  shall  be  liable  to  the 
bank  until  actual  final  paj^ment  is  received; 
and  when  a  bank  receives  for  collection  any 
check,  draft,  note,  or  other  negotiable  in- 
strument and  forwards  the  same  for  collec- 
tion as  herein  provided,  it  shall  be  hable 
only  after  actual  final  payment  is  received 
by  it,  except  in  case  of  want  of  due  dihgence 
on  its  part  as  aforesaid." 

The  above  section  in  effect  overturns  the 
previous  rule  and  adopts  the  rule  that  the 
forwarding    bank    is    not    liable    where    it 


exercises  due  care  in  the  selection  of  corre- 
spondents, for  the  defaults  of  such  corre- 
spondents, but  is  only  liable  for  its  own 
neglect. 

Collecting  hank  liable  for  defaults  of 
correspondent 

1101.  In  the  Supreme  court  of  the  United 
States  and  in  the  following  states  it  is  held 
the  collecting  bank  undertakes  to  collect 
the  paper  and  is  an  independent  contractor, 
responsible  for  the  acts  and  defaults  of  the 
agents  whom  it  employs,  unless  by  agree- 
ment it  relieves  itself  from  hability. 

United  States,  Exchange  Nat.  Bank  v. 
Third  Nat.  Bank,  112  U.  S.  276. 

Kansas,  First  Nat.  Bank  of  Girard  v. 
Craig,  3  Kan.  App.  166,  42  Pac.  830,  holds 
that  where  collecting  bank  itself  selects 
agent,  it  is  hable  for  his  default,  distinguish- 
ing Bank  of  Lindsborg  v.  Ober,  31  Kan.  599; 
3  Pac.  324  where  the  depositor  selected  the 
subagent,  and  collecting  bank  was  held  not 
liable. 

Louisiana,  Martin  v,  Hibernia  Bank  & 
Trust  Co.,  127  La.  301,  53  So.  572.  Novem- 
ber, 1913. 

Note:  The  Direct  to  Payor  Act  (Act  85 
of  1916)  authorizing  banks  receiving  paper 
for  collection  to  send  items  directly  to  the 
bank  on  which  drawn  or  at  which  payable 
and  providing  that  failure  of  payor  to 
account  for  proceeds  "shall  not  render  the 
forwarding  bank  liable  therefor"  virtually 
limits  the  Louisiana  judicial  rule  that  a 
collecting  bank  is  liable  for  defaults  of 
correspondents  so  as  to  make  it  applicable 
only  in  case  the  paper  is  forwarded  to  a 
correspondent  other  than  the  payor. 

Michigan,  Simpson  v.  Waldl^y,  63  Mich. 
439;  30  N.  W.  199. 

Minnesota,  Streissguth  v.  National  Ger- 
man American  Bank,  43  Minn.  50;  44  N.  W. 
797. 

Montana,  Power  v.  First  Nat.  Bk.,  6 
Mont.  251,  12  Pac.  597. 

New  Jersey,  Titus  v.  Mechanics  Nat. 
Bank,  35  N.  J.  L.  388. 

New  York,  Nat.  Revere  Bank  v.  Nat. 
Bank  of  RepubHc,  172  N.  Y.  102,  64  N.  E. 
799.  Castle  v.  Corn  Exchange  Bank,  148 
N.  Y.  122,  42  N.  E.  518.  Ayrault  v.  Pacific 
Bank,  47  N.  Y.  575.  Allen  v.  Merchants 
Bank,  22  Wend.  215. 

North  Dakota,  Commercial  Bank  v.  Red 
River  Valley  National  Bank,  8  N.  D.  382; 
79  N.  W.  859. 

Ohio,  Reeves  v.  State  Bank  of  Ohio,  8 
Ohio  St.  465. 


247 


1102-1107] 


DIGEST  OF  LEGAL  OPINIONS 


South  Carolina,  Harter  v.  Bank  of  Brem- 
sen,  92  S.  C.  440,  75  S.  E.  696.  City  Nat. 
Bank  V.  Cooper,  91  S.  C.  91,  74  S.  E.  366. 

Liability  of  successive  correspondents  depends 
upon  law  of  state  of  location 

1102.  What  are  the  rights  of  a  depositor 
who  deposits  a  check  for  collection  in  a 
bank  in  a  state  (Mississippi)  which  holds 
that  a  collecting  bank  is  liable  only  for  due 
care  in  the  selection  of  its  correspondent  and 
that  bank  forwards  the  check  to  a  bank  in 
another  state  (Louisiana)  which  holds  the 
collecting  bank  for  defaults  of  correspond- 
ents, where  the  correspondent  of  the 
latter  fails  and  its  draft  in  remittance  is 
dishonored?  Opinion:  The  depositor  may 
not  hold  the  Mississippi  bank  but  the 
Louisiana  bank  is  liable  to  it  for  the  default 
of  its  correspondent.  Third  Nat.  Bk,  of 
Louisiana  v.  Vicksburg  Bk.,  61  Miss.  112. 
Martin  v.  Hibernia  Bk.  &  Tr.  Co.,  127  La. 
301.     {Inquiry  from  Miss.,  Dec,  1913,  Jl.) 

Note.  Since  1916,  however,  by  statute 
in  Louisiana  a  bank  is  authorized  to  forward 
direct  to  payor  and  is  not  responsible  for  his 
defaults.  The  former  rule  is  therefore 
hmited  to  cases  where  the  defaulting  corre- 
spondent is  other  than  the  payor. 

Liability   of  collecting   bank  for   default   of 
correspondent  selected  by  owner  of  paper 

1103.  Is  a  bank  Hable  for  tlie  defaults 
of  a  correspondent,  selected  not  by  it,  but 
by  the  owner  of  the  paper?  Opinion:  Under 
the  law  of  Cahfornia  the  correspondent  is 
the  subagent  of  the  owner  of  the  paper 
and  the  bank  forwarding  the  paper  to  it  is 
not  liable  for  its  defaults.  But  even  in 
states^  which  hold  that  a  bank  is  liable  for 
its  correspondents'  defaults  this  rule  does 
not  apply  where  the  owner  of  the  paper 
himself  selects  such  correspondent.  See  for 
example  City  Nat.  Bank  v.  Cooper,  91  S.  C. 
91.    {Inquiry  from  Col.,  Sept.,  1916.) 

1104.  On  whom  does  the  final  responsi- 
bility rest  where  a  check  is  deposited  for 
collection  in  a  bank  in  a  state  (New  Jersey) 
which  holds  a  bank  Uable  for  the  defaults  of 
its  correspondents  which  bank  forwards  it 
to  a  bank  located  in  a  state  (Pennsylvania) 
which  holds  a  bank  only  to  the  exercise  of 
due  care  in  the  selection  of  correspondents 
which,  in  turn  sends  the  check  to  a  bank 
located  in  a  state  (Missouri)  which,  also, 
holds  the  latter  view,  and  there  is  default 
by  the  correspondent  of  the  last  bank? 
Opinion:  The  depository  bank  is  liable  to 
the  depositor,  but  it  has  no  redress  except 


against  the  defaulting  bank.  It  should 
protect  itself  by  agreement  with  its  deposi- 
tor. Titus  V.  Mechanics  Nat.  Bk.,  35  N.  J. 
L.  388.  Daly  v.  Butchers  and  Drovers  Bk., 
56  Mo.  94.  Mechanics  Nat.  Bk.  v.  Good- 
man, 109  Pa.  422.  {Inquiry  from  N.  J., 
1914,  Jl.) 

Collecting  bank  not  liable  for  delay  and  loss 
caused  by  refusal  of  correspondent  to  act 

110.5.  A  bank  sent  to  B  bank  for  credit 
a  check  drawn  on  C.  B  sent  it  to  one  of  the 
two  independent  banks  where  drawee  bank 
was  situated.  The  first  bank  refused  to 
handle  the  check  and  returned  it  unpre- 
sented  to  B,  and  before  the  latter  could  get 
the  check  to  the  other  bank,  C  failed.  B 
then  charged  the  item  back  to  A,  and  it  is 
asked  upon  whom  does  the  loss  fall?  Opin- 
ion: There  was  no  negligence  on  the  part 
of  B,  for  the  refusal  to  handle  the  check 
could  not  be  foreseen;  the  check  can  be 
charged  back  to  A,  which  bank  can  charge  it 
to  its  customer  provided  the  latter  has  been 
duly  notified.  {Inquiry  from  Wash.,  Sept., 
1914.) 

Limitation    of   liability    by   special 
agreement 

Clause   on   deposit   slip   "checks   and  drafts 
credited  subject  to  final  payment' ' 

1106.  Does  'the  phrase  "checks  and 
drafts  are  credited  subject  to  final  pay- 
ment," on  deposit  tickets  reheve  the  de- 
pository bank  from  liability  for  the  default 
of  a  bank  in  the  chain  of  collection?  Opin- 
ion: It  would  seem  that  such  a  stipulation 
would  relieve  the  bank  from  such  liability. 
Falls  City  Woolen  Mills  v.  Louisville  Nat. 
Banking  Co.,  140  S.  W.  (Ky.)  66.  See  also 
Bank  of  Rocky  Mount  v.  Murchison  Nat. 
Bank,  55  S.  E.  (N.  C.)  95  (holding  that  such 
a  stipulation  would  not  reUeve  a  depository 
bank  from  its  own  negligence).  {Inquiry 
from  Del,  July,  1916,  Jl.) 

Pass-book  clause  that  bank  is  agent  and  dis- 
clairns  liability  for  out-of-town  paper 

1107.  Does  the  printing  upon  pass-books 
of  the  provision:  "This  bank  is  acting  only 
as  depositor's  agent  and  does  not  assume 
any  liabihty  for  any  out-of-town  checks  or 
collections  beyond  reasonable  dihgence  and 
care,"  give  the  bank  the  desired  exemption 
from  liabihty?  Opinion:  It  has  been  held 
in  a  number  of  cases  that  a  clause  in  a  pass- 
book limiting  liability  in  the  matter  of 
collections  is  binding  as  a  contract  between 
depositor  and  bank,  and  that  the  bank  can 


248 


COLLECTION 


[1108-1 109a 


thus  limit  the  hability.  However,  the  bank 
cannot  exempt  itself  from  hal)ility  for  its 
own  neghgence.  Whether  or  not  the  bank 
takes  title  to  items  deposited  for  collection, 
the  provision  submitted  reheves  it  from 
liability  except  for  its  own  negligence.  {In- 
quiry from  Iowa,  Jan.,  1917.) 

Agency  and  disclaimer  clause 

1108.  Inquiry  is  made  as  to  whether  or 
not  it  would  be  proper  or  legal  for  a  bank  to 
have  printed  on  its  statements,  pass-books, 
deposit  sHps,  etc.,  the  following  agreement 
or  waiver:  "Items  other  than  cash  are  re- 
ceived on  deposit  with  the  express  under- 
standing that  they  are  taken  for  collection 
only  by  this  bank  as  agent  at  depositors' 
risk.     In  case  of  items  payable  outside  of 

this  bank  will  not  be  responsible 

for  neglect  or  default  of  collection  agents, 
nor  for  items  lost  in  the  mail,  and  should 
returns  sent  by  collection  agents  for  such 
items  be  dishonored,  the  amount  will  be 
charged  back  to  the  depositor  or  bank 
correspondent  from  whom  received.  In  the 
absence  of  instructions  to  the  contrary,  items 
may  be  sent  to  the  banks  on  which  they  are 
drawn  and  when  so  sent  the  above  condi- 
tions are  not  waived."  Opinion:  It  would 
be  far  better  to  have  a  uniform  law  than  a 
waiver  or  agreement  between  banks  and 
their  customers,  but  the  above  is  about  as 
strong  as  can  be  made  under  the  present 
condition  of  law.  (Inquiry  from  Miss.,  Feb., 
1915.) 

Pass -hook  clause  limiting  liability 

1109.  Bank  A  has  printed  on  all  its  pass- 
books "Notice — In  collecting  out-of-town 
items  this  bank  assumes  no  responsibiUty 
beyond  exercise  of  due  dihgence."  It 
forwarded  three  bill  of  lading  drafts  taken 
for  collection  and  numbered  103,  104  and 
105,  to  a  foreign  bank  B,  and  subsequently 
cabled  it — "Referring  to  our  collection  103, 
104,  105.  Drawers  have  authorized  Jones 
their  representative  to  sell  goods.  Surrender 
documents  to  buyers  on  full  payment." 
Under  instructions  from  depositor  A  again 
cabled  B— "Collections  103,  105,  doHver  all 
documents  and  papers  to  Jones  free."  B  twice 
requested  by  cable  instructions  as  to  whether 
remittance  104  was  included,  l)ut  received  no 
answer  as  depositor  refused  to  pay  for  fur- 
ther cables.  Under  direction  from  Jones,  B 
delivered  documents  attached  to  104  free, 
and  the  depositor  claims  A  is  lial)lc  for 
damages.  Opinion:  The  clause  in  the  pass- 
book Uraiting  the  hability  of  bank  A  for 


out-of-town  items  to  the  exercise  of  due 
dihgence  would  be  held  binding  on  the 
depositor.  Such  pass-book  clauses  have 
been  held  to  have  the  force  of  contracts  in  a 
number  of  cases  and  this  being  so,  it  would 
be  difficult  to  see  where  there  was  any  lack 
of  due  diligence,  or  negligence,  on  the  part 
of  bank  A  which  would  make  it  liable.  It  is 
extremely  doubtful  whether  B  would  itself 
be  held  guilty  of  negligence  in  surrendering 
documents  against  draft  104.  The  cabled 
instructions  from  depositor  as  to  collection 
103,  105  taken  in  connection  with  previous 
cable  would  certainly  raise  a  doubt  in  the 
mind  of  B  as  to  whether  or  not  104  was  in- 
cluded and  when  cabled  inquiries  from  B 
expressly  asking  for  instructions  were  un- 
answered, it  used  its  best  judgment  and 
delivered  documents  against  104  free.  A 
would  not  be  liable  to  its  depositor  as  its 
liability  by  contract  was  limited  to  the 
exercise  of  due  dihgence.  (Inquiry  from 
N.  Y.,  Dec,  1919.) 

Stipulation  against  liability  does  not  inure  to 
benefit  of  prior  or  subsequent  banks 

1109a.  A  federal  reserve  bank  by  circu- 
lar reheves  itself  from  liabiHty  for  corre- 
spondent's defaults  which  circular  includes 
authority  to  send  collection  items  direct  to 
payor.  Does  such  agreement  give  similar 
relief  from  habihty  to  a  liank  which  forwards 
items  through  such  federal  reserve  bank? 
The  notice  reads  as  follows:  "Every  bank 
sending  checks  or  other  cash  items  to  us,  or 
to  another  Federal  Reserve  Bank  direct, 
for  our  account,  will  be  understood  to  have 
agreed  that  in  receiving  such  items  we  will 
act  only  as  the  collecting  agent  of  the  send- 
ing bank;  that  we  will  be  responsible  only 
for  due  dihgence  and  care  in  forwarding  such 
items  promptly;  that  we  are  authorized  to 
send  such  items,  for  payment  in  cash  or  bank 
draft,  direct  to  the  bank  on  which  they  are 
drawn,  or,  in  our  discretion,  to  forward  them 
to  another  agent  with  authority  to  send 
them,  for  payment  in  cash  or  bank  draft, 
direct  to  the  bank  on  which  they  are  drawn; 
and  that  we  are  authorized  to  charge  back 
the  amount  of  any  items  (whether  or  not  the 
items  themselves  can  be  returned)  which 
actually  have  not  been  paid  either  in  cash 
or  bank  draft  which  actually  has  been  paid." 
Opinion:  Such  agreement  would  not  relieve 
the  prior  bank  from  liaViility.  That  is  to 
say,  a  New  York  bank,  for  example,  in  which 
state  a  bank  is  liable  for  defaults  of  corre- 
spondents, receives  for  collection  a  check  on  a 
Western  point  and  deposits  it  in  the  Federal 


249 


1110-1114] 


DIGEST  OF  LEGAL  OPINIONS 


reserve  bank  which  reheves  itself  from  Ha- 
bihty  by  circular  agreement.  The  Federal 
reserve  bank  forwards  the  item  to  a  Western 
Federal  reserve  bank  which,  in  turn,  forwards 
it  direct  to  the  payor  bank.  There  is  a  loss 
caused  by  the  failure  of  the  latter  bank.  In 
such  case  the  Federal  reserve  bank  in  New 
York  would  be  relieved  from  liability  by  its 
stipulation  but  the  New  York  bank  would 
be  liable  to  its  depositor  for  the  default  of 
the  correspondent,  unless  it  had  itself 
stipulated  against  such  liability.  Assuming 
the  Western  Federal  reserve  bank  likewise 
stipulated  against  hability,  it  would  also  be 
reheved.  But  in  any  case  where  the  West- 
ern correspondent  of  a  Federal  reserve  bank, 
or  any  other  correspondent,  is  under  the 
law  of  its  particular  state,  liable  for  defaults 
of  correspondents  or  for  sending  direct  to 
payor,  and  the  facts  create  a  case  of  habihty 
and  such  bank  has  not  itself  stipulated 
against  liability,  it  would  be  Uable  to  the 
New  York  bank  which  deposited  the  item 
in  the  Federal  reserve  bank  of  New  York 
and  the  stipulation  against  liability  of  the 
latter  bank  would  not  inure  to  its  benefit. 
{Inquiry  from  N.  Y.,  April,  1921.) 

Printing  of  limited  liability  clause  on  deposit 
ticket  as  well  as  pass-book 

1110.  Is  it  necessary  for  the  protection 
of  a  bank  in  crediting  foreign  items  to  a 
customer's  account  that  the  phrase  "Credit 
subject  to  final  payment"  be  set  forth  in  the 
pass-book,  or  on  the  deposit  slip,  or  both? 
Opinion:  A  pass-book  clause  has  been  held 
a  contract  with  the  depositor,  but  it  would 
be  the  wiser  course  to  print  the  stipulation 
upon  the  deposit  ticket  also.  The  under- 
lying object  is  to  estabhsh  a  contract  be- 
tween bank  and  customer  changing  the 
liability  which  might  otherwise  exist  under 
the  law.  There  have  been  certain  cases 
where  depositors  have  contended  that  they 
never  read  the  clause  in  the  pass-book  and 
as  they  had  not  assented  thereto,  it  was  not 
binding  on  them  as  a  contract.  It  is  gen- 
erally held,  however,  that  such  pass-book 
clauses  are  binding,  but  the  printing  of  the 
stipulation  on  the  deposit  slip  as  well  as  in 
pass-book  would  make  assurance  doubly 
sure.    {Inquiry  from  Wis.,  Jan.,  1921.) 

Bank's  lien  on  paper  held  for  collection 

Lien  for   indebtedness   of  forwarding    bank 
having  apparerit  title 

1111.  The  payee  of  a  check  indorsed  it 
in  blank  and  deposited  it  in  bank  C,  which 
mailed  it  to  bank  D  for  collection.    Before 


bank  D  collected  the  same,  bank  C  failed 
and  payment  is  stopped.  Bank  0  is  in- 
debted to  D  on  current  account,  and  the 
latter  wishes  to  know  if  it  has  a  hen  on  the 
paper  for  such  indebtedness.  Opinion: 
The  indorsement  in  blank  indicates  that  the 
paper  belonged  to  bank  C.  As  bank  D  did 
not  collect  the  check  but  held  it,  it  would 
seem  that  it  had  a  lien  on  the  check  for  the 
failed  bank's  indebtedness  to  it.  See  Bank 
of  Metropohs  v.  New  England  Bank,  42 
U.  S.  (1  How.)  234,  47  U.  S.  (6  How.)  212, 
Studebaker  Bros.  Mfg.  Co.  v.  First  Nat. 
Bank,  42  S.  W.  (Tex.)  573.  National  Bank 
V.  Bonsor,  38  Pa.  Super,  275.  Michie  on 
Banking,  Sec.  159.  {Inquiry  from  Va., 
March,  1915.) 

1112.  The  bank  of  A  received  from  the 
bank  of  C  for  collection  a  draft  drawn  by  B. 
After  the  C  bank  had  failed  the  draft  was 
paid  and  the  A  bank,  having  no  knowledge 
from  the  form  of  the  draft  that  the  C  bank 
was  not  the  owner,  credited  the  latter  bank 
with  the  amount.  Opinion:  Unless  the 
A  bank  knew  that  the  C  bank  was  the  col- 
lecting agent  of  the  drawer,  it  had  a  lien 
upon  the  paper  or  its  proceeds  for  a  balance 
of  account  due  from  the  failed  bank.  Carroll 
V.  Exch.  Bk.,  30  W.Va.  518.  Bk.  of  Metrop- 
olis V.  N.  E.  Bk.,  1  How.  234.  Sweeney  v. 
Easter,  1  Wall.  (U.  S.),  166.  Wyman  v. 
Colo.  Nat.  Bk.,  5  Colo.  30.  Am.  Exch.  Nat. 
Bk.  V.  Theummler,  195  111.  90.  Garrison  v. 
Union  Tr.  Co.,  139  Mich.  392.  Continental 
Nat.  Bk.  v.  First  Nat.  Bk.,  84  Miss.  103. 
{Inquiry  from  W.  Va.,  Aug.,  1913,  Jl.) 

No  lien  for  indebtedness  of  forwarding  bank 
agent 

1113.  Bank  A  indorses  a  draft  "for 
collection  and  remittance,"  and  sends  it  to 
bank  B  which  forwards  it  to  bank  C  at  point 
of  payment.  The  draft  was  paid  on  day  B 
failed,  and  C  credited  item  in  an  account 
it  had  with  B.  A  claims  that  C  should  have 
made  payment  to  it  directly  and  that  the 
item  was  its  property.  Opinion:  The 
restrictive  indorsement  "for  collection  and 
remittance"  to  B  made  it  appear  as  a 
collecting  agent  only  and  in  such  case  a 
creditor  bank  collecting  the  item  could  not 
credit  it  to  the  agent  bank's  account,  thus 
offsetting  part  of  the  latter's  indebtedness 
to  it,  but  must  account  for  the  proceeds  to 
the  owner.  See  A.B.  A.  Jl,  Aug.,  1913,  p.  31. 
{Inquiry  from  Pa.,  Nov.,  1913.) 

1114.  The  bank  of  A  received  for  col- 
lection from  the  bank  of  C,  which  there- 


250 


COLLECTION 


[1115-1117 


after  failed ,  a  note  drawn  by  B  and  indorsed 
in  blank  by  the  payee,  "Pay  to  the  order  of 
any  bank,  banker  or  trust  company." 
Opinion:  This  form  of  indorsement  indi- 
cated that  the  bank  of  C  was  not  owner  but 
collecting  agent  for  the  note.  The  bank  of 
A  therefore  acquired  no  right  of  lien  upon 
the  paper  for  an  indebtedness  to  it  of  the 
bank  of  C.  {Inquiry  from  W.  Va.,  Nov., 
1918.) 

Negligence   of  collecting   bank 

Delay  in  collecting  drafts  on  failing  consignee 
and  disobedience  of  protest  instructions 

1115.  A  shipper  of  hogs  drew  a  draft  on 
the  consignee,  payable  at  a  ]3ank  in  the  home 
town  of  the  consignee  in  IlHnois.  It  was 
drawn  payable  on  demand  to  the  order  of  a 
bank  in  the  shipper's  town  in  Tennessee.  The 
shipper  placed  it  in  this  bank,  with  express 
instructions  to  send  it  with  orders  to  protest 
if  not  paid.  He  was  given  credit  for  the 
draft  and  it  was  sent  direct  to  the  Illinois 
hank  with  a  "no  protest"  sHp  attached.  The 
latter  bank  did  not  insist  on  payment,  for 
it  was  trying  to  favor  the  consignee,  who 
was  in  a  poor  condition  financially.  On  the 
same  day  that  this  draft  was  received  by  the 
Illinois  bank  another  shipment  of  hogs  was 
sent  under  the  same  conditions  and  circum- 
stances as  the  first  one,  and  it  was  handled 
in  the  same  way  by  both  banks.  Six  days 
later,  thinking  that  the  first  two  drafts  had 
been  paid,  the  shipper  sent  another  carload 
of  hogs,  and  drew  another  draft  under  the 
same  circumstances  as  the  first  two,  and  it 
was  handled  in  the  same  way  by  both  banks. 
Eight  days  later  the  shipper's  bank  informed 
him  that  the  three  drafts  had  been  returned 
unpaid  and  that  he  would  have  to  make 
them  good,  which  he  did.  Three  daj^s 
later  the  consignee  failed.  It  can  probably 
be  shown  that  if  the  drafts  had  been  sent 
with  orders  to  protest,  the  shipper  would 
have  rebilled  the  hogs.  It  is  clear  that  had 
the  first  draft  been  protested,  the  third 
carload  would  not  have  been  sent  to  the 
consignee,  and  it  is  possible  that  the  second 
carload  could  have  been  stopped  in  transit. 
The  shipper  made  the  drafts  good  believing 
that  they  had  been  properl}'  protested. 
What  is  the  liability  of  the  banks  to  the 
shipper?  Opinion:  The  IlHnois  bank  would 
seem  to  be  liable,  for  if  it  knew  that  the 
drawee  was  in  a  poor  condition  financially 
and  it  failed  to  return  the  drafts  promptly 
and  warn  its  principal.  The  Tennessee  bank 
disobeyed  the  express  instructions  to  send 
the  drafts  with  orders  to  protest  if  not  paid. 


which  would  seem  to  make  it  liable  to  the 
shipper.  The  refunding  of  the  amount  to  the 
bank  by  the  latter  would  not  debar  him  from 
recovering,  for  the  payment  was  under  a 
mistake  of  fact  concerning  the  non- 
protest  of  the  drafts.  This  is  on  the  theory 
that  the  Tennessee  bank  was  collecting 
agent  of  the  shipper.  If  it  purchased  the 
drafts  from  him,  the  shipper  would  be  liable 
only  as  drawer  and  would  be  discharged  by 
the  failure  of  due  presentment  and  the  loss 
as  between  the  shipper  and  the  Tennessee 
bank  would  fall  on  the  latter.  The  assump- 
tion is,  however,  that  the  Tennessee  bank 
was  a  collecting  agent  and  the  credit  was 
provisional.  It  would  seem  that  the  Illinois 
bank  is  ultimately  liable,  and  as  between  the 
shipper  and  the  Tennessee  bank,  the  latter 
is  liable.  {Inquiry  from  N.  Y.,  March, 
1921.) 

Delay  in  collecting  note  until  outlawed 

1116.  A  bank  forwarded  to  another 
bank  a  note  which  had  matured  nearly  ten 
years  previously,  with  instructions  to  collect, 
obtain  a  new  note,  or  place  in  the  hands  of  an 
attornej^  and  failing  in  any  of  the  foregoing, 
to  return  the  note  within  ten  daj^s  of  its 
receipt.  The  collecting  bank  undertook  the 
collection  but  neglected  to  follow  the  in- 
structions, and  returned  the  note  after 
it  became  outlawed,  to  the  owner's 
damage.  Opinion:  The  bank  is  liable  for 
such  damages  as  were  caused  by  its  neg- 
lect of  duty.  The  owner  lost  his  remedy 
at  law  and  his  prima  facie  damages  are  the 
full  amount  of  the  note.  Merchants  & 
Manufacturer  Bk.  v.  Stafford  Nat.  Bk.,  44 
Conn.  564.  Iowa  Code,  1897,  Ch.  2,  Sec. 
3447.     {Inquiry  from  Cal,  April,  1913,  Jl.) 

Delay  in  collecting  note 

1117.  A  Texas  bank  receiving  a  note  for 
collection  forwarded  it  to  a  bank  in  Utah, 
with  specific  instructions  to  have  the 
instrument  collected  by  that  bank's  attorney. 
The  Utah  bank  held  the  note  for  four  months 
before  returning  the  same  uncollected. 
Opinion:  The  Utah  bank,  having  under- 
taken the  collection,  must  use  reasonable 
diligence,  and  its  retention  of  the  note  for 
four  months  without  advising  the  Texas 
bank  is  itself  a  negligent  act.  If  it  can  be 
proved  that  the  debtor  could  have  been 
forced  to  pay  by  prompt  action,  but  has 
since  become  insolvent,  the  Utah  bank  is 
liable  for  the  amount  of  damages  proved. 
Bk.  of  Washington  v.  Triplett,  1  Pet.  (U. 
S.)  37.    Jefferson  County  Sav.  Bk.  v.  Hend- 


251 


1118-1123] 


DIGEST  OF  LEGAL  OPINIONS 


rix,  39  So.  (Ala.)  295.  Finch  v.  Karste,  56 
N.  W.  (Mich.)  123.  Farmers  Bk.  v.  New- 
land,  3  S.  W.  (Ky.)  38.  Hendrix  v.  Jefferson 
County  Sav.  Bk.,  45  So.  (Ala.)  136.  Davis 
V.  First  Nat.  Bk.,  50  Pac.  (Cal.)  666.  Fox 
V.  Davenport  Nat.  Bk.,  35  N.  W.  (la.)  688. 
Dorn  V.  Kellogg,  74  N.  W.  (Neb.)  844.  Dia- 
mond Mill  Co.  V.  Groesbeck  Nat.  Bk.,  29 
S.  W.  (Tex.)  169.  {Inquiry  from  N.  M., 
Apr.  1916,  Jl.) 

Neglect   to  follow  instructions 

1118.  A  bank  forwarded  to  its  corres- 
pondent a  draft  with  the  following  in- 
structions: "This  item  is  payable  on  pre- 
sentation and  is  not  to  be  held  for  arrival  of 
goods,  for  the  convenience  of  the  drawee  or 
for  any  other  reason.  If  not  paid  on  presen- 
tation protest  and  return  immediately,  ad- 
vising by  telegraph.  Our  customer  will  hold 
the  collecting  bank  strictly  accountable  for 
failure  to  follow  the  foregoing  instructions." 
The  item  was  properly  protested  and 
handled  in  accordance  with  instructions, 
except  that  the  bank  failed  to  wire  the  pro- 
test. Had  the  sending  bank  paid  out  money 
in  the  transaction,  would  the  collecting  bank 
have  been  liable?  Opinion:  A  bank  acting 
as  agent  for  collection  is  under  duty  to 
follow  special  instructions  with  regard  to  the 
collection  and  for  any  neglect  to  follow  in- 
structions, from  which  damage  results,  it 
will  be  liable  to  its  principal.  Sahlien  v.  Bk., 
90  Tenn.  221.  Fahy  v.  Fargo,  17  N.  Y.  S. 
344.  Allen  v.  Suydam,  20  Wend,  (N.  Y.) 
329.  Selz  V.  ColHns,  55  Mo.  App.  55. 
Meadville  First  Nat.  Bk.  v.  N.  Y.  Fourth 
Nat.  Bk..  77  N.  Y.  328,  329.  {Inquiry  from 
Kans.,  Sept.,  1918,  Jl.) 

Violation  of  instructions 

1119.  A  bank  received  three  indorsed 
notes  for  collection  with  instructions  to 
protest  if  not  paid,  and  upon  learning  that 
renewals  had  been  forwarded,  returned  the 
notes  to  its  principal  without  protesting  or 
taking  steps  to  hold  indorsers.  The  renewals 
were  not  received  by  the  principal,  and 
would  have  been  unacceptable  if  received, 
as  upon  non-payment  the  principal  intended 
to  bring  suit  against  the  maker  and  in- 
dorsers. Opinion:  The  collecting  bank  is 
liable  to  its  principal  for  any  loss  sustained 
because  of  \'iolation  of  instructions.  Walker 
v.  Bk.  of  St.  of  N.  Y.,  9  N.Y.  582.  Am. 
Exp.  Co.  V.  Haire,  21  Ind.,  4.  Montgomery 
County  Bk.  v.  Albany  City  Bk.,  7  N.  Y. 
459.  Chapman  v.  McCrea,  63  Ind.  360. 
Merchants,  etc.,  Bk.  v.  Stafford  Nat.  Bk.. 


44  Conn.  564.     {Inquiry  from  Pa.,  Aug., 
1912,  Jl.) 

Return  for  indorsement  before  forwarding  for 
payment  not  negligent 

1120.  A  check  drawn  by  A  in  favor  of 
himself  but  not  bearing  his  indorsement,  was 
forwarded  by  B  bank  to  a  correspondent 
bank,  which  returned  the  item  to  B  bank  for 
indorsement,  without  first  forwarding  for 
payment  by  the  drawee.  Opinion:  The 
action  of  the  bank  as  collection  agent  was 
proper     {Inquiry  from  Cal.,  Aug.,  1912,  Jl.) 

Non-presentment  of  time  draft  for  acceptance 

1121.  Bank  A  received  a  time  draft 
drawn  on  a  party  in  the  same  state.  The 
item  was  forwarded  to  its  correspondent 
Bank  B,  which  in  turn  forwarded  it  to  its 
correspondent  Bank  C,  located  in  the  same 
place  as  the  drawee.  Bank  C  held  the  draft 
fifteen  days  without  presenting  it  for  accept- 
ance, but  presented  it  for  payment  at  ma- 
turity, when  payment  was  refused.  Opin- 
ion: The  collecting  bank  must  present  a 
time  draft  for  acceptance  when  received 
and  is  negligent  if  it  waits  until  maturity 
and  merely  presents  the  draft  for  pajonent. 
Exch.  Nat.  Bk.  v.  Third  Nat.  Bk.,  112  U.  S. 
276.     {Inquiry  from  Conn.,  Feb.,  1916,  Jl.) 

Forwarding   draft   in   usual   course   without 

attempting  to  procure  acceptance  by  wire 

not  neglect 

1122.  A  collecting  bank  forwarded  a 
sight  draft  dehvered  in  Kansas  upon  a  bank 
in  Missouri  to  its  correspondent,  which 
presented  the  same  to  the  drawee.  In  the 
meantime  the  drawer  stopped  payment  and 
the  draft  was  protested  and  returned.  Opin- 
ion: The  bank  used  due  diligence  when  it 
forwarded  the  draft  in  the  usual  course,  and 
its  customer  has  no  reason  to  complain.  In 
the  absence  of  some  special  reason  or  in- 
struction given  the  collecting  bank,  it 
was  not  incumbent  upon  it  in  the  exercise 
of  due  diligence  to  attempt  to  procure  ac- 
ceptance by  telegram.  {Inquiry  from  Kan., 
March,  1912,  Jl.) 

Failure    to    trace    unacknowledged   item 
for  two  rnonths 

1123.  An  accepted  draft  was  forwarded 
by  Bank  A  to  bank  B  for  collection.  Over 
two  months  later  B  notified  A  that  it  had 
sent  it  to  bank  C  in  town  where  acceptors 
did  business.  The  draft  was  not  honored, 
and  was  returned  unpaid,  but  was  never 
received  by  B.    A  claims  it  would  have  been 


252 


^ 


COLLECTION 


[1124-1127 


able  to  have  collected  but  for  the  delay. 
Opinion:  B  was  negligent  in  not  following 
this  item  up  sooner  and  promptly  advising 
A,  and  would  be  responsible  for  any 
resulting  loss.  The  acceptance  having 
been  dishonored,  there  was  recourse  upon 
the  drawers  provided  they  were  duly  notified 
of  dishonor,  and  in  case  of  loss  in  the  mail,  a 
reasonable  delay  would  be  excusable;  but 
two  months  would  probably  be  held  un- 
reasonable, and  the  drawers  would  be  dis- 
charged from  habihty,  in  which  case  B 
would  be  held  responsible.  Aside  from  this, 
the  acceptance  never  having  been  paid,  A, 
as  owner  thereof,  would  have  a  right  of 
action  against  the  acceptors  based  upon  a 
copy  or  written  particulars  of  the  lost  in- 
strument.    {Inquiry  from  Ala.,  Oct.,  1916.) 

1124.  Two  months  after  a  check  was 
forwarded  for  collection  the  correspondent 
notified  the  forwarding  })ank  that  the  item 
had  been  lost  in  the  further  process  of  col- 
lection. Does  the  delay  in  tracing  the  item 
and  in  notifying  the  forwarding  bank  render 
the  correspondent  Hable?  Opinion:  It  is 
the  duty  of  a  collecting  bank  to  ascertain 
within  a  reasonable  time  whether  paper 
entrusted  to  it  for  collection  and  transmitted 
by  it  to  a  correspondent  has  been  received 
by  such  correspondent;  and  if  not,  to  ad- 
vise its  customer  of  such  fact  and  it  is 
Uable  for  loss  resulting  from  its  failure 
to  do  so.  Just  what  constitutes  a  rea- 
sonable time  depends  upon  the  facts  of 
each  individual  case.  In  a  Kentucky  case 
a  delay  of  eight  days  was  held  to  amount 
to  negligence.  It  would  seem  from  the  cases 
that  a  delay  for  two  months  or  longer  would 
constitute  neghgence.  Manhattan  Life 
Ins.  Co.  V.  First  Nat.  Bk.,  20  Colo. 
App.  529,  80  Pac.  467.  Fabens  v.  Mercan- 
tile Bk.,  23  Pick,  (Mass.)  330.  Kirkham  v. 
Bk.,  165  N.  Y.  132.  Hobart  Nat.  Bk.  v. 
McMurrough,  24  Okla.  210.  Diamond  Mill 
Co.  V.  Groesbeeck  Nat.  Bk..  9  Tex.  Civ.  App. 
31.  Milwaukee  Nat.  Bk.  v.  City  Bk.,  103  U.S. 
668.  See  also  citations  in  Opinion  No.  1125. 
{Inquiry  from  Tex.,  May,  1919,  Jl.) 

Forty-seven  days'  delay  in  tracing 
unacknowledged  item 

1125.  A  collecting  bank  received  an 
item  for  collection  and  delayed  for  forty- 
seven  days  to  notify  the  forwarding  bank 
that  it  had  received  no  return  from  the  item 
and  no  reply  from  the  tracers  sent  out  to 
locate  it.  Opinion:  A  collecting  bank 
which  receives  and  forwards  an  item 
to  a  correspondent  which  is  not  acknowl- 


edged or  remitted  for  in  due  course,  must 
promptly  trace  such  item  and  notify  its 
principal,  and  a  delay  of  forty-seven  days  is 
unreasonable  and  will  make  the  collecting 
bank  responsible  to  its  principal  for  the  loss. 
Second  Nat.  Bk.  v.  Merchants  Nat.  Bk.,  65 
S.  W.  (Ky.)  4.  Shipsey  v.  Bk.  59  N.  Y.  485. 
First  Nat.  Bk.  of  Trinidad  v.  First  Nat.  Bk. 
of  Denver,  4  Dill,  290.  3  Am.  &  Eng.  Enc. 
Law  (2nd  Ed.),  p.  805.  First  Nat.  Bk.  of 
Shreveport  v.  City  Nat.  Bk.,  166  S.  W. 
(Tex.)  689.  {Inquiry  from  Ark.,  Apr., 
1919,  Jl) 

Two  years'  delay  in  tracing  unacknowledged 
item 

1126.  A  customer  deposited  for  collec- 
tion a  check  drawn  on  a  Texas  bank.  The 
collecting  bank  mailed  the  item  direct  to  the 
drawee  and  failed  to  hear  from  the  same  for 
over  two  years,  during  which  time  the 
drawee's  name  disappeared  from  the  bank 
directory.  Depositor  did  not  sign  de- 
posit slip  relieving  bank  from  responsibility 
for  losses  in  the  mail.  Opinion:  Assuming 
loss  in  mail,  the  failure  to  trace  promptly 
was  negligence,  and  even  if  depositor  signed 
shp  this  would  not  relieve  the  bank  from  the 
consequences  of  its  own  negligence.  {In- 
quiry from  Ga.,  Sept.,  1911,  Jl.) 

Several  months'  delay  in  tracing  unacknowl- 
edged item 

1127.  A  bank  gave  its  depositor  credit 
for  a  sight  draft  and  forwarded  it  for  col- 
lection. Its  correspondent  forwarded  the 
item  to  another  bank.  This  third  bank 
presented  the  item  which  was  refused.  It 
did  not  credit  the  account  of  the  second 
bank,  but  failed  to  notify  it  of  the  refusal 
and  to  return  the  item.  About  six  weeks 
after  the  draft  was  forwarded,  the  second 
bank  found  in  checking  over  the  monthly 
account  that  the  draft  was  not  credited  and 
noted  it  as  an  exception  on  its  reconcile- 
ment. It  did  the  same  with  the  next  three 
monthly  statements.  Thereafter  it  dis- 
covered that  the  draft  had  not  been  paid 
but  that  the  debt  to  the  depositor  had  been 
paid  by  a  check  sent  directly  to  him.  The 
second  bank  then  notified  the  first  bank. 
Which  bank  must  stand  the  loss  incident  to 
the  bankruptcy  of  the  depositor?  Opinion: 
The  rule  is  well  settled  that,  for  any  neglect 
in  failing  to  give  notice  of  dishonor,  the 
collecting  bank  is  liable.  Thus,  where  bank 
A  mails  a  sight  draft  to  bank  B,  which  in 
turn  mails  same  to  bank  C,  by  whom  draft 
is  presented  and  pajnnent  refused,  but  no 


253 


1128-1130] 


DIGEST  OF  LEGAL  OPINIONS 


report  is  made  by  bank  C  of  its  dishonor, 
and  bank  B  fails  for  several  months  to  trace 
and  report  its  non-payment  to  bank  A,  the 
drawer  having  failed  in  the  meantime,  bank 
B  is  liable  to  bank  A  for  its  neghgence  in 
faihng  to  make  inquiry  promptly,  and  bank 
C  is  liable  to  bank  B  for  failure  to  give 
prompt  notice  of  dishonor.  Bird  v.  La. 
State  Bank,  93  U.  S.  96.  Chapman  v. 
McCrea,  63  Ind.  360.  Exch.  Bank  v. 
Sutton  Bank,  78  Md.  577.  {Inquiry  from 
Va.,  July,  1919,  Jl.) 

Delay  in  reporting  non-payment 

1128.  Bank  D  received  from  bank  A  a 
check  drawn  on  bank  B  which  it  forwarded 
to  bank  C  for  collection;  two  and  a  half 
months  afterwards  C  returned  the  check  with 
the  advice  that  the  drawee  entered  the 
check  for  collection  pending  adjustment  of 
some  kind  which  it  was  unable  to  accomplish. 
A  refused  to  accept  a  charge  to  its  account 
because  of  the  length  of  time  check  was  held 
by  B,  and  D  refused  credit  to  its  corres- 
pondent C.  It  is  desired  to  know  if  C  can 
charge  the  item  to  D's  account.  Opinion: 
The  delay  of  C  to  advise  D  of  non-payment 
of  the  item  would  probably  be  held  such 
negligence  or  laches  as  to  make  it  Uable  for 
the  amount.  The  same  reason  of  delay 
which  prompts  bank  A  to  refuse  to  accept  a 
charge  of  the  item  to  its  account  by  D  is 
equally  appHcable  as  between  D  and  its 
correspondent  C.  {Inquiry  from  Idaho,  May, 
1919,  Jl.) 

1129.  A  business  concern  drew  a  number 
of  sight  drafts  on  its  representative  at  a 
distant  point,  and  received  credit  from  bank 
A  on  them,  which  bank  forwarded  them  to 
bank  B,  and  the  latter  sent  them  for  col- 
lection to  bank  C  where  the  representative 
was  located.  The  latter  failed  to  pay  the 
drafts  on  presentation.  Repeated  requests 
for  reports  on  the  drafts  were  unanswered 
by  C  which  after  holding  drafts  thirty  days 
notified  B  that  they  were  unpaid  and  offered 
to  return  them.  The  business  concern  failed, 
and  B  instructed  C  to  return  the  drafts. 
Bank  A  claims  C  was  neghgent  and  is  hable 
to  it.  Opinion:  A  bank  undertaking  a 
collection  is  bound  to  use  due  dihgence  and 
is  responsible  if  it  fails  to  exercise  such  dih- 
gence. In  the  present  case  bank  C  owed  a 
duty  to  its  principal  to  give  prompt  notice 
of  the  dishonor  of  the  paper  intrusted  to  it 
for  collection  and  it  would  seem  that  a  delay 
of  thirty  days  in  giving  such  notice  of  dis- 
honor (particularly  in  view  of  the  fact  that 
it  was  several  times  called  upon  to  report 


on  such  paper)  would  be  such  negligence  on 
the  part  of  bank  C  as  would  render  it  hable 
for  any  damage  suffered  by  its  principal 
by  reason  of  such  negligence  on  its  part. 
{Inquiry  from  Miss.,  Jan.,  1921.) 

Disobedience    of    protest    instructions    and 
failure  to  report  non-payment 

1130.  A  draft  was  forwarded  with  in- 
structions to  protest,  but  the  correspondent 
marked  it  "No  protest"  and  forwarded  it  for 
collection.  The  depository  after  waiting  for 
what  it  considered  a  reasonable  length  of 
time,  allowed  the  depositor  to  check  out  the 
amount  of  the  draft.  The  draft  was  re- 
turned to  it  unpaid  after  the  lapse  of  thirty 
days.  The  drawee  having  sent  a  check  to 
the  drawer,  the  depository  bank  notified 
its  correspondent  that  the  matter  had  been 
adjusted.  However,  the  check  was  pro- 
tested and  the  correspondent  notified.  The 
depositor,  beheving  himself  liable,  tendered 
a  note  for  the  amount  of  the  draft;  this  was 
refused  until  the  correspondent  requested 
that  it  be  accepted;  afterwards  when  it  was 
unpaid,  it  was  returned  to  the  correspond- 
ent. Who  should  stand  the  loss?  Opin- 
ion: The  question  here  is  as  to  responsi- 
bility for  the  loss  as  between  (1)  depositor 
(2)  depository  bank  (3)  correspondent  bank. 
The  check  was  received  for  collection  and  the 
depository  bank  was  not  hable  for  the 
neglect  of  its  correspondent  in  disobeying 
instructions  as  to  protest  and  failure  to 
promptly  report  non-payment,  but  for  such 
neglect  the  correspondent  was  answerable 
directly  to  the  depositor.  Louisville  Third 
Nat.  Bank  v.  Vicksburg  Bank,  61  Miss.  112. 
Such  neglect  created  a  liability  of  the  corres- 
pondent, unless  subsequently  waived.  The 
subsequent  taking  of  the  debtor's  check, 
which  was  dishonored,  was  not  a  waiver  of 
such  Habihty.  The  depositor,  having  re- 
ceived the  money  in  advance  of  collection, 
subsequently  gave  his  note  for  the  amount, 
in  behef  that  he  was  hable.  But  this  note 
was  not  tendered  the  correspondent,  but 
intended  as  repayment  to  the  depository  for 
the  amount  advanced  and,  although  it  was 
taken  by  the  depository  at  request  of  the 
correspondent  and  turned  over  to  the  latter, 
it  is  doubtful  if  it  constituted  a  waiver  of 
hability  of  the  correspondent.  It  would 
seem  that  the  correspondent  is  hable  to  the 
depositor  and  the  latter  to  the  depository 
bank  for  the  money  advanced  by  it  to  him. 
{Inquiry  from  Miss.,  Nov.,  1920.) 


254 


COLLECTION 


[1131-1136 


Duty  to  promptly  return  unpaid  draft 

1131.  If  a  bank  forwards  a  draft  for 
collection,  does  the  collecting  bank  assume 
any  responsibility  if  it  fails  to  return  it 
immediately  when  not  paid?  Opinion:  A 
bank  receiving  a  draft  for  collection,  which 
is  unpaid,  is  bound  to  return  same  promptly 
and  will  be  liable  to  its  principal  for  any 
damages  suffered  because  of  negligence  in 
this  respect.  See  Lord  v.  Hingham 
Nat.  Bank,  186  Mass.  161,  71  N.  E.  312. 
(Inquiry  from  N.  J.,  Aug.,  1916.) 

Seven  days  retention  of  check  by  drawee 

1132.  A  drawee  bank  received  a  check 
for  collection  and  held  it  for  about  seven 
days,  and  then  returned  it  with  the  notation 
that  the  drawer  had  no  account  with  it. 
The  drawer  of  the  check  in  the  meanwhile 
had  disappeared,  and  it  appears  he  had  had 
some  business  arrangement  with  one  of  the 
officers  of  the  drawee  bank,  had  been  fur- 
nished with  a  check  book,  and  had  been  in 
the  habit  of  giving  checks  which  the  bank 
cashed.  The  owner  of  the  check  claims  that 
if  it  had  been  promptly  returned  with 
notation  he  would  have  been  able  to  make 
collection.  Opinion:  The  owner  of  the 
check  would  undoubtedly  have  a  right 
of  action  against  the  drawee  bank  for 
negligence.  (Inquiry  from  Miss.,  July, 
1919.) 

Three  days  retention  of  checks,  partly  good, 
by  drawee 

1133.  A  collection  letter  contains  three 
checks.  When  received  the  account  is 
sufficient  to  pay  two  of  them,  but  not  all 
three.  It  is  the  custom  of  the  bank  to  hold 
such  a  letter  for  three  daj^s  if  necessary  until 
a  deposit  is  made  sufficient  to  pay  all  the 
checks.  The  question  is,  if  during  the  three 
days  the  balance  is  lessened,  instead  of  in- 
creased, so  that  the  fund  would  not  be  suffi- 
cient to  pay  the  two  checks  originally  good 
when  the  letter  was  received,  or  either  one 
of  them,  would  the  bank  be  liable?  Opin- 
ion: Such  a  custom  of  holding  items  is  not 
a  safe  one  to  follow.  A  check  is  payable  on 
demand,  and  the  bank  should  pay  those  of 
the  checks  which  the  account  is  sufficient 
to  meet,  and  protest  and  return  the  others. 
A  bank  upon  which  a  check  is  drawn  and  to 
which  it  is  forwarded  for  collection  holds  the 
dual  relation  of  agent  of  the  drawer  to  pay 
his  check,  and  agent  of  the  holder  to  make 
collection.  In  the  latter  capacity  it  might 
be  held  liable  for  neghgence  in  holding  a 
check  three  days  where  the  check  was  orig- 


inally good  when  presented,  but  where  the 
bank  afterwards  allowed  the  account  to  be 
depleted  by  the  drawer  so  as  to  allow  in- 
sufficient funds  for  its  payment.  (Inquiry 
from  Mo.,  Oct.,  1917.) 

Failure  to  wire  non-payment  as  instructed 

1134.  A  grower  of  melons  showed  a 
bank  a  telegram  from  a  commission  mer- 
chant offering  to  buy  from  the  grower  two 
cars  of  melons,  if  they  were  of  the  average 
weight  of  25  pounds  and  directing  the 
grower  that  if  they  were  of  that  average  to 
draw  on  him  through  a  named  bank.  The 
melons  were  shipped  and  the  grower  drew 
on  the  commission  merchant  and  deposited 
the  draft  with  his  bank  for  collection.  The 
bank  sent  the  draft  to  the  bank  named  with 
instructions  to  wire  it  if  the  draft  was  not 
paid  on  presentation.  Instead  of  doing  so, 
the  collecting  bank  kept  the  draft  for  ten 
days  and  then  returned  it  unapid,  for  the 
reason  that  the  melons  were  not  of  the 
proper  size.  In  the  meantime  the  grower's 
bank  allowed  him  to  draw  out  the  amount 
of  the  draft  in  apparent  reliance  on  the 
failure  of  the  collecting  bank  to  notify  it  of 
the  failure  to  accept  the  draft.  Is  the  grower 
hable  to  refund?  Is  the  collecting  bank 
hable?  Opinion:  As  the  collecting  agent 
failed  to  obey  instructions  to  wire  notifica- 
tion if  the  draft  was  not  paid  on  presenta- 
tion, and  as  a  result  the  grower  was  allowed 
to  draw  out  the  proceeds  of  the  draft,  such 
collecting  agent  is  liable  for  the  loss  resulting 
from  its  failure.  (Inquiry  from  Fla.,  Feb., 
1921.) 

1135.  Bank  A  sent  to  bank  B  a  check  for 
$500  with  others.  On  its  remittance  sheet 
was  marked:  "Wire  non-pa jonent  of  all 
items  $500  or  over."  B  returned  the  check 
which  was  marked  "No  protest,"  but  failed 
to  wire  A,  and  asks  if  the  "No  protest" 
stamp  protects  it.  Opinion:  It  is  a  general 
rule  that  it  is  the  duty  of  a  bank  undertaking 
a  collection  to  ohcy  anj'  special  instruction 
in  connection  therewith.  It  was  the  duty  of 
B  to  obey  the  instruction  to  wire  non-pay- 
ment of  the  item,  but  unless  A  could  prove 
that  it  had  been  damaged  by  its  omission 
to  receive  the  wire,  there  would  be  no  lia- 
bihty.  The  instruction  not  to  protest  would 
not  help  B  as  the  instruction  to  wire  non- 
payment was  an  independent  instruction. 
Citizens  Savings  Bank  v.  Northfield  Trust 
Co.,  89  Vt.  65,  94  Atl.  302.  (Inquiry  from 
Idaho,  May,  1917.) 

1136.  Bank  A  receives  an  out-of-town 
customer's  check  from  B,  and  there  being 


255 


1137-1139] 


DIGEST  OF  LEGAL  OPINIONS 


not  sufficient  funds  on  hand,  immediately 
protested  and  returned  same,  but  did  not 
follow  printed  instructions  as  to  telegraph- 
ing non-payment  of  items  over  a  certain 
amount,  believing,  as  it  says,  that  it  was  not 
bound  by  the  rules  printed  on  B's  letterhead. 
Opinion:  It  is  the  duty  of  a  collecting  bank 
to  use  ordinary  care  and  diligence  in  taking 
the  steps  necessary  to  accomplish  the  col- 
lection and  to  observe  such  instructions  as 
are  given  to  it  with  reference  to  the  manner 
in  which  the  collection  is  to  be  made  and  if 
the  bank  failed  to  wire  non-payment  as 
instructed,  although  it  immediately  pro- 
tested the  item  and  sent  the  same  back 
by  mail,  there  would  be  danger  of  in- 
curring a  habihty  in  the  event  the  non- 
fulfillment of  the  instruction  caused  a 
loss  to  the  owner  of  the  check.  Lord  v. 
Hingham  Nat.  Bank,  186  Mass.  161,  71 
N.  E.  312.  Omaha  Nat.  Bank  v.  Kiper,  60 
Neb.  33,  82  N.  W.  102.  {Inquiry  from  Mo., 
April,  1920.) 

Acceptance  of  paper  in  payment  instead 
of  money 
1137.  Is  a  collecting  bank  justified  in 
accepting  a  check  or  draft  from  the  drawee 
bank  in  pajmient  of  paper  presented  for 
collection?  Opinion:  While  the  general 
rule  of  law  is  that  a  collecting  bank  is  au- 
thorized to  take  in  payment  money  only 
and  takes  the  drawee  bank's  draft  at  its  own 
risk,  still  the  custom  is  quite  general  to 
accept  the  drawee  bank's  check  instead  of 
money.  Some  courts  uphold  this  custom, 
but  others  hold  the  collecting  bank  to  the 
strict  rule  of  law  and  make  it  responsible 
where  the  drawee  bank's  draft  is  dishonored 
because  of  its  failure.  (See  for  example 
First  Nat.  Bank  v.  First  Nat.  Bank,  134 
S.  W.  (Tex.)  831.  Noble  v.  Doughten,  72 
Kan.  336  and  Albert  v.  State  Bank,  138 
N.  Y.  Supp.  237,  which  uphold  the  custom 
to  accept  a  bank  draft  in  payment;  contra. 
National  Bank  of  Commerce  v.  American 
Exchange  Bank,  52  S.  W.  (Mo.)  265.  Fifth 
Nat.  Bank  v.  Ashworth,  16  Atl.  (Pa.)  596 
to  the  effect  that  a  usage  to  take  the  check 
or  draft  of  the  drawee  bank  is  unreasonable 
and  will  not  protect  the  collecting  bank.) 
The  same  conflict  exists  where  the  draft 
taken  in  payment  is  that  of  an  individual 
debtor  and  not  that  of  a  bank;  some  cases 
holding  that  the  collecting  bank  is  responsi- 
ble. (See,  for  example,  Bradley  Lumber  Co. 
V.  Bradley  Co.  Bank,  206  Fed.  41)  while 
other  decisions  are  to  the  effect  that  custom 
authorizes  the  collecting  bank  to  take  the 
debtor's  check  instead  of  money.     Inter- 


state Nat.  Bank  v.  Ringo,  72  Kan.  116. 
{Inquiry  from  Kan.,  Feb.,  1919.) 

1138.  A  New  York  bank  A  sends  a 
depositor's  check  to  a  Pennsylvania  bank 
B  which  forwards  to  correspondent  C  in 
Alabama  and  that  bank  accepts  the  drawee's 
check  for  same.  The  drawee  fails,  and  A 
inquires  as  to  its  liabiHty.  Opinion:  The 
authorities  are  in  conflict  whether  it  is 
negligence  for  a  collecting  bank  to  accept  the 
drawee's  check  instead  of  money  in  payment 
of  an  item.  The  point  has  not  been  decided 
in  Alabama.  In  Pennsylvania,  the  courts 
hold  the  collecting  bank  negligent.  Fifth 
Nat.  Bank  v.  Ashworth,  16  Atl.  (Pa.)  596. 
The  negligence,  if  it  exists,  would  be  that  of 
the  Alabama  bank  and  B,  the  Pennsylvania 
bank,  would  be  relieved  under  the  Pennsyl- 
vania rule  that  requires  a  bank  to  use  due 
care  only  in  selecting  a  sub-agent  and  re- 
lieves it  from  responsibility  in  case  of  its 
correspondent's  negligence  or  default.  {In- 
quiry from  N.  Y.,Feh.,  1918.) 

Effect   of  dishonor  of  drawee's   draft   taken 
instead  of  cash 

1139.  The  payee  of  a  check  drawn  on 
bank  A  cashed  it  with  bank  B  which  re- 
ceived from  A  its  draft  drawn  on  bank  C  in 
payment.  The  latter  sent  back  the  draft  to 
B  unpaid  for  want  of  funds,  and  on  the  same 
day  A  failed.  B  at  once  tendered  the  dis- 
honored draft  to  A's  assignee  and  demanded 
original  check  which  had  been  stamped  paid 
and  charged  to  drawer,  and  the  inquiry  is  as 
to  its  right  to  such  check.  Opinion:  On  the 
theory  that  the  drawee's  check  was  only 
conditional  payment,  B  would  be  entitled 
to  return  of  the  check  from  the  assignee  of  A 
upon  tendering  back  the  dishonored  draft 
of  that  bank.  But  the  drawer  and  payee  of 
the  original  check  would  probably  be  dis- 
charged. In  Anderson  v.  Gill,  79  Md.  312, 
the  payee  of  a  check  deposited  it  in  bank 
which  accepted  the  check  of  the  drawee  who 
failed  later  in  the  day,  instead  of  cash.  Re- 
turn of  the  original  check  was  demanded 
and  refused.  A  notary  made  a  copy  of  the 
original  and  protested  it.  In  an  action  by 
the  payee  to  recover  from  the  drawer  of  the 
original  check,  the  court  said  the  acceptance 
of  the  drawee's  check  was  either  payment  of 
the  original  check  or  it  was  not.  If  it  was 
pajTuent,  as  it  would  be  according  to  the 
Massachusetts  doctrine,  the  drawer  was 
discharged.  If  it  was  not  payment,  then  the 
holder's  collecting  agent  was  responsible  to 
the  payee  for  having  given  up  the  check 
without  payment  and  if  injury  resulted  to 


256 


I 


COLLECTION 


[1140-1144 


the  drawer  by  reason  of  the  agent's  failure 
to  use  dihgence  in  converting  the  drawee 
bank's  check  into  money,  then  also  the 
drawer  was  discharged.  The  court  pointed 
out  that  had  the  presenting  bank  caused  the 
original  check  to  be  certified,  the  drawer 
would  have  been  discharged  at  once,  and 
while  the  present  transaction  was  different, 
the  drawer  was  placed  in  a  position  of  peril 
by  the  act  of  the  collecting  agent.  The  de- 
cision went  on  the  ground  that  the  drawer 
was  discharged  because,  under  the  facts  of 
the  case,  the  holder  had  failed  to  use  due 
diligence  in  collecting  the  check  taken  in 
payment.     {Inquiry  from  III.,  Jan.,  1915.) 

Surrender  of  paper  before  full  'payment 

1140.  A  gave  his  note  to  B  who  put  it  in 
bank  C  for  collection.  The  bank  collected 
less  than  the  amount  due  and  surrendered 
the  note  to  A.  The  question  is  as  to  the 
proper  party  to  bring  suit  against  A,  B,  or 
the  bank.  Opinion:  Bank  C  was  guilty  of 
negligence  in  surrendering  the  note  to  the 
maker  before  it  was  fully  paid  and  would  be 
liable  to  the  owner  for  the  unpaid  portion 
with  interest.  The  maker  remains  liable 
for  the  balance  due,  and  the  owner  would 
undoubtedly  have  the  right  to  bring  action 
against  him  but  would  not  be  compelled  to 
do  so  as  he  would  have  the  right  to  hold  the 
bank  liable  by  reason  of  its  negUgence  and 
could  throw  upon  the  latter  the  burden  of 
suing  the  maker.  {Inquiry  from  Wyo., 
May.,  1915.) 

Selling  note  to  stranger  instead  of  collecting 
froyn  maker 

1141.  A  bank  holds  a  note  secured  by 
mortgage  as  agent  for  collection.  Does  the 
bank  incur  liability  by  not  cancelling  the 
note  upon  payment  by  one  other  than  the 
maker  and  transferring  it  to  the  payor  at  his 
special  request?  Opinion:  It  is  a  bank's 
duty  upon  payment  by  the  maker  to  sur- 
render and  cancel  a  note  left  with  it  for 
collection,  and  where  it  turns  the  note  over 
to  a  third  person  who  pays  same  and  the 
bank  omits  to  cancel  it  on  the  request  of 
the  payor,  it  might  incur  a  liability  to  its 
principal  if  this  procedure  resulted  in  any 
damage  to  him,  because  the  bank  would  be 
exceeding  its  authority.  Its  authority  is  to 
collect  from  the  maker  and  not  to  transfer 
to  a  stranger.  Should  such  a  transaction  be 
held  a  purchase  and  not  a  payment,  the 
bank's  principal  might  possibly  be  held 
lial^le  as  indorser  in  the  event  the  maker  did 
not  pay,  and  the  bank  should  not  place  its 


principal  in  this  position.      {Inquiry  from 
Mo.,  March,  1920.) 

Exchange  and  remittance  charges 

Right  to  exchange  charge 

1142.  A  bank  objects  to  a  deduction  of 
exchange  on  a  collection  item  sent  by  it  to  a 
bank  with  which  it  has  no  regular  business 
relations  and  desires  to  know  if  a  charge 
should  be  made.  Opinion:  When  a  bank 
receives  a  check  drawn  upon  it  with 
request  to  remit  the  funds  to  another  place, 
it  is  within  its  rights  in  making  a  reasonable 
exchange  charge  for  the  service  of  remitting. 
The  contract  of  the  bank  with  its  depositor 
is  to  pay  his  checks  in  money  at  the  counter. 
It  does  not  include  sending  the  money  to  a 
distant  payee  to  whom  the  depositor  has 
mailed  his  check;  and  when  such  payee 
accepts  the  check  and  it  is  mailed  to  the 
bank  for  payment,  the  service  of  sending 
back  the  money,  by  bill  of  exchange  payable 
at  the  place  of  the  payee  or  holder,  is  a  serv- 
ice rendered  for  the  holder  of  the  check, 
for  which  a  reasonable  exchange  charge  is 
proper  and  legitimate.  {Inquiry  from  W. 
Va.,  Mar.,  1919.) 

Termination  of  arrangement  for  par  remittance 

1143.  After  making  arrangements  with 
an  out-of-town  bank  to  handle  items  sent  to 
it  free  of  exchange,  bank  A  desires  to  know 
if  it  would  be  justified  in  notifying  the  other 
bank  that  after  a  certain  date  it  would  dis- 
continue remitting  for  such  items  free  of 
exchange.  Opinion:  A  is  perfectly  free,  to 
notify  the  bank  in  question  that  it  will  dis- 
continue remitting  for  such  items  free  of 
exchange.    {Inquiry  from  Md.,  Jan.,  1919.) 

Exchange  charges  by  non-member  banks 

1144.  What  are  the  rights  of  the  Federal 
Reserve  Bank  presenting  their  checks  on 
non-member  banks  through  the  Express 
Company  to  avoid  moderate  exchange  fees? 
Opinion:  Presumably  the  Federal  Reserve 
Bank,  acting  through  an  express  company 
or  any  other  collecting  agency  and  pre- 
senting a  check  at  the  counter  of  the  payor 
bank  has  the  legal  right  to  demand  payment 
of  the  full  face  amount  and  in  such  case,  of 
course,  there  would  be  no  reason  to  issue 
exchange  and  no  right  to  charge  therefor. 
However,  it  is  a  serious  question,  whether 
if  coercive  measures  are  adopted  by  a  Feder- 
al Resserve  Bank  to  make  bulk  collections 
from  non-member  state  banks  who  refuse  to 
remit  at  par,  this  is  a  lawful  method  of 
presentment.     The  Federal  Reserve  Banks 


257 


1145-1149] 


DIGEST  OF  LEGAL  OPINIONS 


have  no  right  to  require  non-member  banks 
to  which  they  mail  checks  to  remit  at  par. 
{Inquiry  from  Mich.,  Jan.,  1920.) 

Note:  In  a  recent  decision  American 
Bank  &  Trust  Co.  v.  Federal  Reserve  Bank 
of  Atlanta,  U.  S.  Supreme  Court,  May  16, 
1921,  it  was  held  that  a  Federal  Reserve 
Bank  may  be  enjoined  from  malevolenty 
accumulating  checks  of  non-member  banks 
and  then  presenting  them  for  collection  over 
the  counter  rather  than  through  the  regular 
channel  of  correspondence  or  clearing,  thus, 
and  by  other  devices,  depriving  such  non- 
member  banks  of  profits  arising  from  ex- 
change charges,  and  incidentally  compelling 
the  keeping  on  hand  of  an  unnecessarily 
large  amount  of  cash. 

1145.  Can  a  federal  reserve  bank  require 
a  non-member  bank  to  remit  at  par  items 
deposited  with  the  federal  reserve  bank  for 
the  account  of  the  treasurer  of  the  United 
States?  Opinion:  The  question  is  answered 
by  the  opinion  of  Attorney-General  Gre- 
gory, given  to  the  Federal  Reserve  Board 
under  date  of  March  21,  1918  and  published 
in  the  Federal  Reserve  Bulletin  for  May 
1918,  that  "non-member  banks  which  are 
not  depositors  in  the  federal  reserve  banks 
will  not  be  subject  to  the  hmitations"  as  to 
charges  to  federal  reserve  banks.  {Inquiry 
from  Ark.,  March,  1919.) 

1146.  May  a  bank  which  is  not  a  mem- 
ber of  the  Federal  Reserve  System  be 
compelled  to  remit  at  par?  Opinion:  When 
a  check  is  drawn  upon  a  non-member  state 
bank,  the  imphed  contract  of  the  bank  with 
the  drawer,  its  customer,  is  to  make  pay- 
ment on  presentation  at  the  bank  and  if  a 
check  is  presented  by  or  on  behalf  of  a  holder 
in  another  place  with  request  for  remittance, 
the  bank  is  entitled  to  make  an  exchange 
charge  for  such  service  to  the  holder,  which 
is  not  contemplated  in  its  contract  with  its 
customer,  the  drawer.  There  is  no  statute 
at  present  which  compels  a  state  bank,  not 
a  member  of  the  Federal  Reserve  System, 
to  remit  at  par  and  it  would  seem  that  such 
a  law  would  not  be  constitutional  Such  a 
law  would  deprive  a  bank  of  its  right  to 
make  a  legitimate  charge  for  service  ren- 
dered.    {Inquiry  from  N.  J.,  March,  1920.) 

1147.  A  state  bank  in  Wisconsin  has 
refused  to  remit  for  cash  items  without 
making  a  modest  deduction  for  exchange. 
Some  of  its  customer's  checks  are  stamped  as 
follows :    'Payable  in  exchange  at  par  if  sent 

direct  to  bank  of   '."     The  bank 

wishes  to  know  whether  the  Federal  Re- 


serve Bank  may  demand  payment  through 
the  express  company  in  currency  for  checks 
bearing  that  condition?  Is  it  entitled  to 
pay  such  checks  in  Chicago  Exchange  at 
par,  if  it  does  not  desire  to  pay  currency  to 
the  express  company?  Opinion:  Ordinari- 
ly, a  check  is  payable  at  the  bank  upon 
which  drawn  and  if  presented  by  an  express 
company,  duly  authorized  as  a  collecting 
agent,  the  latter  has  the  right  to  demand  pay- 
ment of  the  full  amount  in  money.  But  the 
check  in  question  has  upon  it  the  phrase 
"payable  in  exchange  at  par  is  sent  direct  to 

bank  of "  This  would  probably  be 

construed  as  covering  the  condition  where  a 
check  is  mailed  direct  to  the  bank,  as  dis- 
tinguished from  one  where  the  check  is 
presented  by  a  collecting  agent  at  the  count- 
er of  the  bank.  In  the  latter  case,  it  would 
seem,  the  check  is  payable  in  money.  But 
even  if  the  phrase  were  construed  so  as  to 
read  "payable  in  exchange  at  par  when 
presented  for  payment  at  the  counter  of  the 
bank,"  as  it  does  not  call  for  exchange  on 
any  particular  place,  a  question  would  arise 
as  to  whether  the  phrase  "in  exchange"  were 
not  too  indefinite  and  uncertain  to  amount 
to  anything. 

Again,  the  decisions  are  in  conflict  whether 
an  instrument  payable  "in  exchange"  is 
payable  in  money,  or  in  a  commodity, 
namely  a  bill  of  exchange;  some  courts  have 
held  the  latter  and  that  an  instrument  so 
payable  is  not  negotiable. 

In  view  of  the  uncertainty  of  the  legal 
interpretation  of  the  phrase  in  question  it 
might  be  better  to  have  the  checks  different- 
ly worded  to  accomplish  the  object  desired. 
{Inquiry  from  Wis.,  March,  1920.) 

Par  list  of  Federal  Reserve  Bank 

1148.  Does  a  state  bank  have  to  submit 
to  the  placing  of  its  name  on  the  par  list  by 
a  Federal  Reserve  Bank?  Opinion:  If  the 
bank  is  not  parring  checks,  the  Federal 
Reserve  Bank  has  no  legal  right  to  retain  it 
on  the  par  list  and  an  injunction  will  he  to 
prevent  the  Federal  Reserve  Bank  from 
pubhshing  the  name  of  the  non-member 
bank  on  such  hst.  If  however  the  non- 
member  bank  is  actually  parring  checks  for 
the  Federal  Reserve  Bank,  so  that  there  is 
no  misrepresentation  of  fact,  there  is  prob- 
ably no  right  to  prevent  the  publication  of 
the  name  of  the  bank  on  the  par  list.  {In- 
quiry fro7n  Ark.,  Jan.,  1920.) 

Charges  against  Federal  Reserve  Banks 

1149.  Section  13  of  the  Federal  Reserve 
Act  provides  that  nothing  in  the  section 


258 


COLLECTION 


[1150-1153 


shall  be  construed  as  prohibiting  a  member 
or  non-member  bank  from  making  reason- 
able charges  etc.  "for  collection  or  payment  of 
checks  or  drafts  and  remission  therefor  by  ex- 
change or  otherwise,  but  no  such  charges  shall 
be  made  against  the  Federal  Reserve  Banks." 
Does  the  provision  that  no  charges  shall  be 
made  apply  only  to  charges  made  for  the 
collection  and  remittance  of  checks  by 
banks,  or  does  it  include,  so  as  to  prohibit, 
such  charges  against  the  Federal  Reserve 
Banks  by  other  agents  and  instrumentaU- 
ties,  such  as  express  companies,  bonded 
local  agents,  or  "paid  employees  in  automo- 
biles." Opinion:  The  qualifying  clause 
with  respect  to  charges  against  Federal 
Reserve  Banks  would  seem  to  have  reference 
only  to  charges  made  by  banks,  members 
and  non-members,  for  collection  or  payment 
and  remittance.  If  there  were  an  independ- 
,  ent  sentence  in  the  section  to  the  effect  that 
no  charges  for  the  described  services  should 
be  made  against  the  Federal  Reserve  Banks 
there  would  be  more  ground  for  the  con- 
tention that  it  applied  to  charges  made 
by  any  one  and  entitled  the  Federal  Reserve 
Banks  to  free  services  of  every  one  it  em- 
ployed, provided  it  could  secure  agents  to 
do  work  for  nothing.  But  the  subject  of  the 
provision  has  to  do  with  charges  by  member 
and  non-member  banks  only  and  not  charges 
by  other  persons  or  agents  against  the 
Federal  Reserve  Banks.  {Inquiry  from  Ga., 
Feb.,  1920.) 

Exchange    charge    cannot    be    made    against 
drawer 

1150.  A  drew  his  check  upon  the  B 
bank,  payable  to  C,  who  is  located  at  a  dis- 
tance and  the  check  was  collected  through 
the  Federal  reserve  bank  and  the  funds  re- 
mitted by  B  to  that  bank.  Did  the  B  bank 
have  the  right  without  special  contract  to 
charge  the  drawer  with  the  exchange  or 
cost  of  remitting  the  funds.  Opinion:  B 
bank's  obligation  is  to  pay  the  check  at  its 
banking  house  and  if  it  remits  the  funds  to 
another  place,  such  service  is  for  the  holder 
and  it  cannot  make  an  exchange  charge 
against  the  drawer  without  his  consent. 
Chitty  on  Bills  (13th  Amer.  Ed.)  (151),  174. 
Scott  V.  Perlee,  39  Ohio  St.  67.  {Inquiry 
from  N.  Y.,  Sept.,  1916,  Jl.) 

Bank   paying   money   at   request   of  another 
entitled    reimbursement    with- 
out exchange  deduction 

1151.  A  bank  wires  B  bank  to  pay  C 
$12,000  and  promises  to  remit.     B  there- 


after receives  from  A  bank  its  cashier's  check 
of  $12,000,  which  is  subject  to  the  exchange 
charge  of  $30.  Opinion:  A's  promise  is  not 
fulfilled  by  remitting  a  cashier's  check  which 
is  subject  to  exchange.  B  bank  is  entitled 
to  receive  the  full  amount  without  deduction 
of  the  charge.  {Inquiry  from  N.  M.,  Sept., 
1918,  Jl.) 

Accountability  for  collection  proceeds 

Return  of  payment  to  drawee 

1152.  J  gave  D  his  check  to  take  up  a 
note  upon  which  J  was  surety  and  after  the 
check  had  been  paid,  the  collecting  bank 
returned  the  money  to  the  drawee  because 
the  latter  claimed  payment  had  been  made 
by  mistake,  and  that  J  had  countermanded 
it.  Opinion:  Such  collecting  bank  is  liable 
to  D  for  the  money  so  collected,  and  this 
hability  would  exist,  even  though  the  note 
for  which  the  check  was  given  was  based  on 
an  illegal  consideration.  Ricketts  v.  Har- 
vey, 78  Ind.  152.  Croder  v.  Reed,  80  Ind. 
1.  Ricketts  v.  Harvey,  106  Ind.  564.  Arm- 
strong V.  So.  Exp.  Co.,  4  Baxt.  376.  Bibbs 
v.  Hitchcock,  49  Ala.  468.  Daniels  v.  Bar- 
ney, 22  Ind.  207.  Dunlap's  Paley  on  Agen- 
cy, p.  62.  Addison  on  Contracts,  p.  648. 
Murray  v.  Vanderbilt,  39  Barb.  140.  {In- 
quiry from  Ind.,  Aug.,  1908,  Jl.) 

Delivering  proceeds  to  sales  agent  of  owner 

1153.  A  note  was  collected  at  the  place 
of  one  of  the  makers  by  bank  A  in  Idaho 
to  which  it  had  been  forwarded  by  bank  B 
also  an  Idaho  bank  which  received  it  from 
C.  After  the  money  was  collected  and 
before  remission  the  proceeds  came  into  the 
possession  of  a  sales  agent  of  the  company 
which  owned  the  note,  who  kept  the  amount 
for  his  own  use,  and  it  is  desired  to  know 
where  the  responsibihty  Ues.  Opinion:  A 
bank  which  receives  a  note  for  collection  is 
bound  to  use  reasonable  care  and  dihgence, 
and  is  liable  for  any  damage  caused  by  its 
negligence.  Assuming  that  there  was  no 
legal  proceeding  by  which  A  was  com- 
pelled to  pay  over  the  proceeds  to  the  sales 
agent  of  the  company,  and  of  its  own  voli- 
tion parted  with  the  proceeds  of  this  col- 
lection to  him,  it  would  seem  a  clear  case  of 
neghgence  for  which  it  would  be  responsible, 
and  whether  B  would  be  responsible  for  A 
would  depend  upon  whether  the  law  of 
Idaho  makes  a  collecting  bank  Uable  for  the 
negligence  and  default  of  its  correspondent, 
or  not  hable  if  the  correspondent  is  duly 
selected.  In  the  latter  event  the  habihty 
would  be  direct  by  A  to  the  owner  of  the 


259 


1154-1157] 


DIGEST  OF  LEGAL  OPINIONS 


note.  The  courts  of  Idaho  do  not  seem  to 
have  passed  upon  this  proposition.  {In- 
quiry from  Kan.,  Nov.,  1918.) 

Conversion  of  item  hy  collecting  hank 

1154.  Bank  A  forwarded  to  bank  B 
a  time  certificate  of  deposit  immediately 
after  its  issuance  to  be  collected  with  inter- 
est at  maturity  from  the  issuing  bank.  B 
immediately  remitted  the  face  value  only, 
held  the  certificate  until  maturity,  and  then 
collected  the  face  with  interest.  This 
manner  of  doing  business  is  questioned. 
Opinion:  B  had  no  right  to  assume  the 
role  of  purchaser;  its  authority  was  limited 
to  holding  the  certificate  until  maturity  and 
then  collecting  the  same  with  interest  and 
remitting  to  A  the  proceeds.  It,  however, 
forwarded  to  A  the  face  immediately,  at  a 
time  when  no  interest  had  been  earned,  and 
the  question  would  be  whether  A's  accept- 
ance of  the  face  before  it  was  due  constituted 
an  acquiescence  of  B's  action.  It  has  been 
held  that  if  the  owner  expressly  or  impHedly 
assents  to,  or  ratifies,  the  taking,  use  or 
disposition  of  his  property,  he  cannot  re- 
cover for  the  conversion  thereof.  Austin  v. 
McMains,  14  Ind.  App.  514.  But  if  it 
should  be  held  that  A's  receipt  of  the  princi- 
pal before  maturity  was  not  an  assent  or 
ratification  of  B's  act  in  appropriating  the 
certificate  as  its  own,  A  would  have  a  claim 
on  B  for  the  interest.  (Inquiry  from  Ind., 
Jan.,  1918.) 

Rescission  of  advice  of  credit  or  payment 

Advice  of  credit  given  before  collection 

1155.  Bank  A  forwards  for  collection 
to  bank  B  a  check  drawn  on  bank  C,  and 
B's  bookkeeper  by  an  oversight  credited  the 
item  as  cash.  Its  advice  of  credit  sent  the 
same  day  as  receipt,  however,  stated  that 
items  so  credited  and  subsequently  dis- 
honored would  be  charged  back;  it  also 
indicated  that  the  item  had  been  credited 
before  and  not  after  collection,  sufficient 
time  not  having  elapsed  for  this.  On  receipt 
of  advice,  A  paid  over  amount  to  its  deposi- 
tor, and  the  check  being  subsequently  dis- 
honored, desires  to  know  if  it  cannot  hold 
B  hable.  Opinion:  This  is  not  a  question  of 
default  of  a  correspondent,  but  the  only 
question  is  whether  the  act  of  B's  book- 
keeper for  which,  of  course,  that  bank 
is  responsible,  creates  any  habihty  of  that 
bank  by  way  of  estoppel  to  deny  collection 
of  the  item.  It  is  very  doubtful  if  a  court 
would  so  hold.  To  constitute  an  estoppel 
B  must  have  represented  to  A  that  the  item 


had  been  collected,  upon  which  representa- 
tion A  relied  to  its  injury.  It  does  not 
seem  that  this  advice  of  credit  constitutes 
any  such  representation,  and  even  were  it 
to  be  so  construed,  B  would  be  in  a  position 
to  assert  that  A  could  not  have  been  injured 
thereby,  because  it  was  possessed  of  knowl- 
edge that  collection  at  the  time  of  credit 
was  a  physical  impossibihty.  Under  the 
circumstances  a  court  would  probably  not 
hold  B  liable.  {Inquiry  from  Ohio,  Nov., 
1914.) 

Advice  of  payment  recalled  hy  wire 

1156.  Bank  A  in  Massachusetts,  sent  a 
bill  of  lading  draft  to  B  for  collection;  B 
forwarded  it  to  C  in  Maryland,  and  C  sent 
it  to  D.  The  latter  collected,  and  sent  its 
check  to  C  in  payment.  C  sent  its  advice  of 
payment,  but  D  having  failed,  recalled  the 
advice  by  wire,  but  not  before  A  had  sent 
advice  of  payment  to  depositor  who  refuses 
to  concede  that  payment  was  not  actually 
made.  Opinion:  The  draft  was  paid  by 
drawee  to  D,  whose  check  for  the  proceeds 
was  dishonored.  Such  pajrment  would  re- 
lease the  drawer  and  any  indorser  for  value. 
Under  the  law  of  Maryland  as  well  as  in 
Massachusetts,  a  collecting  bank  is  not 
Hable  for  the  default  of  its  correspondents, 
provided  it  has  exercised  due  care  in  its 
selection.  C,  therefore,  would  not  be  hable 
unless  by  reason  of  giving  the  advice  of 
payment  it  is  estopped  from  denying  that  it 
had  actually  received  the  money.  What  it 
did  receive  was  a  check  which  it  erroneously 
supposed  was  as  good  as  money.  It  is  a 
general  rule  that  a  payment  by  mistake  is 
recoverable  unless  the  position  of  the  recip- 
ient would  be  changed  for  the  worse.  The 
same  principle  would  apply  to  an  advice 
of  payment;  it  can  be  recalled  unless  in  re- 
Hance  thereon  the  recipient  has  parted  with 
something  of  value  so  that  he  would  be 
prejudiced  if  the  adviser  could  deny  the 
truth  of  the  advice.  If  in  good  faith  the 
customer  of  bank  A  relying  on  the  advice 
has  changed  his  position  for  the  worse,  bank 
C  would  probably  be  estopped.  See  Beh- 
ring  V.  Sommerville,  63  N.  J.  L.  568,  44  At. 
641.  East  Haddam  Bank  v.  Scovil,  12 
Conn.  303.  {Inquiry  from  Mass.,  June, 
1916.) 

Charging   back   of   uncollected    items 

Negligent  collecting  hank  cannot  charge  hack 
item  if  forwarding  hank  damaged 

1157.  What  should  a  collecting  bank  do 
to  protect  itself  against  loss  where  checks 


260 


COLLECTION 


[1158-1161 


\ 


forwarded  with  instructions  to  protest  have 
been  returned  without  protest  and  charged 
back  to  it?  Opinion:  Where  a  check  is 
refused  payment  by  the  drawee  and  the 
proper  steps  taken  by  the  collecting  bank  to 
preserve  the  liability  of  parties  contingently 
liable  there  would  be  a  right  to  charge  same 
back.  But  if  instructions  as  to  protest  have 
been  violated  and  it  can  be  proven  that,  as 
a  result  of  such  disobedience,  the  forwarding 
bank  suffered  a  loss,  this  would  deprive  the 
correspondent  of  the  right  to  charge  the 
amount  of  an  unpaid  check  back.  In  such 
case  the  forwarding  bank  should  refuse  to 
consent  to  the  charge  back  of  the  item.  (In- 
quiry from  Iowa,  Aug.,  1916.) 

Bank    purchasing    b/l    draft    and    collecting 

same  through  agent  cannot  charge  back  to 

customer  upon  agent's  default 

1158.  A  customer  deposited  a  bill  of 
lading  draft  in  bank  A,  which  "was  credited 
to  his  account  and  not  left  for  collection." 
The  correspondent  of  bank  A  collected  but 
failed  to  remit  because  of  insolvency.  May 
bank  A  charge  the  item  back  to  its  customer 
six  weeks  after  such  collection?  Opinion: 
Apparently  bank  A  became  owner  of  the 
draft  at  the  time  of  deposit,  and  such  being 
the  case  the  depositor  was  hable  thereon  as 
indorser  and  as  soon  as  the  draft  was  paid 
he  was  released  from  hability  and  the  loss 
would  fall  upon  bank  A.  Bank  A,  therefore, 
cannot  charge  the  amount  back  to  its  cus- 
tomer.    (Inquiry  from  Wis.,  March,  1919.) 

Where  remittance  before  collection  promptly 
followed  by  notice  of  protest 

1159.  Bank  B  forwards  a  check  for  col- 
lection to  bank  C,  and  the  latter  remits  to 
B  before  collection,  but  by  the  same  mail, 
payment  having  been  refused  by  the  drawee 
bank,  sends  notice  of  protest  which  B  re- 
ceives a  few  hours  prior  to  the  remittance. 
The  check  was  returned  by  C  the  morning 
after  sending  notice  of  protest  and  when 
received  B  refused  to  pay,  claiming  irregu- 
larity and  delay.  Opinion:  B  received  the 
notice  of  protest  of  the  item  before  it  re- 
ceived the  remittance.  This  was  clear  notice 
that  the  item  had  not  been  paid  and  was 
given  in  due  season.  Notwithstanding  the 
remittance  prior  to  collection  and  the  mis- 
conception of  same  as  being  the  proceeds  of 
collection  the  case  is  one  where  bank  C  has 
the  right  to  have  the  amount  refunded  by 
B,  and  the  latter  in  turn  can  collect  from  its 
customer.  (Inquiry  from  Mich.,  Nov., 
1916.) 


Recovery    of  proceeds    paid   in   advance   of 
collection 

1160.  A  New  York  bank  received  for 
collection  a  check  drawn  on  Bank  A  of 
North  Carohna  and  forwarded  it  to  its 
Raleigh  correspondent.  The  Raleigh  bank 
forwarded  the  item  to  its  correspondent, 
Bank  B,  which  collected  from  the  drawee. 
The  Raleigh  bank  took  its  correspondent's 
draft  as  cash  and  in  advance  of  collection  re- 
mitted to  the  New  York  bank.  BankB 
failed  and  its  draft  was  dishonored.  Opiri- 
ion:  In  North  Carohna  a  collecting  bank  is 
not  hable  for  its  correspondent's  default,  if 
duly  selected,  and  in  the  absence  of  negh- 
gence  on  the  part  of  the  Raleigh  bank  and 
unless  payment  of  the  proceeds  led  the  New 
York  bank  to  do  something  which  if  repay- 
ment was  made  would  result  to  its  injury, 
the  payment  by  the  Raleigh  bank  is  not  final 
but  can  be  recovered  as  money  paid  by  mis- 
take without  consideration.  Bk.  of  Rocky 
Mt.  V.  Murchison  Nat.  Bk.,  55  S.  E.  (N.  C.) 
95.  Bk.  V.  Bk.,  151  Md.  320.  Kirkham  v. 
Bk.  of  America,  165  N.  Y.  132.  (Inquiry 
from  N.  Y.,  Aug.,  1911,  Jl.) 

Refund  after  collection 

Draft    drawn    "through    bank   JB"    collected 
through  clearing  house 

1161.  Bank  A  received  from  the  clearing 
house  for  cohection  a  sight  draft  with  papers 
in  a  sealed  envelope  attached,  the  draft 
stating  ''through  bank  B."  This  was  cleared 
as  a  cash  item  with  other  items  on  B  in  the 
afternoon  on  day  of  receipt,  being  accepted 
as  such,  and  the  balance  of  the  items  be- 
tween the  two  banks  being  settled  by  draft. 
A  immediately  remitted  for  this  item  to  the 
clearing  house,  but  in  the  forenoon  of  the 
next  day  B  tendered  same  back  and  de- 
manded refund  of  the  amount,  saying  pay- 
ment had  been  refused  by  the  drawee,  and 
the  question  is  whether  or  not  A  is  hable  to 
B  for  refund  of  money.  Opinion:  What 
little  authority  exists,  is  to  the  effect  that 
where  a  draft  is  drawn  upon  a  person  "in 
care  of"  or  "through"  a  specified  bank, 
presentment  to  the  bank  named  is  sufficient, 
and  the  bank  named  is  the  place  of  pajonent, 
and  it  would  seem  that  the  proper  place  to 
present  the  draft  in  question  for  pajnnent 
was  at  the  B  bank  and  that  the  draft  was  so 
presented  and  paid.  In  consequence  such 
pa^-ment  would  seem  to  be  a  finality  and 
non-recoverable,  in  the  absence  of  some 
clearing  rule  existing  between  the  two  banks, 
making    the    afternoon    settlement    condi- 


261 


1162-1167] 


DIGEST  OF  LEGAL  OPINIONS 


tional,  and  subject  to  revocation  the  next 
day.  B  could  not  be  regarded  in  the  light 
of  a  purchaser  of  the  draft,  for  A  was  only 
an  agent  to  collect  and  had  no  authority  to 
sell.  The  only  theory  upon  which  B  could 
claim  recourse  would  be  that  it  did  not  act 
as  payor  of  this  draft,  but  as  agent  for 
collection  from  the  drawee;  but  this  theory 
is  negatived  by  the  form  which  the  trans- 
action took,  namely,  presentation  for  pay- 
ment of  the  amount  by  the  exchange  of 
checks  and  drafts  and  settlement  of  balance. 
The  draft  was  paid  by  B  presumably  out  of 
the  funds  to  the  credit  of  drawee  provided 
for  that  purpose  and  was  not  simply  taken 
for  collection.  The  proceeds  having  been 
promptly  remitted  by  A  before  notice  of  a 
contrary  intention,  it  seems  B  would  be  es- 
topped from  denying  that  it  had  paid  the 
draft,  and  A  not  liable  to  refund  the  amount 
to  it.  See  Bartholomew  v.  First  Nat.  Bank, 
18  Wash.  683,  52  Pac.  239.  Brooks  v.  Hig- 
by,  11  Hun.  235.  {Inquiry  from  Kan., 
Jan.,  1918.) 

Collection  by  insolvent  bank 

Drawer  discharged  by  payment  to  insolvent 
collecting  bank 

1162.  A  check  on  a  Florida  bank  cashed 
in  Kansas  City,  forwarded  through  the  mail 
and  the  proceeds  remitted  by  the  drawee  to 
the  last  collecting  bank,  which  fails  before 
itself  remitting.  The  Kansas  City  bank 
seeks  to  recover  from  the  drawer.  Opinion: 
When  the  proceeds  were  remitted  by  the 
drawee  to  the  collecting  bank,  this  consti- 
tuted payment  which  discharged  the  drawer. 
The  owner  bank  in  Kansas  City  which  first 
cashed  the  check,  would,  therefore,  have  no 
recourse  upon  the  drawer  but  must  look  to 
the  assets  of  the  failed  bank  for  reimburse- 
ment. Planters  Mercantile  Co.  v.  Armour 
Packing  Co.,  69  So.  (Miss.)  293.  {Inquiry 
fromFla.,  April,  1917,  Jl.) 

1163.  Bank  A  sent  check  to  B  which 
forwarded  to  C.  That  bank  collected  from 
drawee  bank,  and  remitted  to  B  by  New 
York  draft.  Before  this  was  collected  C 
failed  and  bank  A's  customer  wants  to  know 
if  the  drawer  of  the  check  who  gave  it  to  him 
in  payment  for  goods  should  make  the 
amount  good  to  him.  Opinion:  The  custom- 
er's debtor  tendered  in  payment  of  a  debt  his 
check  which  the  drawee  bank  paid  and  can- 
celled, the  drawer  holding  it  the  same  as  a 
receipted  bill.  The  fact  that  the  collecting 
agent  who  received  payment  failed  and  did 
not  pay  over  the  money  collected,  does  not 
make  the  drawer  responsible.    His  debt  has 


been  paid,  and  under  the  Florida  statute 
which  relieves  the  first  collection  bank  from 
liability  to  its  customer  for  defaults  of  corre- 
spondents, the  customer  must  bear  the  loss. 
(inquiry  from  Fla.,  April,  1914-) 

Indorser  discharged  by  payment  to  insolvent 
collecting  bank 

1164.  A  bank  cashed  for  the  indorser  a 
check  drawn  on  another  bank  and  sent  it 
for  collection.  In  due  course  the  drawee 
bank  paid  the  item  but  the  bank  to  which 
the  payment  was  made  went  into  liquida- 
tion before  remitting  the  money.  Has  the 
bank  any  recourse  against  the  person  for 
whom  it  cashed  the  check?  Opinion:  The 
indorser  was  discharged  by  payment.  {In- 
quiry from  S.  C,  Feb.,  1921.) 

1165.  Bank  A  holds  Smith's  note  in- 
dorsed by  Jones  who  requests  A  to  send  it  to 
bank  B  where  he  pays  it.  Bank  B  becomes 
insolvent  and  fails  to  remit  to  A,  and  the 
question  is  as  to  Jones'  hability.  Opinion: 
The  mere  fact  that  a  note  is  made  payable  at 
a  bank  does  not  of  itself  confer  any  agency 
upon  the  bank  on  the  part  of  the  payee  to 
receive  the  amount.  In  order  to  make  the 
bank  the  payee's  agent  to  receive  the  money, 
the  note  must  be  indorsed  to,  or  lodged  with 
it  for  collection,  or  it  must  have  received 
authority  from  the  payee  to  collect  the 
amount  due.  Under  the  circumstances  of 
this  case  a  court  would  probably  hold  that 
bank  B  was  the  agent  of  A,  the  owner  to 
receive  payment  and  not  of  the  indorser  to 
make  payment;  that  the  note  was  paid,  and 
that  Jones  was  no  longer  hable.  {Inquiry 
from  Ark.,  May,  1920.) 

Drawee  discharged  by  payment  to  insolvent 
collecting  bank 

1166.  Where  A  deposits  money  in  H 
bank  to  pay  a  draft  which  is  forwarded  to 
B  to  H  bank  for  collection  and  H  bank 
applies  money  and  sends  it  own  draft  in  re- 
mittance, which  is  dishonored  because  of  its 
failure.  On  whom  does  the  loss  fall?  Opin- 
ion: B  rather  than  A  must  stand  the  loss. 
Smith  V.  Essex  Co.  Bk.,  22  Barb.  (N.  Y.) 
627.  Ward  v.  Smith,  7  Wall,  447.  Suther- 
land V.  First  Nat.  Bk.  of  Ypsilanti,  31  Mich. 
230.     {Inquiry  from  Mont,  Dec,  1912,  Jl.) 

Payment   and    collection   by   insolvent 
drawee  bank 

Discharge  of  drawer  and  indorser  on  check 
paid  by  check  of  drawee  which  is  dishonored 

1167.  The  bank  on  which  a  check  was 
drawn  and  to  which  it  was  presented  by 


262 


COLLECTION 


[1167 


mail  sent  its  draft  in  pajonent  thereof,  and 
charged  the  amount  to  the  drawer  of  the 
check. 

The  draft  was  returned  "not  sufficient 
funds,"  and  before  it  could  be  returned  for 
payment  in  some  other  manner  the  bank 
drawing  the  draft  failed.  Were  the  drawer 
and  the  indorsers  on  the  original  check  dis- 
charged from  habihty?  Opinion:  (1)  It  is 
established  by  the  weight  of  authority  that 
where  a  check  is  remitted  to  the  drawee  for 
collection,  the  drawee  is  made  the  collection 
agent  of  the  holder.  The  duty  to  collect  is 
in  addition  to  the  duty  as  drawee  to  pay. 
First  Nat.  Bank  of  Murfreesboro  v.  First 
National  Bank  of  Nashville,  154  S.  W. 
(Tenn.)  965;  Baldwin's  bank  of  Penn  Yan 
V.  Smith,  109  N.  E.  (N.  Y.)  138.  (2)  It  is 
also  established  that  where  the  check,  so 
remitted,  is  charged  to  the  account  of  the 
drawer  or  the  intention  to  pay  is  evidenced 
by  some  other  act  sufficient  to  constitute 
payment,  the  drawer  is  discharged  from 
further  liability  and  the  fund  thereafter  is 
held  by  the  drawee  as  agent  of  the  holder  and 
at  his  risk  and  if  the  drawee  fails  to  remit  or 
his  remittance  draft  is  dishonored,  the  loss 
falls  on  the  holder.  The  charging  of  check 
to  drawer's  account  constitutes  payment. 
Smith  Roofing  &  Contracting  Co.  v. 
Mitchell,  45  S.  E.  (Ga.)  47  (where 
check  was  also  marked  "paid");  Planters 
Mercantile  Co.  v.  Armour  Packing  Co.,  69 
So.  (Miss.)  293.  Where  by  custom  or  agree- 
ment drawee  bank  is  authorized  to  credit 
collecting  bank  and  remit  or  settle  at  stated 
periods,  debiting  of  check  to  drawer  and 
crediting  to  collecting  bank,  constitutes 
payment.  Pinkney  v.  Kanawha  Valley 
Bank,  69  S.  E.  (W.  Va.)  1012.  Briggs  v. 
Central  National  Bank,  89  N.  Y.  182. 
Charging  check  to  depositor,  marking  it 
"paid"  and  surrendering  it  to  him  consti- 
tutes payment.  Winchester  Milling  Co.  v. 
Bank  of  Winchester,  111  S.W.  (Tenn.)  248. 
Harmon  v.  Barber,  89  S.  E.  (S.  C.)  636. 
Where  the  maker  of  a  note  payable  at  a 
bank  instructs  bank  on  day  of  maturity  to 
pay  it  and  bank  through  its  president  says 
that  it  will  do  so,  this  constitutes  payment; 
in  other  words,  the  mere  intention  to  charge 
the  depositor  is  payment.  However,  the 
marking  of  a  check  "paid"  provisionally 
as  a  matter  of  convenience  with  no  intention 
to  pay  if  remittance  from  drawer  was  not 
received  so  as  to  provide  sufficient  funds  for 
payment,  does  not  constitute  payment 
where  no  subsequent  deposit  is  made  and 
the  mark  "paid"  is  erased  and  the  check 
protested.     First  Nat.  Bank  of  Murfrees- 


boro v.  First  Nat.  Bank  of  Nashville,  154 
S.  W.  (Tenn.)  763.  (3)  But  according  to 
some  authorities,  where  the  drawee  is  not 
agent  of  the  holder  and  gives  its  own  draft 
in  payment,  such  check  is  only  conditional 
payment  and  if  it  is  dishonored,  and  due 
diligence  has  been  used,  the  drawer  of  the 
original  check  remains  responsible.  Burk- 
halter  v.  Second  Nat.  Bank,  42  N.  Y.  538. 
Thomas  v.  Supervisors,  115  N.  Y.  47.  Tur- 
ner V.  Fox  Lake  Bank,  4  Abb.  Dec.  (N.  Y.) 
434,  3  Keyes  425.  The  court  in  Anderson  v. 
Gill  79  Md.  312  said  that  the  drawee's  draft 
was  either  payment  of  the  original  check  or 
it  was  not.  If  it  was  (which  was  the  Massa- 
chusetts doctrine),  the  drawer  was  dis- 
charged. If  it  was  not,  then  the  holder's 
collection  agent  was  responsible  to  him  for 
having  given  up  the  check  without  payment, 
and  if  injury  resulted  to  the  drawer  by- 
reason  of  the  agent's  failure  to  use  due  dih- 
gence  in  converting  the  check  into  money, 
then  also  the  drawer  was  discharged.  The 
drawer  was  held  discharged  in  the  partic- 
ular case.  In  Hilsinger  v.  Trickett,  99 
N.  E.  (Ohio)  305,  a  certificate  of  deposit 
was  mailed  directly  to  the  issuing  bank  and 
it  was  held  that  its  draft  was  only  condition- 
al payment  and  did  not  pay  the  debt  where 
the  draft  was  dishonored;  but  this  case  did 
not  go  on  the  theory  that  the  issuing  bank 
was  agent  of  the  sending  bank  to  collect  the 
debt  from  itself.  In  the  case  submitted  as 
the  check  was  mailed  directly  to  the  drawee 
bank  and  was  charged  to  the  account  of  the 
customer  it  was  paid  and  according  to  the 
weight  of  authority  he  was  discharged  from 
further  liability.  Payment  would  also  dis- 
charge indorsers  prior  to  the  owner.  {Inquiry 
from  Ohio,  Mar.,  1921,  Jl.) 

Note:  But  in  Waggoner  Bank  &  Trust 
Co.  V.  Garner,  213  S.  W.  (Tex.)  927  where  a 
check,  given  for  a  bill  of  merchandise,  was 
forwarded  direct  to  the  drawee,  marked 
paid,  surrendered  to  the  drawer  and  the 
sending  bank  credited  with  the  amount, 
instead  of  remittance  being  made  as  in- 
structed, the  drawee  being  insolvent  at  the 
time  and  later  going  into  bankruptc.y,  al- 
though had  the  check  been  presented  at  the 
counter,  the  bank  would  have  had  the  money 
with  which  to  pay  it,  the  supreme  court  of 
Texas  held  that  the  drawer  remained  liable, 
and  said :  "In  the  absence  of  such  an  under- 
standing (that  the  payee  accepted  the 
check  in  payment  of  the  debt  of  the  drawer) 
the  giving  of  the  check  did  not  operate  as  a 
payment  of  the  debt.  For  a  check  to  have 
the  effect  of  pajinent,  the  drawer  must  have 
the  funds  to  his  credit  in  the  bank  upon 


263 


1168-1171] 


DIGEST  OF  LEGAL  OPINIONS 


which  it  is  drawn  and  the  bank  must  be  in  a 
position  to  pay  the  check  on  demand.  The 
receipt  of  a  check  is  not  pajTnent  for  the 
debt  for  which  it  is  dehvered,  if  there 
is  no  laches  on  the  part  of  the  holder.  Here 
there  was  no  laches.  The  bank  on  which 
the  check  was  drawn  did  not  pay  it  and 
evidently  had  no  intention  of  paying  it.  It 
reported  to  the  City  National  Bank  (for- 
warding bank)  that  it  could  not  remit  for  it. 
This  was  equivalent  to  sajdng  that  it  could 
not  pay  it.  A  bank  which  confesses  its 
inability  to  pay  in  a  customary  method, 
cannot  be  said  to  be  in  a  position  to  pay.  A 
check  given  for  a  debt  upon  such  a  bank 
and  whose  payment  by  the  bank  is  so  re- 
fused, is  not  a  satisfaction  of  the  debt.  The 
bank  appropriated  the  check,  instead  of 
pajdng  it.  With  this  true,  the  Hardware 
Company  (drawer)  could  not  claim  that  by 
means  of  the  check  it  had  paid  its  debt  to 
the  Garner  Company  (payee.)" 

Conflict  of  authority  on  discharge  of  drawer 

1168.  Where  the  draft  of  a  drawee  bank 
in  payment  of  a  check  is  dishonored  because 
of  its  failure  is  the  check  considered  paid  as 
to  the  drawer  where  the  drawee  bank 
marked  it  paid  and  cancelled  it?  Opinion: 
According  to  the  weight  of  authority,  the 
drawer  of  a  check  is  discharged  where  the 
drawee  receives  and  cancels  the  check  and 
mails  its  own  draft  in  payment.  But  if  it 
could  be  proved  that  the  drawee  was 
insolvent  when  the  check  was  received 
and  would  not  have  paid  cash  there- 
for if  presented  over  the  counter,  the 
drawer  according  to  some  cases  would  still 
remain  hable  on  the  check  the  act  of  the 
collecting  bank  in  sending  direct  not  having 
resulted  in  damage.  And  if  the  drawer  had 
insufficient  funds  in  bank,  he  would  not  be 
discharged.  See  Winchester  MilUng  Co.  v. 
Bank  of  Winchester,  120  Tenn.,  225,  111 
S.  W.  248,  Lowenstein  v.  Bresler,  109  Ala. 
326,  19  So.  860.  Jefferson  County  Bank  v. 
Hendrix,  147  Ala.  670,  39  So.  295,  1  L.  N.  S. 
246.  Farley  Nat.  Bank  v.  Pollock,  145  Ala. 
321,  39  So.  612,  2  L.  N.  S.  194,  117  Am.  St. 
Rep.  44.  Bank  of  Rocky  v.  Floyd,  142  N.  C. 
187,  55  S.  E.  95.  {Inquiry  from  Fla.,  July, 
1916.) 

1169.  The  customer  of  a  bank  gave  it 
his  check  for  his  balance  in  another  bank  in 
the  same  city,  which  check  was  placed  to  his 
credit  and  handled  in  the  clearings  of  that 
day.  In  settlement  of  such  clearings  the 
payee  bank  was  given  a  draft  on  a  bank  in 
another   city.     This   draft    was    returned 


unpaid — owing  to  the  closing  of  the  draw- 
er bank.  The  customer  has  the  can- 
celled check  in  his  possession.  Has  the 
payee  bank  recourse  against  the  customer? 
Opinion:  According  to  the  weight  of  au- 
thority the  drawer  is  discharged  by  the 
surrender  of  his  check  and  the  acceptance 
of  the  drawee's  check.  But  where  a  check 
is  presented  to  a  drawee  bank  by  a  bank 
owning  the  paper,  and  the  drawee's  draft  is 
delivered  in  pajonent  and  dishonored,  some 
courts  hold  that  if  due  dihgence  has  been 
used  and  the  original  check  is  protested,  the 
drawer  of  the  original  check  remains  hable. 
See  Burkhalter  v.  Second  National  Bank, 
42  N.  Y.  538.  Even  assuming  the  drawer 
was  not  discharged  by  such  transaction, 
it  was  incumbent  on  the  payee  bank  to  use 
due  diligence  in  the  collection  of  the  drawee's 
draft,  Anderson  v.  Gill,  79  Md.  312.  {In- 
quiry from  N.  M.,  Jan.,  1921.) 

Discharge    of  drawer  although  drawee's 
remittance  draft  dishonored 

1170.  A  collecting  bank  received  a 
number  of  checks  on  an  out-of-town  bank, 
which  were  forwarded  through  the  usual 
channels,  and  were  honored  by  the  drawee 
bank  and  charged  to  its  customers'  accounts, 
but  its  remittance  draft  to  cover  these  items 
has  been  dishonored.  Can  the  payees  of 
these  checks  compel  the  drawers  to  reim- 
burse them  for  same?  Opinion:  Under  the 
facts  recited,  the  drawers  of  the  original 
checks,  according  to  most  of  the  authorities, 
are  discharged  by  payment,  and  the  payees 
of  such  checks  are  limited  to  recourse  upon 
the  failed  bank,  assuming  there  is  no  negli- 
gence which  would  make  the  collecting 
banks  responsible.  Daniel  v.  St.  Louis  Nat. 
Bank,  [Ark.]  54  S.  W.  214.  Nineteenth 
Ward  Bank  v.  First  Nat.  Bank,  [Mass.]  67 
N.  E.  670.  Briggs  v.  Central  Nat.  Bank, 
89  N.  Y.  182.  Winchester  MilHng  Co.  v. 
Bank  of  Winchester,  [Tenn.]  Ill  S.  W.  248. 
Pinkney  v.  Kanawha  Vallej^  Bank,  [W.  Va.] 
69  S.  E.  1012.  Neg.  Inst.  Law,  Sec.  188. 
See,  however,  Ripley  Nat.  Bank  v.  Conn. 
Mut.  Life  Ins.  Co.,  '[Mo.]  47  S.  W.  1,  and 
Kirkham  v.  Bank  of  America,  [N.  Y.]  58 
N.  E.  753,  to  the  contrary,  (inquiry  from 
Kan.,  Jan.,  1921,  Jl.) 

1171.  A  bank  wdth  which  a  check  was 
deposited  sent  it  directly  to  the  drawee 
bank,  which  charged  it  to  the  account  of  the 
depositor  but  delaj^ed  remitting,  although 
a  cashier's  draft  was  drawn.  At  the  end  of  ten 
daj^s,  bank  examiners  took  charge  of  the 
drawee   bank   and   remitted   the   cashier's 


264 


)m\ 


COLLECTION 


[[1172-1177 


draft  to  the  collecting  bank.  The  drawee  of 
the  draft  refused  payment  with  the  words 
"Bank  in  the  hands  of  State  Bank  Examin- 
er." Is  the  drawer  of  the  check  liable? 
Opinion:  As  the  check  was  mailed  directly 
to  the  drawee  bank  for  collection,  that  bank 
occupied  the  dual  relation  of  agent  of  the 
drawer  to  pay  and  agent  of  the  holder  to 
collect.  When  it  charged  the  check  to  the 
account  of  the  drawer,  this  constituted 
payment,  and  it  thereafter  held  the  fund  as 
the  agent  of  the  holder.  The  drawer  is  dis- 
charged from  liability  on  the  check;  he  has 
paid  the  indebtedness  for  which  the  check 
was  given  and  the  owner  of  the  item  will 
have  to  look  to  the  hquidators  of  the  failed 
bank  for  reimbursement,  as  under  the  law 
of  Louisiana  [Laws  (1916)  Act  85]  the  bank 
in  which  the  check  was  first  deposited  was 
authorized  to  mail  it  direct  to  the  drawee 
and  is  not  guilty  of  neghgence  in  so  doing. 
{Inquiry  from  La.,  Feb.,  1921,  Jl.) 

Priority  in  assets  of  insolvent  collecting 
bank 

Proceeds  in  hands  of  Jailed  Alabama  bank  a 
■  trust  fund 

1172.  A  check  was  forwarded  "for 
collection  and  returns"  and  the  collecting 
bank  failed  after  making  the  collection. 
Opinion:  The  proceeds  in  the  hands  of  the 
failed  bank  are  recoverable  as  a  trust  fund 
provided  their  identity  can  be  traced. 
Where  a  failed  state  bank  in  Alabama  is  not 
a  trustee  but  a  debtor  for  collection  proceeds, 
a  creditor,  who  is  not  a  depositor,  is  subordi- 
nated to  claims  upon  non-interest  bearing 
deposits.  Hutchinson  v.  Nat.  Bk.  of  Com- 
merce, 41  So.  (Ala.)  143.  First  Nat.  Bk.  v. 
Dennis,  146  Pac.  (N.  Mex.)  948.  Ala.  Const., 
1901,  Sec.  250.  Nixon  St.  Bk.  v.  First  St. 
Bk.,  60  So.  (Ala.)  868.  {Inquiry  from  Ala., 
July,  1915,  Jl.) 

Tennessee  rule  uncertain 

1173.  Where  a  Tennessee  bank,  the  last 
in  a  chain  of  collecting  banks,  makes  the 
collection  but  fails  before  its  draft  is  paid,  is 
the  owner  of  the  paper  entitled  to  a  prefer- 
ence on  the  theory  that  the  proceeds  are  a 
trust  fund?  Opinion:  The  Courts  are  divid- 
ed on  this  proposition,  and  those  in  Ten- 
nessee do  not  seem  to  have  passed  upon  the 
question.  {Inquiry  from  Conn.,  April, 
1914,  Jl.) 

Proceeds   in  South    Dakota  failed   bank    a 
trust  fund 

1174.  Where  the  draft  of  a  South  Dako- 
ta collecting  bank  is  not  paid  because  of  its 


insolvency  has  the  owner  of  the  paper  re- 
mitted for  collection  the  right  to  recover  the 
proceeds  of  the  collection  as  a  trust  fund? 
Opinion:  In  South  Dakota  such  proceeds 
constitute  a  trust  fund.  Piano  Mfg.  Co.  v. 
Auld,  14  S.  D.  512.  {Inquiry  from  Ind., 
March,  1912,  Jl.) 

Proceeds  in  Washington  failed  bank  not  a 
trust  fund 

1175.  A  bank  in  the  state  of  Wasliington 
collected  paper  but  its  draft  for  the  proceeds 
was  dishonored  because  of  its  insolvency. 
Are  such  proceeds  a  trust  fund?  Opinion: 
In  Washington  the  proceeds  are  not  a  trust 
fund  but  the  relationship  between  the  bank 
and  the  owner  of  the  paper  is  that  of  debtor 
and  creditor.  Bowinan  v.  First  Nat.  Bank, 
9  Wash.  614,  38  Pac.  211.  The  owner 
would  share  pro  rata  with  other  general 
creditors.  {Inquiry  from  Iowa,  March, 
1921,  Jl.) 

1176.  Bank  A  sold  bank  B  a  note  pay- 
able at  its  bank.  The  maker  remitted 
interest  to  A  which  sent  cashier's  check  for 
same  to  B,  but  before  payment  A  failed. 
B  carried  no  account  with  A,  and  asks  if 
latter  is  not  in  the  position  of  trustee  and  B 
entitled  to  preference.  Opinion:  The 
authorities  are  in  conflict  upon  the  proposi- 
tion, but  the  cases  in  Washington  are  against 
B's  contention.  In  Hallam  v.  Tilhnghast, 
19  Wash,  20,  52  Pac.  329,  it  is  held  that  only 
the  ordinary  relation  of  debtor  and  creditor, 
and  not  that  of  trustee  and  cestui  que  trust, 
exists  between  a  bank  which  has  collected  a 
draft  and  the  person  who  left  the  draft  for 
collection,  though  there  was  no  agreement 
for  deposit  of  the  proceeds,  so  that,  the  bank 
becoming  insolvent,  such  person  is  not  en- 
titled to  preference.  See  also  Bowman  v. 
First  Nat.  Bank,  9  Wash.  614,  38  Pac.  211, 
43  Am.  St.  Rep.  870.  {Inquiry  from  Wash., 
Nov.,  1917.) 

Federal  courts  favor  trust  fund  theory 

1177.  Where  a  collecting  bank  fails  after 
making  a  collection  and  before  remittance, 
is  the  owner  of  the  paper  entitled  to  a  prefer- 
ence in  the  assets  of  the  insolvent  bank? 
Opinion:  There  is  a  conflict  of  authority 
among  the  courts  of  the  different  states, 
where  a  bank  receives  an  item  for  collection, 
and  after  collecting  same  from  debtor  fails 
to  make  remittance  because  a  receiver  has 
taken  possession,  whether  the  fund  held  by 
it  is  a  trust  fund  which  the  creditor  can 
recover  in  full  from  the  assets  or  whether 
insolvent  bank  is  debtor  only.     The  state 


265 


1178-1182] 


DIGEST  OF  LEGAL  OPINIONS 


courts  of  Washington  hold  that  only  the 
ordinary  relation  of  debtor  and  creditor 
exists  so  that  the  collecting  bank  becoming 
insolvent,  the  creditor  is  not  entitled  to 
preference;  the  coiu-ts  of  Georgia  and  North 
Carohna  have  also  held  insolvent  collecting 
banks  debtors.  On  the  other  hand  the 
courts  of  New  Mexico,  Alabama,  Kansas 
and  Nebraska  have  held  the  collecting  bank 
a  trustee,  and  this  seems  to  be  the  rule  in  the 
Federal  Courts.  See  Western  German  Bank 
V.  Nowell,  134  Fed.  724.  Holder  v.  Western 
German  Bank,  136  Fed.  90.  See  also  Hal- 
lam  v.  Tillinghast,  19  Wash.  20,  52  Pac.  329. 
But  see  Empire  State  Suret}'^  Co.  v.  Carroll 
County,  194  Fed.  593.  {Inquiry  from  Wash., 
May,  1920.) 

1178.  A  warrant  on  a  city  was  sent  to  a 
national  bank  in  the  state  of  Washington  for 
collection.  After  collecting,  the  Washington 
bank  became  insolvent.  The  national  bank 
examiner  found  a  cashier's  check  payable  to 
the  forwarding  bank.  Is  the  forwarding 
bank  a  preferred  creditor?  Opinion:  Pre- 
sumably the  Washington  bank  received  the 
money  from  a  source  outside  a  deposit  of  the 
city  with  it,  so  that  the  funds  of  the  bank 
would  be  augmented  by  the  collection. 
While  the  Washington  courts  hold  that  the 
proceeds  of  the  collection  are  not  a  trust 
fund,  but  that  the  bank  becomes  merely  a 
debtor  for  the  amount  of  the  collection,  the 
federal  courts  hold  generally  that  the  pro- 
ceeds are  a  trust  fund  which  may  be  re- 
covered in  full,  when  they  can  be  traced  into 
the  hands  of  the  receiver  of  the  bank.  West- 
ern German  Bank  v.  Norvell,  134  Fed.  724. 
It  is  not  necessary  to  trace  the  identical 
money  into  the  hands  of  the  receiver;  it  is 
sufficient  to  show  that  the  sum  which  went 
into  the  receiver's  hands  was  increased  by 
the  amount  collected.  The  law  governing 
distribution  would  seem  to  be  that  of  the 
federal  courts,  since  the  insolvent  bank  is  a 
national  bank.  {Inquiry  from  Mich.,  Oct., 
1915.) 

Proceeds  in  failed  Michigan  hank  recoverable 
in  full 

1179.  An  item  drawn  on  B  bank  sent 
for  collection  to  C  National  Bank  in  Michi- 
gan was  collected  and  remitted  for  by  that 
bank's  draft,  which  was  dishonored  because 
of  the  bank's  failure.  Opinion:  Under  the 
law  of  Michigan  (the  authorities  elsewhere 
being  in  conflict)  the  bank  owning  an  item 
collected  is  entitled  to  payment  of  proceeds 
in  full  by  receiver.  Lunderlin  v.  Sav.  Bk., 
116  Mich.  281.    Sherwood  v.  Milford  Bk., 


94  Mich.  78.  Sherwood  v.  Central  Mich. 
Sav.  Bk.,  103  Mich.  109.  Wallace  v.  Stone, 
107  Mich.  190.  Western  German  Bk.  v. 
Norvell,  134  Fed.  724.  Holder  v.  Western 
German  Bk.,  136  Fed.  90.  Hutchinson  v. 
Nat.  Bk.  of  Commerce,  145  Ala.  196.  Kan. 
Bk.  V.  First  St.  Bk.,  62  Kans.  788.  State  v. 
Bk.  of  Commerce,  61  Neb.  181.  The  follow- 
ing cases  are  contra:  Ober  v.  Cockran,  118 
Ga.  396.  N.  C.  Corp.  Commission  v.  Mer- 
chants &  Farmers  Bk.,  137  N.  C.  637. 
Hallam  v.  Tilhnghast,  19  Wash.  20.  {In- 
quiry from  Mich.,  April,  1910,  Jl.) 

Proceeds  in  failed  Texas  hank  a  trust  fund 

1180.  Is  the  claim  of  the  owner  of  paper 
preferred  when  a  Texas  collecting  bank  re- 
ceives payment  but  fails  before  remitting 
the  proceeds?  Opinion:  The  claim  would 
be  a  preferred  rather  than  a  general  claim, 
since  the  insolvent  bank  stands  in  the  rela- 
tionship of  trustee.  Hunt  v.  Townsend,  26 
S.  W.  (Tex.  Civ.  App.)  310.  {Inquiry  from 
N.  M.,Feh.,  1921.) 

Proceeds  in  assets  of  failed  North  Carolina 
hank  not  a  trust  fund 

1181.  A  draft  with  bill  of  lading  at- 
tached was  forwarded  for  collection,  and 
was  collected  and  a  draft  was  sent  in  pay- 
ment, which  draft  was  protested  for  insuffi- 
cient funds.  Does  the  collecting  bank  sus- 
tain a  trust  relationship  to  the  bank  for- 
warding the  original  draft,  which  now  holds 
the  protested  draft  of  the  collecting  bank? 
Opinion:  North  Carohna  Corp.  Commis- 
sion V.  Merchants  &  Farmers  Bank,  50  S.  E. 
(N.  C.)  308  holds  that  where  a  draft  is  sent 
to  a  bank  for  collection  and  it  is  so  restricted 
bj^  indorsement,  the  bank  is  entitled  to  carry 
the  proceeds  of  the  draft  into  its  general 
assets,  and  that  when  it  does  so  the  relation- 
ship between  the  owner  or  forwarder  of  the 
draft  and  the  bank  becomes  that  of  creditor 
and  debtor,  so  that  on  failure  of  the  bank 
such  owner  or  forwarder  can  share  in  the 
assets  only  pro  rata  with  the  other  general 
creditors.  Assuming  in  the  case  submitted 
that  the  proceeds  of  the  draft  were  carried 
into  the  general  assets,  the  customer  can 
prove  only  as  a  general  creditor.  {Inquiry 
from  N.  C,  Jan.,  1921.) 

Proceeds  in  assets  of  failed  South  Carolina 
bank  a  trust  fund 

1182.  What  is  the  rule  in  South  Carolina 
with  respect  to  a  preferred  claim  against  an 
insolvent  collecting  bank  for  the  proceeds  of 
the  collection,  when  the  draft  of  such  col- 


266 


COLLECTION 


[1183-1187 


lecting  bank  is  dishonored?  Opinion:  White 
V.  Commercial  &  Farmers  Bank,  60  S.  C. 
122,  38  S.  E.  453,  holds  that  to  entitle  a 
claimant  to  a  priority  over  other  creditors 
of  an  insolvent  bank  on  the  ground  that  he 
is  a  cestui  que  trust,  and  not  a  creditor,  as  to 
the  proceeds  of  drafts  sent  by  him  to  the 
bank  for  collection,  and  collected  by  the 
bank,  but  not  remitted,  he  must  show  that 
such  proceeds  in  some  form  have  gone  into 
the  assets  of  the  bank,  and  if  he  fails  to  do 
so,  he  must  share  ratably  with  other  credit- 
ors in  the  distribution  of  the  assets.  {In- 
quiry from  S.  C,  Jan.,  1921.) 

I        No  preference  in  assets  where  check  is   on 
failed  hank 

1183.  Is  there  a  preferred  claim  against 
the  assets  of  a  drawee  bank,  which  receives 
a  check  by  mail  and  remits  by  draft,  which 
is  dishonored  because  of  its  insolvency? 
Opinion:  The  check  in  question  given  by 
the  insolvent  Florida  bank  is  not  a  preferred 
claim.  It  has  been  held  in  numerous  cases 
where  the  check  is  drawn  directly  on  a  bank 
which  fails,  its  own  check  in  payment  is  not 
a  preferred  claim  because  the  bank  has  re- 
ceived nothing  from  an  outside  source  by 
which  its  assets  are  swelled.  It  has  simply 
transferred  the  amount  from  the  account  of 
the  drawer  of  the  check  to  another  account 
and  this  does  not  entitle  the  holder  of  its  own 
check  to  be  preferred  in  its  assets  in  the 
hands  of  the  receiver.  {Inquiry  from  Mass., 
April,  1916.)  (Similar  inquiry  fom  111., 
March  1914,  Jl.) 

1184.  Bank  A  forwarded  several  checks 
sent  to  it  for  collection  to  drawee  bank  B  at 
a  time  when  state  examiners  were  checking 
up  the  latter  and  received  B's  draft  on  bank 
C  for  balance  owed  which  draft  was  pro- 
tested for  insufficient  funds  and  before  any 
action  could  be  taken  bank  B  was  closed  by 
order  of  the  state  commissioner.  Is  A  a 
preferred  creditor?  Would  it  have  any  re- 
course on  the  state  examiners  for  allowing 
the  draft  to  be  issued  while  they  were  in 
charge?  Opinion:  Had  bank  B  been  an 
independent  collecting  agent  which  had 
failed  after  sending  a  remittance  draft  it 
would  seem  that  there  would  be  a  prefer- 
ence.    Midland   Nat.   Bank  v.  Brightwell, 

•  148  Mo.  358,  49  S.  W.  994,  71  Am.  St. 
Rep.  608.  But  this  case  also  holds  that 
where  the  collection  is  made  by  the 
bank,  not  from  an  outside  source,  but  by 
charging  the  accounts  of  depositors,  there 
is  no  preference  in  the  assets  of  the  failed 
bank.    According  to  this  ruHng,  it  is  doubt- 


ful if  bank  A  can  clain>  as  a  preferred  credit- 
or because  the  draft  was  given,  not  from 
money  collected  from  an  outside  source,  but 
for  the  balance  of  checks  or  drafts  upon  it 
which  were  charged  to  the  accounts  of  the 
drawers  thereof  and  its  assets  were  not 
swelled  by  reason  of  any  collection  from  an 
outside  source.  A  would  have  no  recourse 
on  the  state  examiners  for  allowing  the  draft 
to  be  issued  while  they  were  in  charge  as  they 
were  simply  making  an  examination  and  the 
bank  was  a  going  concern  at  the  time  it 
issued  the  draft.  The  bank  was  not  closed 
until  later.    {Inquiry  from  Mo.,  Jan.,  1921.) 

1185.  Where  a  note  is  sent  to  a  bank 
where  payable  for  collection,  and  the  bank 
charges  the  note  to  the  account  of  the  maker, 
but  fails  to  remit  the  amount  of  the  note  to 
the  payee,  on  account  of  insolvency,  is  the 
payee  of  the  note  a  general  creditor  of  the 
failed  bank,  or  does  such  bank  thereby 
become  a  trustee  for  the  payee,  and  the 
latter  a  preferred  creditor  of  the  bank? 
Opinion:  Where  an  insolvent  bank  does 
not  collect  the  item  from  an  outside  source, 
but  collects  it  from  itself  simply  transferring 
the  credit  on  its  books  from  its  depositor, 
the  courts  are  quite  unanimous  in  holding 
that  there  is  no  preference  and  that  the 
owner  of  the  item  can  share  only  as  a  general 
crechtor.  See  People  v.  Merchants  and 
Mechanics  Bank,  78  N.  Y.,  269,  34  Am.  Rep. 
532.     {Inquiry  from  N.  Y.,  Oct.,  1918.) 

1186.  If  a  bank  sends  a  check  to  another 
bank  in  a  distant  city,  and  the  latter  bank 
fails  before  remitting,  to  whom  do  the  pro- 
ceeds belong?  Opinion:  The  majority  of 
decisions  are  to  the  effect  that  the  proceeds 
are  regarded  as  a  trust  fund  belonging  to  the 
owner  of  the  item  and  may  be  recovered  in 
full  if  they  can  be  traced.  There  are  a  few 
decisions,  however,  the  other  way,  which 
have  held  that  the  collecting  bank  is  to  be 
regarded  as  debtor  for  the  proceeds;  and  in 
any  case  where  the  item  is  upon  the  failed 
bank  itself  and  its  remittance  draft  is  dis- 
honored, there  is  held  to  be  no  preference. 
{Inquiry  fr 0771  Va.,  March,  1916.) 

1187.  A  note  was  sent  to  the  First 
National  Bank  of  X  for  collection,  and 
the  amount  was  paid  to  said  bank  at  matu- 
rity, by  a  check  against  the  account  of  one 
M  in  said  bank.  Two  days  later  the  bank 
failed.  The  receiver  forwarded  to  the  owner 
the  draft  of  the  First  National  Bank  of  X 
which  had  been  drawn  for  the  purpose  of  re- 
mitting for  the  collection.  Opinion:  The 
owner  of  the  draft  has  no  preferred  claim 


267 


1188-1192] 


DIGEST  OF  LEGAL  OPINIONS 


against  the  insolvent  bank,  there  being  no 
increase  of  the  bank's  assets  by  the  trans- 
action.   {Inquiry  from  Wis.,  May,  1910,  Jl.) 

Check  or  proceeds  received  after  insolvency  can 
he  reclaimed 

1188,  A  bank  took  a  check  for  collection 
and  credit,  but  credit  was  not  given  at  the 
time  of  deposit  and  the  returns  from  the 
collection  were  not  received  until  after  the 
bank  had  failed.  Opinion:  The  depositor 
is  entitled  to  the  entire  proceeds.  The  check 
was  deposited  at  a  time  when  the  bank  was 
insolvent  and  remains  the  property  of  the 
depositor.  Richardson  v.  Denegre,  93  Fed. 
572.  Jones  v.  Killveth,  49  Ohio  St.  401. 
Hallam  v.  Tillinghast,  19  Wash.  20.  {In- 
quiry from  Wash.,  Dec,  1914,  JI-) 

1189.  A  private  banking  firm  receives 
paper  for  collection,  knowing  at  the  time 
that  it  is  insolvent  and  will  not  be  able  to 
make  a  return.  Opinion:  This  is  such  fraud 
as  will  entitle  the  depositor  of  the  items  to 
reclaim  the  same  or  their  full  proceeds  from 
the  receiver  or  assignee.  Cragie  v.  Hadley, 
Rec'r.,  99  N.  Y.  131.  St.  Louis  &  San 
Francisco  R.  R.  v.  Johnston,  Rec'r.,  133  U. 
S.  566.  WilUams  v.  Van  Norden  Tr.  Co., 
Assignee,  104  App.  Div.  (N.  Y.)  251.  Grant 
V.  Walsh,  145  N.  Y.  502.    Met.  Nat.  Bk.  v. 


Loyd,  90  N.  Y.  530,  537.  Spring  Brook 
Chemical  Co.  v.  Dunn,  Rec'r.,  39  App.  Div. 
(N.  Y.)  130.  {Inquiry  from  Va.,  March, 
1911,  Jl.) 

Uniform  code  of  collections 

1190.  A  most  important  task  is  the 
straightening  out  of  the  knots  and  tangles  in 
the  law  governing  the  collection  of  commer- 
cial paper,  which  is  now  in  a  most  confused 
state  and  is  not  adequately  regulated  by  the 
Negotiable  Instruments  Law.  The  judicial 
decisions  upon  nearly  all  phases  of  the  law 
of  bank  collections  are  in  hopeless  conflict — 
they  do  not  square  with  modern  banking 
customs — and  it  would  seem  of  the  utmost 
importance  to  all  banks  handling  collection 
items  that  there  be  prepared  for  statutory 
enactment  a  uniform  code  of  rules  simplify- 
ing and  making  uniform  the  law  governing 
collections,  and  covering  (1)  liability  of 
initial  bank  for  default  of  correspondent, 
(2)  methods  of  presentment,  direct  and 
circuitous,  (3)  definite  meaning  and  con- 
struction of  collection  endorsements  and 
guarantees,  (4)  responsibility  for  lost  items, 
(5)  questions  of  title  and  right  to  proceeds 
in  event  of  insolvency,  and  (6)  such  other 
topics  as  are  germane  to  the  subject.  {Gen- 
eral Counsel's  report  Nov.,  1911.) 


CONTRACTS  AND  AGREEMENTS 


Bank's  contract  with   publisher  of 
bank   directory 

1191.  A  bank  signed  a  contract  with  a 
pubHshing  company  calHng  for  payment  of 
$15  per  year  for  5  years  for  dehvery  of  a 
bank  directory.  The  bank  was  induced  to 
make  the  contract  on  the  strength  of  a 
statement  by  the  company's  agent  that 
"10,000  more  or  less  business  houses  would 
use  the  directory  for  making  collections 
through  banks."  The  bank  was  led  to  be- 
heve  that  the  number  of  collections  coming 
to  it  would  be  largely  increased  by  use  of 
their  book.  The  book  did  not  prove  satis- 
factory, and,  upon  learning  that  the  state- 
rnent  was  probably  much  exaggerated  and 
visionary,  the  bank  desires  to  abrogate  the 
contract  and  be  relieved  of  responsibihty 
for  making  further  payment.  Opinion: 
The  contract  probably  cannot  be  abrogated. 
The  court  will  doubtless  hold  that  the 
written  contract  itself  embodied  everything 
binding  between  the  parties  and  that  any 
oral  statements  not  embodied  therein  as  to 
the  number  of  houses  which  would  use  the 
book  would  not  be  admissible.  In  this  case 
the  statement  by  the  agent  was  in  the  nature 


of  an  opinion  and  could  not  be  regarded  as 
a  misrepresentation  of  a  fact  which  could  be 
rehed  upon  by  a  prudent  man.  {Inquiry 
from  Pa.,  May,  1919.) 

Subcription    contract    for   one  year — 
Liability  for  publication  beyond  year 

1192.  The  Oregon  law  provides  that  a 
publication  sent  without  an  order  is  a  gift, 
and  no  claim  accrues  for  same.  If  a  pubHca- 
tion  was  ordered  by  a  bank  for  one  year 
from  a  pubhsher  located  outside  the  state, 
and  the  pubhsher  continued  to  send  the 
paper  for  a  longer  period  without  any 
instructions  from  the  bank,  could  he  force 
the  bank  to  pay  for  the  pubhcation  for  the 
period  sent,  though  not  ordered  by  the 
bank?  Opinion:  Apart  from  the  Oregon 
statute,  where  a  publication  is  ordered  for 
one  year  only,  there  is  no  contract  liability 
to  pay  for  the  pubhcation  beyond  the  year, 
unless  a  new  order  or  a  renewal  is  given  or 
unless  by  thereafter  receiving  the  paper,  the 
bank  becomes  liable  on  an  impHed  contract 
to  pay  for  same.  If  the  pubhsher  continues 
to  send  the  paper  for  a  longer  period  without 
instructions  so  to  do,  he  does  so  at  his  own 


268 


CONTRACTS  AND  AGREEMENTS  [1193-1195 

risk,  and  where  the  bank  refuses  to  receive  $2200  for  a  piece  of  land  and  asks  that  a 
it,  it  cannot  be  compelled  to  pay  for  the  deed  be  sent  if  the  offer  is  accepted.  The 
publication  beyond  the  first  year.  If,  how-  owner  answers  that  an  option  has  been  given 
ever,  the  bank  should  continue  to  take  the  on  the  property  and  when  this  expires  he 
pubhcation  from  the  post  office  during  the  will  take  up  the  subject.  The  offer  is  re- 
second  year  without  protest,  it  would  newed  to  take  effect  if  the  option  is  not  ful- 
probably  be  held  Hable.  In  Austin  v.  Burge,  filled,  and  there  is  a  request  that  a  deed  be 
137  S,  W.  (Mo.)  618  after  pa>Tiient  of  a  forwarded  in  case  of  acceptance.  At  expira- 
subscription  bill,  the  defendent  directed  the  tion  of  option  the  owner  wires  to  the  person 
paper  stopped.  Notwithstanding  the  pub-  making  the  offer:  "Do  you  want  property, 
lisher  continued  to  send  the  paper  and  de-  $2200?  Answer,"  and  the  answer  was:  "Will 
fendant  received  it.  It  was  held  he  was  take  property  $2200;  send  deed."  Opinion: 
hable  for  the  subscription  price  upon  an  A  court  would  be  hkely  to  hold  that  there 
imphed  contract  to  pay  for  same.  In  Fogg  was  a  completed  contract  for  the  sale  of  the 
V.  Atheneum,  44  N.  H.  115,  after  direction  property.  The  real  controversy  is  whether 
to  discontinue,  the  pubhsher  continued  to  the  telegram  of  the  owner  was  an  offer,  which 
send  and  defendant  continued  to  receive  it  upon  acceptance  would  form  a  binding 
through  the  post  office.  Having  accepted  contract,  or  whether  it  was  merely  an  in- 
the  paper,  he  was  held  hable  for  the  sub-  quiry,  so  that  the  answering  telegram  would 
scription  price  by  imphcation  of  law.  So  in  constitute  merely  an  offer.  In  view  of  the 
Ward  V.  Powell,  3  Har.  (Del.)  379  it  was  original  and  repeated  offer  to  purchase,  the 
held  an  imphed  agreement  to  pay  for  a  telegram  of  the  owner  may  well  be  con- 
newspaper  or  periodical  arose  by  continued  sidered  an  offer.  It  will  require  a  judicial 
taking  and  accepting  the  paper  from  the  decision  to  settle  the  question  positively, 
post  office  but  that  "if  a  party,  without  {Inquiry  from  Minn.,  Aug.,  1916.) 
subscribing  to  a  paper,  declines  taking  it  out 

of  the  post  office,  he  cannot  become  hable  Consignment  contract  of  wool — Ad- 
to  pay  for  it;  and  a  subscriber  may  cease  to  vances  by  commission  merchant 

be  such  at  the  end  of  the  year,  by  refusing  „ 

to  take  the  papers  from  the  post  office,  and         1194.     A  contract  between  a  sliipper  ot 

returning  them  to  the  editor  as  notice  of  wool  and  a  commission  merchant  is  in  the 

such  determination."  following  form:     "In  consideration  ot  the 

The  Oregon  statute  provides  (Ore.  Laws  payment  of  $5586.25,  as  an  advance  on  my 

§77  10334)  that  when  a  publisher  mails  or  wool  the  receipt  of   which   is   hereby    ac- 

sends  a  newspaper  or  periodical  to  a  person  knowledged,  I  agree  to  consign  my  entire 

in  the  state  without  first  receiving  an  order     1920    clip    of    wool,    about tieeces 

therefor,  it  "shall  be  deemed  to  be  a  gift  and      pounds  to    . . ot 

no  debt  or  obhgation  shall  accrue  against  Boston  Mass.    Total  advance  to  be_  .  .^.  . 

such  person  or  persons,  whether  said  news-  cents  per  pound  and  balance  to  be  paid  when 

paper  or  periodical  is  received  by  the  person  wool  is  shipped,  after  which  there  are 
or  persons  to  whom  it  is  sent  or  not."  In  provisions  for  interest  on  advances  etc  rate 
Oregon,  therefore,    the    taking   of   an   un-     of  commission,  and  for  defense  ot  title  by 

ordered  periodical  from  the  post  office  raises  shipper.         ,     „    j.     ,        i        -  u 
no  imphed  contract  to  pay  for  same,  but  the         I^  the  wool  sells  for  less  than  the  amount 
person  so  receiving  may  regard  it  as  a  gift,     of  advances  and  other  charges,  has  the  corn- 
Presumably   this   would   apply   where   the     mission  merchant  the  right  to  recover  the 
subscription  was  for  one  year  only  and  not     excess  of  the  advances  from  the  shipper, 

renewed;  as  the  pul)hsher  would  have  re-  Opinion:  The  relation  is  that  of  principal 
ceived  no  order  for  the  second  year.  But  and  factor  and  the  commission  merchant 
where  there  is  no  statute,  as  in  Oregon,  a  may  hold  the  shipper  for  the  excess  of  the 
bank  which  has  ordered  a  paper  for  a  year  advances.  (Inqiiinj  from  Mont,  Jan., 
only,  must  refuse  to  take  it  thereafter  from  1921.) 
the  post  office,  for  otherwise  the  law  will 

raise  an  imphed  promise  to  pay  for  same.        Contract   with   bank    to    collect  its 
{Inquiry  from  Ore.,  Dec,  1916.)  delinquent  claims 

Offer  and   acceptance    as    completing  1195.     A    commercial    hquidation    com- 

contract  for  purchase  and  sale  of  pany  calling  themselves  speciahsts  in  the 

real  estate  liquidation   of    delinquent   debts,    made    a 

1193.     A    prospective    purchaser    offers     contract  with  a  bank  on  January  15,  1916, 

269 


1196-1199] 


DIGEST  OF  LEGAL  OPINIONS 


whereunder  the  bank  paid  $250.00  retainer 
fee,  the  company  agreeing  to  use  due  diK- 
gence  in  collecting  all  deUnquent  claims  dur- 
ing two  years  from  date.  The  company  also 
gave  the  bank  a  surety  bond  to  protect  the 
latter  against  any  dishonest  misappropria- 
tion of  collections  made.  Under  this  con- 
tract the  bank  forwarded  to  the  company 
$4,000  in  old  notes.  One  year  and  eight 
months  has  elapsed  and  there  have  been  no 
results.  The  bank  asks  what  its  recourse  is 
and  what  is  the  best  method  of  procedure. 
Opinion:  There  appears  to  be  no  basis  for 
any  criminal  action  against  this  concern. 
They  have  simply  agreed  to  use  due  dili- 
gence in  collecting  the  claims  and  have 
received  $250.00  from  the  bank  as  a  retainer 
or  advance  payment  for  services  to  be 
rendered.  It  would  be  difficult  to  prove 
that  they  had  obtained  this  money  under 
false  pretenses  for  they  could  doubtless 
show  that  they  had  rendered  some  services 
in  the  matter,  though  ineffectual,  nor  could 
the  bank  recover  the  money  unless  it  proved 
that  they  had  rendered  no  services.  (In- 
quiry from  Ind.,  Oct.,  1917.) 

Express  company.    Liability  as  carrier 
for  shortage  of  currency  shipped 

1196.  A  bank  claims  that  an  express 
company  is  short  in  the  delivery  of  currency 
shipped,  and  the  company  contends  that  the 
container  was  in  perfect  condition  when 
delivered.  Can  the  bank  recover  for  the 
shortage?  Opinion:  Where  money  is 
delivered  to  a  carrier,  such  as  an  express 
company,  and  the  carrier  fails  to  deliver, 
it  is  prima  facie  hable  and  the  burden  of 
proof  is  on  it  to  show  facts  relieving  it  from 
liabihty.  If  the  bank's  proof  tends  to  show 
the  delivery  of  the  full  amount  claimed  to 
the  carrier,  and  that  of  the  express  company 
tends  to  show  that  the  package  received  by 
it  was  delivered  intact,  a  question  of  fact 
is  raised  which  it  is  for  the  jury  to  decide. 
If  the  bank  feels  confident  that  it  can  estab- 
lish that  the  full  amount  of  currency  was 
delivered  by  it,  it  is  justified  in  suing  for  the 
shortage.     {Inquiry  from  Pa.,   Nov.,  1916.) 

Contract  to  pay  commission  on  sale 

1197.  A  entered  into  a  written  contract 
with  a  real  estate  agency,  wherein  the  agency 
was  given  power  of  attorney  to  sell  A's  house 
for  $1,000  within  thirty  days,  and  upon 
cancellation  of  the  contract  by  A  before  its 
expiration  A  was  obliged  to  pay  the  agency 
the  five  per  cent,  commission.  A  cancelled 
the  contract  and  the  agency  demanded  the 


commission.  Opinion:  The  agency  may 
recover  the  commission,  because  the  con- 
tract was  founded  upon  sufficient  considera- 
tion. A  employed  the  agency  as  brokers  to 
sell,  and  such  employment  was  sufficient 
consideration  to  support  A's  promise.  Kim- 
mell  V.  Skelly,  130  Cal.  555.  Hoskins  v. 
Fogg,  60  N.  H.  402.  Gibson  v.  Gray,  17 
Tex.  Civ.  App.  646.  {Inquiry  from  Ga., 
May,  1913,  Jl.) 

Statute  of  limitations  in  Montana 

1198.  An  Iowa  bank  desires  information 
relative  to  the  Statute  of  Limitations  in 
Montana.  Opinion:  The  statute  provides 
that  "an  action  upon  any  contract,  obliga- 
tion, or  habiUty,  founded  upon  an  instru- 
ment, other  than  for  the  recovery  of  real 
property,  must  be  commenced  within  eight 
years  after  the  accrual  of  the  cause  of 
action."     {Inquiry  from  Iowa,  Sept.,  1913.) 

Rights  of  bank  under  trust  receipt  on 
bankruptcy  of  borrower 

1199.  A  bank  submits  a  form  of  trust 
receipt  under  which  the  borrower  agrees  to 
hold  the  merchandise  as  the  property  of  the 
bank,  with  hberty  to  sell  same  for  its  ac- 
count and  further  agrees  to  hold  the 
merchandise  and  the  proceeds  thereof  in 
trust  for  the  pajinent  of  the  bank's  accept- 
ance under  a  letter  of  credit  and  of  any  other 
indebtedness  of  the  undersigned  to  said 
bank;  and  further,  that  "in  the  event  of  any 
suspension  or  failure,  or  assignment  for  the 
benefit  of  creditors,  or  of  the  non-payment 
at  maturity  of  any  acceptance  made  upon 
said  credit,  or  any  other  credit  *  *  *  all 
obligations  *  *  *  whatsoever  shall  thereupon 
without  notice  mature  and  become  due  and 
payable."  The  bank  asks  whether  it  would 
become  a  preferred  creditor  in  the  event  of 
bankruptcy  of  the  borrower  and  whether 
the  bank  would  have  the  right  to  attach  the 
goods  in  case  of  suit  or  otherwise.  Opinion: 
In  the  event  of  bankruptcy  of  the  borrower, 
the  bank  would  have  superior  right  to  the 
goods.  As  the  bank  holds  the  equitable 
title  to  the  goods,  it  would  be  entitled  to 
attach  same  at  any  time,  unless  they  have 
been  sold  by  the  borrower  in  pursuance  of 
the  authority  given  in  the  trust  receipt.  In 
that  event,  the  bank  would  have  a  right  to 
follow  the  proceeds  and  reclaim  same  as 
long  as  susceptible  of  identification.  South- 
ern Cotton  Oil  Co.  V.  Elhotte.  218  Fed.  567. 
Carroll  v.  Stern,  223  Fed.  723.  Clark  v. 
Snelling,  205  Fed.  240.  Welch  v.  Policy, 
177  N.  Y.  117.  {Inquiry  from  N.  J.,  Aug., 
1920.) 


270 


[1200-1204 


CORPORATIONS  AND  CORPORATE  STOCK 


By-laws 

Variation  between  by-laws  and  resolution  of 
directors 

1200.  Where  the  by-laws  of  a  corpora- 
tion are  filed  with  a  bank,  showing  the 
limitations  of  the  powers  of  its  directors, 
and  subsequently  a  resolution  is  passed  by 
the  board  at  variance  with  such  by-laws,  is 
the  bank  to  be  governed  by  the  resolution 
or  the  by-laws?  Opinion:  When  by-laws 
are  filed  with  a  bank  in  which  the  powers  of 
directors  are  limited  in  any  particular,  or 
where  there  is  a  certain  mode  of  execution 
or  of  indorsement  of  notes  or  checks  pro- 
vided, in  every  such  case  the  bank  is  charge- 
able with  notice  of  the  by-laws,  and  if  such 
instruments  are  signed  or  indorsed  contrary 
to  the  by-laws,  even  if  by  resolution  of  the 
board  of  directors,  the  bank  must  be 
governed  by  the  by-laws  and  not  by  reso- 
lution of  the  board  of  directors.  {Inquiry 
from  N.  Y.,  Nov.,  1920.) 

Failure  to  adopt  by-laws 

1201.  A  corporation  transacts  business 
without  adopting  any  by-laws.  The  cor- 
poration, becoming  involved  in  damage 
suits  and  approaching  insolvency  questions 
the  vahdity  of  its  corporate  acts  by  reason 
of  the  omission.  Opinion:  When  the 
governing  statute  in  express  terms  confers 
upon  a  corporation  the  power  to  adopt  by- 
laws, the  failure  to  exercise  the  power  will 
be  ascribed  to  mere  non-action,  which  will 
not  render  void  any  acts  of  the  corporation 
which  would  otherwise  be  valid.  Steger  v. 
Davis,  8  Tex.  Civ.  App.  23,  27  S.  W.  1068. 
Tex.  Rev.  Stat.,  Sec.  581.  {Inquiry  from 
Miss.,  April,  1913,  Jl.) 

Adoption  of  by-laws  by  corporation — Meaning 
of  "majority^' 

1202.  Where  it  is  said  that  by-laws 
enacted  by  a  majority  vote  of  all  stock- 
holders will  be  valid,  what  constitutes  a 
"majority?"  Opinion:  The  share  of  stock 
is  the  voting  unit,  and  a  majority  vote  of  all 
stockholders  would  call  for  a  majority  of  the 
shares.  (Piano  etc.  Co.  v.  Finley,  98  Ky. 
405.  See  also  Tract  &  C  Co.  v.  Smith,  205 
Fed.  643.  Com.  v.  Smith,  19  Pa.  Dist.  Ct. 
638).  And  it  may  safely  be  said  that  where 
the  phrase  "a  majority  vote  of  all  stock- 
holders" is  used  in  connection  with  a  joint 
stock   corporation,   it  means    "a  majority 


vote  in  interest  of  all  stockholders,"  or  "a 
majority  vote  of  all  the  stock,"  unless  the 
contrary  is  specifically,  or  by  necessary 
impUcation,  indicated.  (See  Weinburgh  v. 
Union  St.  Ry.  Advertising  Co.,  55  N.  J.  Eq. 
640.  State  v.  Horan,  22  Wash.  197).  {In- 
quiry from  La.,  Jan.,  1917.) 

Foreign  corporations 

Right  to  sue  in    New    York  state 

1203.  Inquiry  is  made  as  to  whether  a 
a  New  Jersey  Corporation,  not  authorized 
to  do  business  in  New  York  State,  has  a 
right  to  bring  a  suit  in  that  state's  courts 
on  a  contract  made  in  New  York.  Opinion: 
Applying  many  New  York  decisions,  it  is 
the  consensus  of  opinion  that  a  foreign 
corporation  not  authorized  to  do  business 
in  New  York  State  has  a  perfect  right  to  sue 
in  the  courts  of  the  state  on  a  contract  made 
with  a  citizen  of  New  York  either  within  or 
without  the  state,  provided  it  has  not  located 
in  the  State  of  New  York  for  the  purpose  of 
doing  business  within  its  boundaries;  that 
is  by  exercising  its  corporate  franchise 
within  the  state  and  becoming  in  practical 
effect  a  domestic  corporation  for  all  pur- 
poses. (See  N.  Y.  Code  of  Civ.  Proc,  Sec. 
1779— Consol.  Laws,  Ch.  23,  Sec.  15.) 
Barney  &  Smith  Car  Co.  v.  E.  W.  BHss  Co., 
164  N.  Y.  S.  800.  SterHng  Mfg.  Co.  v. 
National  Surety  Co.,  159  N.  Y.  Suppl.  979. 
Frick  V.  Pultz,  149  N.  Y.  Suppl.  732.  Echpse 
Silk  Mg.  Co.  V.  Miller,  129  N.  Y.  Suppl. 
879.    {Inquiry  from  N.  J.,  Feb.,  1918.) 

Suit  on  note  by  non-resident  corporation 

1204.  Inquiry  is  made  as  to  how  a 
corporation  may  proceed  to  bring  suit  on  a 
note  in  a  state  where  it  is  not  qualified  to 
do  business.  Opinion:  If  the  corporation 
holder  does  not  care  to  quahfy  with  a  resi- 
dent agent  in  the  state  where  it  desires  to 
bring  suit,  it  could  indorse  the  note  to  an 
individual  in  the  state  for  the  purpose  of 
suit.  The  Negotiable  Instruments  Act 
provides  that  "An  indorsement  is  restrictive 
which  *  *  *  constitutes  the  indorsee  the 
agent  of  the  indorser,"  and  that  "A  restric- 
tive indorsement  confers  upon  the  indorsee 
the  right  (1)  to  receive  pajonent  of  the  in- 
strument (2)  to  bring  any  action  thereon 
that  the  indorser  could  bring."  {Inquiry 
from  Ind.,  Aug.,  1916.) 


271 


1205-1208] 


DIGEST  OF  LEGAL  OPINIONS 


Increase  and  reduction  of  capital 

Failure  of  Nebraska  corporation  to  publish 
notice    of  increase    of   capital 

1205.  A  bank  states  that  a  corporation 
increasing  its  capital  stock,  carried  out  the 
legal  requirements  in  so  doing,  except  it 
failed  to  pubhsh  notice  of  the  amendment 
increasing  the  same.  The  bank  asks  the 
effect  of  such  failure.  Opinion:  Under 
the  provisions  of  the  Revised  Statutes 
of  Nebraska,  1913  (Sees.  571,  574  and 
580),  it  would  seem,  that  failure  to  pubUsh 
notice  of  an  amendment  to  the  articles  in- 
creasing the  amount  of  capital  stock  would 
make  all  the  stockholders  liable  for  the 
debts,  to  the  extent  of  the  unpaid  subscrip- 
tion of  any  stockholder  to  the  capital  stock 
of  the  corporation,  and  in  addition  thereto 
to  the  amount  of  capital  stock  owned  by- 
such  individual,  the  same  as  failure  to  pub- 
hsh notice  of  the  original  articles  of  incor- 
poration. {Inquiry  from  Neb.,  March, 
1920.) 

Distribution    of    existing    surplus 

1206.  A  bank  inquires  as  to  the  proper 
manner  of  handhng  a  proposition  to  increase 
the  capital  stock  of  a  corporation  where  new 
stock  is  desired  to  be  sold  at  a  figure  where 
surplus  might  be  thus  created  and  where 
earnings  have  accumulated  to  the  benefit  of 
present  stockholders,  but  where  Hmited  or 
no  dividends  have  been  paid  in  order  that 
subscribers  to  new  stock  would  not  partici- 
pate on  a  par  with  old  stockholders  for  past 
earnings.  Opinion:  It  would  seem  that  a 
good  way  of  handhng  would  be,  in  addition 
to  the  issue  of  new  stock  desired  to  be  sold, 
to  further  increase  the  stock  to  the  amount 
of  the  accumulated  earnings  and  distribute 
such  increase  as  a  dividend  to  present  stock- 
holders. To  illustrate :  A  corporation  under 
the  law  of  New  Jersey  now  has  a  capital  of 
$100,000  divided  in  1,000  shares.  It  has 
accumulated  earnings  which  belong  to  the 
existing  stockholders  of  S25,000.  It  desires 
to  make  an  increase  in  capital  of  $100,000 
by  the  issue  of  1,000  new  shares  to  be  sold  at 
$125  each  so  as  to  create  a  surplus  of  $25,000. 
The  suggestion  is  that,  in  addition  to  the 
issue  of  1,000  new  shares  to  be  sold  at  $125 
each,  the  corporation  also  issue  200  new 
shares,  par  value  $20,000  and  distribute 
such  new  shares  as  a  dividend  to  its  present 
stockholders.  As  these  $20,000  of  new 
shares  would  represent  $25,000  of  assets, 
they  would  be  on  an  equal  basis  with  the 
$100,000  of  new    shares    sold  at   $125,000 


and  representing  $125,000  of  assets.  See 
Compiled  Stat.  N.  J.  1910,  p.  p.  1612,  1613. 
Wall  V.  Utah  Copper  Co.,  70  N.  J.  Eq.  17. 
{Inquiry  from  N.  J.,  Dec,  1919.) 

Reduction  of  preferred  capital  out  of  earnings 
1207.  A  bank  raises  these  questions: 
1.  Has  an  Ohio  corporation  (presumable 
by  act  of  its  board  of  directors)  the  power  or 
authority  to  reduce  its  preferred  capital  out 
of  earnings,  i.  e.,  use  earnings  to  purchase 
and  retire  preferred  capital  without  authori- 
ty of  a  stockholder's  vote,  or  by  virtue  of 
some  provision  of  law  or  charter?  2.  As- 
suming no  such  authority — and  purchase  of 
stock  ultra  vires — would  the  registrar,  can- 
celling the  preferred  stock  on  presentation, 
be  liable  to  other  preferred  stockholders,  if 
the  corporation  should  become  insolvent 
and  not  be  able  to  pay  preferred  stock  in 
full?  What  is  function  of  registrar?  Is  he 
a  "watchdog"  to  see  that  nothing  illegal  or 
unauthorized  is  done  in  transfer  or  cancella- 
tion of  stock — a  trustee  of  stockholders — or 
are  his  functions  merely  ministerial?  Opin- 
ion: 1.  The  reduction  of  the  capital  stock 
of  a  corporation  can  take  place  only  when 
prescribed  by  law  and  in  the  manner  so 
prescribed.  A  purchase  by  a  corporation 
of  its  own  stock,  in  effect,  amounts  to  a  with- 
drawal of  the  shareholder  whose  shares  are 
purchased,  from  membership  in  the  com- 
pany, and  a  repayment  of  his  proportionate 
share  of  the  company's  assets.  There  is  no 
substitution  of  membership  under  these 
circumstances  as  in  case  of  purchase  and 
transfer  of  shares  to  a  third  person,  but  the 
members  of  the  company  and  the  amount 
of  its  capital  are  actually  diminished.  What 
ever  a  transaction  of  this  kind  may  be  called 
in  legal  phraseology,  it  is  clear  that  it  really 
involves  an  alteration  of  the  company's 
charter  and  the  purchase  of  preferred  stock 
out  of  earnings  without  authority  of  law 
would  be  ultra  vires.  2.  There  seems  to  be 
lacking  in  Ohio  any  statutory  authority  for 
investing  a  registrar  with  authority  or 
functions  such  as  those  referred  to  by  the 
inquiring  bank  and,  therefor,  the  necessary 
conclusion  is  that  the  duties  of  such  an 
officer  are  purely  ministerial  and  he  would 
not  be  hable  for  cancelhng  the  preferred 
stock  so  purchased.  {Inquiry  from  Ohio, 
April,  1917.) 

Corporation  as  guarantor 

Corporation  as  guarantor  of  railroad  bonds 
substituted  for  railroad  notes  on  which 

corporation   liable  as  indorser 
1208.     A  director  of  a  corporation  sub- 


272 


CORPORATIONS  AND  CORPORATE  STOCK 


[1209-1211 


scribed  to  "bearer"  railroad  notes  in  his 
own  name  but  turned  them  over  to  it  for 
value  received.  The  corporation  delivered 
the  notes  in  payment  of  a  debt  to  another 
corporation.  The  latter  negotiated  the 
notes  to  a  bank  which  required  the  indorse- 
ment of  both  corporations,  and  after  the 
notes  were  protested  for  non-payment,  it 
accepted  renewals  with  the  same  indorse- 
ments. Is  the  bank  safe  in  exchanging  the 
outstanding  renewal  notes  for  bonds  of  the 
railroad,  guaranteed  by  the  two  corpora- 
tions? Were  the  indorsements  on  the 
renewal  notes  accommodation  indorse- 
ments? Opinion:  Generally  speaking, 
where  A  gives  a  note  to  B  who  indorses  for 
value  to  C  corporation,  which  indorses  for 
value  to  D  corporation,  which  indorses  for 
value  to  a  bank  and  the  note  is  renewed 
with  the  same  indorsements,  the  corpora- 
tion indorsements  are  not  for  accommoda- 
tion but  for  value  and  the  corporation  can 
be  held  thereon,  having  received  value  for 
the  paper  in  their  business.  But  when  as  in 
this  case  the  maker  of  railroad  notes  pro- 
poses to  substitute  a  different  form  of  se- 
curity, i.  e.,  railroad  bonds,  and  in  place  of 
the  habiUty  of  the  corporations  as  indorsers 
on  the  notes,  proposes  to  have  these  cor- 
porations guarantee  the  bonds,  the  question 
of  ultra  vires  is  raised. 

The  corporations  might  be  held  liable  on 
the  guaranty  as  it  would  be  for  value  and 
not  for  accommodation — a  mere  renewing 
of  an  obligation  in  a  different  form — but  the 
bank  before  making  the  exchange  should 
call  upon  the  railroad  company  to  produce 
some  unquestionable  legal  authority  that 
the  guarantor  corporations  would  be  bound 
by  their  guaranty.  {Inquiry  from  Wis., 
April,  1919.) 

Loans  to  corporation 
Bank's   recourse   on   real   estate   security   of 

corporation  where  proceeds  of  loan  de- 
livered to  unauthorized  person 

1209.  A,  the  organizer  of  a  corporation, 
who  had  no  stock  in  his  name  nor  any  official 
connection  with  it,  falsely  representing  that 
it  had  considerable  property,  caused  B  to 
deed  a  tract  of  land  to  it  for  $85,000  par 
value  of  stock  in  the  corporation  and  had 
the  directors  accept  the  deed  and  issue  the 
stock.  A  by  virtue  of  oral  authority  ne- 
gotiated a  bank  loan  on  the  parcel  of  land 
and  took  the  note  and  mortgage  properly 
executed  by  the  corporate  officers  to  the 
president  of  the  bank,  who  was  also  his 
attorney,  and  who  at  A's  request  deposited 
the  money  to  A's  credit,  notwithstanding 


that  the  corporate  by-laws  provided  that 
all  money  must  be  handled  by  the  treasurer 
of  the  corporation,  and  that  A  was  without 
authority  to  receive  or  disburse  the  money. 
A  squandered  the  amount  of  the  loan  and 
the  bank  sues  to  foreclose  the  mortgage. 
What  rights  has  the  bank?  Opinion:  The 
corporation  apparently  has  a  good  defense 
to  the  bank's  foreclosure  suit  on  the  ground 
of  failure  of  consideration.  While  the  note 
and  mortgage  were  executed  by  officers  of 
the  corporation,  the  consideration  was  not 
paid  to  it  but  to  A.  A,  not  being  an  officer 
of  the  corporation,  and  otherwise  without 
authority,  had  no  authority  to  receive  the 
proceeds  of  the  loan  on  its  behalf.  It  would 
seem  that  the  only  recourse  of  the  bank 
would  be  upon  A.  If  A  had  stock  in  the 
corporation  which  is  the  owner  of  the  land, 
the  bank  might  seize  this  stock  for  A's  debt, 
but  A  has  no  stock  in  his  name.  Furthermore, 
were  the  fact  otherwise,  as  the  land,  which 
it  would  appear  was  the  sole  asset  of  the 
corporation,  was  deeded  to  it  under  false 
representations,  it  would  seem  that  B  would 
have  a  prior  claim  on  this  asset.  (Inquiry 
from  Ind.,  Aug.,  1918.) 

Building  and  loan  associations 

Power  to  advertise  business 

1210.  Inquiry  is  made  whether  a  build- 
ing and  loan  association  has  a  legal  right  to 
use  its  capital  to  advertise  or  promote  its 
business.  Opinion:  Assuming  that  con- 
tracts for  advertising  would  be  proper  for 
such  associations  to  enter  into  in  order  to 
successfully  accompHsh  the  purposes  for 
which  the  association  is  created,  there  is 
nothing  in  the  Pennsylvania  statute  creating 
or  authorizing  the  creation  of  building  and 
loan  associations  which  expressly  or  by 
implication  exempts  the  capital  of  such 
associations  from  liability  for  its  legitimate 
contracts,  and  it  seems  where  a  contract 
for  advertising  was  made  bj^  a  duly  au- 
thorized officer  of  the  association  it  would  be 
binding  on  it  and  its  habihty  could  be  en- 
forced.   {Inquiry  fr 0771  Pa.,  April,  1915.) 

Promoters  of  corporations 

Compensation  of  promoters  of  corporations 

1211.  Can  an  alleged  promoter  of  a 
corporation  enforce  claim  against  corpora- 
tion for  compensation,  in  the  absence  of 
contract?  Opinion:  It  has  been  held  that 
a  promoter  who  renders  valuable  services  to 
a  corporation  is  not  entitled  to  compensa- 
tion therefor,  in  the  absence  of  an  under- 
standing or  contract  to  that  effect.      Mc- 


273 


1213-1216] 


DIGEST  OF  LEGAL  OPINIONS 


Mullen  V.  Ritchie,  64  Fed.  253,  79  Fed.  522. 
Hinkley  v.  Sac  Oil,  etc.,  Co.,  132  Iowa  396, 
107  N.  W.  629  [holding  that  where  services 
are  rendered  by  promoters  in  the  organiza- 
tion of  a  corporation,  but  not  with  a  view  to 
compensation  therefor  from  the  corporation 
when  organized,  compensation  from  the 
corporation  cannot  be  enforced].  See  also 
Powell  V.  Georgia,  etc.,  Co.,  [Ga.]  49  S.  E. 
759.     {Inquiry  from  Miss.,  Dec,  1917.) 

Dividends 

Nature    of   unpaid    dividends 

1213.  Where  a  dividend  has  been  de- 
clared, but  remains  unpaid,  conflicting 
authorities  reviewed  showing  view  more  gen- 
erally prevaihng  to  be  (a)  if  dividend  special- 
ly set  apart  or  segregated  it  is  a  trust  fund, 
not  liable  for  debts  of  corporation,  and  in 
event  of  insolvency  unpaid  stockholder  is 
preferred  to  common  creditor,  but  (b)  if  not 
specially  set  apart  it  remains  property  of  cor- 
poration, hable  for  its  debts  and  unpaid 
stockholders  not  preferred  in  case  of  insol- 
vency. Some  courts,  however  hold  that  mere 
declaration  constitutes  a  trust  fund  without 
special  segregation.  Le  Roy  v.  Globe  Ins. 
Co.,  2  Edw.  Ch.  657.  Lowne  v.  Amer,  Fire 
Ins.  Co.,  6  Paige,  482.  Searles  v.  Gebbie, 
115  N.  Y.  App.  Div.  778.  In  re  Le  Blanc, 
14  Hun  (N.  Y.)  8  aff'd  in  75  N.  Y.  598.  Mc- 
Gill  V.  Holmes,  23  Misc.  (N.  Y.  524.  Van 
Dyck  V.  McQuade,  86  N.  Y.  38.  Germain 
V.  Lake  Shore  etc.,  R.  Co.,  91  N.  Y.  483. 
Hill  V.  Newichawanick  Co.,  71  N.  Y.  593. 
Brundage  v.  Brundage,  60  N.  Y.  544.  Peck- 
ham  V.  Van  Wagener,  83  N.  Y.  40.  Ford  v. 
Easthampton,  etc.,  Co.,  158  Mass.  84.  King 
V.  Paterson  etc.,  R.  Co.,  29  N.  J.  L.  82,  504. 
Stevens  v.  U.  S.  Steel,  Corp.,  68  N.  J.  Eq. 
373.  2  Cook  on  Corp.,  Sec.  534.  Jackson 
v.  Newark  Plank  Road  Co.,  31  N.  J.  L.  277. 
Larwill  v.  Burke,  19  Ohio  Cir.  Ct.,  605,  10 
Ohio  Cir.  Dec.  513.  Beers  v.  Bridgeport 
Spring  Co.,  42  Conn.  17.  Gordon  v.  Rich- 
mond, etc.,  R.  Co.,  81  Va.  621.  Cook 
County  Brick  Co.  v.  Kaehler,  83  111.  App. 
448.  Case  v.  Chicago  Crayon  Co.,  170  111. 
App.  234.  Northwestern  Marble  etc.,  Co. 
V.  Carlson,  133  N.  W.  (Minn.)  1014.  Pol- 
lard V.  First  Nat.  Bk.,  47  Kans.  406.  {In- 
quiry from  N.  J.,  Nov.,  1913,  Jl.) 

Right  of  purchaser  of  stock  to  dividend 

1214.  A  man  purchased  stock  through  a 
brokerage  firm.  After  the  stock  had  been 
sold,  and  before  it  had  been  transferred  on 
the  company's  books,  a  dividend  was  de- 
clared and  the  check  mailed  to  the  previous 


owner.  The  brokerage  office  claims  the 
check  should  be  given  to  the  new  owner. 
Opinion :  Where  a  dividend  is  declared  after 
stock  is  sold,  it  belongs  to  the  purchaser, 
although  the  transfer  has  not  been  recorded 
on  the  books  and  the  company  has  paid  the 
dividend  to  the  person  appearing  on  its 
books  as  the  owner.  Hyatt  v.  Allen,  56 
N.  Y.  553.  Jones  v.  Terre  Haute  &  R.  R. 
Co.,  57  N.  Y.  196.  Brundage  v.  Brundage, 
65  Barb.  (N.  Y.)  397.  Gemmel  v.  Davis, 
75  Md.  546.  Utica  Bk.  v.  Smalley,  2  Cow. 
(N.  Y.)  770,  780.  {Inquiry  from  N.  Y., 
March,  1918,  Jl.) 

Negotiability    of   stock    certificates 

Stolen  certificate  with  blank  indorsement 

1215.  The  holder  of  a  stock  certificate 
of  a  corporation  properly  indorsed  in  blank 
transferred  it  to  a  bank  as  security  for  a 
loan.  The  loan  was  unpaid  and  the  certifi- 
cate was  presented  by  the  bank  to  the  cor- 
poration, which  refused  to  transfer  or  return 
it,  claiming  that  the  same  had  been  stolen. 
Opinion:  Except  in  states  which  have 
passed  the  Uniform  Transfer  of  Stock  Act  a 
certificate  of  stock,  though  properly  indorsed 
in  blank,  is  not  completely  negotiable,  and 
a  purchaser  from  a  finder  or  thief  takes  no 
title  as  against  the  true  owner.  {Inquiry 
from  N.  J.,  Oct.,  1912,  Jl.) 

Note:  The  above  act  has  been  passed  in 
Connecticut,  Illinois,  Louisiana,  Maryland, 
Massachusetts,  Michigan,  Mississippi,  New 
Jersey,  New  York,  Ohio,  Pennsylvania, 
Rhode   Island,   Tennessee   and   Wisconsin. 

Corporation  lien  on  stock 

Lien  of  Wisconsin  corporations 

1216.  A  bank  asks  whether  a  Wisconsin 
corporation  will  have  a  prior  lien  for  any 
indebtedness  of  the  person  to  whom  the 
stock  is  issued.  Opinion:  Under  Sections 
1751,  1756  Revised  Statutes  of  Wisconsin,  a 
corporation  was  given  a  hen  upon  its  stock 
for  all  debts  due  it  from  the  owner  thereof, 
and  this  Hen  continued  until  the  stock  was 
transferred  on  the  books  of  the  corporation. 
But  Section  1751  was  amended  in  1891,  the 
vital  part  of  which  was  the  striking  out  of 
the  clause  at  the  end  of  Section  1751  that 
every  such  corporation  shall  have  a  lien 
upon  all  shares  of  stock  for  all  debts  due 
from  the  owner  thereof  to  such  corporation. 
Wis.  Laws  1891,  Chap.  414.  Said  Section, 
1751,  was  further  amended  in  1913  so  as  to 
provide  "That  there  shall  be  no  lien  in  favor 
of  a  corporation  upon  the  shares  represented 


274 


CORPORATIONS  AND  CORPORATE  STOCK 


[1217-1221 


by  a  certificate  issued  by  such  corporation 
and  there  shall  be  no  restriction  upon  the 
transfer  of  shares  or  otherwise,  unless  the 
right  of  the  corporation  to  such  hen  or 
restriction  is  stated  upon  the  certificate." 
(Wis.  Stat.  1913,  Chap.  85,  Sec.  1751  n-15). 
(Inquiry  from  Minn.,  Dec,  1914.) 

Transfer  of  stock 

Assignment  and  power  of  attorney  in  separate 
instrument 

1217.  A  bank  submits  a  power  of  attor- 
ney, the  object  of  which  is  to  obviate  the 
necessity  of  the  stockholder  signing  the 
certificate  in  blank  with  power  of  attorney 
to  transfer  and  making  such  assignment  on 
a  separate  instrument  attached  to  the  certifi- 
cate. Opinion:  According  to  the  decisions 
the  courts  would  uphold  such  a  form  of 
assignment  with  power  of  attorney  and  it 
would  entitle  the  bank,  equally  as  if  the 
assignment  was  on  back  of  the  stock  certifi- 
cate, to  demand  a  transfer  of  the  stock  in 
any  case  where  it  was  necessary  to  realize 
on  the  collateral.  The  only  thought  in  this 
connection  is  that  the  South  Carolina  Civil 
Code  provides  "the  manner,  terms  and 
conditions  of  assigning  and  transferring  the 
shares  shall  be  prescribed  by  the  by-laws 
of  each  corporation."  If  in  any  particular 
case  a  corporation  should  prescribe  by  its 
by-laws  that  its  stock  certificates  should  be 
assigned  only  by  transfer  on  the  back  there- 
of, there  might  be  some  trouble  in  obtaining 
a  new  certificate.  At  the  same  time,  even 
in  such  contingency  it  seems  a  transfer  on  a 
separate  paper  would  be  upheld  as  valid,  so 
the  conclusion  is  that  the  bank  is  safe  in 
using  the  power  of  attorney  submitted. 
{Inquiry  from  S.  C,  Oct.,  1917.) 

Transfer   of  stock   as   collateral   by   written 
transfer  apart  from  certificate 

1218.  A  bank  inquires  whether  it  is 
necessary  to  have  signed  the  transfer  on  the 
back  of  stock  certificate.  Opinion:  The 
Civil  Code  of  South  Carolina  provides  that 
shares  of  stock  of  corporations  shall  be 
deemed  personal  estate  except  in  the  case  of 
manufacturing  companies  "and  the  mode  of 
issuing  the  evidence  of  stock  and  the  man- 
ner, terms  and  conditions  of  assigning  and 
transferring  shares  shall  be  prescribed  by 
the  by-laws  of  each  corporation."  Sec.  2784 
d.  The  bank's  form  of  collateral  note  which 
recites  the  deposit  and  pledge  of  shares  to 
it  with  power  of  sale  would,  it  seems,  be 
sufiicient  to  transfer  the  certificates  by  way 
of  pledge,  and  the  dehvery  of  the  unindorsed 


certificates  with  such  a  collateral  note  would 
operate  as  a  transfer  which,  upon  non-pay- 
ment of  the  note,  would  entitle  the  bank  to 
sell  the  stock  and  entitle  the  purchaser  to 
whom  the  bank  gives  a  written  transfer  and 
delivers  the  certificate,  to  ask  for  a  transfer 
upon  the  books  of  the  corporation.  {In- 
quiry from  S.  C,  July,  1917.) 

Transfer  on  book  not  necessary  in    North 
Carolina 

1219.  It  is  not  necessary,  under  the 
law  of  North  Carohna,  for  a  bank  holding 
shares  of  a  North  Carohna  corporation  as 
collateral  security  to  have  the  same  trans- 
ferred on  the  books  of  the  corporation. 
Transfer  on  the  books  is  not  necessary  to 
protect  the  stock  against  the  attaching  cred- 
itors of  the  pledgor.  Morehead  v.  Western 
N.  C.  R.  Co.,  96  N.  C.  362.  Havens  v.  Bk., 
132  N.  C.  214.  Cox  v.  Dowd  133  N.  C.  537. 
{Inquiry  from  N.  C,  Jan.,  1909,  Jl.) 

Estoppel   of  bank   to   refuse   book   transfers 

1220.  A  bank  in  North  Dakota  loaned 
money  upon  a  pledge  of  stock  of  a  corpora- 
tion in  Montana.  Being  unable  to  collect 
the  loan,  the  bank  requested  that  the  stock 
be  transferred  on  the  books  of  the  corpora- 
tion and  a  new  certificate  issued  to  it  in 
exchange  for  the  original  one.  The  corpo- 
ration refused  the  request,  stating  that  at  a 
directors'  meeting  it  was  decided  to  cancel 
the  certificate  of  stock,  as  the  stockholder 
had  not  lived  up  to  his  agreement  with  the 
corporation.  Opinion:  The  bank  has  the 
right,  upon  the  default  of  the  pledgor,  to 
have  the  stock  transferred  upon  the  books 
of  the  corporation  and  a  new  certificate  is 
issued  to  it,  upon  comphance  with  the  statu- 
tory requirements,  and  the  corporation  is 
estopped  from  alleging  the  invalidity  of  the 
stock  because  the  holder  did  not  live  up  to 
his  agreement  with  the  corporation.  Rev. 
Codes  Mont.,  1907,  Sees.  3855,  3857,  3859. 
Van  Slochem  v.  Willard,  207  N.  Y.  587. 
French  v.  Harding,  46  Pa.  Super.  Ct.  363. 
Davies  v.  Ball,  64  Wash.  292.  Westminster 
N.  B.  V.  New  England  Elec.  Works,  (N.  H.) 
62  Atl.  971.  {Inquiry  from  N.  D.,  Nov., 
1918,  Jl.) 

Transfer  of  stock  of  decedent 

1221.  A  bank  holds  stock  as  collateral 
security  for  a  loan  made  to  a  person  since 
deceased,  with  power  to  transfer  on  the 
back  of  the  certificate,  duly  executed  by  the 
decedent.  The  bank  is  about  to  transfer  but 
is  advised  that  new  powers  must  be  executed 


275 


1222-1226] 


DIGEST  OF  LEGAL  OPINIONS 


by  the  administrator  of  the  estate,  since  the 
death  of  the  principal  terminated  the  bank's 
authority.  Opinion:  Bank  holding  stock 
as  security  for  loan  with  power  to  transfer 
on  back  of  certificate,  has  right  to  transfer  of 
stock  notwithstanding  death  of  borrower, 
since  power  to  transfer  being  coupled  with  an 
interest  is  not  revoked  by  death  of  the  giver 
of  the  power.  Saltmarsh  v.  Smith,  32  Ala. 
404.  Anderson  v.  Goodwin,  125  Ga.  663. 
Durbrow  v.  Eppens,  65  N.  J.  L.  10.  In  re 
Droste's  Estate  9  Weekly  Notes  Cases  (Pa.) 
224.  Dickinson  v.  Central  Bk.,  129  Mass. 
279.  Hess  v.  Rau,  95  N.  Y.  359.  Chapman 
V.  Bates,  61  N.  J.  Eq.  658.  Bell  v.  Mills,  123 
Fed.  24.  Uniform  Stock  Transfer  A.,  Sec. 
6.    {Inquiry  from  N.  J.,  Dec,  1917,  Jl.) 

1222.  A  signed  a  transfer  and  power  of 
attorney  on  a  stock  certificate  and  delivered 
it  to  B  for  value.  Before  B  had  the  stock 
transferred  on  the  books  of  the  corporation, 
A  died.  Opinion:  A's  subsequent  death 
did  not  affect  B's  rights  to  a  transfer 
on  the  books.  In  a  case  where  A's  death  oc- 
curred before  the  delivery  of  the  certificate 
to  B,  it  is  doubtful  if  the  subsequent  de- 
livery would  be  effectual.  Randolph  Com. 
Paper,  Sec.  221.  {Inquiry  from  N.J.,  Nov., 
1912,  Jl) 

1223.  The  adminstratrix  of  an  estate  is 
entitled  to  the  transfer  of  the  decedent's 
stock  upon  delivering  to  the  bank  an  au- 
thenticated copy  of  the  letters  of  administra- 
tion, but  where  there  is  no  will  and  no  ad- 
ministrator appointed  the  next  of  kin  is 
not  entitled  to  the  transfer  in  the  absence  of 
a  court  order.  {Inquiry  from  Okla.,  Nov., 
1916,  Jl.) 

Transfer  of  bank  stock  of  decedent 

1224.  An  owner  of  ten  shares  of  bank 
stock  dies  intestate,  and  no  administrator 
of  the  estate  is  appointed.  The  heirs  are  the 
widow  and  a  number  of  children,  one  of 
whom  is  a  minor.  All  the  heirs,  other  than 
the  minor  and  J.  S.,  unite  in  an  assignment 
of  the  shares  to  J.  S.  The  bank  transferred 
the  shares  to  J.  S.,  who,  over  the  objection 
of  certain  stockholders,  was  allowed  to  vote 
the  stock  and  was  elected  a  director.  Was 
the  bank  justified  in  making  such  transfer? 
Would  injunction  he  at  instance  of  stock- 
holders, who  in  the  absence  of  these  ten 
shares  would  constitute  a  majority,  to  pro- 
hibit the  bank  directors  and  oflficers  from 
permitting  such  shares  to  be  voted?  Opin- 
ion: Where  the  owner  of  bank  stock  dies 
intestate,  the  property  in  such  stock  vests 


in  his  estate  and  until  letters  of  administra- 
tion have  been  issued,  and  the  administrator 
duly  qualified,  there  is  no  person  vested 
with  power  to  demand  a  transfer.  A  bank 
which  transfers  stock  of  a  decedent  without 
requiring  letters  of  administration  will  be 
liable  to  the  rightful  heirs  for  damages,  if 
the  transfer  is  wrongful.  (St.  Romes  v. 
Levee  Steam  Cotton  Press  Co.,  127  U.  S. 
614.  Tafft  V.  Presidio  etc.  R.  Co.,  84  Cal. 
131.  Miller  V.  Doran,  245  111.  200.  Citizens 
Nat.  Bank  v.  State,  179  Ind.  621.  Crocker 
V.  Old  Colony  R.  Co.,  137  Mass.  417. 
Hughes  V.  Drovers'  etc.  Nat.  Bank,  86  Md. 
418.  Baker  v.  Atlantic  Coast  Line  R.  Co., 
[N.  C]  92  S.  E.  170.  Bayard  v.  Farmers' 
etc.  Bank,  52  Pa.  St.  232.  Peck  v.  Provi- 
dence Gas  Co.,  17  R.  I.  275.  Read  v. 
Cumberland  Tel.  Co.,  93  Tenn.  482.  Baker 
V.  Wasson,  53  Tex.  150,  59  Tex.  140.  Mundt 
V.  Com.  Nat.  Bank,  35  Utah  90,  99  Pac.  454. 
Nagle  V.  Ham,  88  Wash.  99).  Where  stock 
is  transferred  to  a  person  without  title,  a 
court  of  equity  will  enjoin  such  person  from 
voting.  (Clarke  v.  C.  R.  Co.,  50  Fed.  338. 
Georgia  v.  C.  R.  Co.,  101  Ala.  607.  Webb 
V.  Ridgley,  38  Md.  364.  Way  v.  Amer. 
Grease  Co.,  60  N.  J.  Eq.  263.  Butler  v. 
Standard  Flour  MiUs  Co.,  131  N.  Y.  S.  451. 
Parsons  v.  Tacoma  etc.  Co.,  25  Wash.  492. 
Wood  V.  Union  etc.  Assoc,  69  Wis.  9). 
{Inquiry  from  Tex.,  April,  1920,  Jl.) 

Voting  power  of  stock 

Voting  control  by  fraction  of  share 

1225.  A  corporation  organized  with  a 
capital  stock  of  1,000  shares  at  $100  a 
share  has  three  shareholders,  A,  B  and  C. 
A  owns  two  certificates  for  499.80  shares  and 
40  shares,  totahng  500.20  shares,  as  against 
B  and  C,  the  owners  of  two  certificates  of 
249.90  each,  totaling  499.80  shares.  The 
question  is  raised  as  to  whether  A  could  con- 
trol the  corporation  by  a  fraction  of  a  share. 
Opinion:  The  control  of  the  corporation 
would  be  held  to  rest  in  A  because  he  is  the 
majority  stockholder.  A  single  share  is  the 
voting  unit  and  a  fraction  of  a  share  cannot 
be  voted  in  the  absence  of  an  express  provi- 
sion therefor  in  a  statute  or  by-laws  of  the 
corporation.  But  if  A  was  unable  to  exercise 
control  by  inability  to  vote  the  fraction,  a 
court  of  equity  would  doubtless  enforce  his 
rights.  {Inquiry  from  Wash.,  June,  1915, 
Jl.) 

Voting  power  of  stockholder 

1226.  At  common  law  each  stockholder 
in  a  corporation  has  one  vote,  irrespective 
of  the  number  of  shares  held  by  him.    This 


276 


DEATH  AND  THE  DECEDENT'S  ESTATE 


[1227-1231 


has  been  changed  by  statute  in  most  states, 
which  hold  that  the  stockholder  has  one 
vote  for  each  share  of  stock  owned  by  him, 
and  in  some  states  cumulative  voting  is 
provided    for.      Vaudry    v.    New    Orleans 


Cotton  Exch.,  2  McGloin  (La.)  154.  10 
Cyc,  331.  Matter  of  Pioneer  Paper  Co., 
36  How.  Pr.  (N.  Y.)  111.  Times  v.  Hesten- 
ville,  etc.,  Pass.  R.  Co.,  149  Pa.  70.  (In- 
quiry from  Wash.,  June,  1915,  Jl.) 


DEATH  AND  THE  DECEDENT'S  ESTATE 


Payment  of  c/d  after  death 

Payment  to  indorsee  after  death  of  payee 

1227.  Can  a  bank  pay  upon  presentation 
a  certificate  of  deposit  standing  in  the  name 
of  a  deceased  person  but  bearing  his  genuine 
indorsement  "Pay  to  the  order  of  A?" 
Opinion:  The  death  of  the  payee  after  he 
has  indorsed  and  delivered  a  certificate  of 
deposit  to  a  third  person,  does  not  affect  the 
right  of  the  indorsee  to  receive  payment. 
The  case  is  different  where  a  depositor  gives 
his  check  and  dies  before  the  check  is  pre- 
sented. In  such  case  the  death  of  the  drawer 
revokes  the  bank's  authority  to  pay.  But 
a  certificate  of  deposit  is  virtually  a  promis- 
sory note  to  the  payee  and  when  he  assigns 
this  to  another  person,  indorsing  it  over,  the 
bank's  obhgation  runs  to  the  holder  and  the 
death  of  the  payee  does  not  affect  it.  If  the 
indorsement  of  the  payee  is  genuine  the 
certificate  is  properly  payable  on  presenta- 
tion.   (Inquiry  from  N.  Y.,  June,  1916.) 

1228.  Where  a  negotiable  certificate  of 
deposit  properly  indorsed  was  presented  for 
payment  at  a  bank  by  a  bona  fide  holder 
after  the  payee's  death.  Opinion:  The 
bank  should  pay  such  certificate.  The  case 
differs  from  that  of  a  check,  in  which  the 
death  of  the  drawer  revokes  the  authority 
of  the  bank  to  pay,  in  the  absence  of  statute 
expressly  authorizing  post  mortem  payment. 
(Inquiry  from  Mich.,  May,  1912,  Jl.) 

1229.  A  bank  should  pay  a  negotiable 
certificate  of  deposit  to  a  bona  fide  indorsee 
of  the  payee,  although  not  presented  until 
after  the  payee's  death.  (Inquiry  from 
Miss.,  Oct.,  1913,  Jl.) 

Payment  not  subject  to  inheritance  tax  law 

1230.  A  obtained  from  bank  B  a  certifi- 
cate of  deposit  on  January  3,  1917.  He 
died  on  March  5th  following,  and  on  March 
17th  the  certificate  was  presented  for  pay- 
ment, bearing  the  indorsement  "January 
10th,  1917,  pay  to  C  or  order,  A."  Is  it  safe 
for  the  bank  to  pay  other  than  the  executor 
or  administrator,  and  would  the  indorse- 
ment reheve  the  bank  from  complying  with 
Section  9  of  the  IlHnois  Inheritance  Tax  Law 


of  1909?  Opinion:  If  the  certificate  is  in 
negotiable  form,  it  having  been  indorsed 
before  due,  C  would  take  a  full  enforceable 
title  unaffected  by  the  death  of  A,  the  payee. 
At  the  time  of  the  death  of  A  the  certificate 
is  no  longer  his  property,  but  has  been  trans- 
ferred to  C,  and  the  bank  would  be  safe  in 
paying  C  where  A  indorsed  and  transferred 
to  C  before  his  death  and  the  indorsement 
is  not  a  forgery.  The  indorsement  not  being 
questioned,  bank  B  would  have  no  assets  in 
its  hands  belonging  to  A  at  the  time  of  his 
death,  and  would  be  reheved  from  complying 
with  the  Inheritance  Tax  Law  of  1909. 
(Inquiry  from  III.,  April,  1917.) 

Where  c/d  indorsed  to  wife  to  receive  money  in 
case  of  husband's  death 

1231.  A  obtained  from  bank  B  a  number 
of  time  certificates  which  he  indorsed  to  his 
wife  so  that  she  could  obtain  the  money  on 
them  in  case  of  his  death.  Would  the  bank 
be  obhged  to  pay  her  in  case  of  his  death? 
Opinion:  If  the  certificate  of  deposit  were 
not  only  indorsed  to  the  wife,  but  dehvered 
to  her  by  the  husband  before  his  death,  the 
delivery  would  complete  the  gift  and  the 
wife  would  have  a  legal  title  to  the  money 
represented  by  the  certificate.  If,  however, 
at  the  time  of  A's  death  he  still  retained  the 
certificates  in  his  possession,  although  in- 
dorsed to  his  wife,  and  nothing  took  place 
which  could  be  construed  as  constituting  a 
symbolical  dehvery,  the  wife  would  not  have 
title,  and  the  certificates  and  the  right  to 
proceeds  would  belong  to  the  husband's 
estate.  After  A's  death  if  his  widow  should 
present  the  certificates  bearing  indorse- 
ment to  her,  the  bank  would  be  justified  in 
paying  them  to  her.  Her  possession  of  the 
certificates  would  give  it  the  right  to  pre- 
sume that  they  had  been  dehvered  before 
the  payee's  death  and  the  mere  fact  of  his 
death,  known  to  the  bank  would  not  revoke 
the  bank's  duty  to  pay  as  in  case  of  his 
check,  for  the  obligation  is  different,  hke 
that  of  a  maker  of  a  note  to  pay  at  maturity 
the  payee  or  any  bona  fide  indorsee  or  the 
payee.    (Inquiry  from  Iowa,  Aug.,  1914-) 


277 


1232-1235] 


DIGEST  OF  LEGAL  OPINIONS 


Certificate  of  deposit  payable  in  event 
of  death 

Assignment  to  he  paid  in  event  of  death  in- 
valid as  contrary  to  statute  of  wills 

1232.  A  customer  of  bank  A  who  desired 
to  keep  control  of  her  money  while  she  lived 
and  in  case  of  her  death  have  it  go  to  her  son 
without  the  necessity  of  making  a  will, 
asked  that  a  certificate  of  deposit  be  issued 
to  her  and  that  it  be  assigned  on  the  back  to 
her  son  to  be  paid  to  him  in  case  of  her 
death.  If  the  customer  should  die,  leaving 
debts  unpaid  and  no  property  upon  which 
money  could  be  reahzed,  could  the  bank 
without  being  liable  pay  the  certificate  to 
the  son?  Opinion:  Should  the  customer 
die,  the  certificate  would  belong  to  her  estate 
and  would  not  belong  to  the  son  and  should 
not  be  paid  to  him,  because  the  assignment 
would  be  invalid  as  an  attempted  testamen- 
tary disposition  contrary  to  the  Statute 
of  Wills.  See  Sullivan  v.  Sullivan,  161  N.  Y. 
554,  56  N.  E.  116,  Bank  A's  customer  could 
accomphsh  the  object  desired  by  opening  a 
joint  account  payable  to  herself  or  son  or  the 
sarvivor  and  keep  the  book  and  thus  control 
the  account,  or  take  a  certificate  of  deposit 
payable  to  herself  or  son  or  the  survivor. 
In  the  event  of  her  death  the  bank  could 
pay  the  money  to  the  son  without  liability 
as  there  is  a  statute  in  Missouri  which 
provides  that,  when  a  deposit  is  made  in  the 
names  of  two  persons  payable  to  either  or 
payable  to  either  or  the  survivor,  it  may  be 
paid  to  either  whether  the  other  be  living  or 
not.  The  bank  being  authorized  to  pay  the 
son,  the  question  as  to  whether  he  is  entitled 
to  the  money  as  against  the  heirs  of  his 
mother's  estate,  or  the  creditors,  would  have 
to  be  fought  out  between  themselves.  (In- 
quiry from  Mo.,  Oct..  1919.) 

Certificate  payable  to  person  named  in  event 
of  purchaser's  death 

1233.  A  deposited  in  bank  a  sum  of 
money  and  received  a  certificate  of  deposit 
payable  to  B  in  case  of  A's  death.  The 
certificate  provided  that  it  was  "Not  to  be 
cashed  unless"  it  had  the  indorsement  of  A 
and  B  while  both  are  living.  Would  the 
bank  be  released  in  paying  over  this  money 
to  B  on  A's  death?  Opinion:  The  bank 
cannot  safely  pay  B.  Where  a  certificate  pro- 
vides that  A  has  deposited  so  many  dollars 
payable  to  B  in  case  of  A's  death,  this  is  not 
sufficient  to  give  B  any  right  to  the  money 
upon  death  of  A.  See  Sullivan  v.  Sullivan, 
39  App.  Div.  (N.  Y.)  99.    Aff'd  161  N.  Y. 


554,  56  N.  E.  116.  In  Re  King  51  Misc.  375, 
101  N.Y.  Supp.  279.  The  certificate  further- 
more provides  that,  while  both  are  living  it 
is  not  to  be  cashed  unless  both  indorse.  This 
would  indicate  that  B  may  have  some 
present  interest  in  the  deposit  as  a  joint 
party  which  would  survive  in  case  of  A's 
death.  Whatever  the  interpretation  of  this 
provision,  the  bank  cannot  safely  pay  B  and 
if  he  has  any  rights  in  the  deposit  as  against 
the  estate  of  A,  they  would  have  to  be 
determined  in  an  appropriate  action.  It 
might  be  best  for  the  bank  to  interplead  the 
parties  rather  than  pay  either  B  or  the 
representative  of  A's  estate.  {Inquiry  from 
N.  Y.,  Nov.,  1913.) 

C/d  payable  to  A    in  event  of  death  to  B 

1234.  A  certificate  of  deposit  to  the 
credit  of  A,  payable  in  case  of  death  to  B, 
was  issued  by  bank  C.  Would  the  bank  be 
Hable  to  the  heirs  of  A  if  it  paid  the  money 
to  B  after  A's  death?  Opinion:  It  was  held 
in  Sulhvan  v.  Sulhvan,  39  App.  Div.  (N.  Y.) 
99.  Aff'd  161  N.  Y.  554,  56  N.  E.  116,  where 
a  certificate  of  deposit  was  drawn  payable 
to  A  or  in  event  of  his  death  to  B,  and  was 
retained  by  A  until  his  death,  that  the  certifi- 
cate did  not  divest  A's  title  to  the  deposit 
which  upon  his  death  belonged  to  his  estate 
and  not  to  B.  The  provision  that  in  the 
event  of  A's  death  it  should  be  payable  to  B, 
was  held  to  be  in  the  nature  of  a  testa- 
mentary disposition,  not  in  compliance  with 
the  statute  of  wills.  See  also  In  Re  King  51 
Misc.  (N.  Y.)  375,  101  N.  Y.  Supp.  279. 
In  the  present  case,  therefor,  it  is  likely  it 
would  be  held  the  money  belonged  to  the 
heirs  of  A  and  not  to  B,  and  it  would  not  be 
safe  for  bank  C  to  pay  B.  {Inquiry  from 
Tenn.,  Nov.,  1914.) 

Savings  deposit  payable  to  another  in 
event  of  death 

Deposit  of  A,  in  case  of  death  B  may  draw 

1235.  An  old  gentleman  upon  opening  a 
savings  account  in  a  bank  instructed  its 
receiving  teller  to  write  on  the  ledger  that 
depositor  alone  could  draw,  but  in  event  of 
his  death  his  daughter  should  draw.  The 
depositor  died  leaving  a  balance  on  deposit. 
The  daughter  has  paid  the  bill  for  funeral 
expenses  and  now  wishes  to  withdraw  the 
money  from  the  bank.  The  bank  asks  if  it 
would  be  proper  to  permit  her  to  do  so. 
Opinion:  It  has  been  held  in  several  cases 
where  A  makes  a  deposit  in  his  own  name 
and  subject  only  to  his  signature  but  coupled 


278 


DEATH  AND  THE  DECEDENT'S  ESTATE 


[1236-1240 


with  a  provision  that,  in  event  of  his  death 
B  to  have  authority  to  draw,  there  was  no 
gift  of  an  interest  in  the  deposit  to  B  during 
the  life  of  A  and  upon  A's  death  the  title 
vested  in  his  estate  and  not  in  B;  the  au- 
thority to  B  was  invalid  as  being  an  at- 
tempted testamentary  disposition  contrary 
to  the  statute  of  wills.  It  would  follow, 
therefor,  that,  in  this  case  the  bank  would 
pay  the  money  to  the  daughter  at  its  own 
risk,  as  the  mere  intention  that  the  daughter 
should  have  it  when  he  died  would  not  be 
sufficient  to  vest  any  legal  right  to  the  de- 
positor in  her.  At  the  same  time  the  case 
,  may  be  one  where  the  daughter  is  the  only 
'  child  and  the  money  would  go  to  her  in  due 
course  of  administration  after  the  debts 
were  paid.  Should  such  be  the  case  and 
there  were  no  debts,  it  might  be  fairly  safe 
to  pay  over  the  money  to  her.  {Inquiry 
from  Ind.,  Aug.,  1915.) 

i       Certificate  of  deposit  payable  to  either 
i'  or  survivor 

Payment  to  survivor  subject  to  transfer 
tax  law 

1236.  A  bank  received  a  request  for  a 
certificate  of  deposit  to  be  issued  in  two 
names  payable  to  either  or  the  survivor. 
Would  such  certificate  be  legal,  and,  if  so, 
could  the  funds  be  paid  to  either  in  case  of 
the  death  of  the  other?  Opinion:  It  is 
legal  for  a  bank  to  issue  a  certificate  of 
deposit  payable  to  either  or  the  survivor  and 
upon  the  death  of  one,  the  deposit  would  be 
payable  to  the  survivor.  The  payment, 
however,  would  probably  be  subject  to  the 
transfer  tax  law.  In  re  Van  Vranken's 
Estate,  179  N.  Y.  Supp.  752.  {Inquiry 
from  N.  Y.,  Oct.,  1920.) 

Payment  of  check  after  drawer's  death 

Note:  The  legislatures  of  the  following 
states  have  passed  laws  permitting  the 
designated  depositary  to  pay  a  check,  de- 
mand draft  or  order  after  death  of  the 
drawer:  New  Jersey,  Chap.  123  Laws  1916 
provides  that  any  bank  may  pay  within  10 
days  after  date  of  check  or  demand  draft; 
Connecticut  Gen  Stat.  1918,  Chap.  204,  Sec. 
4001-2,  Maine,  Rev.  Stat.  1916,  Chap.  52, 
Sec.  23,  West  Virginia  Anno.  Code  1913, 
Chap.  54,  Sec.  3105,  provide  that  savings 
banks  may  pay  within  30  days  after  the 
date  of  such  check,  demand  draft  or  order  or 
at  any  subsequent  period  "provided  the 
depositary  has  received  no  actual  notice  of 
the  death  of  the  drawer;"  Vermont,  Gen. 


Laws  1917,  Chap.  139,  Sec.  2854,  provides 
that  any  bank  may  pay  within  30  days  after 
the  death  of  the  drawer.  Massachusetts, 
Chap.  73,  Sec.  17,  Revised  Laws,  provides 
that  a  bank  may  pay  within  10  days  after 
date  of  check,  and  Chap.  590,  Sec.  65,  Act 
1908,  provides  that  a  savings  bank  may  pay 
an  order  within  30  days  after  date  of  the 
order  "and  at  any  time  if  the  corporation 
has  not  received  written  notice  of  the  death 
of  the  drawer." 

Death  revokes  bank's  authority  to  pay  in  ab- 
sence of  statute,  unless  check  an  assignment 

1237.  A  check  drawn  on  a  bank  in 
Oregon  was  given  in  payment  for  goods 
sold  and  deHvered.  The  check  in  due  course 
reached  the  drawee  bank  which  refused 
payment  on  the  ground  that  the  drawer 
was  dead.  Opinion:  The  death  of  the 
drawer  operated  as  a  revocation  of  the 
authority  of  the  bank  to  pay  his  check.  {In- 
quiry from  Idaho,  Dec,  1913,  Jl.) 

1238.  The  death  of  the  drawer  revokes 
the  bank's  authority  to  pay  his  check  except 
where  the  check  is  an  assignment,  or  the 
statute  expressly  authorizes  payment  dur- 
ing a  limited  time  after  the  drawer's  death; 
but  where  the  bank  pays  in  ignorance  of 
the  death  it  is  protected.  In  Kansas  as  well 
as  in  all  of  the  states  which  have  passed  the 
Negotiable  Instruments  Law  a  check  is  not 
an  assignment — this  law  expressly  provides 
the  contrary.  {Inquiry  from  Kan.,  Aug., 
1912,  Jl.) 

1239.  What  is  the  law  in  North  Carohna 
relative  to  a  bank  paying  a  check  of  a  de- 
positor after  said  depositor  had  died.  Opin- 
ion: Except  where  a  contrary  rule  is  pro- 
vided by  statute  and  in  the  few  states  where 
check  is  an  assignment,  death  of  drawer  of 
check  revokes  bank's  authority  to  pay,  al- 
though if  bank  pays  in  ignorance  of  death 
it  is  protested.  No  such  statute  has  been 
passed  in  North  Carohna  and  under  the 
Negotiable  Instruments  Law  of  that  state, 
a  check  is  not  an  assignment;  therefor  in 
North  Carolina  the  drawer's  death  revokes 
the  bank's  authority  to  pa}^  his  check  al- 
though if  the  bank  should  \>a,y  after  the 
death  of  the  drawer  in  ignorance  thereof,  it 
would  be  protected.  Nat.  Com'l  Bk.  v. 
Miller,  77  Ala.  168.  Second  Nat.  Bk.  v. 
Williams,  13  Mich.  282.  {Inquiry  from  N. 
C,  Feb.,  1913,  Jl.) 

1240.  In  the  absence  of  a  statute,  the 
death  of  the  drawer  revokes  the  bank's 
authority  to  pay  the  drawer's  checks,  and 


279 


1241-1247] 


DIGEST  OF  LEGAL  OPINIONS 


payment  after  knowledge  of  the  death  is 
unauthorized.  {Inquiry  from  Pa.,  Nov., 
1910,  Jl.) 

1241.  Under  the  Negotiable  Instruments 
Act  a  check  is  not  an  assignment  and  death 
of  the  drawer  revokes  the  authority  of  the 
bank  to  pay  his  outstanding  checks,  in  the 
absence  of  a  special  statute  authorizing  the 
bank  to  pay  within  a  limited  period  after 
death,    {Inquiry  from  S.  D.,  Dec,  1913,  Jl.) 

1242.  A  gave  B  his  check  in  the  after- 
noon and  died  that  evening.  B  presented 
the  check  the  next  morning.  Opinion: 
The  death  of  the  drawer  revokes  the  au- 
thority of  the  bank  to  pay  his  check  and 
payment  with  notice  or  knowledge  of  death 
is  at  the  bank's  peril  in  the  absence  of  a 
statute  providing  for  payment  after  death  of 
the  drawer.  Such  a  statute  exists  in  West 
Virginia  but  is  appHcable  only  to  savings 
banks,  Glennan  v,  Rochester  T,  &  S,  D. 
Co,,  102  N,  E,  (N,  Y,)  537,  W.  Va.  Code, 
Sec.  3105.  {Inquiry  from  W.  Va.,  Nov., 
1915,  Jl) 

Statutory  authority  in  Massachusetts 

1243.  The  death  of  a  drawer  revokes  the 
authority  of  a  bank  to  pay  his  outstanding 
checks,  and  payment  by  the  bank  after 
knowledge  of  the  death  of  the  drawer  is 
unauthorized,  but  the  bank  is  protected 
where  it  pays  the  checks  in  ignorance  of  the 
death,  A  statute  in  Massachusetts,  how- 
ever, authorizes  a  bank  to  pay  a  check  of  a 
depositor,  notwithstanding  his  death,  if 
presented  within  ten  days  after  date  and 
this  applies  to  national  banks.  Mass,  Sav. 
Bk.  Act.  1908.  Chap.  590,  Sec.  65.  Rev. 
Laws  Mass.,  Chap.  73,  Sec.  17.  {Inquiry 
from  Mass.,  Nov.,  1914,  Jl.) 

Massachusetts    statute    applies    to    national 
hanks 

1244.  Can  a  national  bank  legally  pay 
a  check  after  the  decease  of  the  drawer,  his 
death  being  known  to  the  officials  of  the 
bank.  Opinion:  Chapter  73,  Section  17, 
of  the  Revised  Laws  of  Massachusetts  pro- 
vides: "A  depositary  of  funds  subject  to 
withdrawal  by  check  or  demand  draft  may 
pay  a  check  on  demand  draft  drawn  on  it  by 
a  depositor  having  funds  on  deposit  to  pay 
the  same,  notwithstanding  his  death  upon 
presentation  within  ten  days  after  its  date." 
It  seems  the  above  statute  would  apply  to  a 
national  bank  for  it  is  generally  recognized 
by  the  courts  that  state  statutes  are  so 
applicable  where  they  do  not  conflict  with 
the  National  Bank  Act  or  tend  to  impair  the 


utility  of  national  banks  as  instrumentan- 
ties  of  the  Federal  Government.  {Inquiry 
from  Mass.,  Oct.,  1914.) 

When  Massachusetts  statutory  ten  day  limit 
ends  on  Sunday 

1245.  In  Massachusetts  a  bank  is  au- 
thorized to  pay  a  check  after  the  drawer's 
death  within  ten  days  (and  a  savings  bank 
within  thirty  days)  after  its  date.  A  check 
is  dated  June  3,  and  ten  days  would  bring 
it  to  the  13th,  but  that  day  being  Sunday, 
would  the  14th,  Monday,  be  considered  the 
10th  day?  Opinion:  The  authority  does 
not  extend  the  time  limited,  although  the 
last  day  falls  on  Sunday.  Rev.  Laws  Mass., 
Chap.  73,  Sec.  17,  Chap.  113.  Sec.  36,  38 
Cyc.  329.  Cunningham  v.  Mohan,  112 
Mass.  58,  59.  Cooley  v.  Cook,  125  Mass., 
406,  Stevenson  v.  Donnelly,  108  N.  E. 
(Mass.)  926.  {Inquiry  from  Mass.,  May, 
1917,  Jl.) 

Check  an  assignment  rule  overturned  in 
South  Carolina 

1246.  In  South  Carolina,  where  the  rule 
prevails  that  a  check  is  an  assignment,  a 
check  is  payable  by  a  bank  to  a  bona  fide 
holder  notwithstanding  the  death  of  the 
drawer  before  its  presentation  for  payment. 
Wagstaff  V.  First  Nat.  Bk.  of  Blue  Earth, 
134  N.  W.  (Minn.)  224.  Lewis  v.  Internat. 
Bk.,  13  Mo.  App.  202.  Loan  &  Sav.  Bk.  v. 
Farmers  &  Merchants  Bk.,  74  S.  C.  210— 
overturned  by  Neg,  Inst.,  Act.  {Inquiry 
from  S.  C,  Dec,  1913,  Jl.) 

Note:  This  rule  is  overturned  by  the 
Negotiable  Instruments  Act  passed  in  South 
Carolina  in  March,  1914. 

Check  an  assignment  rule  overturned  in 
Minnesota 

1247.  In  Minnesota,  by  a  decision  of  the 
Supreme  Court,  a  check  operates  as  an 
assignment  and  the  death  of  the  drawer 
does  not  revoke  the  authority  of  the  bank 
to  pay.  Wagstaff  v.  First  Nat.  Bk.  of  Blue 
Earth,  131  N.  W.  (Minn.)  224.  Drawer 
cannot  stop  payment.  Union  Nat.  Bk.  v. 
Oceana  Co.  Bk.,  80  111.  212.  Gage  Hotel  Co. 
V.  Union  Nat.  Bk.,  171  111.  531.  First  Nat. 
Bk.  V.  Keith,  183  111.  475— Effect  of  notice 
to  Bank  of  check  before  presentment. 
Meyers  v.  Union  Nat.  Bk.,  27  111.  App.  254. 
Bk.  of  Antigo  V.  Union  Tr.  Co.,  149  111.  343. 
Jacobson  v.  Bk.  of  Commerce,  66  111.  App. 
370  Wyman  v.  Fort  Dearborn  Nat.  Bk.,  181 
111.  279.  Harrington  v.  First  Nat.  Bk.,  85 
111.    App.  212.    Other  questions:  Brown  v. 


280 


DEATH  AND  THE  DECEDENT'S  ESTATE 


[1248-1251 


Leckie,  43  111.  497.  Fourth  Nat.  Bk.  v. 
Citizens  Nat.  Bk.,  68  111.  398.  Hogue  v. 
Edwards,  9  111.  App.  148.  Ridgely  Bk.  v. 
Patton  &  Hamilton,  109  111.  479.  Nat.  Bk. 
of  America  v.  Ind.  Bk.  Co.,  114  111.  483. 
International  Bk.  v.  Jones,  15  111.  App.  594. 
Pabst  Brewing  Co.  v.  Reeves,  42  111.  App. 
154.  Nat.  Bk.  of  America  v.  Nat.  Bk.  of 
IlUnois,  164  111.  503.  Niblock  v.  Park  Nat. 
Bk.  169  111.  517.  Clarke  v.  Chicago  Title 
&  Tr.  Co.,  186  111.  440.  {Inquiry  from 
Minn.,  April,  1912,  Jl.) 

Note:  This  rule  is  overturned  by  the 
Negotiable  Instruments  Act  passed  in 
Minnesota  in  April,  1913. 

Check  ''for  all  my  deposit"  as  an  assignment 

1248.  A  husband,  critically  ill,  drew  and 
delivered  to  his  wife  a  check  for  "all  of  my 
deposit."  The  husband  died  and  the  wife  is 
likely  to  present  the  check.  Opinion:  The 
bank  would  be  safe  in  pajang  the  wife  after 
the  husband's  death,  on  the  ground  that  the 
check  constituted  an  assignment  of  the 
entire  deposit,  and  its  dehvery  completed  a 
gift  causa  mortis,  by  virtue  of  which  the  de- 
posit belonged  to  the  wife  and  not  to  the 
husband's  estate.  Weber  v.  Sahsbury,  148 
S.  W.  (Ky.)  34.  Pullen  v.  Placer  Co.  Bk., 
138  Cal.  169.  Reviere  v.  Chambhss,  120 
Ga.  714.  Dunlap  v.  Commercial  Nat.  B., 
195  Pac.  (Cal.)  688.  {Inquiry  from  Ga., 
April,  WIS,  Jl.) 

Payment  of  check  in  ignorance  of  depositor's 
death 

1249.  A  bank  paid  a  check  signed  by  its 
depositor.  The  depositor  died  two  days 
before  the  check  was  presented  but  the  bank 
had  no  knowledge  of  his  death.  Was  the 
bank  protected?  Opinion:  The  payment 
was  vahd.  The  New  York  Court  of  Appeals 
in  Glennan  v.  Rochester  Trust  &  Safe 
Deposit  Co.,  102  N.  E.  537  has  held  that  the 
rule  that  an  agents'  authority  is  revoked  by 
the  death  of  the  principal  without  notice, 
does  not  apply  to  the  payment  of  a  check  by 
a  bank  without  knowledge  of  the  drawer's 
death;  since  such  an  apphcation  would  be 
utterly  impracticable  and  contrary  to  the 
almost  universally  accepted  rule  of  law. 
{Inquiry  from  N.  Y.,  April,  1921.) 

Payment   of  check   drawn   under   power   of 
attorney  in  ignorance  of  principal's  death 

1250.  A  depositor  gave  instructions  to 
her  bank  that  checks  against  her  account 
should  be  signed  either  by  herself  or  by  her 
nephew  signing  her  name  by  him.  Her 
nephew    presented    checks    signed    in    the 


usual  manner,  but  before  payment  the  bank 
learned  of  its  customer's  death.  The  bank 
refused  payment  but  questions  whether  if  the 
checks  had  been  paid  in  ignorance  of  the  de- 
positor's death  it  would  have  been  protected. 
Opinion:  The  general  rule  at  common  law 
is  that  a  power  of  attorney,  unless  coupled 
with  an  interest,  is  revoked  by  the  principal's 
death.  The  Appelate  Division  of  the  New 
York  Supreme  Court  has  held  that  payment 
by  a  bank  to  an  agent  under  power  of  attor- 
ney after  the  principal's  death  does  not  bind 
the  estate,  although  the  bank  was  ignorant 
of  the  death  at  the  time  of  payment.  Under 
the  existing  conditions  of  law  there  is  con- 
siderable danger  and  risk  to  banks  which  pay 
checks  signed  under  power  of  attorney  in 
case  of  unknown  death  of  principal.  Doubt- 
less in  many  states  the  courts  would  not  hold 
to  the  rule  of  the  common  law  in  all  its  rigor 
but  would  apply  equitable  principles  and 
hold  that  payment  to  the  attorney  after 
death  of  the  principal  and  before  notice 
thereof  would  be  valid.  Long  v.  Thayer, 
150  U.  S.  520.  Rigs  v.  Cage's  Adm.,  2 
Humph,  350.  Rogerson  v.  Ladbroke,  1 
Bing.  (Eng.)  93.  Hoffman  v.  Union  Dime 
Sav.  Inst.,  95  App.  Div.  329.  Reversed  in 
109  App.  Div.  24.  Weber  v.  Bridgman,  113 
N.  Y.  600.  Farmers  Loan  &  Tr.  Co.,  v. 
Wilson,  139  N.  Y.  284.  {Inquiry  from  Tenn., 
March,  1912,  Jl.) 

Note:  Since  the  decision  in  1913  of  the 
New  York  Court  of  Appeals  in  Glennan  v. 
Rochester  Trust  &  Safe  Dep.  Co.,  102  N.  E. 
537,  the  rule  above  announced  of  the  New 
York  Appellate  Division  in  Hoffman  v.  Union 
Dime  Sav.  Bank  will  probably  not  apply. 
The  Court  of  Appeals  holds  that  "the  usual 
rule  that  a  debtor  is  not  protected  in  pay- 
ment to  an  agent  after  the  death  of  his 
principal,  though  without  knowledge  of  that 
fact,  is  not  apphcable  to  the  payment  of 
checks  by  banks." 

Validity  of  payment  to  agent  in  ignorance  of 
depositor's  death 

1251.  What  is  the  rule  in  Washington  as 
to  validity  of  pajanent  of  a  check,  drawn 
under  power  of  attorney,  after  death  of  the 
principal,  where  the  bank  has  no  knowledge 
of  such  death.  Opinion:  While  the  com- 
mon law  rule  established  by  the  weight  of 
authority  in  this  country  is  that  death  of  the 
principal  revokes  an  agent's  authority  and 
payment  thereafter  to  the  agent,  even 
though  in  ignorance  of  such  death,  does  not 
discharge  the  obUgation,  the  courts  wliich 
administer  such  rule  admit  its  harshness, 


281 


1252-1255] 


DIGEST  OF  LEGAL  OPINIONS 


and  some  courts  have  held  it  inapplicable 
to  payment  of  checks  by  banks  in  ignorance 
of  the  principal's  death.  The  New  York 
Court  of  Appeals  in  a  recent  decision  has 
declared  in  view  of  long-established  custom 
that  payment  of  a  check  by  a  banker  in 
ignorance  of  the  drawer's  death  constitutes 
an  exception  to  the  common  law  rule  and  is 
valid,  and  the  reasoning  of  the  court  would 
lead  to  a  like  conclusion  where  payment  of 
the  check  of  an  attorney  in  fact  is  made  in  ig- 
norance of  the  principal's  death.  It  is 
reasonable  to  assume  that  courts  in  future 
cases  will  so  hold.  Johnson  v.  Christian, 
128  U  S.  374.  Long  Thayer,  v.  150  U.S.  520. 
Clayton  v.  Merritt,  52  Miss.  353.  Farmers 
Loan  &  Tr.  Co.  v.  Wilson,  139  N.  Y.  284. 
Hoffman  v.  Union  Dime  Sav.  Inst.,  109  App. 
Div.  (N.  Y.)  24.  Weber  v  Bridgman,  113 
N.  Y.  600.  Cassidy  v.  McKenzie,  4  Watts 
&  S.  (Pa.)  282.  Travers  v.  Crane,  15  Cal. 
12.  17,  Glennan  v.  Rochester  Tr.  &  Safe 
Dep.  Co.,  209  N.  Y.  12,  102  N.  E.  537.  (In- 
quiry from  Wash.,  Sept.,  1918,  Jl.) 

Payment  of  check  of  authorized  agent  after 
depositor's  death 

1252.  A  gave  authority  to  a  bank  to  pay 
checks  drawn  by  his  wife  or  other  agent  and 
a  check  is  presented  after  the  depositor's 
death.  The  bank  requests  a  statement  of 
the  law  respecting  payment  of  such  checks 
after  the  death  of  depositor.  Opinion :  The 
general  rule  of  law  is  that  the  death  of  the 
depositor  revokes  the  authority  of  the  bank 
to  pay  his  outstanding  checks,  but  if  the 
bank  pays  a  check  after  the  depositor's 
death,  in  ignorance  thereof,  it  is  protected. 
In  a  few  states  there  are  statutes  which 
permit  a  bank  to  pay  the  check  of  a  de- 
ceased depositor  a  certain  number  of  days 
after  his  death,  but  there  is  no  such  statute 
in  Missouri.  In  the  case  stated  where  the 
depositor  gives  authority  to  the  bank  to  pay 
checks  drawn  by  his  wife  or  other  agent  and 
check  is  presented  after  the  depositor's 
death,  of  which  the  bank  has  knowledge,  the 
bank  has  no  right  to  pay,  whether  the  check 
is  dated  by  the  agent  after  the  date  of  the 
depositor's  death  or  has  been  drawn  before 
his  death.  It  is  a  general  rule  of  law  that 
the  death  of  the  principal  revokes  the 
authority  of  the  agent.  If,  however,  the 
check  of  the  agent  was  paid  by  the  bank  in 
ignorance  of  the  death,  the  same  rule  would 
seem  to  apply  as  has  been  held  where  a 
bank  has  paid  the  check  of  the  depositor 
himself,  presented  after  his  death,  where  the 
bank  has  no  notice  or  knowledge  thereof, 


i.  e.,  that  such  payment  is  valid  and  will 
protect  the  bank.  {Inquiry  from  Mo., 
April,  1918.) 

Payment   of  check   drawn   under   power   of 
attorney  after  depositor's  death 

1253.  A  bank  has  on  file  the  following 
power  of  attorney:    "Below  is  the  signature 

of ,  who  is  hereby  authorized  to  sign 

and  indorse  checks,  notes  and  drafts,  accept 
drafts  and  transact  all  business  with  your 
bank  in  my  name  as  my  attorney."  The 
party  given  this  power  died  and  after  his 
death  the  attorney  drew  a  check  which  the 
bank  paid.  Is  the  bank  protected  by  the 
power  of  attorney?  Opinion:  It  is  the  rule 
of  law  that  death  of  the  principal  revokes 
his  power  of  attorney  where  not  coupled 
with  interest.  Clearly,  the  bank  would 
not  be  protected  if  it  paid  a  check  under 
power  of  attorney  after  knowledge  of  the 
death  of  the  principal.  But  since  the  de- 
cision of  the  New  York  Court  of  appeals 
in  Glennan  v.  Rochester  Trust  &  Safe  Dep. 
Co.,  102  N.  E.  537,  if  it  paid  in  ignorance  of 
the  death  of  the  principal,  it  would  probably 
be  protected.  {Inquiry  from  Mont.,  Nov., 
1914.) 

Husband's  death  revokes  wife's  authority  to 
draw  checks 

1254.  A  depositor  who  authorized  his  « 
wife  to  draw  against  his  account  died,  leav-  \ 
ing  a  balance  of  less  than  $500.  Opinion: 
The  husband's  death  revoked  his  wife's 
authority  to  draw  checks,  and  also  revoked 
all  his  outstanding  checks;  but  by  a  statute 
in  California,  not  exceeding  $500  of  a  de- 
cedent's deposit  may  be  paid  to  a  surviving 
wife  or  husband  upon  affidavit.  Bank  Act 
Cal.,  Sec.  16.  Pullen  v.  Placer  Co.  Bk.,  138 
Cal.  169.    {Inquiry  from  Cal,  Feb.,  1914,  JI-) 

Check  holder  cannot  recover  from  bank 

1255.  Several  checks  of  a  decedent  were 
presented  for  payment  at  the  bank,  where 
the  depositor  had  sufficient  funds.  The 
bank,  having  received  notice  of  the  de- 
positor's death,  refused  payment  and  was 
sued  by  one  of  the  holders.  Opinion:  Under 
the  Negotiable  Instruments  Law  of  Illinois 
the  bank  was  not  liable  to  the  holder  both 
on  the  narrow  ground  that  death  of  drawer 
revoked  the  bank's  authority  to  pay  and  on 
the  broader  ground  that  the  bank  owed  no 
duty  to  the  holder.  Death  of  the  drawer 
revokes  the  authority  of  a  bank  to  pay  his 
checks  wherever  the  rule  prevails  that  a 
check  is  not  an  assigmnent,  except  in  a  few 


282 


DEATH  AND  THE  DECEDENT'S  ESTATE 


1256-1258 


states  where  special  statutes  authorize  pay- 
ment within  a  Hmited  period  after  death. 
Neg.  Inst.  A.,  Sec.  189  (Comsr's.  dft.).  Sec. 
188  111.  Act.  Tate  v.  Hilbert,  2  Ves.  Jr.  118. 
Weiand's  Adm.  v.  St.  Nat.  Bk.,  112  Ky.  310. 
Pullen  V.  Placer  Co.  Bk.,  138  Cal.  169. 
American  T.  &  B.  Co.  v.  Boone,  102  Ga. 
202.  Wagstaff  v.  First  Nat.  Bk.  of  Blue 
Earth,  134  N.  W.  (Minn.)  224.  (Inquiry 
from  III,  April,  1913,  Jl.) 

Note:  The  Negotiable  Instruments  Act 
which  provides  the  rule  that  "a  check,  of 
itself,  does  not  operate  as  an  assignment  of 
any  part  of  the  funds  to  the  credit  of  the 
drawer  with  the  bank,  and  the  bank  is  not 
.'  liable  to  the  holder,  unless  and  until  it 
accepts  or  certifies  the  check"  has  now  been 
passed  in  every  state  except  Georgia. 

Renewal  of  agent's  note  in  ignorance 
of  principal's  death 

1256.  A  banker  discounts  a  note  in- 
f  dorsed  by  John  Jones  per  John  Smith,  Atty. 
\  in  fact.  At  the  time  of  discount,  the  au- 
thority of  Smith  to  indorse  was  duly  verified. 
At  anj^  renewal  periods  is  it  incumbent  upon 
the  banker  to  actually  ascertain  whether  or 
not  the  power  of  attorney  has  been  revoked? 
Opinion:  Generally  where  an  agency  is 
revoked,  third  persons  dealing  with  the 
agent  are  protected  until  they  receive  notice 
of  the  revocation.  But  the  weight  of  au- 
thority supports  the  doctrine  that  the  death 
of  the  principal  operates  as  an  immediate 
revocation  and  that  acts  of  agency  done 
after  the  death  of  the  principal  are  void, 
even  if  death  is  unknown  to  the  agent.  In 
accordance  with  this  doctrine  it  has  been 
held  that  payment  to  an  agent  after  the 
death  of  the  principal  will  not  operate  as  a 
discharge  even  though  made  in  actual  ignor- 
ance of  the  principal's  death.  Long  v. 
Thayer,  150  U.  S.  520.  A  few  courts  re- 
cognizing the  harshness  of  this  rule,  have 
held  that,  although  as  a  general  principle, 
death  revokes  an  agency  and  renders  null 
every  act  of  the  agent  thereafter  performed, 
yet  where  pajnnent  has  been  made  in  ignor- 
ance of  the  death,  such  payment  will  be 
good.  The  leading  case  supporting  this 
exception  is  in  the  state  of  Pennsylvania. 
Cassidy  v.  McKenzie,  4  Watts  &  S.  282. 
Where,  therefor,  a  banker  renews  a  note 
indorsed  by  John  Jones  per  John  Smith, 
Attorney  in  fact,  he  would  not  ordinarily 
have  to  ascertain  whether  the  power  of 
attorney  had  been  revoked,  unless  the 
revocation  was  caused  by  the  death  of  John 
Jones.    In  such  case  it  would  be  incumbent 


upon  him  to  ascertain  the  fact  that  John 
Jones  was  still  alive  for  his  protection,  but 
in  Pennsylvania  it  would  not  be  so  necessary. 
{Inquiry  from  Pa.,  May,  1918.) 

Protest    of   decedent's    check 

1257.  What  is  the  customary  procedure 
of  a  bank  in  case  of  drawer's  death  before 
presentment  of  his  check.  Opinion:  The 
death  of  the  drawer  of  a  check  revokes  the 
authority  of  the  bank  to  pay.  The  check 
being  refused  because  of  drawer's  death, 
the  necessary  steps  upon  non-payment  are 
not  dispensed  with,  and  where  a  check  is 
protestable  because  of  refusal  of  payment, 
protest  should  be  made,  even  though  the 
refusal  is  for  the  reason  that  the  drawer  is 
dead  and  the  bank's  authority  to  pay  has 
ceased.  In  Reed  v.  Spear,  107  App.  Div. 
(N.  Y.)  144  it  is  held  that  the  fact  that  the 
holder  is  excused  from  making  presentment 
for  payment  under  section  76  N.  I.  Act 
because  the  principal  obligor  is  dead,  does 
not  relieve  the  holder  from  the  duty  of 
giving  notice  of  dishonor  to  the  indorser. 
{Inquiry  from  N.  M.,  Aug.,  1915.) 

Set-off  of  unmatured  note  against  de- 
cedent's deposit 

1258.  A  bank's  customer  died  owing  it 
$1,000  not  matured,  having  a  deposit  ac- 
count of  about  $500.  The  estate  is  solvent. 
The  bank  inquires  whether  it  has  a  right  to 
apply  the  general  deposit  to  the  unmatured 
indebtedness.  Opinion:  The  general  rule 
is  that  a  bank  cannot  do  so.  A  number  of 
courts  have  held  that  the  death  of  the  de- 
positor does  not  change  the  rule.  Thus  in 
Jordan  v.  Show  &  L.  Bank,  74  N.  Y.,  467, 
where  an  administrator  sued  the  bank  to 
recover  a  balance  of  decedent's  deposit 
standing  to  his  credit  at  the  time  of  his 
death,  it  was  held  that  the  bank  could  not  as 
matter  of  law,  set-off  a  claim  against  a  de- 
cedent on  a  note  which  did  not  mature  until 
after  his  decease.  So  also  in  Gardner  v. 
First  Nat.  Bank,  10  Mont.  149,  it  was  held 
that  a  bank  has  no  right  to  set-off  unma- 
tured notes  against  the  deposit  of  a  decedent 
and  must  pay  the  deposit  to  the  administra- 
tor. To  the  contrary,  in  Pennsj^lvania,  it 
has  been  held  that  a  bank  may  charge  a  note 
to  the  account  of  the  maker  though  the  note 
does  not  become  due  until  several  days  after 
his  decease,  provided  the  estate  is  solvent. 
But  the  right  of  set-off  does  not  exist  if  the 
estate  is  insolvent.  Basler  v.  Exchange 
Bank.  4  Barr  (Pa.)  32.  It  seems  the 
question  has  not  been  passed  upon  in  Kan- 


283 


1259-1263] 


DIGEST  OF  LEGAL  OPINIONS 


sas  one  way  or  the  other.     (Inquiry  from 
Kan.,  June,  1915.) 

1259.  A  bank  inquires  as  to  its  right  to 
set-off  an  unmatured  note  where  customer 
dies,  or  must  it  pay  balance  to  the  adminis- 
trator and  prove  note  against  the  estate. 
Opinion:  There  seem  to  be  no  Arkansas 
cases  involving  the  precise  point  raised  in 
the  bank's  question.  In  some  jurisdictions 
it  has  been  held  that  a  bank  may  set  off 
against  a  deposit  an  indebtedness  maturing 
after  the  death  of  the  depositor.  Little  v. 
City  Nat.  Bk.,  115  Ky.  629,  where  the  debt 
matured  the  next  day  after  the  depositor's 
death;  Ford  v.  Thornton,  3  Leigh  (Va.) 
695,  while  in  other  jurisdictions  the  same 
will  only  be  allowed  in  the  event  of  insolven- 
cy of  the  decedent's  estate.  But  in  Steel- 
man  V.  Atchley  (Ark.  1911)  135  S.  W.  902, 
it  was  held  that  the  fact  that  a  depositor's 
note  to  a  bank  was  not  due  at  the  time  of  the 
bank's  insolvency  does  not  prevent  the 
depositor  from  asserting  his  right  to  set  off 
his  general  deposit  against  the  note;  and 
thi;re  would  seem  to  be  no  reason  why  the 
CO  iverse  of  this  proposition  should  not  hold 
go)d  in  that  jurisdiction.  {Inquiry  from 
Aih.,  May,  1920.) 

Payment  of  decedent's  deposit 

Pi  oof  of  appointment  before  payment  of  check 
of  administrator 

1260.  A  bank  refused  to  pay  a  check 
drawn  against  the  account  of  its  deceased 
depositor  until  further  evidence  of  the 
drawer's  authority.  The  drawer,  who  was 
the  administrator,  claimed  that  the  indorse- 
ment of  the  bank  through  whom  the  check 
was  presented  was  sufficient  assurance  that 
he  had  been  legally  appointed  administrator. 
Opinion:  A  bank  has  the  right  to  demand 
the  production  of  letters  of  administration 
before  paying  the  deposit  of  a  decedent  upon 
check  of  one  claiming  to  be  administrator. 
Scudder  v.  Trenton  Sav.  Fund  Soc,  5.  N.  J. 
Eq.  154.  Boone  v.  Citizens  Sav.  Bk.,  84 
N.  Y.  83.  Schulter  v.  Bowery  Sav.  Bk.,  117 
N.  Y.  125.  {Inquiry  from  Kan.,  June,  1918, 
Jl.) 

Payment  in  the  absence  of  letters  of 
administration 

1261.  Can  a  bank  safely  pay  out  the 
balance  of  a  deceased  depositor,  who  died 
intestate,  to  the  widow  or  mother  in  the 
absence  of  letters  of  administration.  Opin- 
ion: In  the  absence  of  statute,  a  bank  can- 
not ordinarily  pay  out  any  part  of  the  deposit 


of  decedent  and  receive  acquittance  therfore 
until  there  has  been  due  administration  on 
the  estate.  Pennsylvania  has  no  such  stat- 
ute. In  exceptional  cases,  however,  where 
the  heirs  are  all  known  and  consent  and 
there  are  no  creditors,  pajmaent  may  be 
made  without  administration  with  reason- 
able safety.    {Inquiry  from  Pa.,  Jan.,  1919.) 

Payment  of  time  certificate  without  adminis- 
tration to  widow,  where  no  debts  and  other 
heirs  consent 

1262.  A  customer  of  a  bank  died  intes- 
tate, leaving  as  heirs  a  widow  and  grown 
daughter,  he  has  a  time  deposit  with  bank 
evidenced  by  a  certificate  of  deposit.  There 
are  no  debts  to  knowledge  of  bank.  Would 
it  be  safe  for  the  bank  to  turn  over  this  time 
deposit  to  the  widow  on  surrender  of  the 
certificate  of  deposit?  Opinion:  Adminis- 
tration is  usually  necessary  where  a  person 
dies  leaving  debts  and  property  which  may 
be  made  available  to  pay  them.  (Brennan 
V.  Harris,  20  Ala.  185.  Congers  v.  Bruce, 
109  Ga.  190.  Leamon  v.  Mccubbin,  82 
111.  263.  Bowen  v.  Stewart,  128  Ind.  507. 
Royce  v.  Burrell,  12  Mass.  395.  Lee  v. 
Wright,  1  Rawle  [Pa.]  149).  But  where  a 
person  is  indebted  upon  a  certificate  of 
deposit  issued  to  a  person  since  deceased, 
who  leaves  surviving  a  widow  and  one  adult 
daughter,  and  there  are  no  debts  against  the 
estate  except  the  funeral  expenses,  the  bank 
would  be  safe  in  paying  the  certificate  of 
deposit  to  the  widow,  without  letters  of 
administration,  upon  written  consent  of  the 
undertaker  and  of  the  daughter,  as  these 
would  be  the  only  persons  who  could  ques- 
tion the  vaHdity  of  the  payment.  (McCaa 
V.  Woolf,  42  Ala.  389.  Ellard  v.  Coleman 
[Ga.  1919]  97  S.  E.  111.  Story's  Succ,  3  La. 
Ann.  502.  Foote  v.  Foote,  61  Mich.  181. 
Kilerease  v.  Shelby,  23  Miss.  161.  Wood- 
man V.  Rowe,  59  N.  H.  453.  Glasgow  v. 
Martin,  1  Strobh.  [S.  C]  87.  Reed  v.  Reed, 
56  Vt.  492.  See  Mont.  Civ.  Code,  Sec. 
1852).  {Inquiry  from  Mont,  Oct.,  1920,  Jl.) 

Payment  of  undertaker's  bill 

1263.  Robert  E.  Lee  deposited  in  a  bank 
the  sum  of  $200  and  received  a  certificate  of 
deposit  containing  the  following  words: 
"Robert  E.  Lee  has  deposited  in  this  bank 
$200  payable  to  the  order  of  himself  or 
Mrs.  Mary  Lee  (wife)  in  current  funds  on 
the  return  of  this  certificate  properly  in- 
dorsed with  interest  at  the  rate  of  3% 
per  annum.  Certif.  of  dep.  not  sub.  to  ck. 
J.  J.   Cashier."     At  same  time  depositor 


284 


I 


DEATH  AND  THE  DECEDENT'S  ESTATE 


[1264-1268 


made  oral  request  that,  in  event  of  his 
death  before  his  wife,  his  burial  expenses  be 
paid  out  of  the  deposit.  Can  the  bank  le- 
gally pay  such  expenses  and  charge  same  to 
the  account  in  advance  of  appointment  of 
administrator.  Opinion:  In  the  case  of  a 
deposit  subject  to  check,  death,  of  course, 
ordinarily  revokes  the  authority  of  the  bank 
to  pay,  but  either  by  statute  or  custom  it  is 
the  quite  general  practice  for  savings  banks 
to  pay  out  a  deposit  on  the  undertaker's  bill 
without  waiting  for  the  appointment  of  the 
administrator,  and  such  receipted  bill  is 
regarded  as  a  valid  voucher.  In  the  present 
case  the  money  is  owing  on  certificate  of 
deposit  in  which  the  wife  of  decedent  is 
alternate  paj^ee  and  the  bank  should  obtain 
her  sanction  of  payment  to  the  undertaker. 
{Inquiry  from  Ala.,  Feb.,  1913.) 

Payment  of  savings  deposit  of  foreign  decedent 

1264.  A  depositor  in  an  Ohio  savings 
bank  who  was  a  citizen  of  France  died  un- 
married and  intestate  leaving  a  father  and 
mother.  Upon  what  authority  should  the 
bank  pay  over  the  deposit?  Opinion:  While 
some  states  require  the  appointment  of  a 
resident  administrator  of  a  decedent  to 
collect  the  assets  in  the  particular  state,  the 
satutes  of  Ohio  clothe  the  foreign  adminis- 
trator with  full  power  and  authority  to  make 
a  complete  settlement  of  the  estate  of  a  non- 
resident. McCreight,  6  Ohio  N.  P.  481. 
Ancillary  administration  is  rendered  un- 
necessary where  there  is  no  claim  by  a  resi- 
dent creditor  against  the  estate  Swearin- 
gen  V.  Morris,  14  Ohio  St.  424.  The  bank 
may  then  pay  the  deposit  of  the  decedent 
to  the  foreign  administrator.  It  would  be 
reasonably  safe  in  accepting  an  affidavit 
from  a  "Maire"  in  France  (corresponding 
to  the  American  mayor)  to  the  effect  that 
the  father  and  mother  are  the  only  heirs  of 
the  deceased  and  in  paying  on  that  affidavit 
and  his  order  and  the  pass-book.  The 
'  Maire"  seems  to  act  in  the  capacity  of  a 
foreign  administrator.  Hence  it  would  not 
seem  necessary  to  go  to  the  trouble  and  ex- 
pense of  having  a  local  administrator  ap- 
pointed. There  is  no  inheritance  tax  ques- 
tion involved  as  the  Inheritance  Tax  Law  of 
Ohio  exempts  the  deposit  where  the  bene- 
ficiary is  the  father  or  mother.  Sec.  5331, 
Suppl.  Page  and  Adams  Ohio  General  Code. 
(Inquiry  from  Ohio,  March,  1921.) 

Effect  of  death  of  partner 

1265.  What  is  the  effect  of  the  death  of 
a  partner  up'on  the  right  to  draw  on  the 


firm  bank  account?  Opinion:  Upon  death 
of  one  partner,  survivor  has  right  to  draw 
checks  on  partnership  account.  Backhouse 
V.  Charlton,  8  Ch.  D.  444.  Morse  on  Banks, 
Sec.  439.  {Inquiry  from  N.  J.,  Dec,  1908, 
Jl.) 

Receipt  of  deposits  after  death  of 
depositor 

Credit  of  deposit  by  debtor  of  decedent 

1266.  A  owes  a  customer  of  the  bank, 
who  is  deceased,  and  wishes  to  deposit  the 
amount  in  the  bank  for  him.  The  ques- 
tion is  whether  the  amount  should  be  credit- 
ed to  the  account  of  the  decedent  or  to  the 
account  of  his  estate.  Opinion:  Strictly 
the  bank  has  no  right  to  receive  the  deposit 
to  the  credit  of  the  estate  unless  authorized 
by  the  legal  representative.  But  it  might  be 
convenient  for  the  bank  to  credit  it  to  the 
estate  to  be  held  for  and  paid  to  the  repre- 
sentative. {Inquiry  from  N.  Y.,  Sept., 
1912,  Jl.) 

Certified  checks  payable  to  decedent  offered  for 
deposit 

1267.  Several  certified  checks  payable 
to  a  decedent  were  offered  for  deposit  to  the 
credit  of  the  decedent's  account  by  one  of 
the  executors,  prior  to  the  qualification  of 
the  executors  under  the  will  of  the  decedent. 
Opinion:  A  bank  whose  customer  has  de- 
ceased may  properly,  in  the  interests  of  his 
estate  and  before  an  executor  or  administra- 
tor has  qualified,  receive  money  or  checks 
offered  by  a  debtor  of  the  decedent  and  place 
them  to  the  credit  of  his  account,  but  until 
the  bank  has  been  duly  authorized  to  receive 
such  money  or  receive  and  collect  such 
checks,  payment  of  the  latter  would  not  be 
a  discharge  of  liability  to  the  estate  and  the 
payors  would,  in  the  event  of  the  failure  of 
the  bank,  remain  hable  to  the  estate.  14 
Cyc.  109.  {Inquiry  from  N.  J..  Oct.,  1912, 
Jl.) 

Rights,  powers  and  duties  of  executors 
and  administrators 

Authority  to  renew  notes  of  testator 

1268.  In  the  absence  of  statute  or  of 
express  authority  in  the  will,  an  executor 
would  have  no  power  to  bind  the  estate  of 
the  testator  by  making,  as  executor,  a  new 
note  in  renewal  of  one  made  by  the  testator 
or  by  renewing  indorsements  on  notes  orig- 
inally indorsed  by  the  testator,  and  such 
acts  bind  only  the  executor  personally.  No 
such  Statute  exists  in  Pennsylvania.    Lynch 


285 


1269-1271] 


DIGEST  OF  LEGAL  OPINIONS 


V.  Kirby,  65  Ga.  279.  Carroll  v.  Davidson, 
23  La.  Ann.  428.  Yerger  v.  Foote,  48  Miss 
62.  Stirling  v.  Winter,  80  Mo.  141.  Hellier 
V.  Lord,  55  N.  J.  L.  357.  WTiitten  v.  Fin- 
castle  Bk.  100  Va.  546.  Montreal  Bk.  v. 
Buchanan,  32  Wash.  480.  Boggs  v.  Wann, 
58  Fed.  681.  Higgins  v.  Driggs,  21  Fla.  103. 
Harrison  v.  McClelland,  57  Ga.  531.  Stude- 
baker  v.  Montgomery,  74  Mo.  433.  White 
Sulphur  Springs  v.  Collins,  17  Mont.  433. 
Schmittler  v.  Simon,  101  N.  Y.  554.  DarHng 
V.  Powell,  20  Misc.  (N.  Y.)  240.  1  Parsons 
Bills  &  Notes.  161.  Pumpelly  v.  Phelps,  40 
N.  Y.  59.  Taft  v.  Brewster,  9  Johns  (N.  Y.) 
334.  Forster  v.  Fuller,  6  Mass.  58.  Hills  v. 
Banister,  8  Cow.  (N.  Y.)  31.  Cornthwaite 
V.  First  Nat.  Bk.,  57  Ind.  268.  McCalley 
V.  Wilburn,  77  Ala.  549.  Brightwell  v. 
Jordan,  74  Ga.  486.  Stewart  v.  Davis,  18 
Ind.  74.  Kingman  v.  Soule,  132  Mass.  285. 
Shiff  V.  Shiff,  20  La.  Ann.  269.  Johnson  v. 
Union  Bk.,  37  Miss.  526.  Farmers  Nat.  Bk. 
v.  Griel,  12  Lane.  Law  Rev.  (Pa.)  28. 
Wilhamson's  Appeal,  94  Pa.  231.  Fehlinger 
v.  Wood  134  Pa.  522.  Fluck  v.  Hager,  51 
Pa.  459.  Morehead  Banking  Co.  v.  More- 
head.  122  N.  C.  318.  Brown  v.  Fairchild, 
100  N.  E.  (Mass.)  556.  Harris  v.  Woodard, 
65  S.  E.  (Ga.)  250.  {Inquiry  from  Pa.,  Aug., 
1914,  Jl) 

Payment  of  legacy  to  wrong  person 

1269.  A  will  bequeathed  a  legacy  to 
John  Brown  of  Howard,  111.,  the  real  legatee 
intended  being  John  Brown  of  Hall,  111.,  who 
had  never  hved  at  Howard.  The  executrix 
notified  John  Brown  of  Howard,  sending 
him  a  receipt  and  instructing  a  bank  to 
forward  him  the  amount  upon  receiving  the 
receipt.  The  instruction  was  carried  out 
by  the  bank.  Opinion:  There  is  no  lia- 
bihty  on  the  part  of  the  bank  but  the  exec- 
utrix is  hable  to  the  real  legatee,  unless  the 
misdescription  of  his  address  in  the  will 
should  be  held  sufficient  to  estop  him  from 
questioning  the  vahdity  of  the  payment. 
Hemphill  v.  Moody,  62  Ala.  510.  Hind- 
man  V.  State,  61  Md.  471.  Thifes  v.  Mason, 
55  N.  J.  Eq.  456.  Matter  of  Baker,  57  N.  Y. 
App.  Div.  44.  Cowdin  v.  Perry,  11  Pick. 
(Mass.)  503.  Keiningham  v.  Same,  24  Ky. 
L.  Rep.  1330.  In  re  McDonough's  Est., 
1 17  N.  Y.  S.  258.  Wade  v.  Dick,  36  N.C.  513. 
Negley  v.  Card,  20  Ohio  St.  310.  Hoffman 
V.  Amer.  Exch.  Bk.,  (Neb.)  96  N.  W.  112. 
Jamieson  v.  Hiem,  (Wash.)  86  Pac.  165. 
(Inquiry  from  Neb.,  April,  1918,  JL) 

Liability  for  investment  of  estate  funds 

1270.  Opinion  and  comment  of  General 


Counsel  desired  upon  the  decision  of  the 
New  York  Court  of  Appeals  in  Villard  v. 
ViUard,  114  N.  E.  Rep.  789.  Opinion:  In 
Villard  v.  Villard,  [N.  Y.  1916]  114  N.  E. 
789,  decided  under  the  New  York  Decedent 
Estate  Law  (Colsol.  Laws,  Ch.  13,  Sec.  Ill) 
it  was  held  that,  if  an  executor  invests  funds 
of  the  estate  contrary  to  the  provisions  of 
the  will  or  of  said  law  as  to  the  securities  in 
which  trust  funds  may  be  invested,  he  is 
liable  for  any  loss  that  may  result,  without 
the  right  to  any  profit  that  he  may  make  by 
such  investment.  This  case  seems  but  to 
reiterate  the  strict  rule  of  accountabiUty 
to  which  personal  representatives  and 
trustees  are  held  in  their  fiduciary  capac- 
ity. Under  this  fine  of  decisions,  a  trustee 
may  not  accept  bonds,  securities,  or  other 
collateral  accruing  to  or  acquired  by  the 
estate  after  the  demise  of  the  testator  except 
at  his  own  risk.  And  even  then  it  is  held 
that  all  benefit  whatsoever  must  inure  to  the 
estate,  while  the  trustee  must  bear  the  brunt 
of  any  losses  accruing  from  the  depreciation 
of  securities,  etc.  The  court  even  held  here 
that  the  provision  in  the  wiU  relating  to 
holding  investments  owned  by  the  testator 
at  the  time  of  his  death  did  not  wholty  re- 
heve  the  executors  from  care  and  responsi- 
bihty  regarding  such  investments.  '  In  re- 
Dickinson  152  Mass.  184,  a  trustee  was  held 
liable  for  an  investment  in  Union  Pacific 
Railroad  stock.  It  was  there  said:  "Our 
cases,  however,  show  that  trustees  in  this 
commonwealth  are  permitted  to  invest 
portions  of  trust  funds  in  dividend-pajdng 
stocks  and  interest-bearing  bonds  of  private 
business  corporations,  when  the  corpora- 
tions have  acquired,  by  reason  of  the  amount 
of  their  property,  and  the  prudent  manage- 
ment of  their  affairs,  such  a  reputation  that 
cautious  and  intelHgent  persons  commonly 
invest  their  own  money  in  such  stocks  and 
bonds  as  permanent  investments."  {In- 
quiry from  N.  Y.,June,  1917.) 

Accounting  by  administrator 

1271.  An  administrator  appointed  in 
Kansas  wound  up  the  business  of  the  de- 
ceased but  refused  to  turn  over  the  proceeds 
to  the  widow.  Can  an  administrator  be 
appointed  in  Tennessee,  where  the  wddow 
lives,  to  receive  the  money?  Opinion: 
There  seems  to  be  no  occasion  for  the 
appointment  of  an  administrator  in  Ten- 
nessee, unless  the  deceased  left  property 
therein.  All  that  seems  to  be  required  is  a 
proper  accounting  of  the  Kansas  administra- 
tor and  payment  to  the  widow  of  her  share 


286 


DEATH  AND  THE  DECEDENT'S  ESTATE 


[1272-1274 


of  the  estate.  Presumably  there  is  no  will, 
but  it  does  not  appear  in  the  question, 
whether  or  not  there  are  next  of  kin,  en- 
titled to  share  in  the  estate.  It  may  be  that 
the  reason  for  the  refusal  of  the  administra- 
tor is  that  the  statutory  period  for  proving 
claims  and  settHng  the  estate  has  not 
elapsed.     {Inquiry  from  Tenn.,  May,  1914-) 

Refunding   bond   to    executor   as   protection 
against  overpayment  to  legatee 

1272.  A  Kansas  executor  made  in  sub- 
stance an  advance  payment  to  a  legatee  by 
returning  her  note  and  releasing  the  mort- 
gage on  Colorado  realty,  given  as  security. 
The  executor  required  a  refunding  bond 
from  the  legatee,  which  was  approved  by 
the  probate  judge,  who,  however,  made  no 
order  authorizing  the  surrender  of  the  note 
or  the  releasing  of  the  mortgage,  although  it 
would  seem  that  he  sanctioned  it  in  an  oral 
conversation.  The  advance  payment  so 
made  turned  out  to  be  excessive.  (1)  Could 
the  executor  give  a  vahd  release?  (2)  Is  the 
release  good  under  the  laws  of  Colorado? 

(3)  Is  it  incumbent  on  the  executor  to  sue 
on  the  bond  of  the  legatee?  (4)  If  the  exec- 
utor refuses  to  sue,  is  there  a  hability  on  his 
bond?  (5)  In  case  of  suit  brought  but  failure 
to  reahze  on  judgment,  is  there  habihty  on 
executor's  bond?  (6)  Did  the  taking  of  the 
bond  from  the  legatee  reheve  from  Hability 
on  the  executor's  bond.  Opinion:  (1)  The 
release  is  vaUd.  A  release  of  a  mortgage 
may  be  executed  by  the  executor  or  ad- 
ministrator of  a  deceased  mortgagee.  Bank 
V.  Dayton,  116  111.  257.  Reynolds  v.  Smith, 
57  Mich.  194.  Moss  v.  Lane,  50  N.  J.  Eq. 
295.  (2)  The  release  is  good  under  the  laws 
of  Colorado.  (3)  It  is  duty  of  executor  to 
proceed  against  the  legatee  on  her  bond, 
unless  the  obhgors  are  notoriously  insolvent. 

(4)  Neglect  of  duty  in  not  suing  renders 
executor  personally  liable.  (5)  In  the  event 
of  failure  to  reahze  on  the  judgment,  there 
IS  no  liabihty  on  executor's  bond.  (6)  The 
taking  of  the  refunding  bond  by  the  execu- 
tor and  the  approval  of  the  bond  by  the 
court  would  be  a  defense  to  an  action  on  his 
bond,  where  the  executor  has  sued  on  the 
refunding  bond,  but  there  is  personal  lia- 
bility where  the  executor  is  guilty  of  laches 
in  suing  on  the  refunding  bond.  The 
Kansas  statute  expressly  authorizes  the 
taking  of  a  refunding  bond.  Laws  [1911], 
Chap.  188,  Sec.  15.  This  being  so  the 
general  rule  applies  that  refunding  bonds 
stand  as  to  creditors  in  place  of  assets  dis- 
tributed, and  operate  to  exonerate  the  per- 


sonal representative  from  all  habihty  for 
such  assets  and  protect  him  against  the 
claims  of  creditors.  Fonte  v.  Horton,  36 
Miss.  350.  Badger  v.  Daniel.  79  N.  C.  372. 
Schaeffer's  Appeal,  119  Pa.  St.  540.  Max- 
well V.  Smith,  86  Tenn.  539.  {Inquiry  from 
Kan,,  July,  1915.) 

Rights  and  liabilities  of  heirs 

Rights  inter  se  of  grandson,  surviving  brothers 
and  divorced  husband 

1273.  A  woman  died  in  Kansas  intes- 
tate, leaving  surviving  her  a  grandson,  two 
brothers  and  a  divorced  husband?  (1) 
What  are  the  respective  interests  of  the  sur- 
vivors in  the  estate  of  the  deceased?  (2) 
Can  a  bank  in  Idaho  on  behalf  of  its  cus- 
tomer, one  of  the  brothers,  demand  a  state- 
ment of  account  of  deceased  from  the  Kan- 
sas bank  with  which  she  did  business? 
Opinion:  (1)  The  Kansas  statute  of  de- 
scent and  distribution  provides  that  upon  the 
death  of  a  wife  the  estate,  in  the  absence 
of  other  arrangements  by  will,  shall  descend 
in  equal  shares  to  the  surviving  children,  and 
the  hving  issue,  if  any,  of  prior  deceased 
children;  but  such  issue  shall  coUectivelj'' 
inherit  only  that  share  to  which  their  parent 
would  have  been  entitled  had  he  been  living. 
(Gen.  St.  Kan.,  1909,  Ch.  33,  Sees.  2952, 
2961.  Ibid.,  1915,  Ch.  30.  3851).  It  will 
thus  be  seen  that,  in  the  instant  case  the 
two  brothers  of  decedent  were  not  entitled 
to  distributive  shares  of  her  estate,  since  she 
left  surviving  her  a  grandson,  the  issue  of  a 
predeceased  child,  who  would  be  entitled 
to  the  whole  estate  under  the  Kansas  stat- 
ute. In  Kansas  a  divorced  husband  is 
barred  from  sharing  in  the  estate  of  his  wife 
on  her  death.  (Jacobs  v.  Gaskill,  69  Kan. 
872,  77  Pac.  550.  Durland  v.  Durland,  67 
Kan.  734,  74  Pac.  274.  Gen.  St.  Kan.,  1909, 
Ch.  95,  Sec.  6268).  (2)  The  bank  cannot 
demand  a  statement  of  the  decedent's  ac- 
count from  the  bank  of  her  deposit,  on  be- 
half of  one  of  the  brothers,  as  only  the  ad- 
ministrator of  the  estate  who  would  have 
such  right;  furthermore  the  brothers,  in  this 
case,  took  no  rights  whatever.  {Inquiry 
from  Idaho,  Oct.,  1920.) 

Heir's  note  for  decedent's  debt 

1274.  A  widow  and  daughter  of  the 
decedent  gave  their  notes  to  a  bank  in  part 
payment  of  a  note  of  the  decedent  which  the 
bank  neglected  to  prove  against  the  dece- 
dent's estate  within  the  time  required  by 
law.    Opinion:    The  authorities  are  in  con- 


287 


1275-1278] 


DIGEST  OF  LEGAL  OPINIONS 


flict  whether  such  notes  of  widow  and  daugh- 
ter, receiving  assets  of  the  estate,  given  in 
part  payment  of  a  note  of  the  decedent,  out- 
lawed by  non-claim,  are  supported  by  a 
sufficient  consideration  and  enforceable. 
In  Illinois,  the  question  is  yet  to  be  litigated. 
Williams  v.  Nichols,  76  Mass.  83.  Linder- 
man  v.  Farquharson,  101  N.  Y.  434.  Pax- 
son  V.  Nields,  20  Atl.  (Pa.)  1016.  Alger  v. 
Scott,  54  N.  Y.  14.  Comer  v.  Allen,  72  Ga. 
14.  Hammond  on  Contracts,  Sec.  328. 
Mull  v.  Van  Trees,  50  Cal.  547.  Grimball 
V,  Mastin,  77  Ala.  553.  Bissinger  v.  Lawson, 
57  Miss.  36.  Didlake  v.  Robb,  1  Woods  680. 
{Inquiry  from  III.,  Dec,  1912,  Jl.) 

Right  to  intestate's  deposit  where  sole  survivor 
son  and  divorced  wife 

1275.  A  New  Jersey  bank  asks  who  has 
the  right  to  funds  which  it  has  on  deposit  in 
the  name  of  a  depositor  who  died  intestate, 
his  only  survivors  being  a  son  and  a  former 
wife  who  was  divorced  and  remarried  in  his 
lifetime.  Opinion:  The  married  woman  is 
not  the  widow  of  the  deceased,  and  the  only 
surviving  son  is  entitled  to  the  entire  de- 
posit under  the  provisions  of  the  New  Jersey 
statutes.  Comp.  Stat,  N.  J.,  Sec.  169,  p. 
3874.  Bayles  v.  Latham,  61  Iowa  174. 
Marvin  v.  Marvin,  59  Iowa,  699.  Durland 
V.  Durland,  67  Kans.  734.  Hecht's  Estate, 
9  Pa.  Co.  Ct.  Rep.  564.  In  re  Est.,  of  Run- 
yon,  137  Wis.  634.  Bishop  on  Marriage  & 
Divorce,  Sec.  661.  In  re  Runyon's  Est.,  12 
N.  J.  L.  Jl.  15.  (Inquiry  from  N.  J.,  Feb., 
1.918,  Jl.) 

Promise  to  make  donation  to  charitable  insti- 
tution not  enforceable 

1276.  A  charitable  institution  received 
a  promise  from  a  New  Yorker  afterwards 
deceased,  to  donate  a  few  thousand  dollars. 
The  donor  was  at  the  time  not  in  position  to 
pay  the  cash,  and  wrote  a  letter  that  he  would 
pay  5%  interest  on  the  amount  during  his 
life  and  stated  that  the  amount  was  $10,000 
and  that  such  was  specified  in  his  will.  After 
his  death  it  was  found  that  he  had  written 
a  later  will  which  made  no  provision  for  the 
promised  donation.  Can  the  institution  re- 
cover from  his  estate?  Opinion:  Such  a 
promise  cannot  be  enforced  against  the 
estate  of  the  decedent.  It  is  a  mere  promise 
to  give  and  would  fail  for  lack  of  considera- 
tion. To  constitute  a  valid  gift,  it  must  be 
completed  by  delivery  and  a  mere  statement 
that  a  person  intends  to  give  a  certain 
amount  and  that  he  has  made  a  will  be- 
queathing  such   amount   and   furthermore 


promising  to  pay  interest  thereon  during  his 
life  time  will  not  be  binding  on  his  estate 
where  he  makes  another  will  revoking  the 
former  donation.  {Inquiry  from  N.  Y., 
Oct.,  1914.) 

Right  of  surviving  husband  and  child 

1277.  A  bank  asks  whether,  in  the  event 
of  the  death  of  a  married  woman  leaving  a 
husband  and  child,  the  property  descends 
to  the  child  unconditionally,  or  does  the 
husband  acquire  a  right  of  curtesy  therein? 
Opinion:  In  New  Jersey,  by  act  approved 
March  3, 1915,  the  husband's  right  of  curte- 
sy was  abolished,  the  act  specifically  pro- 
viding that  nothing  therein  shall  affect  any 
estate  or  interest  which  may  have  become 
vested  before  its  enactment.  New  Jersey 
Laws,  1915,  Chap.  31,  p.  65.  In  the  case 
submitted,  the  child  would  take  the  whole 
of  the  mother's  real  estate,  free  from  any 
claims  or  interest  of  the  surviving  husband, 
provided  his  right  of  curtesy  had  not  vested 
prior  to  the  passage  of  said  act.  {Inquiry 
from  N.  J.,  March,  1915.) 

Title   of  surviving   husband   under   deed   to 
husband  and  wife 

1278.  A  piece  of  realty  in  South  Dakota 
was  conveyed  to  "John  Doe  &  Julia  Doe, 
his  wife."  After  the  death  of  the  wife,  has 
John  Doe,  the  widower,  title  to  the  premises? 
Opinion:  Estates  in  entirety  are  not  rec- 
ognized by  the  South  Dakota  statutes. 
Comp.  Laws  S.  D.  Vol.  2,  Sec.  1025,  pro- 
vides that  "no  estate  is  allowed  the  husband 
as  tenant  by  curtesy."  The  deed  created 
either  a  tenancy  in  common  or  a  joint 
tenancy.  "A  joint  interest  is  one  owned  by 
several  persons  in  equal  shares,  by  a  title 
created  by  a  single  will  or  transfer,  when  ex- 
pressly declared  in  the  will  or  transfer  to  be 
a  joint  tenancy.."  Ibid  Sec.  199.  "Every 
interest  created  in  favor  of  several  persons 
in  their  own  right  is  an  interest  in  common, 
unless  acquired  by  them  in  partnership,  for 
partnership  purposes,  or  unless  declared  in 
its  creation  to  be  a  joint  interest,  as  pro- 
vided in  section  199."  Ibid  Sec.  202.  "A 
husband  or  wife  may  hold  real  or  personal 
property  together,  as  joint  tenants,  or 
tenants  in  common."  Ibid  Sec.  101.  In 
the  case  submitted  a  joint  tenancy  is  not 
"expressly  declared,"  and  hence  it  would 
seem  that  a  tenancy  in  conimon  was  created. 
This  being  the  case  the  wife's  title  to  an 
undivided  half  of  the  property  passes  to  her 
estate.    {Inquiry  fram  S.  D.,  Dec,  1913.) 


i 


288 


DEEDS  AND  CONVEYANCES 


[1279-1281 


Evidence  of  transactions  with  decedent 

Admissibility  of  minutes  of  bank  as  evidence 

1279.  In  litigation  between  a  national 
bank  and  the  estate  of  its  deceased  president, 
where  a  claim  is  made  against  the  latter,  is 
the  bank's  minute  book  admissible  as  evi- 
dence against  the  estate?  Opinion:  Were 
the  president  living,  not  only  would  the 
minute  book  of  the  meetings  of  the  directors 
of  a  bank  be  admissible  to  prove  what  action 
was  taken  by  such  directors  in  regard  to  the 
purchase  of  bonds  from  the  president,  but 
it  would  be  the  best  evidence  thereof.  Pro- 
tection Life  Ins.  Co.  v.  Dill,  91  111.  174. 
Chase  v.  Sycamore  etc.  R.  Co.,  38  111,  215. 
Ryder  v.  Alton  etc.  R.  Co..  13  111.  516. 
Fitch  v.  Packard,  5  111.  69.  Wesp  v.  Strasen- 
burg,  210  N.  Y.  527.  In  re  Mendelbaum, 
141  N.  Y.  S.  319.  Gold,  etc.,  Co.  v.  Dennis, 
[Colo.  1912]  121  Pac.  677.  Oregon  v.  C.  R. 
Co.,  206  Fed.  577.  Carey  v.  Williams,  79 
Fed.  906.  Cook  on  Corporations  [7th  Ed.], 
Vol.  3, — Sec.  714.  See  also  Jefferson  v. 
Stewart,  4  Harr.  [Del.]  82.  Merchant's 
Bank  v.  Rawls,  21  Ga.  334.  White  Mount- 
ain R.  Co.  v.  Eastman,  34  N.  H.  124.  Rudd 
V.  Robinson,  126  N.  Y.  113.  Plank  Road 
Co.  v.  Rice,  7  Barb.  [N.  Y.]  157.  Bedford 
R.  Co.  v.  Bowser,  48  Pa.  St.  29.  Bavington 
V.  Pittsburgh  etc.  R.  Co.,  34  Pa.  St.  358. 
Fleming  v.  Wallace,  2  Yeates  [Pa.]  120).  It 
does  not  seem  that  Section  2  of  the  Evidence 
Act  of  Illinois  which  disquahfies  from  testi- 
fying a  party  to  an  action,  or  a  party  in 
interest,  where  the  adverse  party  is  repre- 
sentative of  a  decedent  would  operate  to 
exclude  the  minute  book,  which  is  simply 
documentary  evidence.  (Inquiry  from  III., 
May,  1915.) 

Minute  book  of  bank  amended  after  decease 
inadmissible 

1280.  In  htigation  between  a  national 
bank  and  the  estate  of  its  deceased  president, 


are  minutes  of  a  meeting  of  the  board  of 
directors  admissible  against  the  estate, 
where  the  original  minutes  contained  no 
reference  to  the  matter  sought  to  be  proved, 
but  such  minutes  were  amended  after  his 
decease  by  resolution  of  the  board  of  di- 
rectors, and  upon  a  certificate  of  all  the  sur- 
viving members  of  the  board,  as  to  what 
transpired  at  such  meeting,  and  such  recital 
incorporated  into  the  minutes  as  amended? 
Opinion:  There  appear  to  be  no  adjudicated 
cases  under  either  the  Ilhnois  or  New  York 
statutes  in  which  the  precise  point  here 
under  consideration  was  raised.  The  cases 
of  Handley  v.  Stutz,  139  U.  S.  417.  Wiley 
V.  Athol,  150  Mass.  426.  Chott  v.  TivoU 
Amusement  Co.,  114  111.  App.  178,  are  to  the 
effect  that  such  proceedings  may  be  proved 
by  parol.  See  also  Bay  View  v.  WilUams, 
50  Cal.  353;  Van  Hook  v.  Sommerville, 
5  N.  J.  Eq.  37.  State  v.  Guertin,  106  Minn. 
248.  Grath  v.  Roofing  Tile  Co.,  121  Mo. 
App.  134.  Seller  v.  Amer.  Lubricating  Co., 
119  Iowa  591.  Watts  v.  Gordon,  [Tenn. 
1913]  153  S.  W.  483.  Murray  v.  Beal,  23 
Utah  548.  Ilhnois  etc.  Assoc,  v.  Plagge,  177 
111.  431  [to  the  effect  that  minutes  of  cor- 
porate meetings  are  prima  facie  evidence 
only  of  the  proceedings,  and  where  such 
minutes  are  incorrect,  or  incomplete,  parol 
evidence  is  admissible  for  the  purpose  of 
proving  what  actually  occurred].  If  the 
president  were  still  living  it  would  seem 
that  the  minutes  of  the  meeting  of  the 
board  of  directors  might  be  thus  amended 
and  be  good  evidence  in  a  proceeding  against 
him;  but  where  the  proceeding  is  against  his 
estate,  a  post  mortem  correction  of  minutes 
upon  a  certificate  of  surviving  members  of 
the  board  as  to  what  transpired,  would  be 
in  the  nature  of  personal  testimony  and 
would  quite  likely  be  excluded  as  within  the 
statute  which  prohibits  a  party  or  party  in 
interest  from  testifying  in  an  action  against 
the  estate  of  a  deceased  party.  (Inquiry 
from  III,  May,  1915.) 


DEEDS  AND   CONVEYANCES 


Delivery 

Delivery  essential  to  completeness  of  deed  of 
gift 

1281.  A  farmer  made  out  a  deed  to  his 
wife  for  his  farm,  and  put  it  away  in  his 
strong  box,  with  the  remark  that  "so  that 
if  I'm  taken  first,  all  she  will  have  to  do  is  to 
put  it  on  record,  and  then  title  will  be  in  her 


name,  and  will  keep  it  out  of  court."  Was 
this  a  valid  gift  of  the  property  described  in 
the  deed?  Opinion:  It  is  elementary  law 
that  a  gift  is  incomplete  without  dehvery. 
The  mere  intention  to  give  is  not  sufl5cient. 
If  a  man  draws  a  deed  intending  to  give  the 
property  to  another,  but  does  not  deliver  the 
deed,  and  retains  the  property  until  his 
death,    the   title   does   not   pass,   and   the 


289 


1282-1285] 


DIGEST  OF  LEGAL  OPINIONS 


property  becomes  a  part  of  his  estate.    (In- 
quiry from  Colo.,  Dec,  1916.) 

Delivery  of  deed  after  death 

1282.  A  widow  with  two  children  owns 
land,  and  does  not  want  to  make  a  will.  She 
proposes  to  make  deeds  to  each  child,  which 
she  can  hold  until  her  death  and  then  have 
them  deUvered  to  the  two  children.  Opin- 
ion: Deeds  executed  by  the  grantor  to  her 
two  children  and  held  by  her  with  inten- 
tion that  they  shall  be  delivered  after  death 
would  be  ineffectual,  if  not  dehvered  during 
her  lifetime,  to  pass  title  to  the  grantees. 
Burkey  v.  Burkey,  175  S.  W.  (Mo.)  623. 
Latshaw  v.  Latshaw,  266  111.  44.  Terry  v. 
Glover,  139  S.  W.  (Mo.)  337.  {Inquiry 
from  Mo.,  Nov.,  1917,  Jl.) 

Names  of  parties 

Right  to  change  name  when  deeds  are  executed 
in  original  name 

1283.  A  man  having  the  name  "Badas- 
ci"  wanted  to  change  his  name  to  "Ba- 
dasche."  The  deeds  to  his  property,  his 
notes,  mortgages  and  insurance  policies  were 
executed  in  his  original  name.  The  question 
was  raised  by  a  bank  as  to  whether  it  was 
safe  in  accepting  such  instruments  as  col- 
lateral from  the  holder  whose  name  was 
changed  without  court  order.  Opinion: 
The  man  has  a  common  law  right  to  change 
his  name  without  Court  order  but  in  trans- 
ferring his  property  and  contract  rights  there 
may  be  difficulty  in  proving  indentity  and 
it  would  be  more  desirable  to  obtain  a  court 
order,  making  the  change  a  matter  of  record 
and  proof,  unless  the  names  are  to  be  re- 
garded as  idem  sonans,  when  such  difficulty 
of  proving  identity  would  not  arise.  It  is 
unsafe  for  a  bank  to  accept  the  instrument 
as  collateral  because  of  the  difficulty  of 
proof  of  identity  which  could  be  obviated 
by  a  court  order.  Statutes  providing  for  a 
change  of  name  by  judicial  proceeding  do 
not  affect,  but  are  in  aid  of  the  common  law 
right  by  afifording  an  easier  means  of  proof 
of  identity.  Emery  v.  Kipp,  154  Cal.  83. 
Wilson  V.  White,  84  Cal.  239.  Fallon  v. 
Kehoe,  38  Cal.  44.  Clark  v.  Clark,  19  Kan. 
522.  Coplin  v.  Woodmen  of  World,  (Miss.) 
62  So.  7.  Haywood  v.  State,  47  Miss.  1. 
Loser  v.  Sav.  Bk.,  149  Iowa  672.  Cooper  v. 
Burr,  45  Barb.  (N.  Y.)  9.  Charleston  v. 
King,  4  McCord  (S.  C.)  478.  Linton  v. 
Kittanning  First  Nat.  Bk.,  10  Fed.  894. 
Smith  v.  U.  S.  Casualty  Co.,  197  N.  Y.  420. 
In  re  Burnstein,  124  N.  Y.  S.  989.    Delaney 


V.  Gaylord,  131  N.  Y.  S.  890.  Brayton  v. 
BeaU,  73  S.  C.  308.  In  re  McUltra,  189  Fed. 
250.  Peckham  v.  Stewart,  97  Cal.  147. 
GaUiano  v.  Kilfoil,  94  Cal.  86.  McAuHff  v, 
Hughes,  112  N.  Y.  S.  486.  (Inquiry  from 
Cal,  Feb.,  1916,  Jl.) 

Description 

Discrepancy  in  description  of  deed  to 
homestead 

1284.  A  homesteads  a  piece  of  land  in 
Oregon.  He  received  his  patent  which 
called  for  160  acres  according  to  government 
survey.  A  traded  the  land  to  B  for  other 
property.  B  had  the  land  reported  upon 
before  purchasing,  and  was  satisfied,  al- 
though no  report  was  made  as  to  acreage. 

B,  without  seeing  the  land,  traded  it  to  C, 
and  gave  a  deed  calling  for  160  acres,  more 
or  less,   according  to  government  survey. 

C,  without  seeing  the  land  sold  it  to  D  and 
gave  a  deed  calhng  for  160  acres,  more  or 
less.  D  inspected  the  land  and  found  and 
reported  but  100  acres  in  the  piece.  The 
question  is  asked,  who  is  the  loser,  and  what 
recourse  is  there  against  the  government. 

Opinion:  It  seems  that,  as  between  A  and 
the  parties  claiming  title  through  him,  their 
right  to  reKef  would  depend  largely  upon  the 
wording  of  the  respective  deeds  and  the 
express  or  implied  covenants  contained 
therein.  The  contract  of  sale  may  have 
called  for  the  conveyance  of  a  certain  tract 
of  land  described  by  metes  and  bounds  in 
the  government  survey,  and  as  further 
descriptive  thereof  recited  to  contain  "160 
acres  more  or  less."  As  to  any  recourse 
against  the  government  on  its  original  patent, 
doubtless  if  A,  the  original  patentee,  paid 
the  government  a  stipulated  sum  per  acre 
for  160  acres  of  land,  and  the  land  called  for 
in  his  patent,  according  to  subsequent  de- 
velopments, only  contained  100  acres,  he 
could  recover  the  difference,  the  price  paid 
for  60  acres,  through  the  Court  of  Claims — 
otherwise  if  the  patentee  paid  a  lump  sum 
for  a  tract  of  land  described  by  metes  and 
bounds,  and  incidentally  described  as  con- 
taining 100  acres,  the  maximum  number  of 
acres  which  might  be  acquired  by  any  one 
homesteader  under  the  statute.  {Inquiry 
from  Minn.,  Feb.,  1918.) 

Consideration 

Deed  given  in  consideration  for  annuity  to 
continue  after  grantor's  death 

1285.  A,  the  owner  of  a  tract  of  land, 
proposes  to  deed  it  to  B  upon  the  condition 


290 


DEEDS  AND  CONVEYANCES 


[1286-1288 


that  B  pay  A  an  annuity  of  $1,000  during 
A's  lifetime,  and  thereafter  upon  A's  death 
to  continue  the  annuity  to  C  during  C's 
lifetime.  A  wishes  to  construct  the  proper 
form  of  deed.  Opinion:  The  deed  could  be 
drawn  with  a  condition  subsequent  incorpo- 
rated therein  by  the  use  of  the  words  "upon 
condition"  with  a  clause  providing  for  the 
reentry  of  A  or  his  heirs  upon  the  land  on  the 
breach  of  such  condition.  Gallagher  v. 
Herbert,  117  111.  160.  2  Story's  Eq.  Jur.  Sees. 
13,  ISetseq.  Wilhs  v.  Gay,  48  Tex.  463.  {In- 
quiry jrom  Okla.,  Aug.,  1912,  Jl.) 

Deeds  pledged  as  security  for  loans 

Pledge  of  unrecorded  deed 

1286.  A  bank  cashier,  as  an  individual, 
gave  a  warranty  deed  for  vacant  property. 
Without  recording  the  deed  the  grantee 
proceeded  to  erect  buildings  thereon. 
Thereafter  said  grantee  as  collateral  for  a 
loan  took  the  unrecorded  deed  to  the  cashier 
of  the  bank,  as  such,  and  the  bank  made  the 
loan.  Before  the  matter  was  finally  ar- 
ranged the  grantee  died  and  his  estate  is  in- 
solvent. What  are  the  rights  of  the  bank? 
Opinion:  Unless  the  rights  of  subsequent 
bona  fide  purchasers,  creditors  or  mort- 
gagees intervened  prior  to  the  recordation  of 
such  deed,  the  grantee  could  give  a  perfectly 
good  title  or  vahd  lien  to  the  bank  upon 
such  property.  And,  according  to  the  au- 
thorities hereinafter  cited,  the  fact  that  the 
grantee,  and  debtor  of  the  bank,  was  insol- 
vent at  the  time  of  his  death  would  not  im- 
pair the  hen  of  the  bank  on  the  property  in 
question,  provided  the  lien  represented  a 
contemporaneous  advance  or  loan,  in  con- 
tradistinction to  security  for  a  past  indebted- 
ness, i.e.,  a  preference,  as  the  term  is  used 
in  the  insolvency  and  bankruptcy  statutes. 
Brashear  v.  Alexandria  Cooperage  Co.,  50 
La.  Ann.  587.  Hutchinson  Murchie,  74 
Me.  187.  Hinkleman  v.  Frey,  79  Md.  112. 
George  v.  Grant,  97  N.  Y.  262.  Gettinger 
V.  Nat.  Bk.  of  Com.,  23  Ohio  Cir.  Ct.  77. 
In  re  Eck,  10  Kulp  (Pa.)  560.  Moore  v. 
American  L.  &  T.  Co.,  80  Fed.  49.  {In- 
quiry Jrom  III.,  Jan.,  1919.) 

Satisfaction  of  record  of  deed  of  trust  after 
death  of  holder 

1287.  In  1901  A  and  his  wife  gave  a  note 
to  B,  secured  by  a  deed  of  trust  on  a  tract  of 
land.  A  few  years  later  A  paid  the  note  by 
check,  but  the  deed  of  trust  was  not  satis- 
fied of  record.  B  has  since  died,  leaving  a 
widow,  and  an  administrator  appointed  has 
duly  administered  and  settled  up  the  estate. 


What  can  A  do  to  effect  a  release  and  re- 
move the  cloud  upon  his  title  to  the  land? 
Opinion:  Under  the  Missouri  statute  (Rev. 
St.  Mo.  1909,  Sec.  2844),  providing  that  the 
beneficiary  under  a  deed  of  trust,  and  not 
the  trustee,  shall  release  the  deed  on  the 
margin  of  the  record,  the  indorsee  and  holder 
of  a  note  secured  by  a  deed  of  trust  is  the 
proper  party  to  release  the  same  (Ripley 
Nat.  Bank  v.  Conn.  Mut.  L.  Ins.  Co.,  145 
Mo.  142).  In  the  instant  case  it  would  seem 
to  be  only  necessary  to  follow  the  provisions 
of  the  Missouri  statute,  Sec.  2844.  That 
section  provides  that  if  any  mortgagee, 
cestui  que  trust  or  assignee,  or  administra- 
tor of  the  mortgagee,  cestui  que  trust  or 
assignee,  receive  full  satisfaction  of  any 
mortgage  or  deed  of  trust,  he  shall,  at  the 
request  and  cost  of  the  person  making  same, 
acknowledge  satisfaction  of  the  mortgage 
or  deed  of  trust  on  the  margin  of  the  record 
thereof;  and  it  is  not  necessary  for  the 
trustee  to  join  in  such  acknowledgment  of 
satisfaction.  The  statute  further  provides 
that,  if  the  notes  secured  by  such  deed  of 
trust  are  not  presented  for  cancellation  for 
the  alleged  reason  that  they  have  been  lost 
or  destroyed,  the  recorder,  before  allowing 
any  entry  of  satisfaction  to  be  made  of 
record,  shall  require  the  cestui  que  trust,  or 
his  legal  representative,  to  make  oath,  in 
writing,  stating  that  the  note  named  in  said 
deed  of  trust  has  been  paid  and  dehvered  to 
the  maker  or  his  representative;  and  the 
maker  of  the  note  shall  hkewise  make  affida- 
vit that  the  notes  in  question  have  been 
paid,  and  cannot  be  produced  because  lost 
or  destroyed.  Sec.  2850  provides  that,  if 
any  person  thus  receiving  satisfaction  does 
not,  within  30  days  after  request  and  tender 
of  cost,  acknowledge  satisfaction  on  the 
margin  of  the  record,  or  deliver  a  sufficient 
deed  of  release,  he  shall  forfeit  to  the  party 
aggrieved  10%  of  amount  of  the  deed  of 
trust  and  any  other  damages  for  non- 
performance. Here,  since  B,  the  cestui  que 
trust,  is  dead,  application  should  be  made  to, 
and  the  release  given  by,  his  administrator, 
or,  in  case  there  is  no  administrator,  by  his 
widow.    {Inquiry  from  Mo.,  Jan.,  1912.) 

Remedy  on  breach  of  covenants 

Covenants  in  warranty  deed — Statute  of 
limitations 

1288.  Inquiry  is  made  (1)  as  to  recourse 
of  grantee  upon  grantor  for  breach  of 
warranty  or  covenant  of  title  which  he  will 
forever  defend,  etc.  Are  damages  recover- 
able by  grantee?    Can  grantee  him,«ielf  ac- 


291 


1289-1291] 


DIGEST  OF  LEGAL  OPINIONS 


quire  good  title  b}^  purchase  of  adverse 
interrst  and  recover  from  grantor  or  must 
grantor  come  in  and  defend  and  pay- 
damages  to  grantee?  (2)  What  is  the  Stat- 
ute of  Limitations  on  grantor's  Uabihty? 
Opinion:  (1)  The  general  covenant  of 
warranty,  under  the  Code  of  Iowa,  includes 
and  imphes  all  the  usual  covenants  in  a  deed 
of  conveyance  in  fee  simple,  (Van  Wagner 
v.  Van  Nostrand,  19  Iowa  422  [holding  that 
the  existence  of  a  valid  lease  upon  the 
premises,  at  the  time  of  the  execution  of  a 
deed  'conveying  same  with  general  covenant 
of  warranty,  is  a  breach  of  such  covenant, 
and  entitles  the  grantee  to  recover  at  least 
nominal  damages])  which  are  seizin,  right 
to  convey,  freedom  from  encumbrances,  for 
quiet  enjoyment,  and  to  warrant  and  defend 
the  title  against  all  lawful  claims.  (Funk  v. 
Creswell,  5  Iowa  62.)  It  has  Kkewise  been 
held  in  Iowa  that,  where  a  party  makes  con- 
veyance after  the  form  termed  by  the  code 
"a  deed  in  fee,  with  warranty,"  there  is 
implied  in  covenant  therein  given,  every 
other  covenant  necessary  to  insure  a  perfect 
title  to  the  grantee,  as  well  as  indemnity  for 
its  failure.  (2)  It  has  been  held  in  Iowa  that 
covenants  of  seizin  and  of  good  right  to  con- 
vey are  synonymous,  and  if  at  the  time  of 
conveyance  the  grantor  does  not  own  the 
land,  the  covenant  is  broken  immediately, 
and  a  right  of  action  at  once  accrues,  and  is 
barred  by  the  Statute  of  Limitations  after 
the  lapse  of  ten  years  under  Section  2629  of 
the  Iowa  Code  (Mitchell  v.  Kepler,  75 
Iowa  207.  Brandt  v.  Foster,  5  Iowa  287, 
295).  See,  also,  McDermott  v.  Mahoney, 
139  Iowa  292,  to  the  effect  that  the  statutory 
period  is  ten  years  from  the  accrual  of  the 
right  of  action,  and  other  Iowa  cases  might 
be  cited.    (Inquiry  from  Iowa,  July,  1915.) 

Deposit  in  escrow 

Duty  of  hank  on  non-performance  of  condition 

1289.  A  deed  was  deposited  with  a  bank 
on  condition  that  the  bank  should  deliver 
the  deed  to  the  purchaser  when  he  should 
pay  certain  notes  in  full,  together  with 
interest,  with  a  proviso  that  upon  non-pay- 
ment the  vendor  should  have  an  option  to 
forfeit  the  purchaser's  right  to  the  deed  and 
to  all  money  paid,  and  that  the  bank  should 
return  the  deed  to  the  vendor.  After  non- 
performance of  the  agreement,  a  proposed 
agreement  was  prepared  and  sent  to  the 
purchaser  for  his  signature  which,  if  executed 
as  proposed,  would  have  given  him  an  exten- 
sion of  time  for  payment,  but  the  proposed 
agreement  was  changed  by  the  purchaser 


and  the  change  was  repudiated  by  the  vend- 
or. What  should  the  bank  do  with  respect 
to  the  deed?  Opinion:  There  was  no  meet- 
ing of  minds  as  to  the  new  agreement  and 
so  this  drops  out  of  consideration.  Since 
the  condition  of  the  deposit  has  not  been 
performed,  the  depositor  is  entitled  to  a 
return  of  the  deed.  Hayden  v.  Meeks,  14 
S.  W.  (Ark.)  864.  Equity  Gas  &  Light  Co. 
V.  McKeige,  139  N.  Y.  237.  There  seems 
to  be  no  right  of  redemption  as  there  would 
be  had  the  deed  actually  been  dehvered  to 
the  grantee  and  placed  on  record.  The 
escrow  does  not  take  effect  as  a  deed  until 
delivery  to  the  grantee  or  until  the  condi- 
tion is  performed.  16  Cyc.  588,  and  cases 
cited.  This  rule  is  modified,  where  justice 
requires  it,  so  that  delivery  will  be  held  by 
fiction  of  law  to  relate  back  to  the  deposit. 
Justice  does  not  require  a  modification  of 
the  law  in  this  case,  and  the  rule  appHes  that 
the  instrument  does  not  take  effect  as  a 
deed  until  delivery  or  at  least  until  per- 
formance of  the  condition.  Such  being  the 
case  the  grantee  has  no  title  which  can  be 
redeemed.  {Inquiry  from  Kan.,  Aug., 
1915.) 

Leases 

Validity  of  lease  of  real  estate  to  non-existent 
hut  prospective  corporation 

1290.  The  promoters  of  a  corporation 
secure  leases  on  real  estate,  some  of  which 
are  executed  to  "The  X.  Co."  and  some  to 
"G,  trustee  for  The  X.  Co."  Can  the 
corporation,  when  formed  subsequently, 
enforce  these  leases?  Can  the  corporation 
make  the  trustee,  G.,  transfer  these  leases 
to  it?  Opinion:  Assuming  that  the  lessors 
have  received  value  for  leases  made  to  a 
non-existent  but  prospective  corporation, 
they  are  estopped  to  deny  the  validity  of 
such  leases  because  of  the  non-incorporation 
of  the  lessee  at  the  time  of  giving  the  leases. 
The  leases  would  be  valid  in  the  hands  of  the 
subsequently  organized  corporation,  when 
turned  over  by  the  promoters.  The  trustee 
could  be  compelled  to  transfer  to  the  cor- 
poration when  formed,  the  leases  executed 
to  him  as  trustee,  as  that  was  the  specific 
purpose  for  which  the  trust  was  created. 
{Inquiry  from  Tenn.,  Jan.,  1921.) 

Torrens  system 

1291.  What  is  the  Torrens  system  and 
what  states  have  adopted  this  sj'-stem  of  land 
registration?  Opinion:  In  9  Jurid.  Rev. 
155  it  is  stated  that  "The  essential  point  of 
this  system  is  an  oflScial  guarantee  of  title; 


292 


DEPOSITS 


[1292-1296 


it  is  the  registration  of  title  as  distinct  from 
the  registration  of  deeds.  The  latter  as- 
certains the  deeds  which  must  be  examined 
under  every  transfer,  while  the  former 
renders  such  examination  unnecessary." 
Laws  enacting  the  Torrens  system  (so 
called  from  its  author  Sir  Robert  Torrens) 


have  been  passed  in  the  following  jurisdic- 
tions: Cahfornia,  Colorado,  IlHnois,  Massa- 
chusetts, Minnesota,  Nebraska,  New  York, 
North  Carohna,  Ohio,  Oregon,  Washington, 
Virginia,  Pennsylvania,  Hawaii,  PhiUppines. 
(Inquiry  from  La.,  Mar.,  1916.) 


DEPOSITS 


Bank  not  obliged  to  receive  deposits 

Not  compelled  to   open  account 

1292.  Is  a  bank  compelled  to  accept  a 
deposit  from  a  person  with  whom  it  prefers 
not  to  do  business?  Opinion:  A  bank 
cannot  be  compelled  to  receive  a  deposit. 
This  is  not  the  case  of  a  conmion  carrier.  The 
relation  is  contractual  and  cannot  be  created 
except  by  mutual  consent.  (Inquiry  from 
Minn.,  Oct.,  1918.) 

Right  to  close  account 

1293.  A  bank  is  under  no  obligations  to 
receive  deposits  from  undesirable  persons 
and  may  close  an  account  at  any  time  it 
chooses  by  tendering  to  the  depositor  the 
amount  due  and  dechning  to  receive  more. 
(Inquiry  from  N.  J.,  March,  1913,  Jl.) 

1293a.  A  customer  opened  a  small 
checking  account  with  a  bank.  The  bank 
later  discovered  that  the  customer  was  a  pro- 
fessional forger  and  questions  its  legal  right 
to  close  the  account.  Opinion:  A  bank, 
unUke  a  common  carrier,  has  power  to  select 
its  customers  and  may  refuse  to  receive  a 
deposit  of  a  particular  customer  or  can  close 
an  account  out  at  any  time  by  tendering  the 
amount  due.  Thatcher  v.  Bk.  of  St.  of 
New  York,  5  Sand.  (N.  Y.)  121.  Chicago, 
etc.,  Co.  V.  Stanford,  28  111.  168.  Elhott  v. 
Capital  City  St.  Bk.,  128  Iowa  275.  People 
V.  Bk.  of  North  America,  75  N.  Y.  547,  563. 
(Inquiry  from  Ala.,  May,  1912,  Jl.) 

Relation  and  duty  of  bank  and 
depositor 

When  is  debtor  and  creditor  relation  created? 

1294.  Is  the  relation  of  debtor  and 
creditor  created  when  a  bank  receives  a 
check  payable  to  depositor,  indorsed  in 
blank  by  him.  and  places  the  amount  to  the 
depositor's  credit?  Opinion:  The  decisions 
are  not  uniform  on  this  question,  the  earlier 
ones  favoring  the  rule  that  the  bank  does 
not  take  title  upon  a  deposit  of  paper,  but 
becomes  agent  and  the  title  remains  in  the 


depositor  until  collection;  but  this  rule  is 
fast  being  supplanted  by  the  rule  that  a 
bank  takes  title  upon  deposit;  the  courts  of 
New  York,  Illinois  and  a  number  of  other 
states  holding  to  the  latter  rule,  the  Federal 
Courts  in  many  cases  holding  to  the  con- 
trary. Nat.  Citizens  Bank  v.  Howard,  3 
How.  Prac.  N.  S.  511.  King  v.  Bowling 
Green  Trust  Co.,  145  App.  Div.  398. 
Lauterman  v.  Travous,  174  111.  459.  City 
of  Phila.  V.  Eckles,  93  Fed.  485.  (Inquiry 
from  III,  Aug.,  1912.) 

Bank  entitled  to  written  order  but  can  pay 
on  oral  order 

1295.  A  having  an  account  in  bank 
came  to  the  bank  in  person  and  verbally  in 
the  presence  of  the  bank  officials  ordered  the 
bank  to  pay  B  $300  after  certain  conditions 
were  complied  with.  The  conditions  were 
performed  and  B  was  paid  the  money.  A 
claimed  that  the  oral  order  was  not  binding 
and  should  have  been  in  writing.  Opinion: 
The  bank  is  entitled  to  require  a  check  or 
other  written  order  from  the  customer  to 
pay  a  deposit,  but  if  it  is  wilUng  to  and  does 
pay  on  the  customer's  oral  order,  the  pay- 
ment is  valid  and  chargeable,  assuming  the 
bank  can  prove  such  order.  Aurora  Nat. 
Bk.  V.  Dils,  18  Ind.  App.  319.  Watts  v. 
Christie,  11  Beav.  (Eng.)  546,  551.  Mc- 
Ewen  V.  Davis,  39  Ind.  109.  Elhs  v.  First 
Nat.  Bk.,  21  R.  I.  565,  572.  Ridgley  Nat. 
Bk.  V.  Patton,  100  111.  479.  Risley  v. 
Phoenix  Bk.,  83  N.  Y.  318.  (Inquiry  from 
Colo.,  June,  1913,  Jl.) 

Bank  not  obliged  to  make  partial  payment  nor 
disclose  balance  to  check  holder 

1296.  A  customer  of  a  bank  draws  a 
check  on  it  for  an  amount  greater  than  his 
deposit,  and  it  is  asked  whether  the  party 
presenting  the  check  can  require  the  bank 
to  tell  him  how  near  the  check  is  good  when 
it  refuses  to  credit  on  the  check  the  amount 
of  the  customer's  balance.  Opinion:  A 
bank  is  not  obliged  to  make  partial  payment 
of  a  check  and  is  under  no  obligation  to  the 


293 


1297-1302] 


DIGEST  OF  LEGAL  OPINIONS 


holder  of  it  to  disclose  the  amount  of  the 
customer's  balance.  {Inquiry  from  Va., 
April,  1911.) 

Depositor  objecting   to  account  stated  after 
eight  years  estopped  by  laches 

1297.  A  bank  carried  a  deposit  for  the 
sister  of  its  depositor,  he  making  all  the 
deposits  for  her  and  all  the  withdrawals 
being  upon  checks  signed  by  her,  the  state- 
ment of  account  with  returned  vouchers 
being  deUvered  to  him  as  her  agent.  Eight 
years  later  the  sister  sued  the  bank  claiming 
there  was  a  considerable  balance  due  her. 
Has  she  the  right  to  object  to  the  bank 
statement?  Opinion:  The  general  rule  is 
that  a  bank's  passbook  or  statement  written 
up  by  the  bank  and  delivered  to  the  de- 
positor with  the  vouchers,  constitute  after 
a  reasonable  time,  an  account  stated.  Des 
Moines  Nat,  Bank  v.  Sisson,  121  N.  W. 
(la.)  533.  Hardy  v.  Chesapeake  Bank,  51 
Md.  562.  McKeen  v.  Boatmen's  Bank,  70 
Mo.  App.,  325.  In  Leather  Mfrs.  Bank  v. 
Morgan,  117  U.  S.  96,  it  was  held  the  de- 
positor may  be  estopped  by  negligence  from 
contesting  the  correctness  of  the  passbook 
where  it  has  been  misled  to  its  prejudice. 
Eight  years  would  be  too  late  to  object  to  an 
account  stated.  See  Standard  Oil  Co.  v. 
Vanetter  107  W.  S.  325.  Nodine  v.  Union 
First  Bank  68  Pac.  (Ore)  1109.  Rich  v. 
Eldridge  42  N.  H.  153.  Schneider  v.  Irving 
Bank  1  Daly  (N.  Y.)  500.  Different  rule 
in  McGraw  v.  Traders  National  Bank  63 
S.  E.  (W.  Va.)  398.  (Inquiry  from  Mass., 
Jan.,  1918.) 

Deposit    made    outside    bank 

1298.  A  depositor  on  his  way  to  the 
bank  dehvered  to  one  of  the  bank  clerks  a 
deposit  consisting  of  cash  and  checks  tied 
up  in  a  package.  When  the  clerk  arrived  at 
the  bank,  it  was  discovered  that  there  was 
$100  less  than  the  amount  indicated  on  the 
deposit  shp.  The  depositor  claims  that  the 
full  amount  was  turned  over  and  that  the 
bank  should  stand  the  loss.  Opinion:  It  is 
essential  that  a  depositor  should  deliver  his 
deposit  at  the  bank  to  one  authorized  to  re- 
ceive same,  and  if  he  delivers  the  deposit  to 
an  officer  or  agent  away  from  the  bank,  he 
makes  the  latter  his  own  agent  and  takes  the 
risk  of  the  money  reaching  the  bank  to  his 
credit.    {Inquiry  from  Md.,  July,  1918,  Jl.) 

1299.  A  customer  claimed  to  have  given 
the  cashier  of  a  bank  a  deposit  of  money 
away  from  the  bank,  which  is  denied  by  the 


cashier.  The  customer  had  no  receipt  for 
the  deposit.  Opinion:  The  customer  can- 
not hold  the  bank  Uable  because  (1)  it  is 
difficult  to  prove  the  receipt  of  the  money  by 
the  cashier  and  even  if  proved  (2)  the  cashier 
had  no  authority  to  receive  deposits  away 
from  the  bank,  according  to  the  weight  of 
judicial  opinion,  and  the  bank  is  not  liable 
unless  the  money  was  dehvered  to  the  bank 
to  the  credit  of  the  customer's  account. 
Demarest  v.  Holdeman,  73  N.  E.  (Ind).  714. 
Morse  on  Banking  (5th  Ed.)  Sees.  46,  168b 
and  179.  For  contrary  case  see  Pendleton 
V.  Bk.,  1  T.  B.,  Monroe,  181.  {Inquiry 
from  Pa.,  Oct.,  1911,  Jl.) 

Deposit  slips  and  clauses 

Nature  of  deposit  slip 

1300.  B  deposited  in  a  bank  $73.44, 
and  transferred  to  D  a  deposit  ticket,  which 
read:  "deposited  and  pending  settlement 
with  D."  B  claimed  he  owed  D  $55.44, 
whereas  D  claimed  B  owed  him  $73.44.  The 
bank  refused  to  honor  the  deposit  ticket  pre- 
sented by  D.  Opinion:  A  deposit  shp  given 
by  a  bank  to  a  depositor  is  simply  an  ac- 
knowledgment of  the  receipt  of  money  and  its 
delivery  by  the  depositor  to  a  third  person 
does  not  operate  to  assign  the  deposit. 
First  Nat.  Bk.  v.  Clark,  134  N.  Y.  368,  32 
N.  E.  38,  17  L.  R.  A.  589.  (Inquiry  from 
Ala.,  Mar.,  1916,  Jl.) 

1301.  A  deposit  ticket  or  entry  of  de- 
posit in  a  pass-book  made  by  one  in  au- 
thority in  the  bank  is  evidence  that  the 
amount  has  been  received  as  a  deposit  by 
the  bank  at  the  time  stated,  but  like  any 
other  receipt  it  is  only  prima  facie  and  not 
conclusive  evidence,  and  may  be  explained 
by  other  evidence  or  shown  to  have  been 
issued  by  mistake.  It  is  not  a  binding  obU- 
gation  or  promise  of  the  bank  to  pay  the 
amount.  First  Nat.  Bk.  v.  Clark,  134  N.  Y. 
368.  Talcott  v.  First  Nat.  Bk.,  53  Kan.  480. 
Andrews  v.  St.  Bk.,  9  N.  Dak.  325.  (In- 
quiry from  Okla,,  May,  1911,  Jl.) 

Nature  of  duplicate  deposit  slip 

1302.  In  stamping  a  duphcate  deposit 
ticket  "Duplicate"  and  initialed,  what 
does  it  guarantee?  Opinion:  A  deposit 
shp  marked  "Duphcate"  with  the  initials  of 
a  bank  official,  is  an  assertion  or  guaranty 
not  only  that  the  total,  but  that  all  the  items 
are  the  same  as  in  the  original.  Radford  v. 
Dixon  County,  29  Nebr.  113.  Gilby  Bank 
V.  Farnsworth,  7  N.  Dak.  6.  Mo.  Pac.  R. 
Co.  V.  Heidenheimer,  82  Tex.  195.    State  v. 


294 


ii 


DEPOSITS 


[1303-1307 


Graffam,  74  Wis.  643.  Toms  v.  Cuming,  B. 
&  i^rn.  347.  (Inquiry  from  Pa.,  June, 
1920,  Jl.) 

1303.  A  duplicate  deposit  slip  showing 
a  deposit  of  $10  currency  was  issued  to  a 
depositor  who  checked  against  the  account 
and  obtained  cash  from  A,  thereby  exhaust- 
ing the  credit.  Thereafter  the  depositor 
meets  B  and  obtains  $10  cash  from  him  on 
the  original  deposit  sUp.  Opinion:  B  can- 
not hold  the  bank.  The  dupUcate  deposit 
slip  is  merely  evidence  of  a  receipt  of  de- 
posit on  a  stated  date.  It  is  not  a  binding 
obhgation  or  promise  of  the  bank  to  pay  the 
amount  to  the  transferee  of  the  deposit  shp, 
Uke  a  negotiable  certificate  of  deposit.  {In- 
quiry from  N.  D.,  Sept.,  1912,  Jl.) 

Deposit  slip  for  check  conditionally  deposited 

1304.  The  payee  of  a  check  leaves  it  with 
the  teller  of  the  drawee  bank  for  safe  keeping 
and  states  it  is  not  to  be  presented  for  a  few 
days  pending  the  consummation  of  a  con- 
tract between  the  drawer  and  the  payee. 
The  teller  issues  a  deposit  sUp  therefor  but 
does  not  credit  the  check  to  the  payee's 
account  and  afterwards  the  contract  fails  of 
consummation  and  the  drawer  does  not 
provide  funds  sufficient  to  cover  the  check. 
The  bank  asks  if  it  is  Uable  on  account  of 
having  given  the  deposit  ticket,  for  checks 
drawn  by  the  payee.  Opinion:  The  bank 
is  not  hable  for  the  amount  to  the  payee  and 
has  the  right  to  refuse  payment  of  the  latter's 
check  drawn  against  such  conditional  de- 
posit. The  deposit  shp  is  in  the  nature  of  a 
mere  receipt  subject  to  explanation.  Wal- 
nut Hill  Bk.  v.  Nat.  Res.  Bk.,  126  N.  Y.  5, 
430.  Hough  v.  First  Nat.  Bk.  of  Oelwein, 
155  N.  W.  (Iowa)  163.  Keen  v.  Beckman, 
66  Iowa  672.  Bk.  v.  Clark,  134  N.  Y.  368. 
(Inquiry  from  N.  M.,  May,  1918,  Jl.) 

Protective    clause    on    deposit    slip 

1305.  A  bank  asks  for  a  form  or  clause  to 
be  printed  on  deposit  shps  to  protect  it  in 
connection  with  items  presented  for  credit, 
or  deposit,  which  are  not  drawn  on  it? 
Opinion:  A  desirable  form  is  the  following, 
passed  upon  by  a  committee  of  the  American 
Bankers  Association  and  published  in  a  book 
of  forms  for  national  and  state  banks:  "The 
depositor  using  this  ticket  hereby  agrees 
that  all  items  payable  outside  of  Richmond 
shall  be  forwarded  by  this  bank  as  agent  for 
the  depositor  at  the  depositor's  risk;  that 
this  bank  shall  not  be  responsible  for  negli- 
gence, default  or  failure  of  sub-agents,  nor 
for  losses  in  the  mails;  that  this  bank  shall 


have  the  right  to  charge  back  to  the  de- 
positor's account  any  item  for  which  actual 
pajonent  is  not  received;  that  items  may  be 
sent  direct  to  the  banks  on  which  drawn 
without  waiving  any  of  the  above  conditions, 
and  that  items  on  Richmond  are  credited 
subject  to  actual  payment  through  the  Rich- 
mond Clearing  House."  This  form  pro- 
tects the  bank.  (Inquiry  from  N.  D.,  May, 
1918.) 

Clause  on   deposit  slip  of  New   York  hank 
limiting  liability 

1306.  A  New  York  bank  submits  a  form 
of  clause  to  be  incorporated  in  deposit  sUp 
as  a  protection  to  the  collecting  bank,  as 
follows:     "For  the  collection  of  all  items 

outside  New  York  City,  the Bank 

will  observe  due  dihgence  in  its  endeavor  to 
select  responsible  collecting  agents,  but  will 
not  be  liable  for  their  failure  or  negUgence, 
nor  for  losses  in  the  mail,"  and  invites  criti- 
cism. Opinion:  The  suggested  clause 
quoted  would  seem  to  be  sufficient  to  pro- 
tect the  bank  from  UabiUty  for  defaults  or 
neghgence  of  correspondents,  and  because  of 
losses  in  the  mail.  It  might  be  improved  to 
correspond  with  the  form  of  another  New 
York  bank  which  expressly  provides  that 
the  bank  is  agent,  and  contains  a  disclaimer 
of  all  responsibihty  where  it  uses  due  care; 
and  also  contains  an  express  reservation  of 
the  right  to  charge  back  any  amounts  pre- 
viously credited.  Concerning  this  latter, 
under  the  New  York  law,  it  would  seem, 
upon  credit  of  a  check  on  deposit,  title 
would  pass  to  the  bank,  and  it  would  not  be 
a  collecting  agent,  but  owner  so  that  if  there 
was  payment  of  the  item  to  a  correspondent 
the  depositor  would  be  discharged  as  in- 
dorser,  and  if  the  correspondent  failed  to 
remit,  the  loss  would  fall  upon  the  bank.  It 
would  appear  to  be  quite  important,  there- 
fore, to  estabUsh  that  items  received  on  de- 
posit are  taken  as  collecting  agent  only. 
(Inquiry  from  N.  Y.,Feb.,  1921.) 

Deposit  slip  clause  "credited  subject  to  final 
payment^' 

1307.  At  the  bottom  of  printed  deposit 
slips  a  bank  has  the  statement:  "All  items 
credited  are  subject  to  final  payment." 
Does  this  fuUy  protect  the  bank?  Request 
is  made  for  suggestions  as  to  the  specific 
wording  of  the  protective  clause  and  as  to 
its  position?  Should  it  be  placed  on  the 
deposit  ticket,  the  signature  card,  or  the 
pass-book?  Opinion:  The  form  used  is  a  clear 
notice  that  the  bank  does  not  take  title  to 


295 


1308-1311] 


DIGEST  OF  LEGAL  OPINIONS 


the  items  deposited  and  has  the  right  to 
charge  the  amount  back  upon  non-payment 
and  indicates  that  the  bank  acts  as  a  mere 
collecting  agent.  It  is  sufficient  for  the  pur- 
pose. A  New  York  bank  has  this  notice 
printed  on  its  deposit  sHp:  "In  receiving 
items  on  deposit  this  Bank  obhgates  itself 
only  as  the  Depositor's  collecting  agent, 
assuming  no  responsibihty  beyond  careful- 
ness in  selecting  correspondents  and  until 
such  time  as  actual  pajonents  shall  have 
come  into  its  possession,  reserves  the  right 
to  charge  back  to  the  Depositor's  account 
any  amount  previously  credited."  This 
form  expressly  declares  the  bank  to  be  the 
agent,  which  is  implied  from  the  submitted 
form ;  it  also  provides  that  the  bank  assumes 
no  responsibility  beyond  carefulness  in 
selecting  correspondents.  Under  the  New 
York  law  this  clause  is  necessary,  for  other- 
wise a  collecting  bank  is  liable  for  the  de- 
faults of  correspondents.  In  Connecticut, 
however,  the  bank  is  Uable  only  for  the  lack 
of  due  care  (East  Haddam  Bank  v.  Scovil, 
12  Conn.  303)  and  presumably  this  particu- 
lar clause  is  not  necessary. 

The  best  place  to  print  the  protective 
clause  on  the  deposit  slip  is  directly  under 
the  date  line.  The  location  is  largely  imma- 
terial, except  that  it  can  be  torn  off  from  top 
or  bottom  without  destroying  the  sUp.  The 
New  York  bank,  referred  to  has  a  similar 
clause  printed  on  the  top  of  the  first  right 
hand  page  of  the  pass-book.  It  might  be 
well  to  print  the  clause  on  the  pass-books 
and  also  on  the  signature  card,  the  point 
being  to  establish  beyond  all  question  that 
the  clause  constitutes  an  agreement  be- 
tween the  bank  and  the  depositor.  How- 
ever, it  has  been  held  that  the  clause  printed 
on  the  deposit  slip  is  sufficient,  and  probably 
printing  on  the  signature  card  or  pass-book 
is  unnecessary.  {Inquiry  from  Conn.,  Aug., 
1918.) 

Assignment  of  deposit 

Assignment  of  savings  deposit  as  security  for 
loan 

1308.  There  is  nothing  in  the  law  which 
will  prevent  a  national  bank  in  New  York 
State  from  making  a  loan  to  a  depositor  in 
a  savings  bank  and  taking  an  assignment  of 
his  deposit  evidenced  by  his  savings  bank- 
book as  security.  But  as  a  savings  bank- 
book is  not  a  negotiable  instrument,  notice 
of  the  assignment  should  be  given  to  the 
savings  bank  to  safeguard  it  against  subse- 
quent withdrawals,  which  might  be  effected 
by  the  depositor  upon  the  claim  of  loss 


without  production  of  the  book.  Smith  v. 
Brooklyn  Sav.  Bk.,  101  N.  Y.  28.  Mills  v. 
Albany  Exch.  Sav.  Bk.,  28  Misc.  (N.  Y.) 
251.  Bk.  of  U.  S.  V.  Pubhc  Bk.,  151  N.  Y.  S. 
26.     {Inquiry  from  N.   Y.,  July,  1916,  Jl.) 

Assignee  of  savings  deposit  should  notify  bank 

1309.  In  the  case  where  a  depositor  has 
been  paid  a  savings  deposit  under  false 
claim  of  loss,  an  assignee  to  whom  the  de- 
positor had  assigned  his  deposit  would  have 
no  rights  against  the  bank.  A  savings  pass- 
book is  not  a  negotiable  instrument  and  an 
assignee  takes  no  greater  rights  than  the 
assigner.  {Inquiry  from  Ore.,  April,  1917, 
Jl.) 

Assignment  of  deposit  in  national  bank 

1310.  A  deposit  account  in  a  national 
bank  or  a  trust  company  may  be  assigned  by 
the  depositor  like  any  other  debt  or  chose  in 
action,  and  the  assignment  is  binding  upon 
the  bank  when  notified  thereof.  Hove  v. 
Stanhope  St.  Bk.,  138  Iowa  39.  Covert  v. 
Rhodes,  48  Ohio  St.  66.  Bk.  v.  Schuler,  120 
U.  S.  515.  Fourth  St.  Nat.  Bk.  v.  Yardley, 
165  U.  S.  634.  First  Nat.  Bk.  v.  Clark,  134 
N.  Y.  368.  Schollmier  v.  SchoendeUn, 
78  Iowa  426.  First  Nat.  Bk.  v.  Wattles,  8 
Kan.  App.  136.  Foss  v.  Lowell  Five  Cent 
Sav.  Bk.,  Ill  Mass.,  285.  Joffe  v.  Bowery 
Bk.,  31  Misc.  (N.  Y.)  778.  {Inquiry  from 
Pa.,  Dec,  1913,  Jl.) 

Deposits  in  two  names — Joint  deposits 

Uniform  statute 

1311.  AN  ACT  relative  to  payment  of 
deposits  in  two  names. 

"Be  it  enacted,  etc. 

Section  1.  When  a  deposit  has  been 
made,  or  shall  hereafter  be  made,  in  any 
(specify  institutions)  transacting  business 
in  this  State  in  the  names  of  two  persons, 
payable  to  either,  or  payable  to  either  or  the 
survivor,  such  deposit,  or  any  part  thereof, 
or  any  interest  or  dividend  thereon,  may  be 
paid  to  either  of  said  persons,  whether  the 
other  be  living  or  not;  and  the  receipt  or 
acquittance  of  the  person  so  paid  shall  be  a 
valid  and  sufficient  release  and  discharge  to 
the  bank  for  any  pajonent  so  made." 

This  statute  has  been  passed  in  the  above 
form  or  with  some  change  in  phraseology 
in  36  states.  Joint  or  Two-Name  Accounts 
in  banks  are  now  quite  usual,  and  the  pur- 
pose is  to  clear  up  any  legal  doubt  concerning 
the  authority  of  the  bank  to  pay  over  a 
savings  account  to  the  survivor  by  expressly 
providing  such  authority.      In  New  York 


296 


DEPOSITS 


[1312 


and  Michigan  the  statute,  in  addition 
to  containing  an  authority  to  the  bank  to 
pay,  declares  that  the  deposit  belongs 
to  the  persons  named  as  joint  tenants. 
This  law  is  yet  to  be  enacted  in  the  follow- 
ing states:  Alabama,  Arizona,  Arkansas, 
Colorado,  Dist.  of  Columbia  , Indiana,  Ken- 
tucky, New  Mexico,  North  Dakota,  Okla- 
homa, Pennsylvania,  South  Carolina,  Ten- 
nessee, Texas.  This  law  originally  enacted 
in  Cahfornia,  had  been  repealed,  due  to  an 
oversight,  by  Laws  1919,  chapter  337,  page 
623,  but  has  since  been  re-enacted  by  Laws 
of  1921.     (April,  1921.) 

Approved  form  of  account  in  two  names 

1312.  A  bank  asks,  what  is  the  most 
approved  form  of  account  when  a  depositor 
desires  to  place  it  in  two  names  with  pay- 
ment to  survivor  in  case  of  death?  Opin- 
ion: In  view  of  the  general  enactment  of 
statutes  which  provide  that  when  a  deposit 
is  made  "in  the  names  of  two  persons, 
payable  to  either  or  payable  to  either  or  the 
survivor"  the  bank  is  authorized  to  pay 
either,  whether  the  other  be  hving  or  not, 
a  form  of  account  "John  Doe  or  Mary  Doe, 
either  or  survivor"  would  comply  with  the 
statute  and  authorize  the  bank  to  pay  the 
survivor.  Such  form  is  in  common  use  by 
many  banks.  But  while  authorizing  pay- 
ment to  the  survivor,  in  the  absence  of  notice 
not  to  pay  by  an  adverse  claimant,  such 
form  would  not  necessarily  be  conclusive 
upon  the  question  of  ultimate  title  to  the 
deposit,  and  it  would  be  open  to  the  repre- 
sentatives of  the  decedent  to  prove  by  ex- 
trinsic facts  that  the  sole  title  always  was  in 
him.  An  account,  however,  may  be  so 
worded — according  to  some  courts  at  all 
events — as  to  vest  ultimate  title  in  the 
survivor.  The  form  of  account  before  the 
Court  of  Errors  and  Appeals  of  New  Jersey 
in  New  Jersey  Title  Guaranty  and  Trust 
Co.  v.  Archibold,  108  Atl.  434  is  illustra- 
tive. One  Helena  Metz  had  an  individual 
account  which  she  changed  to  one  in  the 
joint  names  of  "Helena  Metz  or  Louisa 
Archibold,"  her  daughter  and  at  the  same 
time  the  two  parties  named  signed  and 
dehvered  to  the  bank  a  writing,  referring  to 
the  account  by  number,  which  contained  the 
following  provisions:  "This  account  and 
all  money  to  be  credited  to  it  belongs  to  us 
as  joint  tenants  and  will  be  the  absolute 
property  of  the  survivor  of  us;  either  and 
the  survivor  to  draw."  Upon  the  death  of 
Helena  Metz,  the  bank  as  her  executor  filed 
a  bill  to  settle  the  ownership,  as  between 


the  estate  of  the  decedent  and  the  survivor. 
The  court  held  that  upon  death  of  the 
mother,  the  undrawn  moneys  belonged  to 
the  surviving  daughter.  Technically  the 
bank  contracted  with  the  mother  and  daugh- 
ter that  such  moneys  should  be  held  for 
them  "as  joint  tenants  and  will  be  the 
absolute  property  of  the  survivor;  either  and 
the  survivor  to  draw."  That  contract  the 
bank  had  a  right  to  make  and  undrawn 
moneys  so  deposited  belong  to  the  survivor. 
In  such  case  the  court  said  "it  is  not  nec- 
essary to  estabhsh  the  existence  of  a  tech- 
nical joint  tenancy  to  create  the  right  of 
survivorship;  in  other  words  the  incident  of 
survivorship  which  exists  by  implication  in 
a  joint  tenancy  is  expressly  provided  for  by 
such  a  form  of  deposit." 

But  in  Gorman  v.  Gorman,  87  Md.  338 
where  a  deposit  was  entered  "A  and  B  Joint 
owners,  payable  to  order  of  either  or  the 
survivor"  and  the  survivor  contended  that 
the  words  "joint  owners"  irrespective  of  the 
facts  and  circmnstances  under  which  the 
entry  was  made,  meant  "ownership"  and  not 
merely  agency  with  authority  to  draw,  the 
court  held  that,  to  ascertain  the  depositor's 
intent,  not  only  the  entry  itself  but  all  the 
circumstances  surrounding  her  at  the  time 
should  be  considered;  and  where  there  were 
other  facts  showing  that  when  A  made  the  de- 
posit, no  gift  to  B  in  joint  ownership  was 
intended,  the  estate  of  the  decedent  was 
entitled  to  the  fund.  The  court  distinguished 
MetropoHtan  Savings  Bank  v.  Murphy,  82 
Md.  314  where  a  husband  deposited  money 
in  the  joint  names  of  himself  and  wife  "sub- 
ject to  order  of  either;  balance  at  death  of 
either  to  belong  to  survivor,"  saying  it  was 
decided  "under  the  facts  oif  that  case  and 
because  of  the  express  language  of  the  entry 
that  the  balance  should  belong  to  the  sur- 
vivor, the  bank  was  right  in  paying  it  to  the 
survivor." 

To  summarize:  The  form  of  account 
first  above  suggested  "John  Doe  or  Mary 
Doe,  either  or  survivor"  will  authorize  the 
bank  to  pay  the  survivor  and  protect  it  in 
the  absence  of  notice  not  to  pay.  But 
whether  the  survivor  or  the  estate  of  the 
decedent  is  ultimately  entitled  to  the  fund 
as  owner,  will  generally  depend  upon  facts 
outside  the  mere  form  of  entry.  The 
question  is  one  of  intent  to  create  a  joint 
tenancy  with  the  incident  of  survivorship 
at  the  time  the  account  is  opened.  Upon 
this  question,  while  the  entry  itself  is  evi- 
dence the  courts  generally  hold  it  is  not 


297 


1313-1316] 


DIGEST  OF  LEGAL  OPINIONS 


conclusive  and  determine  the  question  from 
a  consideration  of  all  the  facts.  But  some 
courts  have  held  that  the  particular  language 
of  an  entry  of  an  account  and  contract  of 
deposit  with  a  bank,  is  so  positive  and 
explicit  as  to,  of  itself,  create  a  joint 
tenancy,  with  right  of  survivorship,  as 
illustrated  in  New  Jersey  Title  Guaranty 
&  Trust  Co.,  supra.  Where  such  be  the 
intention  of  the  parties,  the  form  passed 
upon  in  that  case  might  be  regarded  as  an 
approved  form  and  utihzed.  {Inquiry  from 
N.  Y.,  June,  1921.) 

Statutory  authority  to  hank  to  pay  survivor 

1313.  Where  a  deposit  is  made  in  two 
names  the  certificate  of  deposit  or  pass-book 
should  read  payable  to  A  or  B  or  survivor, 
and  under  the  law  of  New  Jersey  appUcable 
to  banks,  trust  companies  and  savings 
banks,  the  institution  is  authorized  to  pay 
the  survivor  without  administration.  Comp. 
Stat.  N.  J.,  1910,  Sec.  43.  {Inquiry  from 
N.  J.,  April,  1911,  Jl.) 

Right  of  survivor  as  against  widow  of  decedent 

1314.  A  father  and  son,  have  a  joint 
account,  with  the  provision  that  the  balance 
shall  belong  to  the  survivor.  If  the  father 
dies  without  a  will,  may  his  widow  claim  an 
interest  in  the  account?  Opinion:  The 
son  takes  the  whole  deposit  as  survivor 
under  the  express  terms  of  the  deposit;  there 
is  nothing  to  which  any  claim  of  the  widow 
can  attach.  New  Jersey  Title  Guaranty  & 
Trust  Co.  V.  Archibald,  108  Atl.  (N.  J.  1919) 
434.  Such  a  contract  between  a  depositor 
or  depositors  and  a  bank  is  a  vaHd  contract. 
Chippendale  v.  North  Adams  Sav.  Bank, 
222  Mass.  499,  111  N.  E.  371.  Deal  v.  Mer- 
chants &  Bank,  120  Va.  297.  See  also  Hobo- 
ken  Bank  for  Savings  v.  Schwoon,62N.J.  Eq. 
503,  50  Atl.  490,  involving  a  joint  account. 

The  New  Jersey  Statute  fully  protects  the 
bank  in  paying  the  deposit  to  the  surviving 
son.  Comp.  St.  N.  J.  1910  p.  178,  Sec.  43. 
{Inquiry  from  N.  J.,  Feb.,  1921.) 

Ultimate   title   to  joint   account 

1315.  A  bank  states  that  joint  accounts 
have  in  the  past  few  years  been  more  or  less 
in  favor  with  depositors  for  various  reasons. 
It  has  been  the  custom  of  the  bank  to  open 
such  accounts  as  follows:  "John  Doe  or 
Mary  Doe."  Occasionally  the  bank  would 
add  the  clause  "Either  or  Survivor."  Re- 
cent discussion  regarding  such  an  account 
has  led  to  the  inquiry.  What  is  the  legal 
aspect  of  such  an  account?    The  bank  states 


that  it  has  always  felt  that,  while  such 
accounts  met  the  wishes  of  a  number  of 
depositors,  they  were  open  to  some  question, 
as  they  did  not  imply  direct  ownership  of 
either  depositor,  and  in  case  of  a  large 
balance  having  been  so  carried  for  a  number 
of  years,  standing  of  the  accounts  might  be 
impaired  by  a  will  made  subsequent  thereto. 
Opinion:  The  New  Jersey  statute  provides 
as  follows  with  respect  to  deposits  in  the 
names  of  two  persons: 

"When  a  deposit  has  been  made,  or  shall 
hereafter  be  made  in  any  bank  or  trust 
company  transacting  business  in  this  state  in 
the  name  of  two  persons,  payable  to  either, 
or  payable  to  either  or  the  survivor,  such 
deposit,  or  any  part  thereof,  or  any  interest 
or  dividend  thereon,  may  be  paid  to  either 
of  said  persons  whether  the  other  be  living 
or  not."  (N.  J.  Pub.  Laws,  1907,  p.  75.) 
This  authorizes  the  bank  to  pay  the  account 
to  the  survivor.  The  ultimate  ownership 
of  the  account  is  a  different  matter,  de- 
pending on  circumstances  other  than  the 
mere  form  of  the  account.  Suppose,  for 
example,  John  Doe  deposited  only  his  own 
money  in  an  account  in  two  names,  told  the 
bank  and  others  that  it  was  his  money  and 
that  he  had  added  Mary  Doe  simply  for 
convenience  in  case  he  wished  her  to  with- 
draw the  money  for  him;  and  that  he  then 
made  a  will  leaving  the  money  to  somebody 
else.  It  would  be  safe  for  your  bank  to  pay 
the  money  to  Mary  Doe  on  the  death  of 
John  Doe  in  the  absence,  of  notice  not  to 
pay,  but  the  facts  of  the  case  would  out- 
weight  a  presumption  that  the  money  be- 
longed to  her  and  the  court  would  probably 
determine  that  the  estate  of  John  Doe  was 
ultimately  entitled  thereto.  In  short,  the 
above  form  of  account  alone  is  not  conclu- 
sive upon  the  question  of  title  but  under  the 
statute  the  bank  is  safe  in  paying  to  the 
survivor  and  relegating  to  the  adverse 
claimants  the  litigation  over  the  ultimate 
ownership.  Where,  however,  in  addition  to 
the  above,  the  depositors  sign  an  agreement 
on  the  signature  card  to  the  effect  that  the 
account  and  all  money  to  be  credited  to  it 
belongs  to  them  as  joint  tenants  and  will 
be  the  absolute  property  of  the  survivor, 
this  will  be  held  to  entitle  the  survivor  to  the 
balance  remaining  on  deposit  at  the  time  of 
the  decedent's  death.  See  N.  J.  Title  &  Tr. 
Co.  V.  Archibald,  108  Atl.  434.  {Inquiry 
N.  J.,  March,  1919.) 

Ultimate  title  under  form  of  Alabama  bank 
13 16.     A  bank  is  frequently  called  upon  to 


1 


298 


DEPOSITS 


[1317-1319 


openachecking  account  which  is  to  be  subject 
to  the  check  of  either  of  the  two  parties  who 
open  the  account,  it  being  understood  that 
on  the  death  of  either,  the  balance  remaining 
in  the  bank  to  belong  to  the  survivor.    The 
attorney  for  the  bank  has  prepared  a  stamp 
which  reads  as  follows :    '  'All  funds  deposited 
to  the  credit  of  this  account,  and  all  addi- 
tions thereto,  are,   and  shall  be  the  joint 
property  of  tne  undersigned,  subject  to  the 
order  of  either.     The   balance,   upon   the 
death  of  either,  to  belong  to  the  survivor, 
and  such  shall  be  payable  on  the  individual 
check  or  order  of  such  survivor,  being  sur- 
viving joint  owner."    While  the  use  of  this 
stamp  on  the  signature  card  and  pass  book 
might  seem  to  protect  the  bank  in  paying 
the  money  to  the  survivor,  the  bank  is  still 
in  doubt  as  to  whether  children  or  other 
heirs  of  the  deceased  joint  owner  could  not 
claim  a  share  of  the  money,  on  the  ground 
that  he  could  not  assign  their  rights  away. 
Bank  would  Hke  opinion  on  this  matter. 
Opinion:     The  question  raised  is  whether 
the  owner  of  property  has  the  right  to  create 
a   joint   ownership   with    another   of   such 
property  so  that,  in  case  of  his  death,  the 
survivor  will  get  all  and  his  children  or  heirs 
will  get  nothing.    The  owner  of  property,  of 
course,  has  the  right  to  dispose  of  it  in  any 
way  he  sees  fit  and  the  question  in  most  of 
the  joint  account  cases  of  adverse  claim  to 
deposit  between  heirs  of  decedent  and  sur- 
vivor has  not  been  whether  the  decedent  had 
the  right  to  create  a  joint  tenancy  but  whe- 
ther from  all  the  evidence  he  has  done  so, 
the  form  of  the  bank  account  alone  not  being 
conclusive   in   all    cases.     Concerning   the 
form  which  has  been  prepared  for  your  bank, 
it  indicates  the  creation  of  a  joint  tenancy 
under  which  the  survivor  would  be  entitled 
to  the  whole  but  in  an  action  between  the 
survivor  and  heirs  of  the  decedent,  notwith- 
standing the  language  so  indicates,  outside 
evidence    might    be    admitted    showing    a 
different    intention    of    the    parties    which 
might  affect  the  question  of  who  was  en- 
titled to  the  deposit.     In  other  words,  ex- 
traneous  evidence   has   been   admitted   in 
many  cases  to  prove  a  different  intent  from 
that  indicated  from  the  form  of  entry  alone. 
In  this  case,  however,  the  stamped  words  so 
explicitly  create  a  joint  tenancy  with  right 
of  survivorship,  as  to  make  it  improbable 
that  such  legal  effect  could  be  negatived  by 
evidence  of  a  contrary  intent.     However 
this  may  be,  the  l^ank  is  amply  protected 
by  such  a  form  in  making  payment  to  the 
survivor,  leaving  any  controversy  over  the 


right  to  the  deposit  between  heirs  and 
survivor  to  be  settled  directly  between  such 
parties.    {Inquiry  from  Ala.,  June,  1915.) 

Form  protecting  Pennsylvania  hank  in  paying 
survivor 

1317.  A  bank  asks  for  form  of  account 
in  two  names  to  protect  it  in  making  pay- 
ment to  survivor.  Opinion:  The  following 
form  would  fully  protect  the  bank :  "We  the 
undersigned,  having  opened  a  joint  account 

with Savings  Bank,  hereby  agree 

that  all  moneys  deposited  by  us  or  either  of 
us  in  said  account  shall  be  placed  to  the  cred- 
it of  us  jointly  and  may  be  withdrawn  from 
or  paid  out  by  said  bank  upon  the  request 
or  order  of  BOTH  or  EITHER  of  us;  and 
also  that  upon  the  death  of  either  of  us,  the 
survivor  shall  have  the  absolute  right  to 
withdraw  or  to  be  paid  all  moneys  then  re- 
maining to  our  credit  in  said  account." 
{Inquiry  from  Pa.,  Sept.,  1913.) 

Stopping  payment  to  survivor  on  joint 
certificate  of  deposit 

1318.  A  certificate  of  deposit  was  issued 
by  bank  A  to  B  and  C  "Payable  to  the 
order  of  either  or  the  survivor."  B  died  and 
the  administrator  of  his  estate  notified  the 
bank  not  to  pay  C  and  claimed  the  money. 
Would  the  bank  be  justified  in  paying  C? 
Opinion:  The  law  in  Illinois  is  not  made 
clear  by  any  decisions  of  its  courts  as  to  the 
exact  legal  effect  of  a  certificate  such  as  the 
one  in  question.  But  as  it  certifies  that  B 
and  C  have  deposited  the  money  paj-able  to 
either  or  the  survivor,  the  bank,  in  the 
absence  of  notice  not  to  pay,  would  be  au- 
thorized to  pay  the  survivor.  However,  in 
the  face  of  a  notice  not  to  pay  and  claim  for 
the  money  by  the  administrator  of  B  the 
bank  would  pay  C  at  its  own  risk.  Nor 
would  it  be  safe  to  pay  the  money  to  the 
administrator  because  if  it  should  be  es- 
tablished that  the  survivor  was  entitled  to 
it,  the  bank  would  then  be  again  liable.  If 
an  amical)le  adjustment  cannot  be  effected 
between  the  claimants,  the  safest  course  for 
the  bank  would  be  to  interplead  the  parties 
and  pay  the  money  into  court.  {Inquiry 
from  III,  Sept.,  1915.) 

Payment  of  cjd  to  survivor  in  Mississippi 

1319.  A  certificate  of  deposit  is  issued 
by  a  bank  in  Mississippi  payable  to  A  or  B, 
and  it  is  asked  whether  in  case  of  the  death 
of  one  of  them,  the  ])ank  could  with  safety 
pay  amount  to  survivor  on  surrender  of 
certificate  bearing  his  indorsement?    Opin- 


299 


1320-1324] 


DIGEST  OF  LEGAL  OPINIONS 


ion:  The  Mississippi  statute  with  respect 
to  deposits  in  two  names  provides  that, 
when  a  deposit  is  made  in  the  name  of  two 
persons,  payable  to  either  or  to  either  or  the 
survivor,  the  deposit  may  be  paid  to  either 
whether  the  other  be  hving  or  not,  and  the 
receipt  or  acquittance  of  the  person  so  paid 
shall  be  valid  and  sufficient  release  and  dis- 
charge to  the  bank  for  any  payment  so 
made.  (Miss.  Code  1917,  Sec.  3613).  Under 
this  statute  the  bank  could  with  safety  pay 
its  certificate  to  the  survivor  of  A  or  B  upon 
surrender,  bearing  the  indorsement  of  such 
survivor.     (Inquiry  from  Miss.,  Oct.,  1919.) 

Trust  deposits 

1320.  AN  ACT  (relative  to  payment 
in  trust). 

"Be  it  enacted,  etc. 

Section  1.  Whenever  any  deposits  shall 
be  made  in  (specify  institutions)  by  any 
person  in  trust  for  another,  and  no  other  or 
further  notice  of  the  existence  and  terms  of 
a  legal  and  vahd  trust  shall  have  been  given 
in  writing  to  the  bank,  in  the  event  of  the 
death  of  the  trustee,  the  same,  or  any  part 
thereof,  together  with  the  dividends  or 
interest  thereon,  may  be  paid  to  the  person 
for  whom  said  deposit  was  made." 

The  above  draft,  which  is  modeled  upon 
the  New  York  law,  or  a  law  substantially 
to  the  same  effect  with  changed  phraseology, 
has  been  enacted  in  30  States.  The  law  is 
yet  to  be  enacted  in  the  following  States: 
Alabama,  Arizona,  Arkansas,  Colorado, 
District  of  Columbia,  Florida,  Indiana, 
Iowa,  Kansas,  Kentucky,  Louisiana,  Miss- 
issippi, New  Hampshire,  New  Mexico, 
Oklahoma,  South  Carolina,  Tennessee, 
Virginia,  Washington.    (April,  1921.) 

Legal  effect  oj  deposit  "A  in  trust  for  B" 

1321.  Under  a  decision  of  the  New  York 
Court  of  Appeals  a  deposit  by  A  in  trust  for 
B  is  revocable  at  will  until  the  depositor  dies, 
or  unless  he  completes  the  gift  in  his  lifetime 
by  some  unequivocal  act  such  as  dehvery 
of  the  pass-book  or  notice  to  the  beneficiary. 
Under  a  New  Jersey  decision,  such  deposit 
in  trust  was  held  testamentary  in  character 
and  would  not  be  effectual  unless  made  in 
accordance  with  the  statute  of  wills.  In  re 
Totten,  179  N.  Y.  112.  Nicklas  v.  Parker, 
61  Atl.  (N.  J.)  267.  Stevenson  v.  Earl,  65 
N.  Y.  Eq.  721.  (Inquiry  from  N.  J.,  Dec, 
1910,  Jl.) 

Right  of  hank  to  pay  trustee 

1322.  A    savings    bank    allowed    funds 


deposited  to  the  credit  of  "A,  trustee  for 
B,"  to  be  withdrawn  on  orders  signed,  "A, 
Trustee,"  Is  it  liable  to  the  beneficiaries  for 
a  wrongful  appropriation?  Opinion:  Dur- 
ing the  lifetime  of  the  trustee  the  bank  may 
pay  the  drafts  of  the  trustee  drawn  upon  the 
fund  without  liability.  The  bank  is  under 
no  legal  duty  to  inquire  into  the  use  to  be 
made  of  the  money  by  the  trustee  and  if  the 
trustee  makes  an  improper  use  of  the  money 
the  bank  is  not  liable.  Sayre  v.  Weil,  94 
Ala.  466,  10  So.  Rep.  546.  Pennsylvania 
Title  and  Trust  Co.  v.  Meyer,  201  Pa.  299, 
50  Atl.  Rep.  998.  Hemmerich  v.  Union 
Dime  Savings  Institution,  129  N.  Y.  Supp. 
267.    (Inquiry  from.  Vt.,  Sept.,  1917.) 

Payment  to  trustee  on  death  of  beneficiary 

1323.  A  savings  account  was  opened  by 
Richard  Roe  in  the  following  form:  "John 
Doe,  by  Richard  Roe,  Trustee."  John  Doe 
is  dead,  leaving  a  will  disposing  of  the  money. 
Has  the  executor  or  the  trustee  the  right  to 
draw  the  money?  Opinion:  Construing  the 
form  of  the  account  as  being  the  equivalent 
of  "Richard  Roe,  trustee  for  John  Doe" 
(Petition  of  Atkinson  16  R.  I.  413)— in 
other  words,  assuming  that  the  deposit  was 
made  by  Richard  Roe  as  trustee  for  John 
Doe — payment  should  properly  be  made  to 
him  as  the  contract  of  the  bank  was  to  pay 
the  deposit  to  the  trustee  on  demand,  unless 
the  executor  of  John  Doe  should  serve  notice 
on  the  bank  claiming  the  deposit.  In  such 
event,  the  bank  should  interplead  the  par- 
ties and  pay  the  money  into  court.  See 
Hemmerich  v.  Union  Dime  Sav.  Instn.  129 
N.  Y.  Supp.  267.  (Inquiry  from  D.C.  Nov., 
1912.) 

Disaffirmance  of  trust 

1324.  A  deposit  was  made  in  a  savings 
bank  in  trust  for  a  friend  of  the  depositor. 
The  depositor  became  ill  and  wished  to 
withdraw  the  deposit.  She  signed  a  draft 
payable  to  a  third  person,  which  the  savings 
bank  refused  to  honor,  on  the  ground  that 
the  signature  was  not  correct,  and  before  a 
new  draft  could  be  signed,  she  died.  Is  the 
appointment  of  an  administrator  necessary 
in  order  to  obtain  the  deposit?  Opinion: 
The  law  of  New  York  as  to  the  effect  of  a 
deposit  by  one  in  trust  for  another  has  been 
stated  by  the  New  York  Court  of  Appeals  in 
the  Matter  of  Totten,  179  N.  Y.  112,  as 
follows:  "A  deposit  by  one  person  of  his 
own  money,  in  his  own  name  as  trustee  for 
another,  standing  alone,  does  not  establish 
an  irrevocable  trust  during  the  lifetime  of 


300 


DEPOSITS 


1325-1327 


the  depositor.  It  is  a  tentative  trust  merely, 
revocable  at  will,  until  the  depositor  dies  or 
completes  the  gift  in  his  lifetime  by  some 
unequivocal  act  or  declaration,  such  as 
dehvery  of  the  pass-book,  or  notice  to  the 
beneficiary.  In  case  the  depositor  dies 
before  the  beneficiary  without  revocation, 
or  some  decisive  act  or  declaration  of  dis- 
affirmance, the  presumption  arises  that  an 
absolute  trust  was  created  as  to  the 
balance  on  hand  at  the  death  of  the  de- 
positor." In  this  case  the  evidence  might 
develop  that  the  trust  was  disaffirmed,  by 
drawing  the  draft  to  the  third  person,  as- 
suming it  could  be  shown  that  the  depositor 
intended  to  give  the  deposit  to  the  third 
person  and  dehvered  check  and  pass-book 
to  him  to  effectuate  such  intent.  What  was 
done  might  be  held  sufficient  to  create  an 
equitable  assignment  to  the  payee.  Upon 
this  theory,  the  deposit  would  not  belong 
to  the  estate  of  the  decedent,  but  to  the 
payee  of  the  draft,  and  there  would  be  no 
occasion  for  the  appointment  of  an  adminis- 
trator. If  on  the  other  hand  what  was  done 
as  indicated  b}'-  the  bank  was  not  sufficient 
to  disaffirm  the  trust,  then  upon  the  death 
of  the  depositor,  the  fund  vested  in  the  bene- 
ficiary of  the  trust.  {Inquiry  from  N.  Y., 
Oct.,  1917.) 

Where  both  parties  die  in  same  disaster 

1325.  Where  a  savings  account  is  held 
by  a  husband  in  trust  for  his  wife  and  both 
perish  in  same  disaster,  no  presumption 
at  common  law  that  one  survived  the 
other,  but  survivorship  must  be  proved — 
if  wife  survived  husband,  her  next  of  kin 
entitled  to  deposit,  but  if  husband  survived 
wife  or  both  died  simultaneously,  deposit 
goes  to  husband's  next  of  kin.  In  re  Totten, 
179  N.  Y.  112.  Smith  v.  Croom,  1  Fla.  81. 
NeweU  v.  Nichols,  75  N.  Y.  78.  Males  v. 
Sovereign  Camp,  30  Tex.  Civ.  App.  184,  70 
S.  W.  108.  Holhster  v.  Cordew,  76  Cal.  649. 
Cal.  Code  Civ.  Proc,  Sec,  1963.  Langles' 
Succ,  105  La.  39.  La.  Civ.  Code,  Arts. 
936-939.  Cowman  v.  Rogers,  73  Md.  403,  21 
Atl.  64.  Middeke  v.  Bulder,  198  111.  590. 
U.  S.  Casualty  Co.  v.  Kacer,  169  Mo.  301. 
Stinde  v.  Goodrich,  3  Redf.  Surr.  (N.  Y.)  87. 
Johnson  v.  Merithew,  80  Me.  111.  Fuller 
V.  Linzee,  135  Mass.  468.  Robinson  v. 
Galher,  20  Fed.  Cas.  No.  11951.  In  re  Wil- 
bor,  20  R.  I.  126.  Y.  W.  C.  Home  v.  French, 
187  U.  S.  401.  Pell  v.  Ball,  Cheves  Eq. 
(S.  C.)  99,  Moehring  v.  Mitchell,  1  Barb. 
Ch.  (N.  Y.)  264.  (Inquiry  from  N.  Y., 
March,  1913,  Jl.) 


A  and  B  or  survivor  in  trust  for  C  and  D 

1326.  A  person  sends  a  sum  of  money  to 

another  to  deposit  in  trust  for  the  children 
of  the  former.  The  person  requested  to 
open  the  account  asks  a  savings  bank  to 
open  the  account  as  follows:  "John  Jones 
and  Mrs.  John  Jones,  or  the  survivor  of 
them,  in  trust  for  James  Hill  and  Edward 
Hill,  minors."  Should  the  account  be 
opened  in  this  form?  In  case  of  the  death 
of  one  of  the  trustees  can  the  bank  pay  the 
amount  to  the  surviving  trustee  without 
administration  or  a  court  order?  Where  an 
account  is  opened  in  one  name  in  trust  for 
another  person,  on  the  death  of  the  trustee, 
may  the  bank  pay  the  money  to  the  bene- 
ficiary without  a  court  order?  Is  the  situa- 
tion different  when  there  are  two  trustees? 
Opinion:  Where  an  account  is  opened  in 
one  name  in  trust  for  another  person,  on  the 
death  of  the  trustee  the  bank  may  pay  the 
deposit  to  the  beneficiary  without  a  court 
order.  There  seems  to  be  no  objection  to 
the  opening  of  the  account  in  the  form  sug- 
gested. If  one  trustee  should  die,  the  sur- 
vivor would  become  sole  trustee,  having 
control  of  the  fund.  In  the  event,  and  only 
in  the  event,  of  the  death  of  both  trustees, 
would  the  deposit  be  payable  to  the  bene- 
ficiaries. "Co-trustees  take  as  joint  tenants, 
rather  than  as  tenants  in  common  and  upon 
the  death  of  one  of  them  the  doctrine  of 
survivorship  applies  and  the  whole  trust 
vests  in  the  surviving  trustees."  39  Cyc. 
308,  and  cases  cited.  Some  cases  are  contra, 
holding  that  the  authority  of  the  trustees 
terminates  upon  the  death  of  one  of  them, 
where  there  are  no  words  of  survivorship 
in  the  instrument  creating  the  trust. 
O'Brien  v.  Battle,  98  Ga.  766.  Dillard  v. 
Dillard,  97  Va.  434.  But  here  there  are 
express  words  of  survivorship,  so  that  even 
under  the  minority  rule  the  deposit  could 
be  paid  to  the  surviving  trustee.  {Inquiry 
from  Cal,  May,  1914.) 

Form  of  gift  to  minor  payable  at  majority 

1327.  A  person  wishes  to  make  a  deposit 
as  a  gift  in  such  a  waj^  that  it  will  not  be 
payable  to  a  minor  until  he  reaches  the  age 
of  twenty  one.  Can  this  be  done?  If  so,  a 
suggested  form  is  desired.  Would  a  deposit 
in  a  savings  account  serve  the  purpose,  with 
a  memorandum  on  the  pass-book  something 
like  this:  "Payable  with  accrued  interest, 
only  on  or  after  (date  of  reaching  maturity) 
the  printed  condition  that  interest  shall 
cease  at  the  end  of  two  years  from  presenta- 
tion of  pass-book  being  hereby  waived  until 


301 


1328-1329] 


DIGEST  OF  LEGAL  OPINIONS 


that  date"?  Opinion:  The  important 
thing,  if  the  transaction  takes  the  form  of  a 
gift  inter  vivos,  is  that  there  be  a  complete 
and  irrevocable  dehvery.  (Bond  v.  Bond, 
[Ga.  App.]  95  S.  E.  1005.  County  v.  Bank 
[Ida.]  170  Pac.  98.  State  v.  Chaplain,  101 
Kan.  413.  166  Pac.  238.  Turner  v.  Cement 
etc.  Co.,  [Md.]  104  Atl.  455.  Hess  v.  Sand- 
ner,  [Mo.  App.]  198  S.  W.  1125.  Gannon  v. 
McGuire,  106  N.  Y.  476.  Askew  v.  Ma- 
thews [N.  C]  95  S.  E.  163.  McHale  v. 
Toole,  258  Pa.  St.  293,  101  Atl.  988.  Gard- 
ner V.  Moore  [Va.]  94  S.  E,  162).  See  also, 
for  instance  of  insufficient  deH very,  Sherman 
V.  New  Bedford  Five  Cent  Sav.  Bank,  138 
Mass.  581,  Dehvery,  however,  need  not  be 
made  to  the  donee  personally,  but  may  be 
made  to  a  third  person  as  agent  or  trustee, 
for  the  use  of  the  donee,  if  under  such  cir- 
cumstances as  indicate  that  the  donor 
relinquishes  all  right  to  the  possession  or 
control  of  the  property,  and  intends  to  vest 
a  present  title  in  the  same.  (Arrington  v. 
Arrington,  122  Ala.  510.  Ruiz  v.  Dow,  113 
Cal.  490.  Devol  v.  Dye,  123  Ind.  321.  In 
re  Fenton  [Iowa]  165  N.  W,  463.  Scallan 
V.  Brooks,  66  N.  Y.  Suppl.  591.  Osmond's 
Estate,  161  Pa.  St.  543.  Citizens'  L.  &  T. 
Co.  V.  Hohnes,  116  Wis.  220,  93  N.  W,  39). 
The  donor  may  constitute  himself  a  trustee 
for  the  donee  in  an  express  trust,  in  which 
case  no  further  dehvery  of  the  gift  is  neces- 
sary. Sewall  V.  Glidden,  1  Ala.  52.  Yokem 
V.  Hicks,  93  111.  App.  667.  Sanderson  v. 
Marks,  1  Harr.  &  G.  [Md.]  252.  Taylor  v. 
Kelly,  5  Hun.  [N.  Y.]  115.  Crouse  v.  Jud- 
son,  84  N.  Y.  Supp.  755.  Martin  v.  Funk, 
75  N.  Y.  134.  In  the  particular  case  in 
question,  the  deposit  could  be  made  in 
trust  with  the  depositor  as  trustee.  It  might 
be  well,  in  addition  to  the  inscription  on  the 
pass-book  to  file  with  the  account  a  brief 
declaration  of  trust,  signed  by  the  donor, 
creating  an  irrevocable  trust  in  behalf  of 
the  beneficiary  to  be  payable  only  when  he 
reaches  majority;  with  any  other  provision 
desired,  as  to  interest,  etc.  It  might  be 
well  to  add  a  brief  clause  as  to  disposition 
of  the  fund  in  event  of  the  death  of  the 
beneficiary  before  he  reaches  21.  {Inquiry 
from  Ohio,  Dec,  1919.) 

Deposit  by  "A  as  guardian  for  B" 

1328.  A  person  deposited  her  own  money 
in  a  bank  to  the  credit  of  herself  as  guardian 
of  nephews  and  nieces,  presumably  inform- 
ing them  of  the  fact,  but  herself  retaining  the 
pass-book.  What  are  the  rights  of  the  aunt 
and  of  the  nephews  and  nieces  to  the  de- 


posit? Opinion:  To  constitute  a  perfect 
gift  there  must  be  not  only  an  intention  to 
give  but  also  the  gift  must  be  completed  by 
dehvery.  Here  the  pass-book  was  not  de- 
livered. However,  a  gift  may  be  perfected 
in  the  form  of  a  trust,  created  by  declara- 
tion. The  courts  generally  hold  that  the 
mere  fact  that  a  person  deposits  his  money 
in  his  own  name  in  trust  for  another  does 
not,  in  itself,  create  an  irrevocable  trust,  but 
nothing  more  than  a  presumptive  trust. 
But  if  it  could  be  proved  that  it  was  the 
intention  of  the  aunt  at  the  time  of  making 
the  deposit  that  the  money  should  be  no 
longer  hers,  but  should  be  held  by  her  as 
trustee  or  guardian  for  the  children  and 
they  were  so  informed,  an  irrevocable  trust 
would  probably  be  created.  In  Kerrigan  v. 
Rantigan,  43  Conn.  17,  A  deposited  money 
in  the  name  of  "B;  C  Guardian"  and  in- 
formed C  she  had  put  the  money  in  bank  for 
B,  although  A  kept  the  book.  It  was  held 
that  A  intended  to  make  a  valid  gift  to  B 
and  the  making  of  the  deposit,  taking  the 
book  in  the  name  of  the  donee  and  notify 
the  guardian,  gave  effect  to  the  intention 
and  made  the  gift  complete  and  irrevocable. 

In  some  jurisdictions,  as  in  New  York,  a 
trust  such  as  that  created  here  would  be 
revocable  at  will,  and  would  be  absolute 
only  as  to  the  balance  remaining  upon  death 
of  the  trustee.  But  in  other  jurisdictions 
upon  the  facts  assumed,  and  probably  in 
Alabama,  an  irrevocable  trust  would  be 
created. 

The  right  of  the  beneficiaries  to  have  the 
money  placed  in  their  own  names  and  abso- 
lutely under  their  control  would  depend  on 
the  terms  of  the  trust.  It  is  doubtful  if  the 
aunt  could  be  compelled  to  relinquish  con- 
trol, unless  it  is  shown  that  it  was  her 
declared  intention  at  the  time  of  the  creation 
of  the  trust,  that  when  the  beneficiaries 
arrived  at  a  certain  age,  and  that  age  has 
now  been  reached,  the  money  should  be  paid 
over  to  them  absolutely.  (Inquiry  from 
Ala.,  Jan.,  1920.) 

Preference  in  deposits  held  by  trust  company 
as  fiduciary 

1329.  Deposits  are  held  by  a  trust 
company,  acting  as  executor,  guardian  and 
depository.  In  the  event  of  failure,  the 
tendency  of  the  courts  is  to  class  such  de- 
posits as  general  indebtedness  and  not  to 
give  the  claimant  a  preference  unless  (1) 
such  funds  are  kept  separate  and  specially 
marked  as  trust  funds,  or  (2)  where  the 
organic  law  provides  that  funds  so  held  shall 


302 


DEPOSITS 


[1330-1333 


be  preferred  to  commercial  deposits  or 
general  creditors.  In  Arkansas  the  benefi- 
ciary would  only  come  in  for  a  pro  rata  share 
with  the  other  depositors,  unless  the  funds 
were  kept  separate  and  marked  as  trust 
funds.  Vail  v.  Newark  Sav.  Inst.,  32  N.  J. 
Eq.  627.  Groff  v.  City  Sav.  Funds,  etc.,  Co., 
46  Pa.  Super.  Ct.  423.  Miller's  Appeal,  218 
Pa.  50.  Capital  Nat.  Bk.  v.  Coldwater  Nat. 
Bk.,  69  N.  W.  (Neb.)  115.  Smith  v.  Fuller, 
86  Ohio  St.  57.  N.  Y.  Banking  Law,  Sec. 
188  (8).  Morris  v.  Carnegie,  139  N.  Y.  S. 
969.     (Inquiry  from  Ark.,  Aug.,  1914,  Jl-) 

Investment  of  trust  funds 

1330.  Under  the  laws  of  North  Carolina, 
guardians,  trustees  and  other  fiduciaries 
may  invest  trust  funds  in  United  States 
securities  and  in  consolidated  bonds  of 
the  state.  Rev.  Code  N.  C,  Sec.  1792. 
(Inquiry  from  Pa.,  Feb.,  1911,  Jl.) 

Deposit  account  with  "John  Doe,  trustee^' 

1331.  A  bank  carrying  an  account  for 
John  Doe,  Trustee,  or  John  Doe,  Agent,  does 
not  inquire  as  to  the  identity  of  the  cestui 
que  trust  or  principal,  nor  as  to  the  extent  of 
John  Doe's  authority.  The  question  arises 
whether  banks  are  safe  in  carrying  such 
accounts  without  making  inquiry.  Opinion : 
It  is  unHkely  the  New  York  courts  will  go  to 
the  extent  of  holding  that  where  John  Doe 
deposits  checks  payable  to  himself  as  agent 
or  trustee,  the  bank  is  under  duty  of  inquiry 
for  whom  he  is  acting  or  the  extent  of  his 
powers;  the  presumption,  according  to  the 
weight  of  authority  elsewhere,  is  that  Doe 
is  acting  honestly  and  within  his  powers.  It 
would  be  only  where  the  bank  has  knowledge 
of  additional  facts,  as  where  a  trustee  check 
is  given  for  a  personal  debt  to  the  bank,  or 
where  two  accounts,  an  individual  and  trus- 
tee, are  carried,  and  a  deficit  in  the  individual 
is  made  good  from  the  trustee  account,  or 
where  there  are  other  suspicious  facts,  that 
the  bank  would  be  put  upon  inquiry.  But 
it  might  be  safer,  in  view  of  the  uncertainty 
in  the  New  York  law,  especially  where 
numerous  transactions  are  carried  through 
such  an  account,  to  make  inquiry  as  to  the 
person  for  whom  Doe  is  acting  and  the 
extent  of  his  authority.  Gerard  v.  Mc- 
Cormick,  130  N.  Y.  261.  Rochester,  etc., 
Co.  v.  Paviour,  164  N.  Y.  281.  Ward  v.  City 
Tr.  Co.,  192  N.  Y.  61.  Squire  v.  Ordemann, 
194  N.  Y.  394.  Havana  Cent.  R.  v.  Knick- 
erbocker Tr.  Co.,  198  N.  Y.  422.  Niagara 
Woolen  Co.  v.  Pac.  Bk.,  141  App.  Div. 
(N.  Y.)  265.    Ford  v.  Brown,  114  Tenn.  467. 


Wisconsin,  etc.,  Baptists  v.  Babler,  115  Wis. 
289.  Hazletine  v.  Keenan,  54  W.  Va.  600. 
Batchelder  v.  Central  Nat.  Bk.,  188  Mass. 
25.  Safe  Dep.,  etc.,  Co.  v.  Diamond  Nat. 
Bk.,  194  Pa.  334.  Jeffray  v.  Towar,  63 
N.  J.  Eq.  530.  Nat.  Bk.,  v.  Ins.  Co.,  104 
U.  S.  54.  (Inquiry  from  N.  Y.,  Jan.,  1913, 
Jl.) 

Deposit  by  one  in  name  of  another 

Government's  deposit  to  soldier's  credit 

1S32.  The  Government  deposited  a 
soldier's  allotments  in  a  bank  to  the  sol- 
dier's credit,  and  now  seeks  to  withdraw 
it  because  deposited  in  error,  the  soldier 
having  been  dead  since  November  25,  1918, 
and,  therefor,  not  entitled  to  allotment 
after  death.  Can  the  bank  safely  refund  to 
the  government?  Opinion:  The  courts 
hold  quite  generally  that,  where  one  person 
makes  a  deposit  to  go  to  the  credit  of  another 
person,  this  creates  a  debt  on  the  part  of  the 
bank  to  the  person  named  as  depositor,  and 
the  fact  that  such  deposit  is  made  by  an- 
other, does  not  entitle  such  other  to  with- 
draw the  deposit,  except  by  the  consent  of 
the  person  named  as  depositor.  But  in  a 
case  like  the  present,  there  would  be  no  risk 
in  repaying  the  money  thus  deposited  in 
error,  and  no  occasion  for  application  of  the 
above  rule  because  none  of  the  soldier's  heirs 
could  make  claim  of  title,  superior  to  that  of 
the  Government.  The  bank  is  entitled  to 
have  the  fact  clearly  estabhshed  that  the 
soldier  died  on  November  25,  1918,  and  that 
the  subsequent  pajinents  were  made  in 
error  in  ignorance  of  his  death,  and  when 
such  facts  are  established,  the  bank  would 
be  fairly  safe  in  refunding  the  money  to  the 
Government.  (Inquiry  from  Texas,  Nov., 
1920.) 

A's  check  on  deposit  by  him  in  B's  name 

1333.  Money  is  deposited  in  a  bank  by 
A  to  the  credit  of  B  with  instructions  to  pay 
on  check  of  A.  The  bank  seeks  to  know 
whether  it  can  without  liabihty  cash  A's 
checks  in  the  absence  of  authority  from  B  to 
honor  such  checks.  Opinion:  Where  money 
is  deposited  in  a  bank  ])y  A  to  the  credit  of 
B  with  instructions  to  pay  on  check  of  A,  the 
bank  can  safely  honor  A's  check  only  in  the 
event  it  is  assured  the  deposit  belongs  to  A 
and  has  been  put  in  B's  name  simpl}'^  for  con- 
venience. If  the  money  belongs  to  B  and 
has  been  deposited  by  A  as  his  agent,  the 
bank  cannot  safely  pay  A  without  express 
authority  from  B.    It  would  be  unsafe  for 


303 


1334-1339] 


DIGEST  OF  LEGAL  OPINIONS 


bank  to  pay  A  without  first  ascertaining  the 
true  owner  of  the  money.  Branch  v.  Daw- 
son, 36  Minn.  193.  Kerr  v.  People's  Bk., 
158  Pa.  305.  {Inquiry  from  Ark.,  Sept., 
1918,  Jl.) 

Payment  of  deposit  on  death  of  "A  agent" 

1334.  Where  a  bank  carries  a  deposit  to 
the  credit  of  "A  Agent"  for  certain  heirs, 
Opinion  that  upon  death  of  A  his  agency  is 
revoked  and  deposit  is  payable  to  A's  princi- 
pals and  not  to  his  administrator.  Rule  is 
different  where  deposit  is  in  name  of  "A 
trustee  for  B,"  in  which  case  it  may  be 
paid  to  administrator  of  A,  except  where 
changed  by  statute.  Ryder  v.  Johnston,  45 
So.  (Ala.)  181.  Mills  v.  Union  Central  Ins. 
Co.,  77  Misc.  (N.  Y.)  327.  Merrick's  Estate, 
8  Watts  &  S.  (Pa.)  402.  Whitecomb  v. 
Jacob,  1  Salk;  Burdett  v.  Willet,  2  Vern.  638. 
Tyson  v.  George's  Creek,  etc..  Iron  Co.  81 
Atl.  (Md.)  41.  Boody  V.  Lincoln  Nat.  Bk., 
70  Hun  (N.  Y.)  392.  Schulter  v.  Bowery 
Sav.  Bk.,  117  N.  Y.  125.  Boone  v.  Citizens 
Sav.  Bk.,  84  N.  Y.  83.  Grafing  v.  Irving 
Sav.  Inst.,  69  App.  Div.  (N.  Y.)  566  In  re 
Belt's  Est.,  70  Pac.  (Wash.)  74.  (Inquiry 
from  N.  J.,  Oct.,  1913,  Jl.) 

Deposit  by  judgment  debtor  in  name  of  son 

1335.  A  judgment  debtor  said  that  the 
money  to  be  deposited  belonged  to  his  wife 
and  desired  to  put  in  her  name.  It  was 
finally  arranged  to  deposit  it  in  the  name  of 
their  son.  Should  the  bank  pay  the  money 
to  the  widow  of  the  depositor  on  the  order 
of  the  son,  without  a  bond  of  indemnity? 
Opinion:  If  the  bank  knows  the  money 
really  belonged  to  the  depositor,  it  should 
not  pay  it  out  without  letters  of  administra- 
tion or  a  satisfactory  bond.  But  unless  the 
bank  so  knows  it  would  be  fairly  safe  in 
paying  to  the  widow  on  the  order  of  the  son, 
to  whose  credit  it  has  been  placed.  Deposits 
are  frequently  made  by  one  person  in  the 
name  of  another  and  banks  are  justified  in 
relying  on  statements  of  depositors  that  the 
deposits  belong  to  the  persons  in  whose 
names  they  are  made.  In  fact,  a  bank  has 
been  held  Uable  for  paying  money  to  an- 
other than  the  person  to  whom  it  was  credit- 
ed. Heath  v.  New  Bedford  Safe  Deposit  & 
Trust  Co.,  184  Mass.  481.  There  would  be 
no  Hability  to  creditors.  While  it  is  natural 
for  a  judgment  debtor  to  deposit  his  own 
money  in  his  wife's  or  son's  name  to  place  it 
beyond  the  reach  of  his  creditors,  the  credit- 
or must  protect  himself  by  attachment  or 
other  legal  proceedings  and  a  bank  cannot 


assume  the  burden  of  setting  up  unknown 
rights  of  third  persons.  There  can,  there- 
for, be  no  rights  of  possible  creditors  vio- 
lated by  payment  on  the  son's  check  to  the 
widow.  See  opinion  No.  1336.  (Inquiry 
from  N.  Y.,  June,  1919.) 

1336.  After  the  rendition  of  the  opinion 
No.  1335  the  widow  mentioned  therein 
made  affidavit  that  she  gave  the  money  to 
her  husband  to  deposit  for  her  and  an  officer 
of  the  bank  made  affidavit  that  the  depositor 
stated  that  the  money  belonged  to  his  wife 
and  wished  to  deposit  it  in  her  name,  but 
owing  to  the  fact  that  she  could  not  write, 
he  concluded  to  deposit  it  in  the  name  of  the 
son.  The  children  make  no  claim  to  the 
deposit  and  are  willing  to  execute  a  general 
release.  Is  it  safe  for  the  bank  to  pay  the 
money  to  the  widow?  Opinion:  It  is  safe 
for  the  bank  to  pay  the  money  to  the  widow. 
It  might  be  well  to  have  the  son  in  whose 
name  the  deposit  was  credited  execute  a 
special  release  or  acquittance  to  the  bank 
embodying  his  consent  that  the  money  be 
paid  over  to  his  mother.  (Inquiry  from 
N.  Y.,  July,  1919.) 

Savings  deposits 

When  classed  as  time  deposit 

1337.  A  savings  deposit  in  a  national 
bank  evidenced  by  pass-book  requiring  thirty- 
five  days'  notice  of  withdrawal  but  providing 
that  the  bank  may  waive  the  notice,  is  a 
time  deposit  within  the  definition  of  Section 
19  Federal  Reserve  Act  as  further  defined  by 
Regulation  D,  Series  of  1916.  But  a  certifi- 
cate of  deposit  payable  on  return  and 
"thirty-five  days  demand  if  required"  is  not 
a  time  certificate  as  defined  by  Regulation 
D,  although  a  court  might  hold  that  it  came 
within  the  definition  of  time  certificates 
provided  bv  Section  19  of  the  Act.  Federal 
Res.  Bull."  Dec,  1916,  p.  686.  (Inquiry 
from  Pa.,  May,  1917,  Jl.) 

Notice  of  withdrawal  of  savings  deposit  in 
national  bank 

1338.  There  is  nothing  in  the  National 
Bank  Act  which  denies  the  right  of  a  na- 
tional bank  to  refuse  payment  on  demand 
and  require  thirty  days'  notice  before  with- 
drawal of  a  savings  deposit  where  the  pass- 
book rules  provide  for  such  notice.  (In- 
quiry from  Pa.,  Aug.,  1913,  Jl.) 

Deposits    by    husband    and    wife 

Husband's  check  on  wife's  account 

1339.  A  man  deposits  $100  to  the  credit 


304 


d 


DEPOSITS 


[1340-1341 


of  his  wife  and  informs  the  bank  that  his 
wife  has  instructed  him  to  sign  checks. 
The  bank  asks  if  it  would  be  safe  in  relying 
upon  the  husband's  word  without  proof  of 
authority  from  the  wife.  Opinion:  The 
bank  would  not  be  safe  in  paying  the  hus- 
band's checks  because  if  the  deposit  was  her 
separate  property  and  under  her  separate 
administration,  the  husband  would  have  no 
right  to  withdraw  the  deposit,  and  payment 
to  him  where  he  had  not  been  authorized 
would  not  protect  the  bank;  although  if  the 
deposit  was  community  property  or  con- 
stituted a  portion  of  her  separate  estate  that 
was  under  the  control  and  administration  of 
the  husband,  the  latter  would  probably  have 
the  right  to  withdraw  the  deposit  without 
authority  of  the  wife.  The  system  of  com- 
munity property  prevails  in  some  of  the 
Southwestern  and  Pacific  states,  including 
Louisiana  and  Texas.  Brown  v.  Daugherty, 
120  Fed.  526.  Bates  v.  First  Nat.  Bk.,  89 
N.  Y.  286.  Kerr  v.  Bk.,  158  Pa.  St.  305. 
Honig  V.  Bk.,  73  Cal,  464.  Armstrong  v. 
Johnson,  93  Mo.  App.  492.  Boyer's  Succ, 
36  La.  Ann.  506.  Lebean  v.  Jewell,  9  La. 
Ann.  168  Bouligny  v.  Fortier,  16  La.  Ann. 
209.  Richard  v.  Blanchard,  12  Rob. (La.). 
524.  Stauffer  v.  Morgan,  39  La.  Ann.  632. 
Coleman  v.  First  Nat.  Bk.,  94  Tex.  605. 
{Inquiry  from  La.,  Feb.,  1915.  Jl.) 

Authority   of  wife   to   check   out   husband's 
account — Physical  disability  of  husband 

1340.  A  customer  of  a  bank  broke  his 
arm  which  incapacitated  him  to  sign  checks. 
His  wife  appeared  at  the  bank  with  a  check 
signed  in  his  name  by  her  own  and  upon  her 
statement  of  the  situation  and  that  the 
money  was  needed  to  pay  certain  bills  due 
by  the  husband  and  for  necessary  household 
expenses,  the  money  was  paid  her  and  the 
amount  charged  to  the  husband's  account. 
A  portion  of  this  money  was  expended  for  the 
husband  including  payment  of  doctor's  bill. 
When  the  husband  recovered  he  sued  the 
bank  for  the  amount.  The  bank  is  desirous 
to  know  its  rights  in  the  matter.  Opinion: 
A  married  woman  may  be  agent  of  her 
husband  either  by  express  appointment  or 
by  imphcation  of  law.  But  there  is  no 
implied  authority  or  presumptive  agency  to 
check  out  his  money  from  bank.  Thus  in 
Allen  V.  Wilhamsburg  Sav.  Bank,  2  Abb.  N. 
C.  342;  aff'd  69  N.  Y.  314  where  a  wife  wrote 
her  husband's  name  to  a  check  on  a  savings 
bank  and  received  the  money  on  presenta- 
tion of  the  check  and  pass-book,  the  court 
said: — "There  was  no  evidence  to  show  that 


the  plaintiff's  wife  was  his  agent  in  the 
matter  of  drawing  the  money,  or  had  au- 
thority to  thus  act  for  him.  Such  authority 
could  not  arise  or  be  inferred  from  the  mere 
marital  relation."  But  if  the  husband  has 
knowledge  at  the  time  of  the  acts  performed 
by  his  wife  and  makes  no  objection  thereto 
this  will  be  presumptive  evidence  of  her 
agency  and  maj^  estop  him  from  denying 
such  relation.  Huff  v.  Price,  50  Mo.  228. 
Kreyer  v.  Smith,  13  Mont.  235. 

In  the  present  case,  if  the  bank  can  prove 
the  husband  knew  of  his  wife's  act  and  made 
no  objection  thereto  he  may  be  estopped 
from  denying  her  authority.  But  if  he  was 
ignorant  of  her  act,  the  bank  would  be  liable 
except  probably  the  bank  would  have  a 
good  defense  to  the  extent  that  the  money 
went  for  the  legitimate  expenses  of  the  hus- 
band. The  proper  procedure  in  such  case 
would  have  been  for  the  bank  to  have  com- 
municated with  the  husband  and  obtained 
his  authorization  which  need  not  necessarily 
have  been  in  writing;  or  if  he  was  capable  of 
making  his  mark,  his  check  made  by  mark 
with  a  responsible  witness  would  have  been 
sufficient  protection.  (Inquiry  from  Okla., 
April,  1921.) 

Wife  signing  husband's  name  to  check  on 
savings  account 

1341.  A  woman  opened  a  savings  deposit 
in  her  husband's  name  presumably  with 
money  furnished  by  him  and  continued  to 
make  deposits  to  the  credit  of  the  account 
and  to  sign  her  husband's  name  to  orders. 
Apparently  the  husband  knew  of  her  prac- 
tice of  signing  his  name  for  he  protested 
against  the  non-payment  of  a  check  drawn 
by  his  wife.  The  wife,  however,  deceived 
her  husband  by  withdrawing  all  the  money 
and  making  false  entries  in  the  pass-book. 
A  rule  printed  in  the  pass-book  provided 
that  "in  all  cases  a  pa^onent  upon  presenta- 
tion of  a  deposit  book  shall  be  a  discharge 
to  the  bank  for  the  amount  so  paid."  Is  the 
bank  liable  to  the  husband  for  allowing  the 
wife  to  draw  out  the  funds?  Opinion: 
Some  decisions  hold  that  where  a  deposit 
is  made  by  one  person  in  the  name  of  an- 
other, such  deposit  belongs  to  the  person  in 
whose  name  the  deposit  is  made.  Meteye's 
Succ.  113  La.  1013.  Health  v.  New  Haven 
Safe  &  Co.,  184  Mass,  481.  Walker  v.  State 
Trust  Co.,  57  N.  Y.  Supp.  525.  On  the  other 
hand,  there  are  cases  holding  that  a  deposit 
may  be  made  in  the  name  of  a  person  other 
than  the  depositor  and  yet  remain  the 
property  of  the  depositor,  so  that  the  bank 


305 


1342-1344] 


DIGEST  OF  LEGAL  OPINIONS 


is  justified  in  recognizing  his  ownership 
where  the  circmnstances  are  such  that  the 
deposit  has  not  been  put  beyond  his  control. 
Davis  V.  Lenawee  County  Sav.  Bank,  53 
Mich.  163.  Leech  v.  MaryAdlle  First  Nat. 
Bank,  99  Mo.  App.  681.  Greene  v.  Camas 
Prairie  Bank,  7  Ida.  576.  Baltimore  State 
Sav.  Bank  v.  McCarthy,  89  Md.  194.  Weit- 
zel  V.  Traders'  Nat.  Bank,  18  Pa.  Super.  Ct. 
615. 

In  this  case,  the  fact  that  the  wife  signed 
her  husband's  name  to  the  checks  would 
indicate  that  the  ownership  was  in  the 
husband;  but  the  facts  also  tend  to  establish 
that  the  husband  authorized  or  ratified  by 
acquiescence  the  withdrawal  of  the  money 
by  the  wife.  This  being  so,  the  fact  that  the 
wife  deceived  her  husband  by  withdrawing 
all  the  money  and  by  making  false  entries 
in  the  bank  book,  would  not  render  the  bank 
Hable. 

The  rule  in  the  pass-book  that  payment 
upon  presentation  of  the  book  discharges 
the  bank  does  not  reheve  the  bank  from  the 
exercise  of  reasonable  care;  but  under  the 
facts  here  the  husband  would  probably  be 
estopped  from  denying  the  wife's  right  to 
withdraw  the  fund.  {Inquiry  from  III.,  Aug., 
1916.) 


Special    and    specific    deposits 

Distinction  between  " special"  and  "specific" 
deposit 

1342.  A  bank  desires  to  know  the  legal 
distinction,  if  any,  between  a  special  deposit 
and  a  specific  deposit.  Opinion:  In  the 
case  of  a  special  deposit,  money  or  valuables 
are  left  with  a  bank  for  safekeeping  and  the 
identical  money  or  thing  so  deposited,  is  to 
be  returned.  The  relation  between  bank 
and  depositor  in  such  case,  is  not  debtor  and 
creditor,  as  in  the  case  of  a  general  deposit, 
but  is  bailee  and  bailor.  In  case  of  loss,  the 
HabiUty  of  the  bank  depends  upon  whether 
the  legal  degree  of  care  in  safe-keeping  of 
the  deposit  has  been  used.  The  term 
"specific  deposit"  is  appUed  where  money  is 
received  by  a  bank,  not  on  general  deposit 
nor  for  safe-keeping  and  return,  but  to  apply 
to  a  specific  purpose.  In  such  case,  although 
the  money  may  be  mingled  with  the  bank's 
own  funds,  it  is  generally  held,  though  not 
universally,  that  the  bank  is  a  trustee  and 
not  a  debtor  with  respect  to  the  deposit. 
Some  courts  apply  the  term  "special  de- 
posit" to  deposits  of  this  class,  but  the  term 
"specific  deposit"  is  technically  more  cor- 
rect.   (Inquiry  from  N.  Y.,  April,  1921.) 


Bank  receiving  deposit  for  specific  purpose  a 
trustee  according  to  majority  view 

1343.  A  fund  is  deposited  with  an  ac- 
cepting bank  for  the  special  purpose  of 
meeting  an  acceptance  about  to  fall  due. 
If  the  accepting  bank  fails  is  there  the  basis 
for  a  preferred  claim?  Opinion:  There  is  a 
conflict  of  decision  upon  this  proposition. 
The  minority  view  is  that  there  is  no  pre- 
ferred claim,  since  it  is  the  custom  of  banks, 
upon  receiving  money  for  a  specific  purpose, 
to  mingle  the  funds  with  their  own  and  to 
pay  the  instrument  at  the  proper  time  and 
there  is  no  practical  difference  between  such 
a  deposit  and  a  general  deposit  as  to  which 
the  bank  is  a  debtor.  The  majority  view 
however  is  that  the  relation  is  more  than 
that  of  debtor  and  creditor  because  the  bank 
undertakes  the  duty  of  applying  the  deposit 
to  the  specific  purpose;  therefore  the  bank 
becomes  a  trustee  and  the  customer  has  a 
preferred  claim  and  the  right  of  recovery  in 
full,  provided  the  funds  can  be  traced  into  and 
identified  among  the  assets.  People  v.  City 
Bank  of  Rochester,  96  N.  Y.  32,  citing  Libby 
v.  Hopkins,  104  U.  S.  303.  In  re  La  Blanc, 
14  Hun  8  (affirmed  in  75  N.  Y.  598).  Van 
Alen  v.  Bank,  52  N.  Y.  1.  Dows  v.  Kidder, 
84  N.  Y.  121.  {Inquiry  from  N.  Y.,  March, 
1919,) 

Theft  of  proceeds    of   check    set    aside    for 
delivery  for  pay-roll  purposes 

1344.  A  depositor  left  with  the  bank  a 
pay-roll  sUp,  together  with  his  check  to 
cover  the  amount,  stating  that  he  would 
call  for  the  money  later.  In  the  meantime 
the  bank  was  robbed  and  the  money  stolen. 
Who  stands  the  loss?  Opinion:  (1)  If  the 
bank  was  robbed  before  the  money  was  set 
aside  for  pay-roll  purposes  and  before  the 
check  was  charged  to  the  drawer's  account, 
the  bank  would  be  the  loser  as  the  check 
would  not  have  been  paid  by  the  bank  and 
it  would  have  been  the  bank's  own  money 
which  was  lost.  (2)  If  the  money  had  been 
set  aside  at  the  request  of  the  depositor  for 
the  specific  purpose  of  delivery  to  him  when 
called  for,  it  would  be  transformed  into  a 
special  deposit,  and  the  bank's  relation 
would  be  changed  from  debtor  to  bailee  for 
hire.  As  a  bailee  for  hire,  the  test  of  its 
hability  is  whether  it  used  ordinary  and 
reasonable  care — the  same  degree  of  care 
that  a  prudent  man  would  take  of  his  own 
property  under  Hke  conditions — and 
whether  such  care  has  been  exercised  in  any 
particular  case  is  a  question  for  the  jurj^ 
If  reasonable  care  has  been  exercised,  the 


306 


DEPOSITS 


[1345-1348 


loss  would  fall  upon  the  depositor.     (In- 
quiry from  Pa.,  Mar.,  1921.) 

Notice  to  teller  that  deposit  is  to  pay  specified 
check 

1345.  A  bank  dishonored  A's  check  for 
lack  of  funds.  Later  A  deposited  a  check  for 
a  larger  amount.  It  is  disputed  whether  or 
not  A  gave  notice  to  the  receiving  teller  that 
the  deposit  was  made  on  account  of  the 
particular  check,  which  A  advised  the  holder 
to  return  for  payment.  Other  checks  of  A 
were  honored  before  the  dishonored  check 
was  returned  for  payment,  which  so  reduced 
the  balance  that  when  presented  it  was  again 
dishonored  for  lack  of  funds.  Shortly  after 
this  A  made  an  assignment  for  the  benefit 
of  creditors.  Is  there  any  liabiHty  of  the 
bank  to  the  holder  of  the  dishonored  check? 
Opinion:  If  the  deposit  was  general,  it  was 
the  bank's  right  and  duty  to  honor  the 
checks  first  presented  until  the  deposit  was 
exhausted  and  there  is  no  Liability  to  the 
holder  of  the  check.  But  the  disputed 
statement  to  the  receiving  teller  compli- 
cates the  situation.  A  deposit  may  be  made 
with  a  bank  for  a  specific  purpose,  and  it  is 
the  duty  of  the  bank  to  carry  out  this  pur- 
pose. Drovers  National  Bank  v.  O'Hare,  10 
N.  E.  (111.)  360.  American  Exchange  Na- 
tional Bank  v.  Loretta  etc.  Co.,  46  N.  E. 
(111.)  202.  Parkef  v.  Hartley,  91  Pa.  465. 
Bank  of  British  North  America  v.  Cooper, 
137  U.  S.  473.  Wagner  v.  Citizens  Bank, 
122  S.  W.  CTenn.)  245.  Slaughter  v.  Bank 
of  Texhne,  164  S,  W.  (Tex.)  27. 

Assuming,  however,  the  receiving  teller 
was  advised  that  the  deposit  was  to  take  care 
of  the  particular  check  in  question.  It  is  very 
doubtful  if  the  bank  would  be  bound  by  a 
mere  oral  statement  over  the  counter  to  a 
busy  teller,  that  a  certain  check  was  to  be 
paid  out  of  the  deposit  made.  In  Myers  v. 
Twelfth  Ward  Bank,  28  Misc.  Rep.  (N.  Y.) 
188,  the  court  held  that  the  burden  of  proof 
is  on  the  holder  of  the  check  to  establish  a 
specific  trust  on  the  part  of  the  bank  and 
that  an  agreement  of  this  kind,  to  be  binding 
on  the  bank,  can  be  made  only  by  an  execu- 
tive oflBcer.  (Inquiry  from  W.  Va.,  April, 
1917.) 

Mistaken  payment  of  customer's  check  from 
specific  deposit 

1346.  A  customer  closed  his  account  and 
left  the  sum  of  $350  with  the  bank  for  the 
specific  purpose  of  paying  two  outstanding 
checks,  one  for  $250  and  one  for  $100. 
Afterwards  his  checka  of  $50  and  $75  were 


presented  and  paid,  leaving  insufficient 
funds  to  meet  both  outstanding  checks. 
Opinion :  The  mistake  of  the  bank  in  paying 
the  checks  out  of  the  specific  deposit  was  due 
to  the  action  of  the  customer  and  the  bank 
would  not  be  held  responsible  therefor.  A 
deposit  for  the  purpose  of  paying  specified 
checks  is  no  longer  a  general  one,  subject  to 
general  check,  but  is  a  specific  or  trust  depos- 
it, applicable  solely  to  the  payment  of  such 
specified  checks,  and  not  to  be  appropriated 
in  any  other  manner,  but  in  tliis  case  pay- 
ment was  justified.  (Inquiry  from  Fla., 
July,  1909,  Jl.) 

Money  borrowed  for  specific  purpose  deposited 
in  general  account 


1347.  A  borrowed  $800  from  a  bank  to 
buy  feed  for  his  five  stock.  To  secure  pay- 
ment of  the  note  given,  a  mortgage  was 
executed  stating  that  the  note  was  given  for 
the  purpose  of  purchasing  feed.  The  pro- 
ceeds of  the  note  were  deposited  to  his 
checking  account  at  the  bank.  A  drew 
checks  for  purposes  other  than  buying  feed. 
The  bank  asks  if  it  is  permissible  to  refuse 
paj'-ment.  Opinion:  If  this  money  was 
loaned  by  the  bank  on  condition  that  it 
should  be  used  to  purchase  feed  and  the 
proceeds  of  the  note  were  deposited  in  bank 
for  the  specific  purpose  of  pajdng  the 
borrower's  checks,  given  for  fee^  the  bank 
would  probably  have  tb^^'=*'^^" 
pajmient  of  checks  drawn  "^^^^^  .  safp-_ 
But  although  borrowed  for  a"  Specific  pur- 
pose, if  the  money  was  placed  on  general 
deposit  subject  to  check,  and  accepted  as 
such  by  the  bank  without  any  restrictions 
as  to  its  use,  it  is  doubtful  if  the  bank  could 
rightfully  refuse  to  pay  a  check  of  the  de- 
positor against  such  deposit  given  for  some- 
thing else  than  feed.  The  right  of  the  bank 
would  depend  upon  the  precise  agreement 
and  conditions  surrounding  the  transaction. 
See  Dolph  v.  Cross,  153  Iowa,  289,  133  N. 
W.  669.  McGorray  v.  Stockton  Sav.,  etc., 
Soc.  131  Cal.  321.  Scranton  First  Nat. 
Bank  v.  Higbee,  109  Pa.  St.  130.  El  Paso 
Nat.  Bank  v.  Fuchs,  (Tex.  Civ.  App.)  34 
S.  W.  203.  In  re  Dairs,  119  Fed.  950.  (In- 
quiry from  Neb.,  March,  1920.) 

Deposit  of  Mexican  bank  bills 

1348.  A  received  from  bank  B  a  deposit 
slip  reciting  the  fact  of  the  deposit  of  a  sum 
of  money  in  Mexican  bank  bills  upon  which 
the  bank  agreed  to  pay  interest  until 
withdrawn.  About  five  years  after  deposit 
A  demanded  payment  in  Mexican  silver  or 


307 


1349-1350] 


DIGEST  OF  LEGAL  OPINIONS 


gold  coin  which  at  the  time  was  worth  about 
57  cents  per  dollar  in  American  money.  At 
the  time  of  the  deposit  the  bills  were  worth 
49}/^  cents  in  American  money,  but  at  the 
time  of  the  demand  were  worth  only  about 
15  cents.  Could  bank  B  discharge  its  legal 
obhgation  by  paying  A  in  Mexican  bank  bills 
of  the  same  kind  or  their  value  in  American 
money  at  the  time  of  demand?  Opinion: 
There  is  no  precise  precedent  for  a  case  of 
this  kind.  The  first  thing  to  consider  is 
whether  bank  B  became  a  bailee  or  debtor 
at  the  time  of  the  deposit.  If  it  did  not  use 
the  bills,  pay  same  out  and  receive  others  in 
their  place,  it  might  be  held  to  be  a  bailee, 
and  that  the  contract  would  be  satisfied  by 
a  tender  of  an  equivalent  amount  of  Mexican 
bank  bills;  or  not  having  made  such  a  tender 
at  the  time  of  demand,  the  value  of  the  bills 
at  the  time  in  American  money.  But  as  the 
bank  paid  interest  on  the  deposit  it  doubt- 
less used  the  bills  and  became  a  debtor  for 
their  amount,  in  which  case  the  value  of  the 
Mexican  bills  at  the  time  of  deposit  and  not 
at  the  time  of  demand  when  they  had  depre- 
ciated would  be  the  amount  for  which  bank 
B  would  doubtless  be  held  hable.  See  Marine 
Bank  v.  Fulton  Bank,  69  U.  S.  (2  WaU.) 
253,  in  which  case  it  was  held  that  money 
collected  by  one  bank  for  another,  placed 
by  the  collecting  bank  with  the  bulk  of  its 
ordinary  banking  funds  and  credited  to  the 
DisiinctiO^^  bank  in  account,  becomes  the 
■  the  former,  and  that  any  depre- 
ciation -XI  the  specific  bank  bills  received  by 
the  collecting  bank  which  may  happen  be- 
tween the  date  of  the  collection  bank's  re- 
ceiving them  and  the  other  banks  drawing 
for  the  amount  collected  fall  upon  the  for- 
mer.   {Inquiry  from  Tex.,  Jan.,  1919.) 

Deposits  in  escrow 

1349.  A  bank  deisres  a  complete  and 
comprehensive  definition  of  an  escrow. 
Opinion:  An  escrow  is  a  written  instrument 
which  by  its  terms  imports  a  legal  obliga- 
tion, deposited  by  the  grantor,  promisor,  or 
obhgor,  or  his  agent,  with  a  stranger  or  third 
person,  that  is,  a  person  not  a  party  to  the 
instrument,  such  as  the  grantee,  promisee, 
or  obligee,  to  be  kept  by  the  depositary  until 
the  performance  of  a  condition  or  the 
happening  of  a  certain  event,  and  then  to  be 
delivered  over  to  take  effect.  (16  Cyc.  56). 
"Where  a  deed  is  deposited  with  a  person 
other  than  the  grantee  upon  an  agreement 
to  deliver  it  upon  the  performance  of  certain 
conditions  it  is  an  escrow,  and  it  is  not 
necessary   that   the   terms   authorizing  its 


dehvery  be  expressed  in  writing,  but  may 
be  declared  orally  at  the  time  of  the  de- 
posit." (Tharaldson  v.  Everts,  87  Minn. 
168).  An  escrow  is  a  deed  delivered  to  a 
stranger,  to  be  delivered  by  him  to  the 
grantee  upon  the  performance  of  some 
condition,  or  the  happening  of  some  con- 
tingency, and  the  deed  takes  effect  only  upon 
the  second  deUvery.  Till  then  the  title  re- 
mains in  the  grantor.    (Hubbard  v.  Greeley, 

84  Me.  340).  An  escrow  is  a  name  appHed 
to  a  deed  or  other  instrument  dehvered  to  a 
third  person,  to  be  held  by  him  until  the 
performance  of  a  specified  condition,  and 
then  to  be  by  him  dehvered  to  the  grantee. 
(3  Washburn  on  Real  Property  [5th  Ed.]  583. 
Abbott's  Law  Diet.,  tit.  Escrow;  [cited,  with 
approval,  in  Cannon  v.  Handley,  72  Cal. 
133].  Another  use  of  the  term  is  to  express 
the  custody  in  which  such  a  writing  so  de- 
posited is.  (See  Century  Diet.)  The  trans- 
action is  frequent  where  A  sells  land  to  B,  to 
make  draft  on  B  for  the  price  and  attach 
deed  to  draft  and  deposit  in  escrow  with 
bank,  deed  to  be  delivered  to  B  on  payment 
of  draft;  and  there  are  various  other  escrow 
transactions  in  which  banks  are  used  as  inter- 
mediaries.   (Inquiry  from  Iowa,  Feb.,  1917.) 

Deposits    for    safe    keeping    and    safe 
deposit  boxes 

Duty  of  care  in  safe  keeping  of  securities 

1350.  A  bank  which  undertakes  the 
safe-keeping  of  securities  or  valuables  for 
a  customer,  either  gratuitously  or  for  hire, 
as  by  receiving  rental  of  safe  deposit  boxes, 
is  not  an  insurer  against  loss  by  fire,  burglary 
or  theft,  but  in  the  absence  of  special  con- 
tract of  hire  which  would  define  the  terms  of 
Habihty  is  under  duty  to  exercise  reasonable 
care  in  the  safe  keeping  of  the  property. 
Where  the  bank  is  a  gratuitous  bailee  it  is 
responsible  for  gross  neghgence,  and  where 
it  receives  compensation  it  is  responsible  for 
ordinary  negligence.  Preston  v.  Prather, 
137  U.  S.  604.  Gray  v.  Merriam,  148  111. 
179.    Pittsburgh  Safe  Dep.  Co.  v.  Pollock, 

85  Pa.  391.  N.  Y.  Central  R.  Co.  v.  Lock- 
wood,  17  Wall.  (U.  S.)  357.  Third  Nat.  Bk. 
V.  Boyd,  44  Md.  47.  Cutting  v.  Marlor,  78 
N.  Y.  454.  Pattison  v.  Syracuse  Nat. 
Bk.,  80  N.  Y.  82.  Cussen  v.  Southern 
Cal.  Sav.  Bk.,  133  Cal.  534.  Schouler  on 
Bailments  and  Carriers,  Sec.  35,  101.  2 
Kent  Com.  588,  591.  Lockwood  v.  Man- 
hattan Storage,  etc.,  Co.,  28  Hun  (N.  Y.) 
68.  Roberts  v.  Stuyvesant  Safe  Dep.  Co., 
123  N.  Y.  57.  Slaflin  v.  Meyer,  75  N.  Y. 
262.     {Inquiry  from  Wis.,  April,  1913,  Jl.) 


308 


DEPOSITS 


[1351-1533 


General  rule  of  ordinary  care  of  securities  left 
for  gratuitous  safe  keeping 

1351.  What  is  the  responsibihty  of  a 
bank  for  Liberty  Bonds  left  for  safe-keeping 
without  charge?  Opinion:  A  bank,  which 
receives  securities  of  a  customer  for  gra- 
tuitous safe-keeping  is  bound  to  exercise 
ordinary  or  reasonable  care.  While  some 
courts  have  apphed  the  technical  rule  that 
shght  care  is  all  that  is  required  in  the  case 
of  a  gratuitous  bailment  and  the  bank  only 
Hable  for  gross  negligence  the  more  modern 
cases  hold  that  a  gratuitous  bailee  of 
securities  is  under  duty  to  use  ordinary  or 
reasonable  care,  and  is  liable  for  a  lack  of 
such  care,  or  ordinary  neghgence.  What  is 
reasonable  care  is  a  question  for  the 
jury  in  each  case.  {Inquiry  from  Pa.,  Feb., 
1921.) 

Duty  of  care  in  safe  keeping  of  Liberty  bonds 
in  Arkansas 

1352.  A  bank  in  Arkansas  inquires  as  to 
certain  recent  decisions  in  that  state  bearing 
on  the  degree  of  care  required  of  a  bank  of 
Liberty  bonds  left  for  safe-keeping  and  the 
liabiht}^  of  the  bank  in  connection  therewith. 
Opinion:  In  Merchants  National  Bank  of 
Vandervoort  v.  Affholter,  215  S.  W.  (Ark.) 
648,  plaintiffs  subscribed  for  registered 
bonds  and  deposited  sufficient  funds  to 
cover  the  subscriptions.  The  bank  ordered 
and  received,  not  registered,  but  coupon 
bonds,  which  were  stolen.  The  bank  was 
held  liable  for  the  amount  of  these  bonds 
which  it  had  purchased  for  the  plaintiffs 
irrespective  of  any  degree  of  care,  because  of 
its  failure  to  buy  registered  bonds  as  directed 
In  addition  one  of  the  plaintiffs  had  left 
a  coupon  bond  with  the  bank  for  safe- 
keeping. This  bond  with  others,  belonging  to 
numerous  persons,  including  officials  of  the 
bank,  was  not  kept  in  the  burglar-proof 
money  compartment  of  the  safe,  but  in  the 
outer  part  of  the  safe.  During  the  night  the 
door  of  the  safe  was  blown  off  by  burglars, 
and  the  bonds  taken,  although  the  burglar- 
proof  compartment  was  not  entered.  The 
testimony  on  the  part  of  the  bank  was  to  the 
effect  that  all  the  bonds  kept  by  the  bank, 
including  those  owned  by  the  bank  itself 
and  its  officials,  were  kept  in  the  same  man- 
ner, and  that  such  was  the  customary  way  to 
keep  the  bonds.  There  was  also  testimony 
to  the  effect  that  there  was  no  room  inside 
the  mone}^  compartment  for  the  bonds.  The 
court  held  that  while  the  bank  was  merely 
a  gratuitous  bailee  and  consequently  liable 


for  gross  negligence  only,  the  above  was 
sufficient  proof  of  gross  negligence  to  sustain 
a  verdict  for  plaintiffs.  It  was  a  question 
for  the  jury  whether  it  constituted  gross 
negligence  to  keep  bonds  payable  to  bearer 
in  an  insecure  place.  In  a  companion  case, 
Maloney  v.  Merchants  Bank  of  Vander- 
voort, 217  S.  W.  (Ark.)  782,  involving  the 
same  burglary,  and  the  loss  of  coupon  bonds, 
also  left  in  the  outer  part  of  the  safe, 
it  was  held  that  the  burden  was  on  the 
bank  to  show  that  it  had  made  some  dis- 
position of  the  bonds  authorized  by  the  cus- 
tomer or  that  they  were  lost  without  fault 
on  its  part.  An  instruction  imposing  the 
Ijurden  of  proof  upon  the  customer  to 
show  that  the  bank  had  not  exercised  com- 
mon prudence  was  held  incorrect,  as  was  an 
instruction  that  if  the  bank  took  the  same 
care  of  the  customer's  bonds  that  it  did  of 
its  own  and  those  of  its  officers,  it  was  not 
hable,  as  the  bank  might  have  been  negligent 
in  the  care  of  its  own  bonds:  Citing  Erie 
Bank  v.  Smith,  Randolph  &  Co.,  3  Brewst. 
(Pa.)  9.  Griffith  v.  Zipperwick,  28  Ohio  St. 
388,  Patriska  v.  Kronk,  57  Misc.  (N.  Y.) 
552,  109  N.  Y.  Supp.  1092.  Ray  v.  Bank  of 
Kentucky,  10  Bush.  (Ky.)  344.  In  this 
companion  case,  judgment  for  the  bank, 
based  on  a  verdict  for  it,  was  reversed  for 
the  above  erroneous  instruction.  (Inquiries 
from  Ark.,  April  and  June,  1920,  Jl.) 

Bonds   kept   in   vault   outside   safe 

1353.  A  bank  keeps  packages  of  bonds 
without  charge  in  envelopes  in  safe  deposit 
boxes  outside  of  the  burglar-proof  safe  but 
inside  of  a  steel-lined  vault  with  double 
doors?  Is  the  bank  hable  for  loss  through 
theft?  Opinion:  The  general  rule  is  that 
while  a  bank  is  not  an  insurer  of  customer's 
securities  left  with  it  for  safe-keeping,  it  is 
under  a  duty  to  use  reasonable  care  which  is 
determined  by  the  facts  and  circumstances 
of  each  particular  case.  A  recent  Arkansas 
decision  goes  a  Uttle  farther  with  respect  to 
the  responsibility  of  a  bank  for  the  gratui- 
tous safe-keeping  of  securities  than  other 
cases.  (See  No.  1352)  If  this  decision  should 
be  followed  in  Pennsylvania,  the  bank  in  the 
case  submitted  might  be  held  neghgent 
where  it  kept  the  securities,  although  gra- 
tuitously, in  the  vault  outside  the  burglar- 
proof  safe.  If  it  is  impracticable  to  keep  the 
bonds  of  customers  in  the  burglar-proof  safe, 
it  would  be  well  to  have  a  special  stipulation 
on  the  deposit  receipt  limiting  the  responsi- 
bihty for  loss  by  burglary,  where  the  bank 
takes  the  same  care  of  the  customers'  se- 


309 


1354-1356] 


DIGEST  OF  LEGAL  OPINIONS 


curities  that  it  does  of  its  own  of  like  kind. 
A  properly  worded  clause  might  safeguard 
the  bank  from  Habihty.  {Inquiry  from  Pa., 
Dec,  1920.) 

A  bank's  form  of  disclaimer  of  liability  and 
method  of  safe-keeping 

1354.  A  bank  receives  bonds  for  safe- 
keeping with  the  following  provision  in  its 
receipt:  "It  is  hereby  understood  that  this 
bank  will  not  be  responsible  for  any  papers 
left  for  safe  keeping;  we  are  merely  acting  as 
agent  for  the  owner."  All  bonds  so  received 
are  placed  in  the  inner  safe  where  the  bank 
keeps  its  own  money.  This  safe  is  locked 
during  the  day  with  the  combination,  except 
as  it  is  opened  to  get  a  new  supply  of  money. 
At  night  the  combination  and  time  locks  are 
both  on.  The  bank  takes  the  precautions 
required  by  its  insurance  policy  on  its  own 
money.  Would  the  bank  be  liable  in  the 
event  of  the  theft  of  the  bonds?  Opinion: 
A  bank  is  not  an  insurer  of  securities  left 
with  it  for  safe-keeping  but  is  bound  to  the 
exercise  of  reasonable  care,  which  is  a  ques- 
tion of  fact  for  the  jury  in  each  particular 
case.  Whether  the  disclaimer  from  Ha- 
bihty would  be  effective  in  the  event  of  loss 
through  gross  neghgence  is  questionable. 
But  it  would  seem  that  the  method  em- 
ployed to  safeguard  the  securities  would  be 
held  due  dihgence,  and  where  the  bank 
pursued  such  method  a  jury,  which  is  the 
ultimate  arbiter  in  all  these  cases,  would 
hold  that  the  bank  had  exercised  due  care 
and  was  not  liable.  {Inquiry  from  Pa., 
Dec,  1920.) 

Re-deposit  for  safe-keeping  with  city 
correspondent 

1355.  A  bank  is  considering  sending  all 
of  its  "bearer  securities"  to  its  Washington 
correspondent.  What  would  be  the  legal 
result  of  such  action?  Opinion:  The 
general  rule  of  responsibility  of  a  bank 
which  holds  securities  of  customers  for  safe- 
keeping is  stated  elsewhere.  Opinion  No. 
1353.  Assuming  that  the  bearer  securi- 
ties are  transferred  to  the  safe  of  the  Wash- 
ington correspondent,  which  presumably 
is  a  safer  place  than  the  vaults  of  the  Vir- 
ginia bank,  the  transfer  would  seem  to  be  in 
pursuance  of  the  exercise  of  reasonable  care 
under  the  circumstances,  for  there  would  be 
less  risk  of  loss  from  burglary.  At  the  same 
time  there  might  be  a  possibility  of  loss  from 
inside  theft  or  embezzlement,  and  assuming 
such  possibility,  it  would  be  an  uncertain 
question  whether  the  Washington  corres- 


pondent would  be  liable  to  the  Virginia 
bank,  and  a  further  uncertain  question 
whether  the  latter  bank  would  be  liable  to 
its  customers.  The  taking  out  of  a  policy 
of  insurance  against  loss  from  these  causes 
would  be  a  desirable  safeguard.  {Inquiry 
from    Va.,  March,  1921.) 

Form  of  safe-keeping  receipt  protecting  bank 

1356.  Where  a  bank  receives  securities 
and  valuables  for  safe-keeping  but  does  not 
rent  for  hire  safe  deposit  boxes  to  customers, 
what  form  of  receipt  would  best  protect  the 
bank  in  case  of  loss  by  burglary,  theft  or 
other  cause?  Opinion:  (1)  Receipt  for 
Gratuitous  Safe-keeping.  Where  a  bank 
receives  securities  and  valuables  for  safe- 
keeping, without  compensation,  it  is  a 
gratuitous  bailee  and  bound  to  use  the 
reasonable  care  which  the  property  in  its 
situation  demands;  the  care  which  ordinarily 
prudent  persons  would  exercise  in  the  same 
relationship  and  under  like  circumstances. 
The  omission  of  such  care  is  neghgence, 
whether  it  be  termed  gross  or  ordinary,  for 
which  the  bailee  is  liable.  The  courts  do  not 
favor  stipulations  against  liabihty,  even  by 
gratuitous  bailees,  and  construe  them  most 
strongly  against  the  bailee.  A  gratuitous 
bailee  can,  of  course  limit  his  liability  by 
agreement  but  there  is  a  difference  of  view 
whether  he  can  free  himself  from  liability 
for  his  own  neghgence  and,  even  where  he 
can,  he  will  be  held  liable  for  loss  chargeable 
to  that  cause  under  a  general  stipulation 
against  Habihty,  unless  he  expressly  stipu- 
lates against  Hability  for  his  own  neghgence. 
Bean  v.  Ford,  119  N.  Y.  Supp.  1074.  The 
following  form  of  receipt  and  stipulation 
against  HabiHty  is  suggested : 

"Received  from  the  securities 

described  below,  for  gratuitous  safe-keeping 
it  being  expressly  understood  and  agreed 

that bank  shall  not  be  liable  for 

loss  of  or  damage  to  such  securities  caused 
by  burglary,  theft,  embezzlement,  fire  or 
any  cause  whatsoever,  whether  or  not 
chargeable  to  its  own  negligence,  but  that 
the  entire  risk  of  such  loss  or  damage  is  as- 
sumed by  the  depositor." 

Should  a  bank  in  any  case  not  desire  to 
expressly  stipulate  against  its  own  negh- 
gence, that  particular  phrase  can  be  ehmi- 
nated. 

(2)    Receipt  for   safe-keeping  for   hire. 

Where  a  bank  receives  securities  and  valu- 
ables for  safe-keeping  for  which  it  makes  a 
charge  it  becomes  a  bailee  for  hire  and  is 


310 


DEPOSITS 


[1357-1360 


bound  to  exercise  that  degree  of  care  in  the 
safe-keeping  which  a  reasonably  careful 
person  would  exercise  in  regard  to  similar 
property  of  his  own.  The  omission  of  such 
care  is  negligence  for  which  it  is  responsible. 
According  to  the  majority  of  courts,  a  bailee 
for  hire  cannot  stipulate  against  his  own 
negligence.  Furthermore,  it  is  likely  that  a 
bank  which  makes  a  charge  for  safe-keeping, 
would  be  subject  to  the  provisions  of  the 
Uniform  Warehouse  Receipts  Act,  which  is 
the  law  in  most  of  the  states  and  which 
defines  a  warehouseman  as  "a  person  law- 
fully engaged  in  the  business  of  storing  goods 
for  profit."  In  New  Jersey  Title  Guarantee 
&  Trust  Co.,  V.  Rector,  75  Atl.  (N.  J.)  931 
|l  the  plaintiff  was  "conducting  the  business 
of  running  safe  deposit  vaults  and  ware- 
housing valuable  goods  and  chattels  for 
hire."  One  R  deposited  with  it  a  box  for 
which  a  receipt  was  given,  ownership  of 
which  was  subsequently  claimed  by  R's 
wife.  The  plaintiff  was  held  to  be  a  ware- 
houseman under  the  act  and  entitled  to 
interplead  the  parties  according  to  its  pro- 
visions. See,  also,  Healy  v.  N.  Y.  Cent.  & 
H.  R.  R.  Co.,  138  N.  Y.  Supp.  287.  Under 
Section  21  of  the  Warehouse  Receipts  Act  a 
warehouseman  is  made  liable  "for  any  loss 
or  injury  to  the  goods  caused  by  his  failure 
to  exercise  such  care  in  regard  to  them  as  a 
reasonably  careful  owner  of  similar  goods 
would  exercise,  but  he  shall  not  be  liable,  in 
the  absence  of  an  agreement  to  the  contrary, 
for  any  loss  or  injury  to  the  goods  which 
could  not  have  been  avoided  by  the  exercise 
of  such  care,"  and  by  Section  3  a  warehouse- 
man cannot  insert  in  a  receipt  terms  and 
conditions  which  "in  any  wise  impair  his 
obligation  to  exercise  that  degree  of  care  in 
the  safe-keeping  of  the  goods  entrusted  to 
him  which  a  reason  a})ly  careful  man  would 
exercise  in  regard  to  similar  goods  on  his 
own."  The  following  stipulation  against 
UabiUty  is  suggested  for  insertion  in  receipts 
issued  by  banks  which  receive  securities  for 
safe-keeping  for  which  a  charge  is  made  : 

"The bank  agrees  to  exercise 

that  degree  of  care  in  the  safe-keeping  of  the 
securities  deposited  with  it  which  a  reason- 
ably careful  person  would  exercise  in  regard 
to  similar  goods  of  his  own;  but  beyond  this 
the  bank  shall  not  be  responsible  for  loss  of 
or  damage  to  such  securities  caused  by 
burglary,  theft,  embezzlement,  fire  or  any 
cause  whatsoever  and  the  entire  risk  of  such 
loss  or  damage  is  assumed  by  the  depositor." 
(Inquiry  from  N.  J.,  Jan.,  1921.) 


Liability  for  burglary   of  safe   deposit   box 

1357.  What  is  the  general  rule  governing 
liabihty  of  a  bank  for  burglary  of  the  con- 
tents of  safe  deposit  boxes  rented  to  its 
customers?  Opinion:  A  bank  is  not  an 
insurer  of  the  contents  of  a  safe  deposit  box, 
but  according  to  most  courts  is  a  bailee  for 
hire  and  under  obligation,  as  such,  to  use 
reasonable  care  in  safe-guarding  the  box 
and  its  contents  from  burglars  without  and 
thieves  within.  The  general  rule  is  that 
reasonable  care  calls  for  the  same  degree 
of  care  that  a  prudent  person  would  take 
of  his  own  property  under  like  circumstances. 
Whether  reasonable  care  has  been  used  is  a 
question  of  fact  to  be  determined  by  a  jury 
in  each  particular  case.  Cases  involving 
liability  for  loss  of  contents  of  a  box  because 
of  inside  theft,  or  where  misdelivered 
through  fraud  or  invalid  legal  process 
have  heretofore  been  decided  by  the 
courts,  but  the  liability  of  a  bank  because 
of  burglary  is  a  new  and  undeveloped  ques- 
tion which  is  only  now  coming  up  for  de- 
cision in  recent  cases.  (Inquiry  from  Kan., 
Feb.,  1921.) 

1358.  The  safe  deposit  boxes  of  a  bank 
are  located  in  one  of  the  latest  make  of 
burglar-proof  vaults.  If  it  uses  due  diligence 
in  the  protection  of  the  boxes,  it  is  liable  for 
the  contents  in  the  event  of  burglary? 
Opinion:  The  bank  is  not  an  insurer  but  is 
bound  to  use  reasonable  care.  In  the  event 
of  burglary,  it  would  be  for  a  jury  to  decide 
whether,  under  the  facts,  the  bank  had 
exercised  reasonable  care.  {Inquiry  from 
Ohio,  Feb.,  1921.) 

Reasonable  care  a  question  for  fury 

1359.  Is  a  bank  renting  safe  deposit 
boxes  hable  for  loss  of  contents  from  bur- 
glary or  theft  from  the  outside?  From  theft 
Ijy  employees  of  the  bank?  Opinion:  A 
bank  is  not  an  insurer  of  the  contents  of  a 
safe  deposit  box  but  is  under  the  duty  to 
exercise  reasonable  care.  Just  what  is 
reasonable  care  depends  upon  the  facts  and 
circumstances  of  each  particular  case  and 
is  a  question  for  the  jury.  (Inquiry  from 
N.  Y.,  Dec.,  1920.) 

Trust  company  agreement  limiting  liability  to 
exercise  of  accustomed  diligence 

1360.  A  trust  company  provides  a  card 
containing  rules  and  regulations  for  its 
safe  department.  There  is  a  blank  for  sig- 
nature to  an  agreement,  which  among  other 
things,  provides  that  the  renter  of  a  safe 


311 


1361-1363] 


DIGEST  OF  LEGAL  OPINIONS 


deposit  box  agrees  "to  the  above  rules  and 
regulations,"  one  of  which  is  that  "The 
Habihty  of  the  Company,  by  reason  of  the 
letting,  is  hmited  to  the  exercise  of  its  ac- 
customed diligence  to  prevent  the  opening 
of  said  Safe  Deposit  Box,  by  any  person 
other  than  the  lessee  or  his  duly  authorized 
representative."  What  is  the  liability  of  the 
trust  company?  Opinion:  The  liability  is 
defined  by  the  quoted  agreement;  it  is 
limited  to  the  exercise  of  accustomed  dih- 
gence.  In  other  words,  this  is  reasonable 
care  under  the  circumstances  of  each  partic- 
ular case  and  if  a  burglary  should  occur,  the 
Uabihty  would  depend  in  its  final  analysis 
on  what  a  ]uTy  would  find  upon  the  question 
of  reasonable  care.  (Inquiry  from  Pa.,  Feb., 
1921.) 

A  hank's  form  of  disclaimer  of  responsibility 
for  loss  from  safe  deposit  box 

1361.  The  bill  of  a  bank  for  the  rent  of 
safe  deposit  boxes  contains  on  its  face  the 
provision :  "Sul  )ject  to  rules  and  regulations 
made  by  the  National  Bank  appertaining 
thereto.  (See  other  side.)"  On  the  reverse 
side  are  a  number  of  regulations  including 
the  following:  "The  bank  is  not  responsible 
for  contents  of  safes  except  by  special  con- 
tract in   writing The   safe   is   rented 

subject  to  all  risk  against  loss  by  theft  and 
burglary  and  without  any  Uability  whatever 
against  the  Bank  for  any  loss  or  damage 
occasioned  thereby."  What  is  the  legal 
effect  of  these  rules?  Should  the  receipts 
for  rent  be  signed  by  the  renters?  Opinion: 
The  degree  of  responsibility  of  a  bank  may 
be  hmited  or  regulated  by  contract.  The 
rules  quoted  if  agreed  to  by  the  customer, 
would  protect  the  bank  according  to  their 
terms.  Whether  they  would  afford  absolute 
protection  is  not  entirely  clear.  While  they 
contain  a  general  disclaimer  of  responsibiUty 
and  place  loss  by  theft  and  burglary  at 
owner's  risk,  some  courts  hold  that  a  bank 
cannot  stipulate  against  responsibihty  for 
the  consequences  of  its  own  neghgence.  As 
to  signing  the  rules,  the  acceptance  of  the 
receipted  bill  by  the  customer  containing 
the  rules  and  the  statement  that  the  safe  is 
rented  subject  to  such  rules  would  probably 
be  sufficient  as  a  contract  binding  on  both 
parties.  But  it  would  probably  be  better 
to  obtain  the  customers'  signatures  to  avoid 
all  question  as  to  the  binding  effect  of  the 
rules  upon  a  customer  who  would  state 
under  oath  that  he  had  never  read  them  and 
consequently  had  not  assented  thereto. 
(Inquiry  from  Mass.,  Feb.,  1921.) 


Liability  of  bank  for  robbery  of  safe  deposit 
box  as  gratuitous  bailee  and  limita- 
tion by  contract 

1362.  What  is  the  habihty  of  a  bank  to 
the  renters  of  safe  deposit  boxes  which  al- 
though somewhat  safeguarded  would  prob- 
ably jneld  to  the  efforts  of  the  professional 
burglar?  (2)  What  is  the  habihty  for  the 
gratuitous  safe-keeping  of  papers,  placed  in 
safe  deposit  boxes?  Opinion:  (1)  The  gen- 
eral rule  of  law  is  that  a  bank  is  not  an  in- 
surer of  the  contents  of  a  safe  deposit  box 
but  is  bound  to  exercise  reasonable  care. 
What  is  reasonable  care  is  a  question  of  fact 
for  the  determination  of  the  jury  in  each 
particular  case.  In  the  case  submitted  were 
there  a  burglary,  it  would  be  for  the  jury  to 
decide  whether  reasonable  care  were  exer- 
cised. (2)  As  for  the  papers  left  gratuitously 
for  safe-keeping,  while  the  technical  legal 
rule  is  that  the  bank  is  required  to  use  only 
shght  care  and  is  responsible  only  for  gross 
negligence,  the  courts  in  some  late  cases 
have  upheld  verdicts  in  which  banks  ap- 
parently using  reasonable  care  have  been 
held  grossly  negligent.  (3)  It  would  be  well 
to  make  a  specific  contract  with  those  leav- 
ing papers  for  safe-keeping  and  with  box- 
renters,  which  could  be  incorporated  in  the 
latter  case  with  the  rent  receipt,  as  to  the 
degree  of  care  to  be  used,  with  a  stipulation 
that  if  such  care  is  used,  there  will  be  no 
responsibihty  for  loss  by  burglary,  theft  or 
other  cause.    (Inquiry  from  Pa.,  Feb.,  1921.) 

Form  of  safe  deposit  receipt  protecting  bank 

1363.  What  form  of  receipt  will  give  a 
bank  most  protection  in  leasing  safe  deposit 
boxes?  Opinion:  The  courts  quite  generally 
hold  that  a  bank  which  rents  to  a  customer 
a  safe  deposit  box,  notwithstanding  the 
bank  is  ignorant  of  the  contents  of  the  box, 
is  a  bailee  for  hire  and  responsible,  as  such, 
for  the  exercise  of  reasonable  care  in  safe- 
guarding the  box  and  its  contents.  The 
difficulty  in  framing  a  receipt  which  will 
absolutely  protect  the  bank  is  due  to  the 
fact  that  the  courts  in  many  states  apply  a 
rule  which  has  been  expressed  by  one  court 
as  follows:  "It  is  the  better  rule  that  a 
bailee  for  hire  cannot,  by  contract,  so  hmit 
his  responsibihty  to  the  bailor  as  not  to  be 
hable  for  his  own  negligence  or  the  negli- 
gence of  his  agents  and  servants."  Pilson 
V.  Tip  Top  Auto  Co.,  136  Pac.  (Ore.)  642. 
But  while  the  bailor  and  bailee  theory  is  the 
prevaihng  one,  a  few  courts,  in  certain 
situations  connected  with  the  rental  of  safe 
deposit  boxes,  have  applied  the  landlord  and 


312 


I 


DEPOSITS 


[1364-1366 


tenant  theory;  and  it  would  seem  that  a 
contract  between  bank  and  box-renter, 
creating  the  landlord  and  tenant  relation 
and  exempting  the  bank  from  liability  for 
loss,  would  afford  the  bank  the  most  pro- 
tection. The  following  form  is  suggested: 
"It  is  expressly  understood  and  agreed 

that  Box  No. is  leased  by 

Bank  as  landlord  to 


as  tenant, 

and  that  in  making  this  lease  the  bank 

does  not  assume  the  relation  and  duty 

of  bailee  and  shall  not  be  liable  for  loss  of 

or  damage  to,  the  contents  of  said  box 

caused  by  bm'glary,  theft,  embezzlement, 

fire  or  any  cause  whatsoever  but  that  the 

entire   risk    of   such   loss   or   damage   is 

assumed  by  the  lessee." 

The  above  form  could  be  coupled  with 

other  necessary  regulations  as  to  access  and 

made  binding  on  the  lessee  by  procuring 

his  signature  thereto;  or,  if  printed  on  the 

back  of  a  rental  receipt,  the  face  should 

contain  a  provision  that  the  acceptance  of 

the   receipt   by   the   lessee   constitutes   an 

agreement  to  the  provisions  on  the  back. 

{Inquiry  from  N.  J.,  June,  1921.) 

Insurance  of  safe  deposit  boxes 

1364.  Does  the  usual  form  of  burglary 
insurance  policy  cover  loss  of  the  contents 
of  safe  deposit  boxes  rented  to  customers? 
Opinion:  Under  the  usual  form  of  bank 
bm-glary  policy  the  contents  of  safe  deposit 
boxes  would  not  be  covered  unless  the  bank 
should  be  held  hable  to  the  customer,  in 
which  event  there  would  be  a  coverage.  But 
special  policies  or  riders  to  policies  are  now 
issued  covering  contents  of  safe  deposit 
boxes.     {Inquiry  from   N.  C,   Nov.,  1920.) 

Liability  of  bank  as  renter  of  safe  deposit  box 
and    protection    by    insurance 

1365.  What  is  the  liability  of  a  bank  to 
renters  of  its  safe  deposit  boxes?  May  the 
bank  limit  its  responsibility?  If  a  bank  took 
out  a  burglary  insurance  policy,  would  the 
making  of  a  claim  thereunder  constitute 
acknowledgment  by  the  bank  of  responsi- 
bility to  the  renters?  What  form  of  policy 
is  best?  Would  it  be  desirable  to  have  the 
renters  pay  a  certain  amount  for  insurance? 
Opinion:  A  bank  is  not  an  insurer  of  the 
contents  of  safe  deposit  lioxes,  but  is  held  to 
the  exercise  of  reasonable  care,  which  pre- 
sents a  question  of  fact  for  the  jury  to  be 
determined  from  the  circumstances  of  each 
case.  The  responsibility  may  be  hmited  and 
defined  by  spetia-l  agreement.    Liability  for 


loss  by  burglary  has  not  yet  been  fully 
worked  out  by  the  courts. 

The  question  of  acknowledgment  of 
responsibility  by  the  bank  to  its  renter  by 
making  a  claim  for  loss  is  probably  debat- 
able. If  the  bank  protected  itself  by  insur- 
ance against  loss  and  the  burglary  caused 
loss  to  the  renter  but  no  loss  to  it — assuming 
non-responsibihty  to  the  renter — it  might  be 
argued  that  the  making  claim  for  the 
amount  constituted  an  admission  that  the 
bank  deemed  itself  the  loser  by  reason  of 
liability  to  its  customer;  for  it  is  not  the 
loss  of  the  customer  which  is  insured  but  of 
the  bank. 

The  better  plan  is  to  procure  insurance  on 
behaK  of  the  customer.  Burglary  insurance 
companies  issue  two  forms  of  policies  or 
riders  to  pohcies  (1)  to  the  bank  agreeing  to 
indemnify  and  pay  the  bank  on  behalf  of  the 
lessee  of  the  safe-deposit  box  (or  pay  the 
lessee  directly  at  the  option  of  the  company) 
and  (2)  an  individual  pohcy  of  insurance  to 
the  box-renter  covering  the  contents  of  his 
safe-deposit  box.  If  a  bank  take  out  on 
behalf  of  its  lessees,  a  pohcy  covering  all  the 
boxes,  it  might  be  well,  instead  of  paying  the 
premium  itself,  to  apportion  it  among  the 
box-renters  and  to  collect  a  certain  amount 
as  rent  and  a  certain  amount  for  insurance 
and  frame  the  receipt  accordingly.  {Inquiry 
from  Tex.,  Feb.,  1921.) 

Right  of  access  of  surviving  joint  owner  in 
New  York 

1366.  Is  it  now  legal  to  open  a  safe  de- 
posit account  in  the  names  of  two  individ- 
uals, or  is  it  necessary  to  open  the  account 
in  the  name  of  the  owner  who  has  then  the 
power  to  appoint  a  deputy  to  transact  all 
his  business  for  him?  In  case  of  death  can 
the  joint  owner,  as  in  question  No.  1,  have 
access  to  the  safe  deposit  box,  and  in  case  of 
death  of  the  owner  as  in  question  2,  can,  the 
deputy  have  access  to  the  safe  deposit  box 
without  release  from  the  State  Comptroller? 
Opinion:  This  point  was  settled  in  People  v. 
Mercantile  Safe  Deposit  Company,  143  N. 
Y.  Supp.  849,  in  which  it  was  held  that  a 
safe  deposit  company  did  not  have  posses- 
sion or  control  of  the  securities  contained  in 
the  box  within  the  meaning  of  the  statute 
prohibiting  a  safe  deposit  conapany  having 
possession  or  control  of  securities,  etc.,  from 
making  deliver}^  to  the  survivor  unless  notice 
was  served  upon  the  State  Comptroller,  etc. 
The  court  held  that  the  relation  of  the  safe 
deposit  company  was  analogous  to  that  of 
landlord  who  would  have  no  more  poBses- 


313 


1367-1370] 


DIGEST  OE  LEGAL  OPINIONS 


t 


sion  or  control  of  the  securities  than  would 
the  landlord  of  an  office  building  have  pos- 
session and  control  of  the  contents  of  a 
rented  office;  that  the  situation  with  respect 
to  securities  contained  in  safe  deposit  boxes 
was  manifestly  different  from  the  relation 
which  the  safe  deposit  company  occupied 
towards  those  who  made  a  physical  deposit 
of  valuables  for  which  a  receipt  was  issued. 
In  such  cases  the  safe  deposit  company  was 
clearly  a  bailee,  having  physical  custody  of 
the  articles  with  power  to  control  the  de- 
livery thereof.  {Inquiry  from  N.  Y.,  Jan., 
1918.) 

Access  to  box  by  customer's  wife  presenting  key 

1367.  A  bank  leased  a  safe  deposit  box 
to  A,  who  holds  the  key.  His  partnership 
business  with  B  having  failed,  a  receiver  was 
appointed  and  A  moved  away.  A's  wife  who 
found  the  key  demands  the  right  to  open  the 
box.  Opinion:  A  bank  which  leases  a  safe 
deposit  box  to  a  customer  who  keeps  the  key 
is  a  bailee  for  hire  under  duty  to  exercise 
reasonable  care  and  should  not  allow  a  per- 
son other  than  the  customer  presenting  the 
key  access  to  such,  except  upon  written 
authority  from  the  customer,  whether  such 
person  be  the  bailee's  wife,  or  a  receiver  of 
the  bailee  or  any  other  person,  unless  com- 
pelled to  do  so  by  vaHd  judicial  process. 

State  V.  Kelsey,  53  N.  J.  L.  590.  Mayer  v. 
Bresinger,  180  111.  110.  N.  J.  Title  Guaran- 
tee, etc.,  Co.  V.  Rector,  76  N.  J.  Eq.  587. 
Roberts  v.  Stuyvesant  S.  D.  Co.,  123  N.  Y. 
57.  Bauman  v.  Nat.  S.  D.  Co.,  124  lU.  App. 
419.  Butler  v.  Jones,  80  Ala.  436.  Ball  v. 
Liney,  48  N.  Y.  6.  Dowd  v.  Wadsworth,  13 
N.  C.  130.  Powell  V.  Robinson,  76  Ala.  423. 
Freeman  v.  Perry,  25  Tex.  611.  Wilson  v. 
Anderton,  1  B.  &  Ad.  450  (Eng.).  Patten 
V.  Baggs,  43  Ga.  167.  Willner  v.  Morrell  40 
N.  Y.  Super.  222.  Babcock  v.  People's  Sav. 
Bk.,  118  Ind.  212.  Pippin  v.  Farmers' 
Warehouse  Co.,  167  Ala.  162.  Citizens  Bk. 
V.  Ark.  Compress,  etc.,  Co.,  80  Ark.  601. 
Peoria,  etc.  R.  Co.  v.  Buckley,  114  111.  337. 
Forbes  v.  Boston,  etc.,  R.  Co.,  133  Mass. 
154.  Mohr  v.  Langan,  162  Mo.  474.  Os- 
wego Bk.  V.  Doyle,  91  N.  Y.  32.  Klein  v. 
Patterson,  30  Pa.  Super.  495,  Providence 
Fifth  Nat.  Bk.  v.  Providence  Warehouse 
Co.,  17  R.  I.  112.  Rex  v.  James  (Tex.  Civ. 
App.  1910),  131  S.  W.  248.  Higdon  v. 
Warrant  Warehouse  Co.,  10  Ala.  App.  496. 
Jensen  v.  Eagle  Ore  Co.,  47  Colo.  306. 
Savannah,  etc.,  R.  Co,  v.  Wilcox,  48  Ga, 
432.  Ohio,  etc.,  R.  Co.  v.  Yohe,  51  Ind,  181. 
French  v.  Star  Union  Tramp  Co.,  134  Mass. 


288.  Bliven  v,  Hudson  River  R.  Co.,  36 
N.  Y.  403.  Street  v.  Farmers'  El.  Co.,  33 
S.  Dak.  601.  Burton  v.  Wilkinson,  18  Vt. 
186.  Morris  Storage,  etc.,  Co.  v.  Wilkes,  1 
Ga.  App.  751.  Edwards  v.  White  Line 
Transit  Co.,  104  Mass.  159.  McAlister  v. 
Chicago,  etc.,  R.  Co.,  74  Mo.  351.  {Inquiry 
from  Kan.,  Oct.,  1918,  Jl.) 

Deposit  by  partnership 

Sufficency  of  firm  signature 

1368.  Under  the  firm  name  of  "Smith 
Bros."  a  partnership  opened  an  account  in 
a  bank.  By  agreement  with  the  bank  the 
signature  "Smith  Bros,"  was  to  be  used  on 
all  checks  and  notes,  drawn  by  either  part- 
ner. Opinion:  The  signature  "Smith 
Bros,"  as  the  firm  name  to  checks  and  notes 
is  legally  sufficient  without  adding  the  name 
of  the  individual  partner  who  signs  the  firm 
name.  Cal,  Code,  Sec.  2466.  North  v. 
Moore,  135  Cal.  621,  Decker  v.  Howell,  42 
Cal.  636.  {Inquiry  from  Cal,  July,  1913  Jl.) 

Withdrawal  by  surviving  partner 

1369.  A  and  B  are  partners  and  open  an 
account  in  a  bank  in  the  name  of  "The  Star 
Grocery,"  subject  to  the  signature  of  A  or 
B.  A  dies.  Opinion:  B  can  draw  checks 
against  the  partnership  account  and  the 
bank  would  not  be  Hable  to  the  heirs  of  A 
for  the  money  thus  paid.  Backhouse  v. 
Charlton,  8  Chan.  Div.  444,  Com.  Nat.  Bk. 
V.  Proctor,  98  111.  558.  {Inquiry  from  Wash. 
Feb.,  1915,  Jl.) 

Withdrawal  of  partnership  account  carried  in 
corporation  name 

1370.  A  bank  submits  a  case  wherein  a 
depositor  was  regarded  as  a  corporation  and 
the  secretary-treasurer  had  been  specifically 
designated  to  draw  the  corporate  funds. 
The  business,  however,  was  discontinued  in 

Tennessee   and   the   President,    L ,    in 

Philadelphia,  drew  a  draft  through  a  bank 
in  that  city  for  the  balance  of  funds  to  its 
credit,  signed  in  the  name  of  the  company  by 
himself  as  President.  The  draft  was  made 
payable  to  the  company,  and  he  indorsed  the 
same  in  its  name,  and  also  individually,  and 
it  was  paid  by  the  bank  and  charged  to  the 
company's  account.  The  indorsement  was 
guaranteed  by  a  Philadelphia  bank.  It  was 
afterwards  found  that  the  company  had  no 
legal  corporate  existence.  Opinion:  In 
view  of  the  facts,  it  appears  that  the  com- 
pany was  not  a  corporation,  but  a  partner- 
ship, and  the  general  rule  as  to  partnership 


i 


314 


DEPOSITS 


[1371-1373 


accounts  is  that  each  has  equal  right  to  draw 
checks  on  the  account  in  the  firm  name. 
Under  such  circumstances  assuming  the 
president  was  a  partner,  it  seems  the  pay- 
ment by  the  bank  would  be  held  authorized; 
but  even  if  not,  and  the  bank  is  held  Uable 
to  the  partner  designated  as  Secretary- 
Treasurer,  this  draft  was  payable  to  the 
corporation  or  firm,  and  the  Philadelphia 
bank  guaranteed  the  indorsement.  This 
guarantee  was  not  only  of  the  genuineness 
of  the  indorsement,  but  included  the  au- 
thority of  L to  indorse  the  payee's 

name,  and,  it  seems,  if  the  money  was  mis- 
appropriated and  did  not  go  to  the  purposes 
of  the  corporation  or  partnership,  there 
would  be  a  hability  on  this  guarantee.  (In- 
quiry from  Tenn.,  May,  1919.) 

Deposits    of    corporations 

Agent    acting  for    corporation 

1371.  A  corporation  depositor  issued  a 
letter  of  authority  to  a  bank,  containing 
restrictions  upon  its  agents  as  to  power  to 
sign  and  indorse  paper  of  the  corporation. 
The  account  was  closed  and  thereafter  the 
corporation  was  represented  in  the  locality 
by  an  agent,  who  indorsed  checks  payable 
to  the  corporation  for  deposit,  had  them 
credited  to  his  personal  account  along  with 
his  personal  funds,  and  checked  them  out  the 
same  as  his  personal  credit.  The  agent 
would  also  make  shipments  and  draw  bill  of 
lading  drafts  in  the  name  of  the  company 
per  himself,  which  he  would  deposit  and 
collect  through  the  bank.  Is  the  bank  hable 
for  misappropriation  by  the  agent  of  the 
proceeds  of  checks  drawn  to  the  corporation? 
Opinion:  The  closing  of  the  original  account 
terminated  the  letter  of  authority  limiting 
the  right  of  signing  and  indorsing  paper. 
When  thereafter  the  company  was  repre- 
sented by  an  agent  in  the  locality  and  cer- 
tain banking  facilities  were  required,  the 
letter  of  instruction  would  have  nothing  to 
do  with  this  as  the  company  itself  was  no 
longer  carrying  an  account  with  the  bank; 
rather  the  agent  was  carrying  it  as  a  part  of 
his  personal  account.  If  it  should  be  ad- 
mitted that  the  agent  had  no  actual  au- 
thority to  do  as  he  did,  the  question  arises 
whether  the  company  had  knowledge  of 
what  he  was  doing  and  acquiesced  the  rein, 
so  as  to  make  out  a  case  of  implied  authority. 
This  question  is  one  of  fact.  If  there  was 
knowledge  and  acquiescence,  or  if  the  com- 
pany held  the  agent  out  to  the  world  as 
possessing  authority  to  do  their  business  in 
their  name  the  way  he  carried  it  on,  a  case 


of  imphed  authority  is  made  out  protecting 
the  bank.  The  following  cases  bear  on  the 
question  of  implied  authority:  Grabfield  v. 
Haralson  County  Bank,  155  N.  Y.  App.  Div. 
156.  McStay  v.  John  S.  Cook  &  Co.,  132 
Pac.  (Nev.)  545,  (full  citation  of  authorities 
in  connection  with  the  deposit  by  agents  of 
money  claimed  to  belong  to  a  principal). 
Carlton  v.  Texas  Banking  &  Investment  Co., 
152  S.  W.  (Tex.)  698  (not  directly  in  point 
but  probably  useful).  Merchants'  &  Plant- 
ers' National  Bank  v.  Chfton  Mfg.  Co.,  33 
S.  E.  (S.  C.)  750.  Boyle  v.  Northwestern 
National  Bank,  103  N.  W.  (Wis.)  1123. 
104  N.  W.  917.  {Inquiry  from  Tex.,  April, 
1911) 

Opening  of  corporation  account 

1372.  What  authority  should  be  de- 
manded from  a  corporation  when  opening 
an  account,  as  to  signatures,  etc?  Opinion: 
It  is  usual  when  a  corporation  opens  an 
account,  not  only  to  file  a  resolution  of  the 
Board  of  Directors  signed  by  the  Secretary 
under  the  corporate  seal,  but  also  to  file  with 
the  bank  a  certified  copy  of  the  by-laws. 
The  powers  of  the  directors  may  be  limited 
by  the  by-laws  which  may  contain  provi- 
sions as  to  whom  shall  sign  and  countersign 
notes  and  negotiable  paper,  also  checks  and 
drafts,  and  it  might  be  that  a  resolution  of 
the  Board  of  Directors  would  be  contrary 
to  the  by-laws  in  some  particular.  In  view 
thereof,  a  certified  copy  of  the  by-laws 
should  be  filed  as  well  as  a  resolution  of  the 
Board  of  Directors.  (Inquiry  from  N.  Y., 
Oct.,  1920.) 

Deposits  in  various  relations 

Deposits  by  attorney 

1373.  An  attorney  who  has  a  number  of 
clients,  receives  checks  payable  to  him  as 
attorney  for  A,  as  attorney  for  B.  etc.  The 
bank  fears  hability  for  misappropriation  of 
money  by  the  attorney,  and  asks  for  sugges- 
tions as  to  the  forms  of  account  to  be  opened. 
Opinion:  In  a  few  states,  a  deposit  in 
personal  account  of  a  check  payable  to  the 
depositor  in  A  representative  capacity,  puts 
the  bank  on  inquiry  as  to  proper  disposition 
of  the  fund,  but  in  the  majority  of  states,  the 
bank  is  safe  in  receiving  such  deposits  in 
personal  account  and  paying  them  out  on 
depositor's  checks,  even  though  they  be 
misappropriations,  provided  a  personal  debt 
is  not  paid  to  the  bank  therewith.  But 
should  the  bank  desire  to  be  safe  be- 
yond question,  have  the  attorney  open  an 
account  as  attorney  for  each  particular  cHent 


315 


1374-1378] 


DIGEST  OF  LEGAL  OPINIONS 


in  which  checks  payable  to  the  attorney  for 
the  cHents  respectively  can  be  deposited  and 
checked  against,  without  charging  the  bank 
with  notice,  (inquiry  from  N.  Y.,  Nov., 
1913.) 

Deposit  of  military  company 

1374.  Funds  of  a  mihtary  company  are 
deposited  in  a  bank  under  the  name  "Com- 
pany Fund — (Officer's  Name)."  The  officer 
is  transferred  to  another  company  and  the 
regiment  is  miles  away.  The  new  com- 
manding officer  writes  the  bank  for  a  state- 
ment of  the  account.  Opinion:  Where  the 
funds  of  a  military  company  are  deposited  in 
a  bank  by  its  commanding  officer  and  such 
officer  is  succeeded  by  a  new  commander,  the 
latter  is  entitled  to  control  the  deposit  as  the 
representative  of  the  company.  It  would 
seem  perfectly  proper  to  send  the  new  com- 
mander a  statement  of  the  account,  but  the 
bank  should  have  satisfactory  evidence  of  his 
authority  to  control  the  fund.  Ind.  Tr.  Co. 
v.  Internat.  Bldg.  &  Loan  Assn.,  165  Ind. 
597.  Carman  v.  Frankhn  Bk.,  61  Md.  467. 
Tay  V.  Concord  Sav.  Bk.,  60  N.  H.  277. 
Lewis  V.  Park  Bk.,  42  N.  Y.  463.  {Inquiry 
from  Iowa,  Aug.,  1918,  Jl.) 

Deposit  by  married  woman  in  former  name 

1375.  A  woman,  married  a  second  time, 
desired  to  open  an  account  in  a  bank  under 
her  former  name.  Opinion:  It  would  be 
lawful  and  proper  to  receive  the  married 
woman's  account  under  her  former  name, 
provided  the  purpose  is  honest  and  not 
fraudulent.  Davis  v.  Lenawee  Co.  Sav.  Bk., 
53  Mich.  163.  Cal.  Laws  1909,  Chap.  76, 
Sec.  16.  Bk.  V.  Rockmore  &  Co.,  129  Ga. 
582.    (Inquiry  from  Cal,  May,  1915,  Jl.) 

Deposits  belonging  to  Indians  on  Reservations 

1376.  Moneys  belonging  to  Indians  on 
Reservations  under  the  supervision  of  an 
agency  may  be  deposited  in  either  state 
or  national  banks  which  submit  bids  there- 
for, giving  the  rates  of  interest  on  open  ac- 
counts and  time  deposits  and  otherwise 
complying  with  certain  requirements.  U. 
S.  Comp.  Stat.,  1918,  Sec.  4226.  {Inquiry 
from  Wash.,  March,  1915,  Jl.) 

Gift  of  deposits 

Attempted   testamentary   gift   of  deposit 

1377.  On  May  6,  1910,  a  depositor  sub- 
mitted to  a  bank  a  paper  and  requested  that 
the  president  and  cashier  affix  their  signa- 
tures thereto,  the  same  reading  as  follows: 


"I  make  request  that  a  condition  on  which 
my  individual  deposit  account  with  your 
bank  may  be  held  shall  be  as  follows :  That 
in  the  event  of  my  decease  or  any  calamity 
befalling  me  making  me  incapable  of  check- 
ing on  same,  then  and  in  the  event  of  such 
happening  any  and  all  balances  that  then 
may  be  due  me  shall  be  transferred  to  the 

account  of  my  wife, Mr. 

Dear  Sir:  The  Bank  which  we  have  the 
honor  to  represent  is  quite  willing  to  receive 
your  deposits  on  the  condition  named  in  the 

foregoing    request.      ,    President, 

Cashier."     The  paper  was  exe- 


cuted in  duplicate,  the  bank  keeping  one 
copy  and  the  depositor  the  other.  The  bank 
writes  that  the  depositor  recently  died  and 
his  wife  requests  that  the  amount  of  deposit 
be  transferred  to  her  account.  The  bank 
desires  to  be  informed  whether  it  would  be 
perfectly  safe  to  do  so.  Opinion:  It  is 
doubtful  if  the  bank  would  be  perfectly  safe 
in  transferring  the  deposit  to  the  widow  in 
accord  with  the  document.  This  is  not  a 
case  of  an  account  which  is  in  the  name  of 
two  parties  and  as  to  which  the  bank  can 
presume  that  there  is  title  in  both  so  that  in 
the  event  of  death  of  one  the  title  is  in  the 
other  as  survivor.  The  account  in  question 
is  owned  by  an  individual  during  his  entire 
Hf  e  and  all  he  does  is  to  execute  a  paper  that 
in  event  of  his  death  the  balance  shall  be 
transferred  to  the  account  of  his  wife  which 
condition  the  bank  accepts  in  writing.  But 
the  courts  of  Virginia  would  probably  hold 
that  the  wife  did  not  take  title  to  this  bal- 
ance of  deposit,  but  that  it  belongs  to  the 
husband's  estate  because  he  has  not  given 
it  to  the  wife  during  his  life  time — a  gift 
must  be  completed  by  delivery — and  the 
attempted  testamentary  disposition  is  not 
executed  in  accordance  with  the  statute 
relating  to  wills.  This  being  so,  and  the 
likelihood  being  that  the  money  belongs  to 
the  husband's  estate,  it  is  a  doubtful  ques- 
tion whether  the  paper  signed  by  both 
parties  would  be  a  sufficient  authorization 
to  transfer  the  balance  to  the  wife.  It  would 
be  safer  not  to  do  so.  {Inquiry  from  Va., 
Aug.,  1914.) 

Opening  of  account  by  husband  in  name  of 
wife  and  daughter 

1378.  A  married  man  opened  a  savings 
account  in  the  name  of  his  wife  and  daugh- 
ter. The  husband  and  wife  having  sep- 
arated, both  claim  ownership  and  control  of 
the  amount  deposited.  Opinion:  The  mere 
opening  of  a  savings  atrcount  by  a  husband 


316 


DEPOSITS 


[1379-1381 


in  the  name  of  his  wife  and  daughter  does 
not  constitute  a  complete  gift  in  the  absence 
of  delivery  of  the  pass-book  or  other  evidence 
of  the  deposit  or  of  other  facts  indicating  per- 
fection of  the  gift,  and  so  long  as  the  gift  is 
not  completed  it  may  be  revoked  by  the  hus- 
band. Montgomery  First  Nat.  Bk.  v. 
Taylor,  (Ala.)  37  So.  695.  Russell  v.  Lang- 
ford,  135  Cal.  356.  Bucldngham's  Appeal, 
60  Conn.  143.  TeKord  v.  Patton,  144  111. 
611.  Davis  V.  Ney,  125  Mass.  590.  Martin 
V.  Funk,  75  N.  Y.  134.  Howard  v.  Wind- 
ham Co.  Sav.  Bk.,  40  Vt.  597.  Miller  v. 
Clark,  40  Fed.  15.  Deposit  Co.  v.  Miller, 
(Conn.)  90  Atl.  228.  Bk.  v.  Gibboney,  43 
Ind.  492.  Kelly  v.  Tr.  Co.,  108  N.  Y.  S.  214. 
McMahon  v.  Lawler,  190  Mass.  343. 
Main's  Appeal,  73  Conn.  638.  Goelz  v. 
People's  Sav.  Bk.,  31  Ind.  App.  67.  Tucker 
V.  Ticker,  138  Iowa  344.  Booth  v.  Bristol 
Co.  Sav.  Bk.,  162  Mass.  455.  Baker  v. 
Baker,  123  Md.  32.  Roughan  v.  Bk.,  144 
N.  Y.  S.  508.  Schippers  v.  Kempkes,  (N. 
J.)  67  Atl.  74.  Schweyer  v.  Brew.  Co.,  21 
Pa.  Dist.  Ct.  31.  Shaw  v.  White,  28  Ala. 
637.  Merrill  v.  Gordon,  (Ariz.)  140  Pac. 
496.  Britton  v.  Esson,  260  111.  273.  Stock- 
ert  V.  Sav.  Inst.,  139  N.  Y.  S.  986.  In  re 
Greenfield,  14  Pa.  St.  489.  Nicholas  v 
Adams,  2  Whart,  (Pa.)  17.  Ivey  v.  Owens, 
28  Ala.  641.  Grover  v.  Grover,  41  Mass.  261. 
Matter  of  Wachter,  16  Misc.  (N.  Y.)  137. 
Allen  V.  Knowlton,  47  Vt.  512.  Boyett  v. 
Potter,  80  Ala.  476.  Smith  v.  Peacock,  114 
Ga.  691.  Johnson  v.  Stevens,  22  La.  Ann. 
144.  Walsh's  Appeal,  122  Pa.  St.  177. 
Jones  v.  Weakley,  99  Ala.  441.  Bk.  v. 
McCormack,  79  Conn.  262.  Ashbrook  v. 
Ryon,  2  Bush  (Ky.)  228.  Hill  v.  Stevenson, 
63  Me.  364.  Sheedy  v.  Roach,  124  Mass. 
472.  Pace  v.  Pace,  (Miss.)  65  So.  273.  In 
re  Myer,  129  N.  Y.  S.  194.  Ridden  v. 
Thrall,  125  N.  Y.  572.  Watson  v.  Watson, 
69  Vt.  243.  Moore  v.  Power,  5  Newfoundl. 
466.  Crane  v.  Brewer,  73  N.  J.  Eq.  558. 
Hohnan  v.  Bk.  (Utah),  124  Pac.  765.  (In- 
quiry from  Pa.,  Jan.,  1916,  Jl.) 

Gift  by  delivery  of  pass-hook 

1379.  A  savings  account  was  transferred 
to  a  donee.  The  name  of  the  account  was 
changed  on  the  pass-book  and  on  the  books 
of  the  bank  and  the  book  dehvered  to  the 
donee.  Later  the  donor  made  a  request  to 
the  donee  for  the  pass-book  and  received  it. 
The  donee,  however,  refused  to  give  an 
order  to  the  bank  to  transfer  the  account  to 
the  donor's  name.  In  whom  is  the  title  to 
the  account?    Opinion:    There  was  original- 


ly a  completed  gift  to  the  donee.  What 
took  place  after  the  gift  is  virtually  the  case 
of  a  depositor  in  a  savings  bank  delivery  the 
book  standing  in  his  name  to  another  and  the 
other  accepting  the  same.  If  the  intention 
was  to  transfer  the  money,  there  would  be 
a  completed  return  gift.  This  intention 
however  is  somewhat  negatived  by  the 
refusal  to  give  an  order  to  the  bank  to  trans- 
fer the  account.  The  bank  should  take  the 
position  that  title  remains  in  the  original 
transferee,  until  there  is  more  complete 
evidence  that  he  intended  a  retransfer.  (In- 
quiry from  Pa.,  Jan.  1920.) 

Cashing  instead   of  crediting  item   to 
depositor 

Practice  of  giving  cash  instead  of  credit  unsafe 

1380.  A  depositor  brought  to  the  bank 
for  credit  a  check  for  $550.  After  the  clerk 
at  the  window  made  out  the  deposit  ticket, 
the  depositor  asked  for  $250  cash  to  be 
taken  out  of  the  check  and  returned  to  him. 
The  clerk  thereupon  wrote  upon  the  deposit 
ticket  "cash  $250"  and  subtracted  that 
amount,  leaving  a  total  of  $300,  which 
amount  was  placed  to  the  credit  of  the  cus- 
tomer. The  bank  afterwards  delivered  to 
him  his  balanced  pass-book  showing  the 
amount  credited  and  the  depositor  retained 
the  book  for  over  a  year  without  objection. 
Afterwards  he  denied  receiving  the  $250 
cash.  Opinion:  The  fact  that  the  customer 
retained  the  balanced  pass-book  for  over  a 
year  without  objection  makes  the  balance 
an  account  stated,  which  is  conclusive  unless 
the  depositor  can  show  fraud,  mistake  or 
omission.  If  the  depositor  impeaches  the 
account,  the  bank  can  show  facts  connected 
with  the  deposit.  In  cases  where  a  customer 
at  the  time  of  deposit  wants  the  whole  or 
part  cash,  it  would  be  better  for  the  bank  to 
enter  credit  for  the  entire  deposit  and  have 
the  customer  draw  a  check  for  the  cash  in 
the  regular  way.  Kenneth  Inv.  Co.  v.  Nat. 
Bk.  of  Rep.,  96  Mo.  App.  125.  Harley  v. 
Eleventh  Ward  Bk.,  76  N.  Y.  618.  Fisk  v. 
Basche,  31  Ore.  178.  Goff  v.  Stoughton  St. 
Bk.,  84  Wis.  369.  (Inquiry  from  Ore.,  July, 
1912,  Jl.) 

Difficulty  of  proof  of  return  of  cash  for 
deposited  item 

1381.  If  a  customer  of  a  bank  presents  a 
check  for  $200  and  asks  for  $50  in  cash  and 
to  be  credited  with  $150,  and  the  receiving 
teller  or  the  depositor  himself  makes  out  a 
deposit  shp  entering  the  amount  as  a  check 


317 


1382-1384] 


DIGEST  OF  LEGAL  OPINIONS 


for  $200  less  cash  $50,  would  the  bank  be 
safe  in  handhng  the  transaction  in  this  way? 
Opinion:  It  would  be  better  to  give  the 
depositor  credit  for  the  full  $200,  and  let 
him  draw  a  check  for  $50.  Should  the 
depositor  be  dishonest  and  some  time  after- 
wards claim  he  did  not  receive  the  $50  he 
would  doubtless  be  able  to  obtain  from  the 
drawer,  and  produce  the  cancelled  check  for 
$200  as  evidence  that  it  has  been  indorsed 
and  collected  by  the  bank  for  that  amount. 
The  bank's  books  would  show  a  credit  for 
$150  only.  If  the  deposit  shp  were  in  the 
handwriting  of  the  depositor  and  were  pre- 
served this  would  protect  the  bank  by  show- 
ing the  depositor  received  $50  cash,  but  if  it 
were  in  the  handwriting  of  the  teller,  it  would 
result  in  a  question  of  veracity  between  de- 
positor and  teller  if  the  depositor  should 
assert  that  he  did  not  receive  the  $50  and 
that  the  teller  had  deducted  that  amount 
without  his  knowledge  or  consent.  Should 
the  deposit  slip  be  lost  or  destroyed  there 
would  be  no  evidence  to  support  the  true 
transaction.  {Inquiry  from  Col.,  Nov., 
1917.) 

Cashing  for  messengers,  instead  of  crediting, 
checks  indorsed  with  rubber  stamps 

1382.  Local  merchants,  either  in  person 
or  by  messenger,  present  checks  to  be  cashed 
by  bank  teller,  indorsed  with  rubber  stamps. 
Bank  asks  whether,  if  money  were  obtained 
on  these  items  fraudulently,  the  loss  would 
fall  on  the  paying  bank  or  on  the  merchant? 
Opinion:  It  is  not  clear  whether  the  checks 
so  presented  are  drawn  on  the  bank  cashing 
them  or  on  other  banks.  Assuming  they 
are  drawn  on  other  banks,  the  practice  is 
objectionable  for  the  following  reasons: 
(1)  Should  the  merchant  afterwards  make 
claim  that  he  had  never  received  the  cash  on 
the  check,  but  had  deposited  it  without  re- 
ceiving credit,  the  bank  would  be  in  a  bad 
position  to  refute  this.  There  is  more  than 
one  decided  case  where  a  bank  has  cashed  a 
check  for  a  customer,  instead  of  receiving 
it  on  deposit  and  letting  him  draw  his  own 
check  for  the  amount,  in  winch  the  bank  has 
been  held  liable  to  the  customer  as  it  could 
not  prove  that  it  had  given  cash  to  him  over 
the  counter.  (2)  Furthermore,  should  it  be 
the  practice  to  cash  such  checks  for  messen- 
gers, and  should  a  messenger  steal  the  check 
from  his  employer,  the  merchant,  and  in- 
dorse it  with  rubber  deposit  stamp  and 
obtain  the  cash,  the  bank  would  in  all  prob- 
ability be  held  the  loser,  as  it  would  derive 
no  title  to  such  a  check  indorsed  without 


authority.  A  further  objection  to  the  prac- 
tice is  the  general  one  that  indorsement  for 
deposit  is  not  the  proper  kind  of  indorsement 
to  negotiate  an  instrument  for  cash.  (In- 
quiry from  Colo.,  Dec,  1920.) 

Erroneous    credit,    over- payment    and 
dispute  as  to  deposits 

Credit  to  wrong  account 

1383.  A.  Doe,  a  member  of  the  firm  of 
Doe  and  Doe,  and  who  also  conducted 
an  independent  business,  deposited  checks  to 
the  credit  of  the  firm,  but  the  bank  mis- 
takenly credited  the  amount  to  A.  Doe's 
personal  account.  Before  the  mistake  was 
discovered  A.  Doe  sold  his  business  to  a 
successor,  including  his  credit  in  bank. 
Opinion:  The  bank  has  a  right  to  charge 
the  amount  back  to  the  depositor's  account, 
unless  the  depositor,  relying  on  the  truth  and 
accuracy  of  the  statement  of  account  ren- 
dered him  by  the  bank,  is  led  to  act  to  his 
detriment  in  a  manner  he  would  not  have 
done  but  for  his  faith  in  the  correctness  of 
such  statement,  then  the  bank  is  bound  to 
stand  the  loss.  The  right  of  the  bank  to 
hold  A.  Doe  liable  would  depend  on  whether 
he  would  be  prejudiced  by  the  mistake  if 
compelled  to  pay  the  money  back.  Skyring 
V.  Greenwood,  4  Barn.  &  Cress.  281.  Heane 
V.  Rogers,  9  Barn.  &  Cress.  577.  Hume 
V.  Bolland,  1  C.  &  M.  130.  {Inquiry  from 
Ariz.,  May,  1915,  Jl.) 

Credit  to  wrong  correspondent 

1384.  M  bank  erroneously  credited  a 
deposit  to  N  bank  instead  of  to  H  bank,  and 
rendered  a  statement  of  account  from  time 
to  time  to  H  bank,  which  was  acquiesced 
in  for  seven  years  without  objection,  during 
which  time  N  bank  became  defunct.  Opin- 
ion: After  a  reasonable  time  the  accounts 
rendered  became  accounts  stated,  subject  to 
correction  only  for  fraud  or  mistake.  The 
seven  years'  delay  of  the  H  bank  by  which 
the  M  bank  was  prejudiced  in  its  recourse 
upon  the  N  bank,  was  such  laches  as  would 
preclude  the  H  bank  from  questioning  the 
correctness  of  the  account.  Louisville  Bank- 
ing Co.  V.  Asher,  112  Ky.  138.  McKeen  v. 
Boatmen's  Bk.,  74  Mo.  App.  281.  Young  v. 
Walker,  12  So.  (Miss.)  546.  Emmons  v. 
Stahlnecker,  11  Pa.  366.  Gover  v.  Hall, 
3  Harr  &  J.  (Md.)  43.  Brands  v.  Depue, 
20  Atl.  (N.  Y.)  206.  Hutchins  v.  Hope,  7 
Gill  (Md.)  119.  Hemmick  v.  Standard  Oil 
Co.,  91  Fed.  332.  Bruen  v.  Hone,  2  Barb 
(N.  Y.)  586.    Leather  Mfg.  Bk.  v.  Morgan, 


318 


DEPOSITS 


[1385-1391 


117  U.  S.  96.  Nat.  Bk.  of  Commerce  v. 
Tacoma  Mill  Co.,  182  Fed.  1.  Morgan  v. 
U.  S.  Mtge.  &  Tr.  Co.,  208  N.  Y.  218. 
{Inquiry  from  Miss.,  Dec,  1914,  JI-) 

Excess  total  of  deposit  slip  entered  in  pass-book 

1385.  An  excessive  total  on  a  deposit  slip 
is  entered  in  the  pass-book.  How  shall  the 
bank  proceed  to  correct  the  error,  dis- 
covered by  it  after  the  depositor  left  the 
bank.  Opinion:  The  proper  course  is  to 
charge  the  excess  credit  to  the  depositor's 
account  and  notify  him  that  this  has  been 
done,  explaining  how  the  error  occurred. 
If  the  deposit  shp  has  been  made  out  by  the 
teller  and  the  depositor  should  claim  that  he 
had  deposited  the  entire  amount  credited  to 
him  and  not  consent  to  be  charged  back 
with  the  excess,  the  only  way  of  settling 
the  dispute  would  be  by  court  proceedings. 
But  if  the  deposit  sUp  has  been  made  out  by 
the  depositor,  and  not  by  the  teller,  this  of 
itself  would  be  conclusive  evidence  to  sup- 
port the  claim  of  the  bank,  as  the  error 
would  be  simply  one  of  addition.  (Inquiry 
from  Ga.,  Feb.,  1920.) 

Entry  in  pass-book  by  error 

1386.  An  entry  was  made  in  a  depos- 
itor's pass-book  by  error,  and  in  balancing 
the  account  a  red  line  was  drawn  through 
the  entry.  The  customer  claimed  he  made 
the  deposit,  but  is  unable  to  state  what  it 
consisted  of  or  any  business  transaction 
leading  to  it.  Is  the  entry  in  the  bank  book 
prima  facie  evidence  that  the  deposit  was 
made?  Opinion:  The  entry  in  a  pass-book 
of  a  credit  is  prima  facie  evidence  that  the 
deposit  was  made,  but  this  can  be  rebutted 
by  the  bank's  positive  testimony  of  error 
and  such  evidence  should  outweigh  the 
prima  facie  presumption  and  where  the 
customer  is  unable  to  substantiate  his  claim 
by  any  reasonable  evidence,  if  the  matter 
was  brought  into  court,  the  bank  should  be 
successful.  (Inquiry  from  Kan.,  Aug., 
1915.) 

Recovery  from  depositor  to  whom  wrong  credit 
given 

1387.  A  bank  credited  a  check  deposited 
by  A  to  B's  account,  and  later,  when  the 
mistake  was  discovered,  paid  A  but  could 
get  no  settlement  with  B  who  had  drawn 
about  all  of  his  money  from  the  bank  and 
had  admitted  at  one  time  that  a  mistake 
had  been  made.  The  inquiry  is  as  to  what 
course  the  bank  should  take.  Opinion:  The 
bank  can  sue  B  and  by  proving  that  the 


money  was  credited  to  him  by  mistake, 
which  should  be  easy  as  he  has  admitted  it, 
obtain  a  judgment  for  its  recover3^  The 
bank's  right  of  recovery  rests  upon  the 
general  rule  supported  by  numerous  cases 
that  money  paid  under  a  mistake  of  fact  to 
one  not  entitled  thereto  may  be  recovered 
back.  See  James  River  Nat.  Bank  v. 
Weber,  19  N.  D.  702,  124  N.  W.  952.  (In- 
quiry from  Mo.,  June,  191 4-) 

1388.  Where  a  bank  credits  a  deposit 
to  the  wrong  account  and  the  amount  is 
checked  out,  the  bank  can  recover  the 
amount  from  the  depositor  as  having  been 
paid  by  mistake,  without  consideration. 
(Inquiry  from  Pa.,  Aug.,  1912,  Jl.) 

1389.  Where  a  bank  erroneously  credit- 
ed its  depositor  with  S600,  which  the  de- 
positor drew  out,  it  is  not  precluded  from 
suing  and  recovering  judgment  against  him 
for  the  amount,  provided  it  can  prove  the 
mistake.  (Inquiry  from  Mont.,  March, 
1911,  Jl) 

Over-payment   of  balance  incorrectly  figured 

1390.  A  customer  handed  in  to  his  bank 
several  checks  amounting  to  several  hundred 
dollars,  and  from  this  amount  a  note  and 
interest  was  deducted  and  a  balance  struck 
in  favor  of  the  customer,  which  was  paid 
over.  It  was  afterwards  discovered  that 
the  balance  was  incorrectly  figured  at  an  ex- 
cess of  $30.  Opinion:  The  bank  can  re- 
cover the  money  as  being  paid  under  a  mis- 
take of  fact.  The  fact  that  the  error  was 
made  in  figuring  the  balance  makes  the  case 
stronger  for  the  bank  than  if  the  balance  was 
correctly  struck  and  the  mistake  occurred 
in  paying  over  the  cash,  for  the  teller's  testi- 
mon3'^  of  over-payment  would  be  supported 
by  the  original  figures.  James  River  Nat. 
Bk.  V.  Weber,  (N.  Dak.)  124  N.  W.  952. 
(Inquiry  from  III,  Feb.,  1912,  Jl) 

Deposit  slip  for  excess  total  figured  by  cashier 

1391.  A  customer  came  to  the  bank  to 
buy  a  draft  for  $355,  as  the  cashier  under- 
stood him  to  say.  He  handed  in  certain 
items  for  deposit  and  remarked  that  he 
would  have  to  borrow  $100  more  to  make 
up  the  amount.  The  cashier  made  out  a 
note  for  $100  and  had  him  sign  it  and  listed 
the  various  items  including  the  $100  note  on 
a  deposit  slip.  This  totaled  $218.55.  The 
cashier  remarked  it  will  take  $36.45  more 
to  make  the  amount  large  enough  to  buy  the 
draft  and  the  depositor  handed  over  this 
amount  which  was  entered  on  the  deposit 
slip  under  the  total  of  $218.55  and  a  new 


319 


1392-1394] 


DIGEST  OF  LEGAL  OPINIONS 


total  erroneously  figured  $355.  The  cashier 
wrote  a  draft  for  S355  but  the  depositor  then 
said  "no,  I  said  a  $255  draft."  The  draft 
for  this  amount  was  then  given  the  customer 
and  deducted  from  $355  total  and  the  $100 
entered  at  the  foot  of  the  deposit  slip  as  the 
total  amount  deposited  and  a  duphcate 
deposit  sHp  given  the  depositor  for  the  $100 
balance  which  had  been  figured  in  error  on 
the  original  sKp.  The  question  is  whether 
the  bank  can  recover  the  $100  erroneously 
credited  to  the  depositor  on  the  deposit  slip, 
in  addition  to  recovering  on  the  note.  O'pin- 
ion:  The  right  of  recovery  will  depend  en- 
tirely on  the  question  of  fact  whether  the 
deposit  shp  receipt  which  was  given  the 
customer  actually  represented  a  deposit  of 
$100  or  was  an  error  in  figuring  the  balance 
on  the  other  deposit  slip.  There  is  no 
doubtful  principle  of  law  involved.  The  law 
is  that  a  mistaken  credit  given  by  customer 
may  be  revoked  and  the  sole  question  is  one 
of  fact  for  determination  of  a  jury.  Looking 
at  the  case  as  a  juryman  would,  the  two 
deposit  shps  afford  strong  corroborative 
evidence  of  the  bank's  statement  of  the 
transaction.  While  the  customer  claims  he 
deposited  $100  in  bank  of  which  the  dupli- 
cate shp  is  evidence,  the  claim  does  not  seem 
plausible  for  he  certainly  would  not  give  his 
note  to  the  bank  for  $100  at  the  same  time 
in  order  to  complete  the  purchase  price  of  a 
$255  draft.  According  to  the  customer's 
version  he  wanted  to  purchase  a  $255  draft 
and  deposited  in  cash  and  checks  $255  and 
gave  his  note  for  an  extra  $100.  There 
would  be  no  reason  for  giving  the  note  where 
he  had  sufficient  without  it.  It  would 
seem  in  a  suit  against  the  customer  that  a 
jury  would  find  as  a  fact  that  the  deposit 
shp  was  issued  in  error  and  that  the  bank 
was  entitled  to  recover  the  amount  {Inquiry 
from   Wash.,  July,  1914.) 

Claim  that  deposit  made  not  shown  by  hank's 
records 

1392.  A  dispute  arose  as  to  whether  or 
not  a  certain  deposit  had  been  made.  The 
bank  carefully  checked  over  its  records  and 
every  item  of  the  size  of  the  disputed  depos- 
it has  been  accounted  for.  The  teller's 
daily  sheets  for  the  period  in  question  show 
that  he  was  not  over  this  amount.  The  cus- 
tomer is  not  clear  as  to  the  date  and  can 
come  no  nearer  than  to  give  the  month. 
The  customer's  husband  testifies  that  he 
saw  the  receipt,  which  she  claims  to  have 
lost,  although  he  does  not  give  its  date.  Is 
the  bank  liable?    Opinion:    On  a  question 


of  fact  as  to  whether  a  particular  deposit 
was  made  the  burden  of  proof  is  on  the 
depositor  (Jackson  Ins.  Co.  v.  Cross,  9 
Heisk,  [Tenn.]  283)  and  the  general  rules  as 
to  weight  and  sufficiency  apply.  It  would 
seem  in  this  case  that  the  weight  of  the 
evidence  is  in  the  bank's  favor.  See  French  v. 
Eastern  Trust  &  Bank,  91  Me.  458,  in  which 
a  verdict  for  the  customer  was  set  aside  in 
a  case  which  was  stronger  for  him  than  the 
one  now  submitted.  See  also  Lemon  v. 
Mechanics'  Bank,  107  N.  Y.  Supp.  9.  (In- 
quiry from  Tenn.,  Aug.,  1917.) 

Adverse  claims  to  deposit 

Deposit  by  A  claimed  by  B 

1393.  A  deposits  with  bank  $500,  and 
the  money  is  placed  in  savings  department. 
A  checks  out  in  the  usual  manner  all  but 
$50.  B  is  bringing  suit  against  both  A  and 
the  bank,  claiming  the  entire  deposit  of 
$500  and  interest  thereon,  claiming  that  the 
money  rightfully  belongs  to  him.  At  the 
time  the  money  was  deposited  by  A  and 
until  suit  was  brought,  the  bank  did  not 
know  but  that  it  rightfully  belonged  to  A. 
Opinion:  The  bank,  of  course,  is  not  liable 
to  B  for  the  money  paid  out  under  order  of 
A  before  notice  of  B's  claim  thereto.  When 
the  money  was  deposited  by  A  the  bank  had 
a  right  to  assume  that  it  lawfully  belonged  to 
A  but  as  to  the  unpaid  portion,  the  bank 
should  hold  the  money  and  not  pay  it  either 
to  A  or  B  until  termination  of  the  suit.  It 
would  seem  that  the  proper  procedure  would 
be  to  make  answer  showing  the  payment  of 
$450  before  notice  of  adverse  claim  and  offer- 
ing to  pay  the  balance  according  as  the  court 
may  direct.  {Inquiry  from  Ala.,  June, 
1916.) 

Sufficiency  of  notice  of  adverse  claim 

1394.  B  having  possession  of  A's  money, 
deposited  it  in  a  bank  to  B's  individual 
credit,  the  bank  having  no  notice  that  the 
ownership  is  in  any  other  than  its  depositor, 
B.  In  suit  by  X  against  A  an  attachment  is 
issued  against  effects  of  A  and  served  on  the 
bank,  with  notice  that  the  credits  of  A  are 
therebj^  seized  and  making  inquiry  whether 
B  or  any  other  depositor  held  credits  of  A. 
After  such  notice,  but  before  the  bank 
answers  to  accompanying  interrogatories, 
B  drew  a  check  for  the  amount  of  the  de- 
posit, which  the  bank  honored.  X,  on  his 
motion  against  the  bank  to  condemn  the 
deposit,  proves  that  the  real  ownership  of 
the  fund  was  in  A.    Should  the  bank  now 


320 


DEPOSITS 


[1395-1398 


I 


be  made  to  pay  the  amount  of  the  deposit 
to  X.  or  into  court,  or  was  it  right  in  paying 
its  depositor's  check?  Opinion:  A  bank  is 
under  duty  to  honor  its  depositor's  checks 
until  notice  of  an  adverse  claim  of  ownership, 
or  presentation  of  facts  affording  reasonable 
ground  for  behef  that  the  deposit  belongs 
to  another,  in  which  event  payment  to  the 
depositor  is  at  its  peril ;  but  the  mere  serving 
of  an  attachment  on  funds  of  A  and  making 
inquiry  at  the  bank  whether  A  has  funds  in 
the  name  of  B  or  any  other  depositor,  with- 
out specific  notice  of  adverse  claim  of  owner- 
ship of  B's  deposit,  or  presentation  of  facts 
affording  reasonable  ground  for  belief  that 
B's  deposit  belongs  to  A,  is  not  sufficient  to 
justify  the  bank  in  refusing  to  pay  B's  check 
on  demand.  (Jaselli  v.  Riggs  Nat.  Bank, 
36  App.  D.  C.  159.  McEwen  v.  Davis,  39 
Ind.  109.  Pearce  v.  Dill,  149  Ind.  136. 
Drumm-Fluto  Com.  Co.  v.  Gerlach  Bank, 
92  Mo.  App.  326.  Nehawka  Bank  v.  Inger- 
soll,  2  Neb.  [Unof.]  617.  Bell  v.  Hunt,  3 
Barb.  Ch.  [N.  Y.]  391).  (Inquiry  from  D. 
C,  Jan.,  1921,  Jl.) 


Unclaimed  deposits 

New   Mexico    statute   requiring   ^publication 
inapplicable  to  national  banks 

1395.  A  New  Mexico  statute  requires 
national  and  state  banks  to  pubhsh  fists  of 
dormant  and  unclaimed  deposits  with  a 
view  to  informing  the  heirs  of  deceased  de- 
positors of  such  deposits,  faifing  which  it 
provides  escheat  of  the  money  to  the  state. 
Opinion:  The  state  is  probably  without  the 
power  to  enforce  such  a  statute  against  the 
national  banks.  In  its  application  to  state 
banks,  the  statute  is  probably  constitution- 
al, though  its  validity  is  not  entirely  free 
from  doubt.  State  v.  Clement  Nat.  Bk.,  78 
Atl.  (Vt.)  944.  Waite  v.  Dawley,  94  U.  S.  527. 
Whitney  v.  Ragsdale,  33  Ind.  107.  First 
Nat.  Bk.  of  Elizabethtown  v.  Common- 
wealth, 137  S.  W.  (Ky.)  518.  Easton  v. 
State,  188  U.  S.  220.  Cent.  Nat.  Bk.  v. 
Pratt,  115  Mass.  539.  First  &  Second  Nat. 
Bks.  V.  Auditor,  5  Cinn.  Law  Bull.  515. 
Langenberg  v.  Decker,  131  Ind.  471.  In  re 
Davies,  68  Kan.  791.  Starwood  v.  Greene, 
22  Fed.  Cas.  No.  13301.  Int.  Rev.  Act 
1868,  15  Stat.  144,  Sec.  49.  In  re  Meador, 
16  Fed.  Cas.  No.  9375.  In  re  Piatt,  19  Fed. 
Cas.  No.  11212.  In  re  Strause,  Fed.  Cas. 
No.  3548.  In  re  Phillips,  Fed.  Cas.  No. 
11097.  (Inquiry  from  N.  M.,  May,  1914, 
Jl.) 


Unclaimed  deposits  in  New  York 

1396.  A  person  finds  a  savings  bank 
book  of  his  deceased  father  apparently 
showing  a  credit  of  many  years  standing.  Id 
the  meantime  the  bank  has  discontinued 
business.  What  steps  can  be  taken  to  prove 
the  claim  and  procure  the  money?  Opinion : 
The  present  Banking  Law  of  New  York 
requires  the  superintendent  of  banks  to 
publish  a  list  of  unclaimed  deposits  every 
five  years  in  a  paper  published  in  Albany 
and  also  requires  the  superintendent  to  keep 
in  his  office  an  index  of  the  names  of  all 
persons  entitled  to  any  unclaimed  deposits. 
The  superintendent  is  authorized  to  take 
and  hold  as  trustee  for  the  owners  any  un- 
claimed deposits  where  the  bank  has  gone  out 
of  business.  This  new  Banking  Law,  however 
did  not  go  into  force  until  1914,  and  the  old 
Banking  Law  of  1882  simply  required  every 
bank  to  publish  each  year  in  a  paper  at 
Albany  a  list  of  unclaimed  deposits.  Pre- 
sumably when  the  bank  went  out  of  busi- 
ness any  unclaimed  deposits  were  turned 
over  to  the  superintendent  of  banks.  In- 
quiry should  be  made  of  this  officer,  as  to 
whether  or  not  he  holds  in  trust  a  deposit 
of  this  description.  (Inquiry  from  N.  Y., 
Oct.,  1917.) 

Dormant  account  in  national  bank 

1397.  Where  there  has  been  no  entry  in 
an  account  in  a  national  bank,  for  six  years 
or  more  can  the  depositor  compel  the  bank 
to  pay  over  the  funds?  Opinion:  The  rule 
is  well  settled  that  since  a  general  deposit  is 
only  payable  on  demand,  the  statute  of 
limitations  does  not  begin  to  run  against  an 
action  for  funds  so  deposited  until  such 
demand.  Green  v.  Odd  Fellows,  65  Cal.  71. 
Mitchel  V.  Beckham,  64  Cal.  117.  Farmers' 
and  Merchants'  Bank  v.  Planters'  Bank,  10 
Md.  422.  Strong  v.  Com.  Trust  Co..  199 
S.  W.  (Mo.)  1034.  Bank  of  British  North 
America  v.  Merchants  Nat.  Bank,  91  N.  Y. 
106.  Adams  v.  Orange  Countv  Banlc,  17 
Wend,  (N.  Y.)  514.  Girard  Bank  v.  Bank 
of  Pa.,  39  Pa.  St.  92.  It  follows  that  the 
depositor  can  compel  the  bank  to  pay  over 
the  funds  after  six  years.  (Inquiry  from 
N.  Y.,  Jan.,  1916.) 

Crediting  of  interest  does  not  obviate  reporting 
dormant  accounts  in  Oregon 

1398.  A  bank  inquires  with  respect  to 
savings  accounts  which  have  not  been  drawn 
against  nor  deposits  made  for  seven  years — 
Does  the  fact  that  interest  has  been  added 
each  six  months  reheve  the  bank  from  re- 


321 


1399-1402] 


DIGEST  OF  LEGAL  OPINIONS 


porting  these  accounts  to  the  state?  Opin- 
ion: By  statute  in  Oregon,  bank  officers 
must  report  as  to  deposits  which  have  not 
been  added  to  and  no  part  of  which  have 
been  withdrawn  for  more  than  seven  years, 
unless  such  officers  know  the  depositor  to  be 
Hving  and  they  are  not  reheved  from  the 
duty  of  making  such  reports  because  of  the 
fact  that  interest  has  been  added  each  six 
months.  Sec.  7378,  Lord's  Oreg.  Laws  1910, 
as  amended  by  Chap.  214,  Oreg.  Gen.  Laws 
1917.     {Inquiry  from  Ore.,  April,  1920,  Jl.) 


Unclaimed  deposits  in  national  banks 

1399.  A  national  bank  refers  to  a  request 
by  the  comptroller  of  the  currency  that 
national  banks  report  the  amount  of  their 
dormant  accounts  as  suggesting  the  possi- 
bihty  that  the  government  may  in  the  future 
attempt  to  confiscate  such  accounts  and 
raises  the  following  questions.  (1)  Can  a 
bank  deposit  ever  become  outlawed?  (2) 
If  an  account  can  be  outlawed,  can  the 
state  or  the  national  government  claim  the 
funds,  or  may  the  bank  retain  them,  credit- 
ing them  to  their  "profit  and  loss  accounts?" 
(3)  What  has  been  the  practice  of  the  larger 
and  older  banks  with  respect  to  such  ac- 
counts. (4)  Is  there  any  distinction  in  this 
respect  between  an  ordinary  deposit  and 
a  certificate  of  deposit?  Opinion:  There  is 
no  federal  legislation  requiring  national 
banks  to  pubhsh  lists  of  dormant  accounts. 
Such  statutes  exist  in  many  states,  and  in 
some  cases  state  statutes  provide  for  escheat 
to  the  state  after  a  certain  number  of  years. 
In  Indiana  there  is  apparently  no  statutory 
requirement  as  to  pubHcation  or  escheat  and 
dormant  deposits  remain  the  property  of  the 
bank,  which  continues  to  be  indebted  to  the 
depositor.  If  a  statutory  requirement 
existed  it  would  not  apply  to  a  national 
bank.  (1)  A  general  deposit  is  not  due  until 
demand,  and  the  statute  of  hmitations  be- 
gins to  run  from  demand.  (2)  Neither  the 
national  nor  state  government  can  require 
a  bank  to  pay  over  a  dormant  deposit  in  the 
absence  of  statute;  but  statutes  so  requiring 
have  been  held  constitutional.  (3)  It  seems 
to  be  the  practice  of  the  larger  and  older 
banks  not  to  advertise  dormant  account 
unless  compeled  to  do  so  by  statute.  (4) 
In  the  case  of  certificate  of  deposit,  there  is 
a  conflict  of  authority,  some  courts  holding 
that  the  certificate  is  not  due  until  de- 
manded and  others  holding  that  the  statute 
runs  from  the  date  of  the  certificate  or  from 
the  date  of  maturity,  if  it  be  a  time  cer- 


tificate. See  opinion  No.  1396.  (Inquiry 
from  Ind.,  March,  1917.) 

Bank  deposit  Escheat  act  of  Pennsylvania  not 
applicable  to  national  banks 

1400.  Does  the  Pennsylvania  statute 
(Laws  [1915]  No.  391)  which  requires  re- 
ports of  unclaimed  deposits  and  provides 
that  deposits  and  property  unclaimed  in 
banks  are  liable  to  escheat  to  the  state  apply 
to  national  banks?  Opinion:  By  Section 
1  of  the  act,  it  is  apphcable  to  "every  person, 

bank    organized  or  doing  business 

under  the  laws  of  this  commonwealth." 
Notwithstanding,  the  act  contains  no  spe- 
cific exemption  of  national  bank's  from  its 
provisions,  the  state  is  without  power  to 
require  national  banks  to  make  such  reports 
nor  to  confiscate  its  assets  by  escheat.  {In- 
quiry from  Pa.,  Dec,  1915.) 

Note:  In  1916,  Deputy  Attorney  General 
Hargest  of  Pennsylvania  rendered  an  opin- 
ion that  national  banks  in  the  state  came 
within  the  provisions  of  the  law;  while 
General  Counsel  Elliott  of  the  Federal 
Reserve  Board  held  that  the  act  was  not 
intended  to  apply  to  national  banks,  but 
suggested  that  reports  be  made  by  national 
banks  under  protest  in  deference  to  the 
opinion  of  the  Attorney  General.  The 
constitutionality  of  the  escheat  Act  was 
upheld  by  the  Dauphin  County  Court  in 
1918,  but  its  applicability  to  national  banks 
was  not  passed  upon. 

Guaranty  of  deposits 

Protection  of  holder  of  interest-bearing 
certificate  in  Oklahoma 

1401.  Where  a  deposit  in  an  Oklahoma 
state  bank  represented  by  interest-bearing 
certificate  is  included  in  the  daily  average 
upon  which  annual  assessment  is  levied,  and 
it  bears  no  greater  rate  of  interest  than  is 
permitted  by  the  Commissioner,  the  de- 
positor is  protected  by  the  Depositor's 
Guaranty  Fund  equally  as  if  his  deposit  is  on 
open  account  subject  to  check.  Okla. 
Banking  L.,  Sees.  46,  49.  State  v.  Corning 
St.  Bk.,  128  la.  597.  Taylor  v.  Hutchinson, 
145  Ala.  202.  In  re  St.  Bk.,  13  Pa.  Co.  Ct. 
Rep.  433.  State  v.  Shove,  96  Wis.  1.  St. 
Sav.  Bk.  V.  Foster,  118  Mich.  268.  {In- 
quiry from  Okla.,  Feb.,  1915,  Jl.) 

Holder    of    cashier's    check    as    guaranteed 
depositor  in  Texas  bank 

1402.  A  bank  holds  a  cashier's  check 
drawn  by  a  Texas  bank,  which  was  returned 


322 


DEPOSITS 


[1403 


to  it  marked  "Bank  closed."  As  the  indors- 
er  is  not  responsible,  the  bank  desires  to 
know  if  it  is  protected  by  the  bank  guaranty- 
deposit  law  of  Texas,  and  if  so  what  action 
it  should  take.  Opinion:  Where  a  person 
deposits  money  in  a  state  bank  in  Texas 
subject  to  the  Depositors'  Guaranty  Fund 
Law,  which  provides  for  payment  in  full  of 
depositors  in  failed  banks  where  the  de- 
posits do  not  bear  interest  and  are  not 
otherwise  secured,  and  receives  therefor  a 
cashier's  check  which  he  indorses  for  value 
to  a  bank  in  another  state,  the  indorsee 
bank  is  to  be  regarded  as  a  depositor  within 
the  definition  of  the  law,  and  entitled  to 
payment  in  full  out  of  the  Guaranty  Fund. 
(Lummus  Cotton  Gin  Co.  v.  Walker  [Ala.] 
70  So.  754.  Brown  v.  Sheldon  State  Bank, 
[Iowa]  117  N.  W.  289.  State  v.  Corning 
State  Sav.  Bank  [Iowa]  113  N.  W.  197. 
McEachin's  Tex.  Civ.  St.  Ann.,  tit.  14  art. 
486.  And  see  State  Sav.  Bank  v.  Foster,  118 
Mich.  268).  As  to  the  procedure  in  fihng 
claims  against  the  insolvent  bank,  see  Mc- 
Eachin's Tex.  Civ.  St.  Anno.,  tit.  14,  arts. 
463, 365.  (Inquiry  from  N. M.,Jan.,  1920,  Jl.) 

Guaranty    of    deposits — state    laws 

Note:    The  following  states  have  passed 
laws  relative  to  guaranty  of  deposits :    Kan- 
sas, (1915)  Sec.  No.  595-612;  Sec.  606  amend- 
ed by  Laws  1917,  c.  678.  amended  1921. 
Mississippi,  Laws  1918,  c.  165,  p.  179  Sec 
35;     Hemingways    Annotated     Mississipp 
Code  1917  No.  3591  etc.    Nebraska,  Rev 
Laws  (1913)  Art.  1,  c.  6;  1917  c.  6, p.  59;  1919 
c.  17,  p.  78.    North  Dakota,     1917,  c.  126 
p.  177;  1919  c.  110;  p.  138;  1919,  c.  147,  p 
198;    Bank  of  North  Dakota  Created,  Sec 
10  deposits   therein  guaranteed   by  state 
Oklahoma,     1912,    Sec.    298-307.       South 
Dakota,    Rev.  Code   1919,  No.  9005-9031, 
Laws   (1919)    cc.    122,    123,   pp.    107,    108. 
Texas,    Bank  Deposit  Guaranty  Law,  Com- 
plete Tex.  Statutes  of  1920;  Arts.  445-517. 
Same  as  Acts  1909,  2S.  S.  p.  406,  etc.  Wash- 
ington,   Pierce's  Code  (1919)  Sec.  333-354. 
Amended  1921. 

Statutory  limit  of  deposit  liability 

Limit  in  proportion  to  capital 

1403.  (1)  A  bank  inquires  whether  there 
are  any  states  that  prescribe  a  relationship 
or  proportion  of  bank  capital  to  bank  de- 


posits, i.  e.  any  banking  laws  which  make 
mandatory  an  increase  of  capital  upon 
certain  increased  deposits.  (2)  Opinion  is 
desired  as  to  whether  there  should  be  a  fair 
proportion  of,  say,  not  over  five  or  ten  of 
deposits  to  one  of  capital.  Is  it  a  proper 
precaution  the  state  should  take  to  protect 
its  population?  Opinion:  (1)  In  Iowa  any 
savings  bank  may  receive  deposits  equal  to 
twenty  times  the  aggregate  amount  of  its 
capital  and  surplus,  but  no  greater  amount 
without  a  corresponding  increase.  In  Texas, 
if  it  shall  appear  from  a  statement  of  the 
average  daily  deposits  for  the  year  ending 
November  1st,  that  they  amount  to 
more  than  five  times  the  capital  and 
surplus,  if  capital  not  more  than  $10,000, 
or  more  than  six  times,  if  capital  and  surplus 
more  than  ten  and  less  than  twenty  thou- 
sand dollars,  or  more  than  seven  tunes,  if 
more  than  twenty  thousand  and  less  than 
forty  thousand  dollars,  or  more  than  eight 
times,  if  more  than  forty  thousand  and  less 
than  seventy  five  thousand  dollars;  or 
more  than  nine  times,  if  more  than  seventy 
five  thousand  and  less  than  one  hundred 
thousand  dollars,  or  more  than  ten  times 
capital  and  surplus,  if  capital  stock  is  SlOO,- 
000,  or  more,  then  the  State  Banking  Board 
may  require  a  state  bank  to  increase  its 
capital  stock  by  25%  thereof  within  sixty 
days.  In  Kansas,  it  is  held  to  be  unlawful 
for  any  state  bank  to  accept  deposits  con- 
tinuously for  six  months  in  excess  of  ten 
times  its  paid-up  capital  and  surplus.  In 
Cahfornia,  the  limit  of  deposit  habihty  to 
paid-up  capital  and  surplus,  in  the  case  of 
commercial  banks,  is  ten  to  one.  In  IlUnois, 
banks  in  cities  and  villages  of  from  ten  to 
fifty  thousand  inhabitants  must  have  a 
minimum  capital  of  $50,000,  but  banks  in 
such  cities  with  capital  of  less  than  $100,000 
cannot  accept  deposits  in  excess  of  five 
hundred  thousand  dollars  without  increasing 
capital.  Indeed,  not  more  than  ten  states, 
and  probal)ly  less  than  that  number,  have 
provisions  luniting  the  amount  of  deposits  in 
proportion  to  capital,  and  require  and  in- 
crease of  capital  when  the  deposits  exceed 
the  prescribed  limit.  (2)  The  Legislatures 
of  some  states,  as  observed  supra,  believe  in 
so  doing,  but  the  very  large  proportion  have 
not,  as  yet,  made  any  such  requirements, 
nor  does  the  National  Bank  Act  contain  any 
such  provision  as  to  national  banks.  (In- 
quiry from  Ind.,  Nov.,  1920.) 


323 


1404-1408] 


DRAFTS  AND  BILLS   OF   EXCHANGE 


Exchange  clauses 

Draft  payable  "with  exchange" 

1404.  A  bank  receives  a  draft  for  col- 
lection drawn  by  an  individual  on  another 
in  bank's  town,  payable  "with  exchange." 
The  bank  is  instructed  to  remit  par.  The 
drawee  refuses  to  pay  exchange  in  addition, 
but  tenders  face  of  draft,  and  it  is  desired  to 
know  if  the  draft  is  protestable.  Opinion: 
The  draft  would  be  satisfied  by  tender  of 
the  amount  of  its  face  without  the  exchange, 
and  it  would  not  be  properly  protestable  for 
refusal  to  pay  exchange.  The  draft  being 
payable  in  the  place  of  the  drawee  and  not 
providing  for  exchange  on  another  place  but 
simply  providing  for  payment  "with  ex- 
change," the  words  "with  exchange"  would 
probably  be  held  indefinite  and  without 
effect.     (Inquiry  from  La.,  March,  1920.) 

Effect  of  words  "with  New  York  exchange' ' 

1405.  A  draft  payable  in  Philadelphia 
"with  New  York  Exchange"  was  presented 
for  payment.  The  acceptor  tendered  the 
face  amount  in  New  York  exchange,  which 
was  refused  by  the  collecting  bank.  The 
collecting  bank  considered  "with  New 
York  Exchange"  meant  "plus  New  York 
Exchange"  and  required  the  payment  of  the 
cost  of  exchange  on  New  York.  Opinion: 
The  draft  called  for  payment  of  the  face 
amount  plus  the  cost  of  exchange  on  New 
York,  and  the  collecting  bank  would  be  jus- 
tified in  protesting  and  returning  the  draft. 
Chandler  v.  Calvert,  87  Mo.  App.  362. 
Hogue  V.  Edwards,  9  111.  153.  Haslack  v. 
Wolfe,  (Neb.)  92  N.  W.  574.  Lowe  v.  BKss, 
24  111.  168.  Buck  v.  Harris,  125  Mo.  App. 
365.  Security  Tr.  Co.  v.  Des  Moines  Co., 
198  Fed.  331.  {Inquiry  from  Conn.,  March, 
1914,  Jl.) 

Original  and  duplicate 

Words    "duplicate    unpaid"    on    draft 

1406.  The  words  "duplicate  unpaid" 
do  not  affect  the  negotiabihty  of  a  draft 
but  they  constitute  notice  to  the  purchaser 
of  the  existence  of  a  second  draft,  pa>Tnent 
of  which  would  discharge  the  draft  he  is 
bujdng.  {Inquiry  from  S.  D.,  Feb.,  1912, 
Jl.) 

Rights  of  purchaser  of  original  where  dupli- 
cate paid  to  another  holder 

1407.  A  bank  has  one  part  of  a  bill  of 


exchange  drawn  on  a  New  York  bank.  It 
has  printed  in  one  corner  "Original  if  dupU- 
cate  unpaid."  The  instrument  was  cashed 
by  one  of  the  bank's  customers  for  the  per- 
son named  as  payee.  It  was  returned  to  the 
bank  stamped  onjits  face  "Payment  stopped." 
Also  there  was  a  printed  slip  attached  read- 
ing "DupHcate  paid."  Bank  wishes  to 
know  if  exchange  drawn  thus  can  be  refused 
payment  provided  it  is  indorsed  by  the 
proper  parties,  and  is  held  by  an  innocent 
third  party.  Opinion:  Where  a  bill  of 
exchange  is  issued  in  a  set  of  two  parts,  and 
the  original  contains  the  condition  that  it  is 
payable  only  if  the  dupHcate  is  unpaid,  the 
two  parts  constitute  one  bill,  and  payment 
by  the  drawee  of  the  duphcate  extinguishes 
the  bill,  and  the  hability  of  the  drawer  upon 
the  original.  The  sole  recourse  of  a  pur- 
chaser of  the  original  from  the  payee  is 
against  the  latter,  and  he  cannot  hold  the 
drawer  liable.  Coras  v.  Thalmann,  123 
N.  Y.  S.  97.  Casper  v.  Kuhne,  147  N.  Y.  S. 
502.  Wells  v.  Whitehead,  15  Wend.  [N.  Y.] 
527.  Kenworthy  v.  Gopkins,  1  Johns.  Cas. 
[N.  Y.]  107.  Holdsworth  v.  Hunter,  10 
B.  &  C.  449.  Sec.  180  Neg.  Inst.  Law. 
{Inquiry  from  Miss.,  Feb.,  1920,  Jl.) 

Bankers  foreign  drafts 

Liability    of    drawer    of  foreign    draft 

1408.  A  bank  states  that  in  exchange 
for  value  received,  it  issues  its  drafts  to  the 
purchasers  upon  drawees  in  Poland  to 
whom  the  bank's  New  York  correspondents 
make  remittance  to  cover  the  drafts.  The 
bank  inquires  as  to  its  responsibility  in  case 
the  drawees  do  not  honor  the  drafts,  or 
honor  them  in  different  currency  or  for  a 
lesser  amount  than  the  draft  as  drawn. 
Opinion:  The  bank's  liability  is  as  drawer 
of  a  foreign  bill  of  exchange.  Under  the 
Negotiable  Instruments  Law  the  drawer 
engages  "that  on  due  presentment  the  in- 
strument will  be  accepted  or  paid  or  both, 
according  to  its  tenor,  and  that  if  it  be  dis- 
honored and  the  necessary  proceedings  on 
dishonor  be  duly  taken,  he  (the  drawer) 
will  pay  the  amount  thereof  to  the  holder  or 
to  any  subsequent  indorser  who  may  be 
compelled  to  pay  it."  If,  therefore,  the 
foreign  draft  is  duly  presented,  dishonored, 
protested,  and  due  notice  of  protest  is  given 
to  the  bank,  it  will  be  liable.  If,  however, 
the  holder  accepts  payment  in  a  different 
currency  or  in  a  less  amount  than  called  for 


324 


DRAFTS  AND  BILLS  OF  EXCHANGE 


1409-1413 


by  the  draft,  the  drawer  would  be  discharged 

[Inquiry  from  N.  Y.,Feh.,  1920,  Jl.) 

Taking  up  unpresented  foreign  draft 

1409.  During  September  and  October 
1915,  the  X  bank  issued  to  some  of  its  cus- 
tomers foreign  exchange  drawn  on  G.  & 
Company  of  London,  England,  through  a 
New  York  bank.  These  drafts  were  mailed 
to  different  parties  abroad  in  the  belligerent 
countries.  The  customers  of  X  bank  later 
advised  it  that  their  families  had  not  re- 
ceived the  money,  so  the  X  bank  traced  the 
drafts  through  its  New  York  correspondent, 
and  found  they  had  not  been  presented  for 
payment.  Accordingly  the  X  bank  placed 
a  stop-payment  order  on  them,  which  the 
London  office  acknowledged,  as  well  as  the 
bank  in  New  York,  and  the  money  was  re- 
turned toX  bank's  New  York  correspondent, 
with  the  advice  that  X  bank  was  not  re- 
lieved from  responsibihty  should  the  drafts 
be  presented  later.  The  X  bank  asks  when 
the  Statute  of  Limitations  will  expire  on 
such  transaction,  and  whether  it  would  be 
protected  in  surrendering  this  money  to  its 
customers  without  indemnity  bonds.  Opin- 
ion :  It  would  not  be  safe  in  the  case  stated 
for  the  bank  drawing  these  drafts  to  sur- 
render the  money  without  a  good  and  suffi- 
cient indemnity  bond.  True,  pajonent  has 
been  stopped,  but  a  Habihty  as  drawer  may 
remain  for  there  is  always  the  possibility 
that  the  draft  has  been  negotiated  to  an 
innocent  purchaser  within  the  reasonable 
time  period  for  negotiation  which,  in  the 
case  of  a  banker's  draft,  might  cover  several 
months.  By  the  Wyoming  statute  the 
right  of  action  based  upon  these  drafts 
would  expire  five  years  from  the  date  of 
such  drafts.  Wyo.  Comp.  Stat.  1910,  Sec. 
4298.     (Inquiry  from  Wijo.,  March,  1919.) 

Banker's  domestic  drafts 

Statute    of   limitations  on  long    outstanding 
hankers'  demand  drafts 

1410.  A  bank  has  outstanding  a  number 
of  small  drafts  issued  by  it  from  five  to 
fifteen  years  ago,  and  asks  whether  they  can 
properly  be  credited  to  loss  and  gain. 
Opinion:  In  some  jurisdictions  the  courts 
have  held  that  paper  payable  on  demand 
does  not  become  due  until  demand  is  made, 
so  that  a  demand  is  necessary  before  the 
statute  of  limitations  will  begin  to  run. 
Lee  V.  Cassin,  15  Fed.  Cas.  8184.  Nott  v. 
State  Nat.  Bk.,  51  La.  Ann.  871.  Nash  v. 
Woodward,    62    S.    C.    418.      Barough    v. 


White,  4  B.  &  C.  325.    Yet  the  law  is  weU 

settled  in  most  jurisdictions  that  an  in- 
strument so  payable  with  or  without  in- 
terest is  due  immediately,  and  that  the  stat- 
ute runs  in  favor  of  the  maker  from  the  date 
of  its  execution.  Sullivan  v.  ElHs,  219  Fed. 
694.  Jones  v.  Nicholl,  82  Cal.  32.  Ade  v, 
Ade,  181  111.  App.  56.  De  Raismes  v.  De 
Raismes,  70  N.  J.  L.  15.  Howland  v.  Ed- 
monds, 24  N.  Y.  307.  Causey  v.  Snow,  122 
N.  C.  326.  In  re  Hartrauft,  153  Pa.  St.  530. 
According  to  the  rule  above  stated,  the 
statute  of  limitations  would  commence  to 
run  on  these  instruments  from  their  respec- 
tive dates,  and  by  the  Iowa  statute  would  be 
barred  in  ten  years  from  the  date  thereof. 
Iowa  Code  1897,  Sec.  3447.  and  in  view 
thereof,  it  would  be  necessary  to  hold  these 
accounts  open  for  a  period  of  ten  years 
before  crediting  the  respective  amounts  to 
"loss  and  gain."  (Inquiry  from  Iowa,  Jan., 
1919.) 

Bank  exchange  on  another  town 

1411.  A  bank's  customer  buys  exchange 
on  another  town  frequently  asking  that 
drafts  be  made  payable  to  a  bank  in  that 
town.  The  drafts  are  usually  forwarded  by 
the  customer  for  his  credit.  The  bank  asks 
whether  the  bank  in  whose  favor  draft  is 
made  payable  would  be  responsible  for  the 
proper  credit  of  the  item.  Opinion:  The 
bank  to  whom  the  draft  is  made  payable 
would  be  responsible  to  the  customer  for  the 
proper  credit  of  the  item  and  there  would  be 
no  responsibihty  resting  upon  the  drawer 
of  the  draft.  (Inquiry  from  Cat.,  Feb., 
1919.) 

Rubber  stamps 

Acceptance  of  draft  by  rubber  stamp 

1412.  A  bank  inquires  whether  it  is 
proper  for  a  cotton  mill  to  use  a  rubber 
stamp  acceptance  on  bills  of  exchange  drawn 
against  existing  values  in  farm  products. 
Opinion:  Signatures  by  rubber  stamp  in- 
dorsement have  been  held  valid  by  the 
courts.  Homer  v.  Missouri  Pac.  Ry.  Co., 
79  Mo.  App.  285.  R.  Wallace  &  Co.,  1 
Tex.  App.  Civ.  Cas.  Sec.  753.  Sequin  M. 
&  P.  Co.,  V.  Guinn,  (Tex.  Civ.  App.  1911) 
137  S.  W.  456.  Melino  Natl.  Bk.  v.  Cobbs, 
(Tex.  Civ.  App.)  115  S.  W.  345.  (Inquiry 
from  Tex.,  Nov.,  1918.) 

Mistakes  in  payment 

Draft  payable  to   creditor  after  notice  that 
debt  assigned 

1413.  The  purchaser  of  a  bill  of  goods 


325 


1414-1416] 


DIGEST  OF  LEGAL  OPINIONS 


from  a  firm  in  New  York  City  brought  the 
invoice  of  the  goods  to  his  bank,  which  at 
his  request  made  and  sent  a  draft  payable 
to  the  firm  in  payment  for  the  goods.  The 
invoice  contained  the  following  notation 
printed  in  red  ink,  which  was  overlooked  by 
the  bank  and  the  debtor:  "This  bill  is  as- 
signed and  pa3^able  to  A,  B,  &  Co.,  Bankers." 
Opinion:  In  the  event  the  firm  did  not  re- 
fund the  amount  of  the  draft  which  was  paid 
by  mistake,  the  debtor  who  had  notice  of  the 
assignment  must  pay  again  to  the  assignee. 
The  notice  of  the  assignment  printed  in  red 
ink  was  of  such  prominence  as  to  be  regarded 
as  sufficient.  The  bank  would  not  be  liable 
for  negligence  in  overlooking  the  notice  of 
assignment,  because  debtor  also  overlooked 
same  and  the  mistake  was  mutual.  Camp- 
bell V.  Sneed,  9  Ark.  118.  Turner  v.  Mc- 
Carthy, 22  Mich.  265.  Hogan  v.  Black,  66 
Cal.  41.  Pulham  v.  Cantrell,  77  Ga.  563. 
Deach  v.  Perry,  25  N.  Y.  St.  Rep.  891. 
Com.  V.  Sides,  176  Pa.  St.  616.  St.  v.  Jen- 
nings. 10  Ark.  428.  Graham  Paper  Co.  v. 
Pembroke,  124  Cal.  117.  Met.  L.  Ins.  Co. 
V.  Morrow,  (Ga.  1912)  73  S.  E.  607.  Man- 
ning V.  Matthews,  70  Iowa  503.  Nat.  Fer- 
tiHzer  Co.  v.  Thomason,  109  Ala.  173. 
Renton  v.  Monnier,  77  Cal.  449.  Crouch  v. 
Mullen,  141  N.  Y.  495.  City  Bk.  v.  Thorp, 
79  Conn.  194.  Stoner  v.  Zachery,  122  Iowa 
287.     {Inquiry  from  Ariz.    Aug.,  1914,  JI-) 

Remittance   of  proceeds  b/l  draft   to  wrong 
person 

1414.  A  bank  collected  A's  bill  of  lading 
draft  from  B  and  remitted  the  proceed  by 
mistake  to  C,  who  was  a  creditor  of  B  on 
open  account;  C  took  the  money  and  apphed 
it  on  B's  debt  and  thereafter  settled  with 
him  and  relinquished  security  for  indebted- 
ness. The  bank  paid  A  and  having  paid 
twice  made  demand  on  C.  C  refused  to 
refund,  claiming  that  it  is  B's  duty  to  return 
the  money  to  the  collecting  bank.    Opinion: 


It  is  a  general  rule  that  money  paid  under  a 
mistake  of  fact  may  be  recovered  back,  and 
unless  C  received  this  money  in  the  honest 
behef  that  it  was  intended  as  a  payment  on 
account  of  B's  indebtedness  and  on  faith 
thereof  surrendered  the  security  to  B,  C 
would  be  hable.  Clifford  Bk.  Co.  v.  Dono- 
van Com.  Co.,  195  Mo.  262.  Security  Co. 
V.  King,  (Ore.)  138  Pac.  465.  Behring  v. 
Somerville  (N.  J.)  44  Atl.  641.  Pine  Belt 
Lumber  Co.  v.  Morrison  (Ga.)  79  S.  E.  236. 
(Inquiry  from  Tex.,  July,  1915,  Jl.) 

1415.  A  bank  in  Montana  received 
from  a  Kentucky  bank  a  sight  draft  for 
$72.67  with  a  bill  of  lading  attached  cover- 
ing a  balance  claimed  due  on  a  shipment  of 
hquor  from  a  Kentucky  distillery  to  a  local 
liquor  dealer.  The  local  dealer  paid  the 
Montana  bank  the  amount,  surrendered  the 
bill  of  lading  and  obtained  his  goods.  The 
Montana  bank  by  mistake  sent  its  draft 
payable  to  the  distillery  instead  of  to  the 
bank.  The  distillery  under  the  misappre- 
hension that  the  draft  came  from  the  local 
dealer,  instead  of  turning  it  over  to  its  bank 
or  returning  it  to  the  Montana  bank,  in- 
dorsed it  in  blank  and  returned  it  to  the 
local  dealer.  The  dealer  cashed  it  at  the 
Montana  bank  and  held  the  money,  claim- 
ing that  the  distillery  was  indebted  to  him 
for  $68.  The  Montana  bank  wishes  to  be 
advised.  Opinion:  The  local  dealer  is  not 
a  holder  in  due  course  and  the  Montana 
bank  has  a  right  of  recovery  of  the  money 
paid  to  him  under  the  rule  that  money 
paid  under  mistake  of  fact  is  recoverable. 
German  Sec.  Bk.  v.  Columbia  Fin.,  etc.,  Co., 
(Ky.)  85  S.  W.  581.  Yarborough  v.  Wise, 
5  Ala.  292.  Pelettier  v.  St.  Nat.  Bk.,  (La.) 
41  So.  640.  Behring  v.  Somerville  (N.  J.) 
44  Atl.  641.  Fegan  v.  Great  North,  Ry., 
(N.  Dak.)  81  N.  W.  39.  Peterson  v.  Union 
Nat.  Bk.,  52  Pa.  206.  {Inquiry  from  Mont., 
Feb.,  1918,  Jl.) 


FORGED  PAPER 


Cross  Reference — See  Altered  and  Raised 
Paper,  266-231 

Forged  and  raised  check  statute 

1416.  A  statute  recommended  by  the 
American  Bankers  Association,  limiting  the 
time  of  liabihty  of  a  bank  to  its  depositor  for 
payment  of  forged  or  raised  checks,  the  time 
limit  ranging  from  thirty  days  to  one  year 
after  the  return  of  the  paid  vouchers  to  the 


depositor,  or  in  some  stated  period  after  no- 
tice that  thej'^  are  ready  for  delivery  has  been 
passed  in  the  following  states:  Cahfornia, 
Idaho,  Illinois,  Iowa,  Kansas,  Louisiana, 
Maine,  Massachusetts,  Michigan,  Minneso- 
ta, Missouri,  Montana,  Nebraska,  Nevada, 
New  Jersey,  New  York,  North  Carolina, 
North  Dakota,  Ohio,  Oregon,  Rhode  Island, 
South  Dakota,  Vermont,  Washington,  West 
Virginia,  Wisconsin  and  Wyoming. 


326 


FORGED  PAPER 


[1417-1421 


Payment  of  forged  check  not  chargeable 
to  depositor 

Claim  of  forgery  hy  depositor  three  months 
after  return  of  vouchers 

1417.  A  bank  paid  two  small  checks 
which  were  charged  to  account  and  state- 
ment rendered  a  few  days  later.  Nearly 
three  months  later  the  depositor  claimed 
the  checks  were  forgeries.  Is  the  bank 
compelled  to  refund  to  depositor  the  amount 
of  these  checks?  Opinion:  The  bank  will 
be  compelled  to  refund  to  its  customer  the 
amount  of  the  forged  checks  paid  by  it  in 
the  absence  of  proof  that  the  three  months' 

1  delay  after  receiving  a  statement  of  his 
account  before  he  notified  the  bank  of  the 

^  forgery,  prejudiced  its  position.  McKeon 
V.  Boatmen's  Banks,  74  Mo.  App.  281.  The 
rule  of  law  is  clear  that  payment  of  a  forged 
check  cannot  be  charged  to  the  depositor's 

;  account,  nor  can  money  paid  on  a  forgery 
of  the  signature  be  recovered  from  a  bona 
fide  holder  who  is  free  from  negligence.  As 
the  delay  to  notify  the  bank  of  these  checks 
did  not  result  in  its  paying  subsequent 
similar  forged  checks,  it  does  not  seem  that 
the  case  is  one  where  the  bank  has  been 
injured  for  failure  to  promptly  notify  and, 
therefore,  the  amount  charged  to  the  cus- 
tomer must  be  refunded  to  him.  (Inquiry 
from  Tex.,  Nov.,  1914.) 

Check  bearing  genuine  signature  of  treasurer 
but  forged  counter  signature  of  president 

1418.  A  bank  paid  a  check  of  a  corpora- 
tion drawn  payable  to  bearer,  signed  by  the 
treasurer,  the  counter  signature  of  the  pres- 
ident being  forged.  The  check  was  stolen 
and  cashed  by  an  employee.  The  under- 
standing between  bank  and  customer  was 
that  all  checks  should  have  both  signatures. 
The  bank  questions  as  to  its  right  to  charge 
the  amount  to  the  corporation's  account. 
Opinion:  A  check  signed  by  one  only  and 
bearing  a  forgery  of  the  other  signature  is 
not  an  authority  and  direction  to  the  bank 
to  pay,  and  is  not  chargeable  in  the  absence 
of  negligence  on  the  customer's  part.  First 
Nat.  Bk.  V.  Shaw,  149  Mich.  362.  (Inquiry 
from  Ohio,  June,  1909,  Jl.) 

1419.  A  drew  his  check  for  $27  to  order 
of  "John  Jones."  B,  a  merchant,  cashed 
the  check  for  a  merchant  giving  the  name 
of  John  Jones,  and  deposited  and  received 
credit  for  the  check  with  the  drawee  bank. 
Two  days  later  A  notified  the  bank  that  the 
check  had  been  stolen  and  the  indorsement 
was  a  forgery.    B  claims  there  was  careless- 


ness on  the  part  of  A  and  objects  to  being 
charged  with  the  amount.  Opinion:  The 
check  having  been  paid  on  a  forgery  of  the 
indorsement  cannot  be  charged  to  the 
drawer's  account,  and  the  drawee  can  re- 
cover from  the  person  receiving  payment. 
The  amount  is  therefore  chargeable  to  B. 
The  facts  stated  disclose  no  negligence  on 
the  part  of  A,  which  would  estop  him  from 
questioning  the  vaUdity  of  the  pavment. 
Russell  V.  First  Nat.  Bk.  56  So.  (Ala.)  868. 
Weisberger  Co.  v.  Barberton  Sav.  Bk.  Co., 
95  N.  E.  (Ohio)  379.  (Inquiry  from  Ala., 
May,  1914,  Jl) 

Payment    on    forged    indorsement    not 
chargeable 

1420.  A  bank  paid  at  its  window  a  check 
drawn  upon  it  which  had  been  mailed  to 
payee  but  which  he  claimed  he  never  re- 
ceived, and,  while  the  check  is  genuine,  both 
maker  and  payee  named  claimed  the  in- 
dorsement to  be  a  forgery.  Opinion:  If  the 
fact  is  established  that  the  indorsement  of 
the  check  is  a  forgery,  the  bank  would  be 
the  loser,  as  it  could  not  charge  the  amount 
to  its  customers  account.  (Inquiry  from 
Mo.,  Nov.,  1917.) 

Drawer  not  liable  to  purchaser  unless  negligent 

1421.  A  state  penal  farm  had  a  "trusty" 
acting  as  bookkeeper  in  the  farm  office,  who 
had  full  access  to  cash,  checks  and  records 
and  was  allowed  to  go  to  town  frequently, 
dressed  in  citizens  clothes.  He  called  at 
the  bank  where  the  farm  manager  kept  a 
personal  account  and  deposited  a  draft  for 

$840  drawn  by  M Mgr.  on  the  Board 

of  Penitentiary  Commissioners  to  the  credit 
of  the  personal  account  of  M,  requesting 
that  he  be  paid  $500  thereof  in  cash,  which 
was  done.  The  draft  was  a  forgery  and  when 
received  by  the  drawee,  M  was  advised  by 
telephone  that  the  draft,  if  paid,  would 
overdraw  his  account,  to  which  he  replied 
denying  making  such  a  draft.  The  "trusty" 
was  at  liberty  for  several  hours  thereafter 
and  escaped  that  night.  The  banks  asks 
whether  under  these  circumstances,  there  is 
any  ground  for  recovering  the  amount  froni 
the  prison  authorities.  Opinion:  While  it 
was  careless  of  the  prison  authorities  to 
repose  such  trust  and  allow  the  "trusty" 
such  freedom,  the  facts  would  not  be  suffi- 
cient, under  the  authorities,  to  make  them 
hable  to  the  bank.  The  bank  itself  was 
negligent  in  paying  the  money  to  the  "trus- 
ty" on  his  mere  oral  statement  that  he  was 
authorized  by  the  manager  to  receive  it. 


327 


1422-1424] 


DIGEST  OF  LEGAL  OPINIONS 


The  bank  is  the  loser  because  of  paying  its 
money  upon  a  forged  check.  {Inquiry  from 
Tex.,  May,  1919,) 

No  duty  of  drawer  to  purchaser  to  examine 

returned    check    and    detect   forged 

indorsement 

1422.  A  business  house  sent  a  check  to 
its  travehng  salesman,  which  he  did  not 
receive,  whereupon  he  sent  several  letters 
and  a  telegram  to  the  company  advising  of 
the  non-receipt.  Then  the  office  manager 
wrote  him  that  he  must  be  mistaken  as  the 
company  had  the  voucher  from  the  bank 
with  his  signature.  The  explanation  was 
that  the  mail  had  been  stolen  and  the 
salesman's  indorsement  forged.  This  check 
had  been  cashed  by  a  bank  and  subsequently 
cleared  through  the  clearing  house,  bearing 
the  usual  bank  endorsement,  including  the 
statement,  "Previous  endorsements  Guaran- 
teed." It  was  paid  late  in  August  and  re- 
turned to  the  maker  about  September  first. 
About  the  middle  of  October  the  business 
house  asked  the  bank  which  cashed  the 
check  to  refund  and,  on  refusal,  sent  the 
check  to  its  bank,  which  asked  refund  on  the 
strength  of  the  clearing  house  endorsement. 
The  cashing  bank  defends  on  the  ground  of 
unreasonable  delay  in  calling  attention  to 
the  forgery.  Is  this  a  good  defense?  Opin- 
ion: A  bank  which  cashes  a  check  under 
forged  indorsement  acquires  no  title  and 
ordinarily  must  refund  the  money  collected 
thereon.  In  this  case  the  paid  check  was 
returned  to  the  drawer  as  a  voucher  and, 
although  the  drawer  had  the  payee's  signa- 
ture on  file — the  payee  being  its  own  sales- 
man— and  although  it  wrote  the  payee  that 
it  had  his  signature  to  the  check  and  delayed 
a  month  and  a  haK  in  discovering  its  mis- 
take, such  facts  would  probably  not  estop 
the  drawer  nor  the  drawee  from  asserting 
the  forgery  as  against  the  purchasing  bank. 
In  Prudential  Ins.  Co.  .v.  National  Bank  of 
Commerce,  125  N.  E.  (N.  Y.)  824  it  was  held 
that  where  the  depositor  is  in  possession  of 
the  genuine  signature  of  the  payee,  there 
may  be  a  duty  to  the  drawee  bank  of  ex- 
amination as  to  forgery  of  indorsement  and 
notification  and  whether  or  not  the  drawer 
is  negligent,  is  a  question  for  a  jury.  See 
opinion  No.  1436.  But  it  is  improbable  that 
a  purchaser  under  forged  indorsement 
could  maintain  that  the  drawer  was  under 
duty  to  him  to  examine  and  detect  forgeries 
of  indorsements  of  checks  returned  by  the 
bank  as  paid.  In  this  case  the  general  rule 
will  doubtless  apply  that  money  paid  by  the 


drawee  upon  forged  indorsement  is  recover- 
able from  the  bank  receiving  payment.  {In- 
quiry from  Kan.,  Feb.,  1921.) 

Payment  chargeable  where  drawer 
negligent,  or  estopped 

Delay  in  notifying  hank  after  discovery  of 
forgery 

1423.  A  depositor  having  knowledge 
that  his  signature  was  forged  to  certain 
checks,  which  were  returned  to  him  as  paid 
vouchers  by  the  bank,  omitted  for  a  consid- 
erable period  of  time  thereafter  to  give  the 
bank  notice.  Opinion:  It  was  the  depos- 
itor's duty  to  promptly  notify  the  bank  upon 
the  discovery  of  the  forgery  of  the  checks. 
Neglect  of  such  duty  relieved  the  bank  of 
habiUty,  if  it  can  show  resulting  damage, 
and  in  some  jurisdictions  the  bank  is  ab- 
solved from  liabiHty,  irrespective  of  such 
damage.  Leather  Mfrs.  Nat.  Bk.  v.  Mor- 
gan, 117  U.  S.  96.  Mm-phy  v.  Met.  Nat. 
Bk.,  191  Mass.  159.  McNeely  Co.  v.  Bk.  of 
North  America,  221  Pa.  588.  Connors  v. 
Old  Forge  Disc.  &  Dep.  Co.,  91  Atl.  (Pa.) 
210.     {Inquiry  from  Ala.,  Aug.,  1916,  Jl.) 

1424.  A  bank  cashed  a  check  of  $45 
signed  by  John  Doe  and  indorsed  by  Rich- 
ard Roe  and  Peter  Roe.  When  John  Doe 
received  the  cancelled  check  from  his  bank, 
he  discovered  forgery  of  his  signature  but 
did  not  notify  the  bank  until  eight  months 
thereafter.  It  also  developed  that  Richard 
Roe's  indorsement  was  forged.  The  bank 
seeks  to  escape  liabihty  to  its  depositor,  or 
if  recovery  is  allowed  to  have  recourse  on 
Peter  Roe.  Opinion:  Where  a  bank  pa^s 
a  forged  check  and  returns  same  to  its  cus- 
tomer as  a  voucher  and  the  customer,  after 
discovering  the  forgery,  fails  for  eight 
months  to  notify  the  bank  thereof,  the  bank 
can  hold  the  customer  responsible  for  the 
amount,  if  the  unreasonable  delay  has 
worked  to  its  injury.  Where  a  bank  pays 
a  check  upon  which  both  drawer's  signature 
and  payee's  indorsement  are  forged,  some 
courts  hold,  and  others  deny,  the  bank  can 
recover  the  money  as  paid  upon  a  forgery  of 
the  indorsement,  and  in  Nebraska  the  Su- 
preme Court  has  expressed  the  opinion  that 
the  rule  allowing  recovery  in  such  case  is 
sound.  In  this  case  the  bank  could  probably 
prove  injury  caused  by  delayed  notification 
and  hold  the  customer  responsible;  further- 
more, it  would  have  right  of  recovery  from 
Peter  Roe.  Janin  v.  London  &  San  Fran, 
Bk.,  92  Cal.  14.  Murphy  v.  Met.  Nat.  Bk., 
191  Mass.   159.     McNeely  Co.  v.  Bk.   of 


328 


FORGED  PAPER 


[1425-1428 


North  America,  221  Pa.  588.  St.  Bk.  of 
Chicago  V.  First  Nat.  Bk.  of  Omaha,  127 
N.  W.  (Neb.)  244.  {Inquiry  from  Neb., 
Nov.,  1918,  Jl.) 

1425.  A  bank  wishes  to  know  whether 
A,  the  drawer  of  a  check,  has  lost  his  right 
of  recovery  from  the  drawee  bank,  B,  on  a 
check  which  was  honored  by  the  latter, 
bearing  a  forged  indorsement  of  the  payee's 
name,  by  reason  of  the  negligence  of  A  in 
faihng  to  give  bank  B  notice  of  such  forgery 
for  two  months  after  its  discovery.  Opin- 
ion: The  general  rule  is  that  the  drawee 
bank  which  pays  a  check  upon  which  the 
payee's  indorsement  is  forged  does  not  pay 
according  to  authority  of  the  drawer,  and 
cannot  charge  him  with  the  pajinent,  but 
has  a  right  of  recovery  from  the  bank  re- 
ceiving payment,  which  has  collected  money 
upon  an  instrument  to  which  it  has  no  title. 
The  application  of  this  rule  would  not  be 
changed,  even  though  the  forgery  of  the 
indorsement  was  not  discovered  by  the 
drawer  for  a  considerable  period  after  the 
payment,  for  the  drawer,  ordinarily,  is  not 
obhged  to  examine  returned  checks  as  to 
indorsement.  There  is  a  conflict  of  au- 
thority as  to  the  effect  of  delay  in  notifying 
of  a  forgery,  after  discovery  thereof.  Ac- 
cording to  the  majority  of  cases,  the  mere 
delay  is  not  sufficient  to  create  an  estoppel, 
but  it  must  be  affirmatively  proved  by  the 
bank  to  the  satisfaction  of  a  jury  that 
injury  resulted  therefrom  which  an  earher 
notice  would  have  prevented.  (Janin  v. 
London,  etc.,  Bank,  92  Cal.  14.  Yatesville 
Bank  Co.  v.  Fourth  Nat.  Bank  [Ga.  1911] 
72  S.  E.  528.  Cont.  Nat.  Bank  v.  Met.  Nat. 
Bank,  107  111.  App.  455.  Wind  v.  Fifth  Nat. 
Bank,  39  Mo.  App.  72.  Murphy  v.  Met. 
Nat.  Bank,  191  Mass.  159.  Hardy  v. 
Chesapeake  Bank, 51  Md.  562.  Harlem,  etc.. 
Build.  Assn.  v.  Mercantile  Trust  Co.,  31 
N.  Y.  Suppl.  790.  Weinstein  v.  Nat.  Bank, 
69  Tex.  38.  Brixen  v.  Deseret  Nat.  Bank,  5 
Utah  504.  Contra:  McNeely  Co.  v.  Bank 
of  N.  Amer.,  221  Pa.  St.  588,  70  Atl.  891. 
Leather  Mfg.  Nat.  Bank  v.  Morgan,  117 
U.  S.  96).  The  more  equitable  i"ule  would 
seem  to  be  that  enunciated  by  the  Pennsyl- 
vania and  Federal  Courts,  which  is  to  the 
effect  that  any  delay  on  the  part  of  the  de- 
positor, after  learning  of  a  forgery,  in  notify- 
ing the  bank  thereof,  is  a  breach  of  its  duty 
to  the  bank,  for  it  deprives  the  bank  of  a 
substantial  right  to  immediately  proceed 
both  civilly  and  criminally  against  the 
forger,  and  although  such  procedure,  so  far 
as  recovering  anything,  might  be  fruitless, 


yet  it  nevertheless  should  have  the  right  of 
which  the  depositor  by  faihng  to  give  prompt 
notice,    deprives   it.      {Inquiry  from   Tex., 

Nov.,  1920.) 

Drawer   cashing   his   own  forged   check 

1426.  A  check  was  cashed  for  a  third 
person  by  the  payee  A  in  ignorance  that  it 
bore  his  own  forged  signature  as  drawer 
and  was  deposited  by  him  in  B  bank  and  col- 
lected from  C  bank  upon  which  it  was 
drawn,  A  carrying  an  account  in  both 
banks.  Opinion:  The  check  is  chargeable 
by  drawee  bank  to  A's  account,  he  being 
estopped  the  forgery  of  his  own  signature. 
{Inquiry  from  Minn.,  Feb.,  1915,  Jl.) 

Check  signed  by  treasurer  left  exposed  and 
counter  signature  forged 

1427.  A  corporation  check  requiring  the 
signature  of  the  treasurer  and  the  counter 
signature  of  the  manager  was  signed  in 
blank  by  the  treasurer,  carelessly  exposed, 
then  stolen,  the  counter  signature  of  the 
manager  forged  and  afterwards  paid  by  the 
bank,  after  it  had  been  cashed  by  another 
bank  upon  the  forgery  of  the  indorsement  of 
a  fictitious  payee.  The  corporation  failed  to 
notify  its  bank  of  the  theft.  Opinion: 
While  the  mere  carelessly  leaving  exposed 
of  a  check  book  containing  blank  checks  has 
not  been  held  responsible  neghgence  on  the 
part  of  the  customer,  the  leaving  of  such 
checks  exposed  containing  the  genuine 
signature  of  one  of  two  officials  required  to 
sign,  coupled  with  the  fact  that  the  customer 
did  not  notify  the  bank  and  place  it  on  its 
guard,  might  be  held  sufficient  to  reheve  the 
bank  from  the  apphcation  of  the  general 
rule  that  money  paid  on  a  forged  check  is 
not  chargeable  and  to  make  the  customer 
responsible.  Robb  v.  Pa.  Co.,  186  Pa.  456. 
Wilhamsburgh  Tr.  Co.  v.  Tmn  Suden,  120 
App.  Div.  (N.  Y.)  518.  {Inquiry  from 
N.  Y.,  June,  1909,  Jl.) 

Statutory  limit  of  bank^s  liability  in  South 
Dakota 

1428.  What  is  the  time  hmit  in  South 
Dakota  in  which  a  depositor  must  notify 
the  bank  of  forgery  of  his  check?  Opinion: 
The  statute  in  South  Dakota  reheves  a  bank 
from  liability  to  depositor  for  payment  of  a 
forged  check  unless  the  depositor  notifies  the 
bank  of  the  forgery  within  three  months 
after  return  to  him  of  forged  check  as 
voucher.  S.  Dak.— S.  L.  1905,  Chap.  56. 
{Inquiry  from  S.  D.,  Dec,  1913,  Jl.) 


329 


1429-1431] 


DIGEST  OF  LEGAL  OPINIONS 


Check  hearing  forged  and  genuine  signatures 

1429.  The  treasurer  of  a  corporation 
signed  checks  in  blank  and  left  them  in  the 
drawer  of  the  desk  of  his  confidential  clerk 
for  counter  signature  of  the  president  by 
rubber  stamp.  The  desk  drawer  was  ac- 
cessible to  a  bookkeeper  who  wrongfully 
appropriated  the  checks,  affixed  the  rubber 
stamp  signature  of  the  president  thereto, 
filled  out  and  negotiated  the  checks  to  a 
bank,  which  collected  the  same  from  the 
drawee.  Opinion:  Under  the  law  of  Mis- 
souri the  corporation  is  estopped  by  its  negli- 
gence from  denying  the  genuineness  of  its 
signature,  and  from  asserting  that  such 
checks  never  had  a  valid  inception  by  de- 
livery. It  can  hold  neither  the  purchasing 
bank  nor  the  payor,  but  is  chargeable  with 
the  amount  of  such  checks.  The  facts  here 
make  out  a  case  of  conduct  on  the  part  of 
the  corporation  so  grossly  neghgent  as  to 
estop  it  from  denying  the  dehvery  of  the 
checks  as  completed  instruments.  Allen 
Grocery  Co.  v.  Bk.  of  Buchanan  Co.,  182 
S.  W.  (Kan.)  777.  Neg.  Inst.  A.,  Sec.  15 
(Comsr's  dft.),  Sec.  9986,  (Kan.  R.  S.  1909). 
Robb  V.  Pa.  Co.,  186  Pa.  456.  {Inquiry 
from  Mo.,  March,  1919,  Jl.) 

Estoppel  of  labor  union  to  question  forgery  of 
counter  signatures  by  treasurer 

1430.  A  labor  union  carried  three  ac- 
counts with  bank  A a  "General  Fund," 

"Sick  Fund"  and  "Savings  Account."  The 
officers  authorized  to  sign  checks  were  B,  the 
treasurer,  countersigned  by  C,  the  president 
and  D  the  recording  secretary.  B  had  been 
handling  the  business  of  the  union  for  some 
time,  making  all  deposits,  and  attending  to 
the  accounts  and  was  under  bond.  A  cashed 
a  check  on  the  "Savings  Account"  for  him, 
signed  by  B,  and  D,  and  F,  as  president  pro 
tem.  B  had  the  pass-book  with  him  and 
entry  of  amount  was  duly  made  in  it  by  pay- 
ing teller.  Later  the  bank  cashed  another 
check  for  B,  drawn  on  the  "Sick  Fund," 
signed  by  B,  C,  and  D.  It  is  claimed  that 
the  signatures  of  C,  D  and  F  on  the  checks 
are  forged,  all  three  persons  making  affida- 
vits to  this  effect.  The  question  is,  is  the 
bank  responsible?  Opinion:  A  bank  is 
bound  to  know  the  signatures  of  its  de- 
positors, and  if  it  pays  a  check  upon  which 
the  drawer's  signature  is  a  forgery,  it  cannot 
charge  the  amount  to  his  account  in  the 
a;:sence  of  neghgence  and  fraud  on  his  part. 
A  check  signed  in  the  names  of  three  officials 
of  an  association,  the  signatures  of  two  of 
whom  were  forged,  would  be  a  forged  check 


within  this  rule.  The  question  here  is 
whether  there  was  responsible  negligence  on 
the  part  of  the  union.  The  treasurer  was 
bonded  and  entrusted  with  the  financial 
management  of  the  business  of  the  union ;  he 
made  all  deposits  and  attended  to  the  bank 
accounts.  It  would  seem  this  state  of  facts 
whereby  the  union  placed  the  treasurer  in  a 
position  of  trust  and  confidence,  accrediting 
him  to  the  bank  as  their  financial  manager, 
would  be  sufficient  to  estop  it  from  question- 
ing the  vaUdity  of  the  payment  of  the  checks 
to  the  treasurer,  even  though  he  had  forged 
the  signatures  of  two  other  officials  thereon. 
See  Journal  March  1919,  p.  486,  also,  Israel 
V.  State  Nat.  Bank,  124  La.  885,  50  So.  783. 
Otis  Elevator  Co.  v.  First  Nat.  Bank  of  San 
Francisco,  163  Cal.  31,  124  Pac.  204.  As  to 
the  amount  paid  out  of  the  "Savings  Ac- 
count" on  presentation  of  the  pass-book  and 
entered  in  it,  the  courts  hold  that  where  the 
bank  prints  a  rule  in  its  savings  pass-books 
that  payment  made  to  a  person  producing 
the  book  shall  discharge  the  bank,  such  rule 
is  reasonable  and  binding  on  the  depositor, 
and  the  bank  is  discharged  by  such  payment 
where  it  uses  reasonable  care,  even  though 
made  on  a  forged  order  to  a  person  other 
than  the  owner  of  the  deposit.  {Inquiry 
from  Fla.,  June,  1919.) 

Drawer  in  North  Carolina  estopped  to  claim 
forgery  after  six  months 

1431.  A  forged  check  is  paid  by  the 
drawee  bank.  Some  months  later  the  for- 
gery discovered,  and  the  bank's  customer 
makes  demand  upon  it  for  recovery.  Prior 
indorsers  when  requested  to  do  so,  refused  to 
make  refund,  and  it  is  asked  if  the  drawee 
bank  has  any  recourse  upon  them,  or  is  a 
permanent  loser?  Opinion:  The  drawee 
must  be  the  loser,  unless  it  can  charge  the 
payment  to  its  customer.  Ordinarily  pay- 
ment of  a  forged  check  is  at  the  loss  of  the 
bank.  But  there  is  a  duty  of  the  depositor 
to  examine  his  pass-book  and  returned 
vouchers  within  a  reasonable  time  and  re- 
port to  the  bank  anything  wrong,  and  if  he 
fails  in  this  duty,  and  as  a  result  of  the  delay, 
the  bank  is  damaged,  the  depositor  is  re- 
sponsible. In  North  Carohna,  furthermore, 
there  is  a  statute  to  the  effect  that  no  bank 
shall  be  hable  to  a  depositor  for  the  payment 
by  it  of  a  forged  check  unless  within  six 
months  after  the  return  to  the  depositor  of 
the  voucher,  the  depositor  shall  notify  the 
bank.  In  this  case,  if  the  depositor  neglected 
for  more  than  six  months  after  return  of 
the   forged   check,    to   notify  the  bank,  he 


330 


FORGED  PAPER 


[1432-1435 


would    be    chargeable    with    the     amount. 
{Inquiry  from  N.  C,  June,  1916.) 

Payment  on  forged  indorsement  to  treasurer 
of  drawer  who  delays  two  years  in  making 
claim 

1432.  A  check  drawn  by  a  loan  associa- 
tion to  the  order  of  A  on  bank  B  was  cashed 
at  that  bank  by  the  treasurer  of  the  associa- 
tion who  indorsed  after  what  purported  to 
be  the  indorsement  of  payee.  Over  two 
years  afterwards  the  association  claiming 
that  the  indorsement  of  the  payee  is  a 
forgery,  seeks  to  hold  bank  B  hable.  Opin- 
ion: The  general  rule  is  that  a  bank  which 
pays  on  a  forgery  of  the  indorsement  cannot 
charge  the  amount  to  the  drawer.  But  in 
this  case  the  payment  was  made  to  the 
treasurer  of  the  drawer  who  indorsed  the 
check,  and  this  would  raise  the  question 
whether  the  drawer  would  be  estopped  from 
questioning  the  validity  of  the  pa^^ment, 
although  it  might  be  held  that  such  trans- 
action was  irregular  and  charge  the  bank 
with  the  duty  of  inquiry.  The  New  Jersey 
Statute  providing  that  a  bank  shall  not  be 
liable  to  a  depositor  for  payment  of  a 
forged  or  raised  check  unless  within  one 
year  from  return  of  the  voucher,  the  de- 
positor notifies  the  bank  that  the  check  paid 
was  forged  or  raised,  has  been  held  not 
directly  but  bv  implication  in  the  case  of 
Pratt  V.  Union  Nat.  Bank,  79  N.  J.  L.  117, 
75  Atl.  313,  to  apply  to  forged  indorsements 
and  under  this  decision  if  such  ruling  be 
adhered  to,  it  would  seem  that,  after  one 
year  from  the  return  of  the  voucher,  bank 
B  would  not  be  liable  to  its  depositor.  {In- 
quiry from  N.  J.,  May,  1919.) 

Drawer  delivering  check  to  person  believed  to 
he  payee 

1433.  A  railway  pay  check,  made  pay- 
able to  John  Smith,  is  by  mistake  delivered 
by  the  paymaster  to  a  person  whom  he 
believes  to  be  John  Smith,  but  who  is  not 
the  true  payee,  and  the  monej'^  is  paid  by  the 
drawee  bank  upon  indorsement  of  the  pay- 
ee's name  by  the  person  to  whom  the  check 
was  delivered.  Will  the  company  be  re- 
sponsible by  reason  of  the  mistake?  Opin- 
ion: There  are  cases  which  hold  that  in  such 
circumstances  the  loss  should  be  borne  by 
the  drawer  of  the  check,  on  the  theory  that 
the  check  was  delivered  to  the  precise  person 
intended  to  receive  payment,  and  his  in- 
dorsement of  the  name  of  the  payee  passes 
good  title.  (See,  for  example,  Maloney  v. 
Clark,  6  Kan  82.     Emporia  Nat.  Bank  v. 


Shotwell,  35  Kan.  360.  Land  Title,  etc.,  Co. 
V.  North,  Nat.  Bank,  [Pa.]  46  Atl.  420). 
There  are  other  cases  to  this  effect,  but  there 
are  some  cases  contra.  (See  Jung  v.  Second 
Ward  Sav.  Bank,  55  Wis.  364,  which  has  an 
indirect  bearing  on  the  point).  It  has,  also, 
been  held  to  be  responsible  negligence  on  the 
part  of  the  drawer  of  a  check  to  address  the 
envelope  by  mistake  to  the  payee  at  an 
address  in  a  city  other  than  where  he  resides, 
whereby  a  person  of  the  same  name  receives 
the  check  from  the  postmaster,  indorses  and 
collects  it.  In  such  case  the  drawer,  and  not 
the  payor  bank,  is  the  loser.  (Weisberger 
Co.  V.  Barberton  Sav.  Bank  [Ohio]  95  N.  E. 
379).  From  the  above  it  would  appear  that 
there  would  be  a  fair  chance  in  the  case  of 
delivery  by  the  railway  company  of  a  pay 
check  to  the  wrong  person,  that  the  company 
would  be  held  responsible  bj^  reason  of  the 
mistake.     {Inquiry  from  Wis.,  Aug.,  1919.) 

Due  diligence  in  examining  statement 

1434.  What  is  the  rule  of  dihgence  re- 
quired of  a  country  bank  in  checking  up 
daily  statement  from  its  city  correspondent? 
Opinion:  It  is  the  duty  of  a  country  bank 
receiving  a  daily  statement  from  its  city 
correspondent  to  check  up  the  statement, 
use  due  dihgence  in  examining  it  and  to  give 
due  notification  of  any  errors.  What  con- 
stitutes due  diligence  has  not  yet  been  spe- 
cifically defined  by  the  courts.  In  the  hght 
of  a  recent  New  York  decision  in  the  Morgan 
case  discussing  the  degree  of  diligence  re- 
quired by  a  depositor,  upon  the  return  of  a 
statement  of  accounts  and  vouchers  to  a 
depositor,  reasonable  dihgence  requires  a 
very  prompt  examination  of  the  account  and 
reporting  of  errors,  failing  which  the  bank 
will  not  be  chargeable  in  the  event  subse- 
quent forged  checks  were  paid  which  would 
not  have  been  paid  had  the  depositor 
exercised  due  diligence  in  the  matter  of 
prompt  examination  and  notification.  Mor- 
gan V.  U.  S.  Mortgage  &  Tr.  Co.,  208  N.  Y. 
218.     {Inquiry  from  S.  D.,  Dec,  1914,  Jl) 

Drawer's  duty  of  examination  and  verification 

1435.  A  series  of  checks  covering  a 
period  of  over  a  year,  signed  by  a  wife  pay- 
able to  her  husl)and,  were  cashed  l^y  a  bank 
for  the  husband  and  paid  l^y  the  drawee. 
During  this  time  the  pass-book  was  balanced 
several  times  and  no  objection  to  the  vouch- 
ers was  made  by  the  wife.  Three  years  later 
she  claimed  that  all  of  the  checks  were  for- 
geri(^s.  Opinion:  The  drawee  is  not  re- 
sponsible to  the  depositor  who  is  estopped 


331 


1436-1438] 


DIGEST  OF  LEGAL  OPINIONS 


by  the  neglect  of  duty  to  make  examination 
and  give  notice  of  the  forgeries.  The  bank 
receiving  payment  is  not  liable  because  after 
the  first  check  was  paid  it  was  justified  in 
cashing  the  successive  checks.  Morgan  v. 
U.  S.  Mtge.  &  Tr.  Co.,  101  N.  E.  (N.  Y.) 
871.  Young  V.  Lehman,  63  Ala.  19.  John- 
ston v.  Bk.,  27  W.  Va.  348.  Nat.  Bk.  of 
Rolla  V.  First  Nat.  Bk.,  141  Mo.  App.  719. 
First  Nat.  Bk.  v.  Bk.  of  Cottage  Grove. 
117  Fijc.  (Ore.)  293.  (Inquiry  from  S.  C, 
Sept.,  yi3,  Jl.) 

1436.  The  rule  stated  in  the  case  of 
Morgan  v.  U.  S.  Mortgage  &  Trust  Co.,  208 
N.  Y.  218,  101  N.  E.  171,  has  been  generally 
held  not  to  extend  to  an  examination  by  the 
depositor  of  the  indorsements  of  the  payee 
of  his  checks  to  ascertain  the  genuineness  of 
such  indorsements.  But  in  the  case  of 
Prudential  Ins.  Co.  v.  National  Bank  of 
Commerce,  227  N.  Y.  510,  125  N.  E.  824, 
decided  on  January  6,  1920,  it  was  held  that 
a  bank  depositor,  receiving  a  statement 
with  paid  checks,  is  bound  to  examine  the 
account  and  checks,  and  report  to  the  bank 
without  unreasonable  delay  any  errors  dis- 
covered, and  while  such  duty  does  not 
generally  extend  to  an  examination  of  the 
payees'  indorsements  to  ascertain  their 
genuineness,  yet,  when  the  depositor 
possessed  the  payees'  genuine  signatures, 
whether  he  was  neghgent  in  not  discovering 
forged  payee's  indorsements  was  a  question 
of  fact  for  the  jury. 

Ten  months'  delay  in  notifying  hank  of  forgery 

1437.  Inquiry  is  made  as  to  whether  a 
delay  of  ten  months  after  the  return  of  paid 
voucher  to  the  depositor  before  notification 
to  the  drawee  of  the  fact  that  a  check  was 
forged  would  operate  to  reUeve  the  bank. 
Opinion:  Under  the  general  rule  of  law,  the 
courts  hold  that  the  depositor  owes  the  bank 
the  duty  of  examining  returned  vouchers 
and  detecting  forgeries,  and  that  the  exam- 
ination must  be  made  within  a  reasonable 
time.  The  courts  are  at  variance  as  to  what 
precise  period  is  a  reasonable  time;  it  de- 
pends upon  the  circumstances  of  each 
particular  case.  Owing  to  the  efforts  of  the 
A.  B.  A.,  a  considerable  number  of  states 
have  passed  statutes  limiting  the  time  of 
Hability  of  a  bank  to  its  depositor  for  pay- 
ment of  raised  or  forged  checks,  but  as  yet 
Colorado  has  no  such  statute,  nor  has  the 
specific  point  been  decided  by  the  state 
courts,  but  it  would  seem  that  ten  months' 
delay   in   examining   vouchers   after   their 


return  would  not  be  a  reasonable  time  and 
might  reheve  the  bank  from  responsibihty 
to  its  depositor.  {Inquiry  from  Colo., 
March,  1917.) 

Banks  duty  to  return  vouchers  to  depositor 

1438.  A  received  a  check  drawn  on 
bank  B,  and  instead  of  cashing  it  he  ob- 
tained from  the  bank  a  dupHcate  deposit 
slip.  He  subsequently  opened  an  account 
with  the  bank,  but  the  first  deposit  was  not 
included  in  it.  Although  A's  pass-book  was 
balanced  on  a  number  of  occasions,  the  bank 
did  not  return  his  cancelled  checks  given 
against  the  first  deposit  for  years.  When 
he  did  receive  them,  he  discovered  one  of  the 
checks  to  be  forged,  and  at  once  notified  the 
bank.  The  inquiry  is  as  to  whether  or  not 
A  is  responsible  for  not  looking  after  the 
matter  more  closely  to  see  if  these  checks 
were  not  included  in  those  returned  with 
the  pass-book.  Opinion:  The  laws  of  Iowa 
provide  that  no  bank  shall  be  liable  to  a 
depositor  for  the  payment  by  it  of  a  forged 
or  raised  check,  unless  witliin  six  months 
after  the  return  to  the  depositor  of  the 
voucher  of  payment  and  depositor  shall  noti- 
fy the  bank  that  the  check  so  paid  is  forged 
or  raised.  (Supp.  Code  Iowa  1913,  Sec. 
1889-a.)  This  statute  is  not  applicable, 
however,  as  bank  B  delayed  the  return  of 
the  cancelled  vouchers  for  years  and  the 
depositor  A  notified  the  bank  of  the  forgery 
immediately  on  its  discovery.  The  statute 
does  not  impose  upon  the  depositor  the  duty 
of  demanding  the  return  of  the  vouchers, 
or  charge  him  with  neglect  if  he  fails  to  pro- 
cure them.  The  bank,  however,  in  order  to 
avail  itself  of  this  statute,  must  see  that  the 
vouchers  are  returned  to  the  depositor; 
otherwise  it  cannot  plead  the  statute  in 
defense  to  an  action  by  the  depositor  on  the 
forged  instrument.  (Inquiry  from  Iowa, 
June,  1919.) 

Note:  In  McCarty  v.  First  National 
Bank,  85  So.  (Ala.)  754  (decided  May  1920) 
the  court  stating  that  it  was  the  first  case 
of  this  kind  to  be  decided  by  any  court,  held 
that  "In  the  absence  of  a  rule  or  agreement 
expressed  or  imphed,  a  depositor  owes  the 
bank  no  dxiiy  to  call  for  his  pass-book  and 
the  cancelled  checks  within  a  reasonable 
time  and  he  is  not  in  the  same  position  as  to 
imputed  knowledge  of  forgeries  and  negli- 
gence as  to  the  fact  of  their  disclosure  to  the 
bank  as  he  would  have  been  if  he  had  ac- 
tually received  the  checks  and  the  book  from 
the  bank." 


332 


FORGED  PAPER 


[1439-1445 


Right  of  bank  to  require  guaranty  of 
drawer's  signature 

1439.  A  bank  received  its  depositor's 
check  of  $1,600  and  as  a  condition  of  pay- 
ment required  that  the  drawer's  signature 
be  guaranteed  by  the  holder  bank.  Opin- 
ion: Apart  from  the  exceptional  case  where 
a  depositor  cannot  write,  the  bank  has  no 
right  to  require  guaranty  of  the  drawer's 
signature  to  the  check  as  a  condition  of 
payment,  and  refusal  to  pay  the  genuine 
check  without  such  guaranty  would  be  a 
dishonor  for  which  the  bank  would  be  liable 
to  the  drawer.  Payment  of  the  check, 
should  the  signature  prove  to  be  forged,  even 
though  guaranteed  by  the  holder  bank, 
could  not  be  charged  to  the  drawer's  ac- 
count.   {Inquiry  from  S.  D.,  April,  1913,  Jl.) 

Non-recovery  by  drawee  of  money  paid 
on  forged  check 

Forged  check  given  hotel  in  Alabama 

1440.  A  check  drawn  on  bank  A,  bearing 
the  indorsement  of  payee  and  also  of  the 
manager  of  a  hotel  where  check  had  been 
cashed,  was  paid  by  A  on  presentation,  and 
within  an  hour's  time  it  was  discovered  that 
drawer's  signature  was  forged.  The  bank 
asks  if  it  can  recover  from  hotel.  Opinion: 
It  is  a  general  rule  that  a  drawee  which  pays 
a  check  under  forgery  of  the  drawer's 
signature  cannot  recover  the  amount  from 
the  person  to  whom  paid.  A  has  no  right  of 
recovery  from  the  hotel  even  though  forgery 
was  discovered  a  short  time  after  check  was 
paid.    {Inquiry  from  Ala.,  March,  1916.) 

I"      Forged  check   given  Alabama  firm 

1441.  An  employee  of  a  firm  that  in- 
dorsed a  check  taken  in  payment  for  goods, 
cashed  it  at  the  drawee  bank.  Subsequently 
the  drawer's  signature  was  found  to  be 
forged,  and  the  bank  asks  if  the  firm  could 
be  held  Uable.  Opinion:  The  firm  indorsing 
the  check  being  an  innocent  holder,  the 
drawee  would  have  no  right  of  action  against 
it.  Young  V.  Lehman,  65  Ala.  519.  {In- 
quiry from  Ala.,  Oct.,  1918.) 

Indorser  does  not  warrant  drawer's  signature 
in  Arizona 

1442.  A  drawee  bank  having  paid  to  a 
collecting  bank  a  check  upon  which  the 
drawer's  signature  had  been  forged,  demand- 
ed that  the  collecting  bank  reimburse  it, 
basing  its  right  of  recovery  upon  Sections 
4210-4211  of  the  Revised  Statutes  of  Arizona 
(1913).    Opinion:    It  is  a  general  rule  sup- 


ported by  many  decisions  that  the  drawee 
which  pays  a  check  to  a  bona  fide  holder 
where  the  signature  of  the  drawer  is  forged 
is  bound  by  the  payment  and  cannot  recover 
the  money.  Sections  4210-4211  of  the  Re- 
vised Statutes  of  Arizona  being  provisions  of 
the  Negotiable  Instruments  Act  which 
provide  warranties  by  the  indorser  of  the 
genuineness  of  the  instrument,  do  not  apply 
as  a  warranty  to  the  drawee  of  the  genuine- 
ness of  the  drawer's  signature.  The  drawee 
bank  in  this  case  would  be  bound  by  the 
payment  and  could  not  recover  the  money. 
{Inquiry  from  Ariz.,  Sept.,  1917.) 

Forged  checks  paid  indorsing  customers 

1443.  Bank  A  honored  five  small  checks 
drawn  on  it  which  ten  days  afterwards  it 
learned  were  forged.  Four  were  indorsed 
by  customers  of  A  and  one  by  a  local  bank. 
A  notified  these  indorsers  about  ten  days 
after  discovery  of  forgery  and  asks  if  it  has 
legal  recourse  on  them?  Opinion:  The 
general  rule  is  that  the  law  presumes  a  bank 
knows  the  signature  of  its  depositor,  and 
where  it  pays  a  check  bearing  a  forgery  of 
such  signature  to  a  bona  fide  holder  the 
payment  is  final  and  it  cannot  recover  the 
money  back.  A  few  cases  qualify  this  rule 
where  the  holder  receiving  payment  was 
neghgent,  holding  that  a  bank  cannot 
recover  unless  the  holder  negligently  con- 
tributed to  the  success  of  the  fraud  or  his 
conduct  tended  to  mislead  the  drawee. 
Swan-Edwards  Co.  v.  Union  Savings  Bank, 
17  Ga.  App.  572,  87  S.  E.  825.  A  probably 
would  have  no  recourse  upon  the  indorsers 
in  this  case.    {Inquiry  from  Ark.,  Feb.,  1919.) 

Forged  check  taken  in  payment  for  goods 

1444.  D,  who  was  employed  by  B,  made 
out  a  check  to  himself,  forging  B's  name. 
L,  who  received  the  check  in  pajnnent  for 
goods,  deposited  it  two  days  later  at  the 
drawee  bank  and  received  credit  therefor. 
Opinion:  By  the  greater  weight  of  au- 
thority under  the  Negotiable  Instruments 
Law,  there  can  be  no  recovery  from  L  in 
such  a  case  where  the  drawee  mistakes  the 
drawer's  signature  and  pays  a  forged  check 
to  a  bona  fide  holder  not  guilty  of  neghgence. 
Bk.  V.  Ricker,  71  111.  439.  First  Nat.  Bk.  v. 
Northwestern  Nat.  Bk.,  152  111.  296.  {In- 
quiry from  III.,  Jan.,  1913,  Jl.) 

Attempted  identification  of  proceeds  in  hands 
of  third  person 

1445.  A  man  succeeded  in  cashing  a 
forged  check  on  drawee  bank,  and,  on  being 


333 


1446-1448] 


DIGEST  OF  LEGAL  OPINIONS 


apprehended  some  days  later,  he  made  full 
restitution.  It  develops  that  on  the  same 
day  he  made  good  on  the  first  forgery,  he 
cashed  a  forged  check  on  another  bank  for  a 
larger  amount.  The  latter  bank  now  claims 
that  the  first  bank  received  the  proceeds  of 
the  forged  check  cashed  by  them,  and  seeks 
to  recover  same.  Have  they  a  cause  of 
action?  Opinion:  Money  has  no  ''ear- 
marks," and  even  were  it  proved  that  the 
forger  paid  his  debt  to  the  first  bank  arising 
out  of  a  forged  check  with  money  which  he 
had  derived  form  another  bank,  upon 
another  forged  check,  this  would  create  no 
liabihty  on  the  part  of  the  first  bank.  The 
money  so  paid  was  completely  negotiable, 
and  having  been  received  by  the  first  bank 
upon  a  valuable  consideration,  namely,  an 
indebtedness  arising  out  of  a  forged  check, 
there  would  be  no  habihty  therefor  to  a 
former  holder  of  the  money  from  whom  it 
had  been  obtained  by  fraud.  U.  S.  v.  Read,  2 
Cranch  [U.  S.]  159.  Robinson  Bank  of 
Darien,  18  Ga.  65.  Garvin  v.  Wis  well,  83 
111.  215.  Shipley  v.  Carroll,  45  111.  285.  See 
also  Sees.  25  and  57  Neg.  Inst.  Law.  Mass. 
Nat.  Bank  v.  Snow,  187  Mass.  160.  City  of 
Adrian  v.  Whitney  Cent.  Bank,  180  Mich. 
171.  Schaeffer  v.  Marsh,  90  Misc.  [N.  Y.j 
307.  Jefferson  Bank  v.  Chapman,  122  Tenn. 
415.    (Inquiry  from  III. ,  Feb .,  1918.) 

The  law  in  Illinois 

1446.  A  cashed  a  check  at  liis  bank  B. 
It  was  paid  by  drawee  bank  C,  and  several 
days  later  it  was  found  to  be  forged.  C 
returned  the  check  to  B,  and  that  bank 
charges  it  against  A's  account,  basing  its 
right  to  do  so  on  the  decisions  rendered  in 
the  cases  of  Beattie  v.  National  Bank  of 
Ilhnois,  69  111.  App.  632,  and  the  First 
National  Bank  v.  Northwestern  National 
Bank,  152111. 196.  Opmow: Under  the  general 
rule  the  drawee  which  pays  a  forged  check 
to  a  bona  fide  holder  is  bound  to  know  the 
signature  of  drawer  and  cannot  recover  the 
money.  As  the  money  was  not  recoverable 
by  the  drawee  from  B,  and  chargeable  by 
that  bank  to  A's  account,  A  would  have  a 
right  of  action  against  bank  B.  In  the  case 
of  the  First  National  Bank  v.  Northwestern 
National  Bank,  which  was  a  case  where 
both  the  signature  of  the  maker  and  in- 
dorsement of  payee  were  forged,  the  rule 
is  clearly  recognized  that  the  drawee  is 
bound  to  know  the  drawer's  signature  and 
cannot  recover  money  paid  on  a  forgery 
thereof.  But  it  was  held  where  the  payee's 
indorsement  is  also  forged,  that  the  drawee 


would  have  a  right  of  recovery.  That  is  not 
this  case.  In  the  Beattie  case  mentioned  the 
court  in  its  opinion  makes  a  quotation  from 
a  text  book  that  "the  indorsee  also  warrants 
the  genuineness  of  all  the  signatures  to  the 
paper."  This  must  be  taken  to  mean  a 
warranty  to  all  subsequent  holders  in  due 
course,  for  the  law  is  well  settled  that  the 
indorsee  does  not  warrant  to  the  drawee  the 
genuineness  of  the  maker's  signature.  It 
has  been  repeatedly  so  held  by  the  courts. 
(Inquiry  fro7n  III.,  Aug.,  1918.) 

Rule   of  non-recovery   in   Indiana 

1447.  C  forged  D's  signature  to  a  check 
drawn  on  bank  A,  and  being  known  at  bank 
B,  the  only  other  bank  in  town,  cashed  it 
there.  A  paid  the  check  and  charged  it  to 
D's  account.  Within  two  months  the  for- 
gery was  discovered  and  A  now  demands 
repayment  from  B.  Opinion:  A  majority 
of  courts  hold  that  a  bank  is  bound  to  know 
the  signature  of  its  customer,  and  where  it 
pays  a  check  on  a  forgery  thereof,  cannot 
recover  back  the  amount  from  the  person  to 
whom  it  has  been  paid,  provided  the  latter 
was  a  bona  fide  holder  and  did  not  contribute 
to  the  success  of  the  fraud  by  bad  faith  or 
misconduct.  This  is  the  rule  in  Indiana. 
See  Commercial  Bank  v.  Citizens  Nat. 
Bank,  Ind.  App.  120  N.  E.  670,  Nov.,  1918, 
which  holds  that  a  drawee  of  a  forged  check 
who  has  paid  to  a  bona  fide  holder  for  value 
and  without  fault  cannot  recover  the  pay- 
ment.    (Inquiry  from  Ind.,  Oct.,  1919,  Jl.) 

No  warranty  of  genuineness  of  drawer's 
signature  by  indorser  in  Indiana 

1448.  A  check  drawn  on  bank  A  to  the 
order  of  C  was  collected  by  bank  B.  It  was 
soon  after  discovered  to  be  forged,  and  A 
demanded  repayment  from  B,  claiming  that 
under  Sections  65  and  66  of  the  Negotiable 
Instruments  Act  B,  when  it  indorsed  the 
check  and  delivered  it  to  A  for  payment, 
warranted  to  that  bank  the  genuineness  of 
drawer's  signature.  Opinion:  A  drawee 
bank,  having  paid  a  check  bearing  a  forgery 
of  the  drawee's  signature,  cannot  recover  the 
money  back  from  a  party  who  received  pay- 
ment of  the  same  in  good  faith.  See  Com- 
mercial Savings  Bank  v.  Citizens  Nat. 
Bank,  (Ind.  App.),  120  N.  E.  670.  Sections 
65  and  66  of  the  Negotiable  Instruments  Act, 
whereunder  the  indorser  warrants  that  the 
instrument  is  genuine  in  all  respects  and  is 
valid  and  subsisting,  does  not  make  the 
indorser  liable  for  a  forged  signature  of  the 
drawer.     An  indorser  of  a  check  does  not 


334 


FORGED  PAPER 


[1449-1454 


warrant  the  genuineness  of  the  drawer's 
signature  to  the  drawee  who  paj-s  it.  The 
drawee  is  not  a  holder  in  due  course  under 
Section  52,  nor  a  holder  under  the  definition 
in  Section  191.  (Inquiry  from  Ind.,  Nov., 
1919.) 

Drawee  in  Iowa  cannot  recover  from  subse- 
quent holder  though  first  holder  negligent 

1449.  A  bank  paid  three  checks  aggre- 
gating $35,  upon  which  the  drawer's  sig- 
nature was  forged.  The  checks  were  in- 
dorsed by  three  different  indorsers  and  came 
to  the  drawee  bank  through  the  clearings. 
The  bank  seeks  to  recover  from  the  in- 
dorsers, if  possible.  Opinion:  The  general 
rule  supported  by  numerous  authorities  is 
that  the  drawee  which  pays  a  forged  check 
to  a  bona  fide  holder  cannot  recover  the 
money  back.  The  indorsement  does  not 
warrant  the  genuineness  of  the  drawer's 
signature.  But  in  Iowa,  if  the  first  holder  is 
negligent,  recovery  may  be  had  of  him,  but 
such  negligence  cannot  be  imputed  to  subse- 
quent holder  so  as  to  make  him  liable.  First 
Nat.  Bk.  of  Marshalltown  v.  Marshalltown 
St.  Bk.,  107  Iowa  327.  {Inquiry  from  Iowa, 
March,  1918,  Jl.) 

1450.  Two  checks  drawn  on  bank  A 
were  cashed  at  a  local  bank  B  which  received 
payment  from  A.  A  few  weeks  later  the 
checks  were  found  to  be  forged  and  B  refused 
to  reimburse  A  although  it  was  the  custom 
with  the  local  banks  to  return  checks  to  the 
local  bank  that  first  cashed  them  and  the 
latter  stood  the  loss  or  collected  from  the 
party  for  whom  it  cashed  them.  Opinion: 
It  is  incumbent  upon  the  drawee  to  be  satis- 
fied that  the  signature  of  the  drawer  is 
genuine,  for  he  is  presumed  to  know  the 
handwriting  of  the  drawee,  and  if  he  pays  a 
check  to  which  the  drawer's  name  has  been 
forged  to  a  bona  fide  holder,  he  is  bound  by 
the  act  and  cannot  recover  the  money  paid. 
See  First  Nat.  Bank  v.  Marshalltown  State 
Bank,  107  Iowa  327,  77  N.  W.  1045,  44 
L.  R.  A.  131,  where  it  was  held  that  as  be- 
tween the  drawee  and  a  good  faith  holder 
payment  of  a  check  on  a  forged  signature  is 
final,  except  when  the  holder  has  been  negli- 
gent in  not  making  due  inquiry  if  the  cir- 
cumstances were  such  as  to  demand  inquiry 
when  he  took  the  check.  In  case  of  such 
negligence  the  drawee  may  recover,  but  the 
negligence  of  the  first  holder  is  not  im- 
putable to  a  subsequent  good  faith  holder  so 
as  to  make  him  liable  to  the  drawee.  The 
rule  in  this  case  would  preclude  A  from  re- 
covering from  B  the  money  paid  to  it  upon 


forgery  of  its  customer's  signature.      {In- 
quiry from  Iowa,  March,  1919.) 

Two-fold  reason  for  rule  holding  non-recovery 
by  drawee 

1451.  The  rule  that  a  drawee  is  bound 
to  know  the  drawer's  signature  and  cannot 
recover  money  paid  to  a  bona  fide  holder  on 
forgery  thereof  is  supported  by  the  following 
two  underlying  reasons:  (1)  The  drawee  is 
in  a  better  position  than  the  holder  to  judge 
as  to  the  genuineness  of  the  drawer's  signa- 
ture. (2)  The  drawee  bank  should  be  re- 
garded as  the  place  of  final  settlement  of  the 
transaction  of  payment.  A  stipulation  on 
the  face  of  the  instrument  providing  that 
"All  indorsers  guarantee  that  the  maker's 
signature  is  genuine"  does  not  affect  the 
negotiability  of  the  instrument,  but  extends 
the  existing  liability  of  the  indorser  upon  a 
forged  check  to  subsequent  holders  to  the 
drawee.    {Inquiry  from  Kan.,Feb.,  191o,Jl.) 

1452.  A  bank  paid  a  check  upon  which 
the  drawer's  signature  was  forged  and  which 
was  presented  by  a  merchant  who  had  taken 
the  check  from  another  person.  Opinion: 
The  bank  can  neither  charge  the  amount  to 
the  drawer  nor  recover  from  the  Ijona  fide 
holder  who  received  payment.  {Inquiry  from 
Apr.,  1916,  Jl.) 

Indorsers  not  liable 

1453.  Inquiry  is  made  upon  whom  the 
loss  would  fall  should  a  l^ank  in  Kansas  pay 
a  forged  check  on  which  there  were  a  number 
of  indorsements,  all  indorsers  being  responsi- 
ble, where  the  check  had  been  charged  up 
and  the  forgery  not  discovered  until  some 
days  later.  Opinion:  The  rule  is  well 
settled  that  a  ])ank  which  paj^s  a  check  upon 
which  the  signature  of  its  customer  is  forged 
cannot  recover  the  money  from  the  person 
who  received  it.  Where  the  latter  was  a 
bona  fide  holder,  having  no  connection  with, 
knowledge  of,  or  reason  to  suspect  the  for- 
gery, and  where  the  forged  check  had  been 
paid  and  charged  up  and  the  forgery  not 
discovered  until  some  days  later,  the  bank 
could  neither  charge  the  amount  to  its  de- 
positor nor  recover  the  payment  from  any 
of  the  responsible  indorsers,  as  the  indorsers 
do  not  warrant  to  the  drawee  the  genuine- 
ness of  the  signature  of  the  drawer.  {In- 
quiry from  Kan.,  Jan.,  1917.) 

Non-recovery  by  drawee  in  Maine 

1454.  A  check  purporting  to  be  drawn 
by  A  to  the  order  of  B  was  cashed  by  bank 


335 


1455-1459] 


DIGEST  OF  LEGAL  OPINIONS 


C  which  collected  from  the  drawee  bank 
through  its  correspondent  D.  Within  a 
few  days  the  check  was  discovered  to  be 
forged,  and  the  drawee  bank  thereupon  had 
the  check  protested  and  returned  it  to  bank 
D.  The  question  is — who  is  the  loser? 
Opinion:  The  protest  of  the  check  was  a 
nullity,  as  a  forged  instrument  is  not  subject 
to  protest.  In  the  present  case  the  drawee 
bank  is  the  loser,  as  the  general  rule  of  law 
that  a  bank  is  bound  to  know  the  signature 
of  its  depositor  has  been  adopted  in  Maine 
in  the  case  of  Neal  v.  Coburn,  92  Me.  139, 
42  Atl.  348,  which  holds  (1)  that  a  bank  is 
presumed  to  know  the  signature  of  its  de- 
positors, (2)  that,  if  a  bank  pay  to  an  inno- 
cent holder  for  value  the  amount  of  a  check 
purporting  to  be  drawn  upon  it  by  one  of  its 
depositors,  but  the  signature  of  which  was 
in  fact  forged,  the  bank  cannot  recover 
the  amount  from  such  holder,  (3)  that,  if 
such  holder  on  demand  repay  the  amount  to 
the  bank,  that  does  not  entitle  him  to  re- 
cover the  amount  from  a  prior  innocent 
holder  for  value  who  has  indorsed  the  check. 
(Inquiry  from  Me.,  Feb.,  1919.) 

Payment    through    clearings    by    Michigan 
drawee  non-recoverable 

1455.  A  check  drawn  on  bank  A  is 
deposited  in  bank  B,  and  paid  through  the 
clearings.  Later  on  it  is  discovered  to  be 
forged,  and  A  seeks  to  charge  same  back  to 
B.  Opinion:  The  law  is  well  established 
that  a  bank  is  bound  to  know  the  signature 
of  its  depositor,  and,  when  it  pays  a  check  to 
a  bona  fide  holder,  cannot  recover  the 
money  back  upon  discovering  the  check  to 
be  a  forgery.  This  is  the  general  rule  as 
established  in  numerous  cases  and  precludes 
recovery  by  the  drawee  unless  there  are 
some  special  circumstances  which  would 
make  retention  by  the  holder  inequitable. 
Under  this  general  rule  bank  A  which  paid 
a  forged  check  through  the  clearings  was 
bound  by  the  payment  and  cannot  charge 
the  same  back  to  B.  The  United  States 
Supreme  Court  upheld  this  rule  in  its  deci- 
sion in  the  case  of  U.  S.  v.  Chase  National 
Bank,  252  U.  S.  485,  handed  down  in  April, 
1920,  affirming  250  Fed.  Rep.  105.  {In- 
quiry from  Mich.,  June,  1920.) 

Non-recovery  by  drawee  in  Mississippi 

1456.  Bank  A  took  a  check  for  collec- 
tion, and,  after  receiving  advice  of  pajonent 
from  its  correspondent  bank  B,  paid  the 
same.  The  drawee  bank  C,  after  charging 
amount  to  its  depositor's  account,  learned  a 


month  later  that  his  signature  was  forged, 
and  seeks  to  hold  bank  A  hable.  Opinion: 
It  is  held  by  the  courts  in  a  majority  of 
states  that,  when  the  drawee  of  a  check  or 
bill  pays  it  to  a  bona  fide  holder,  he  cannot 
recover  the  money  back  upon  discovering 
the  bill  or  check  to  be  a  forgery.  In  a  few 
states  it  has  been  held  the  bank  may  recover 
where  the  holder  receiving  payment  would 
not  be  prejudiced  by  return  of  the  money, 
but  the  weight  of  authority  is  contrary  to 
even  this.  There  does  not  appear  to  be  any 
Mississippi  case  in  which  the  question  is 
passed  upon,  but,  following  the  general  rule 
elsewhere  held,  bank  C  as  drawee  was  bound 
to  know  the  signature  of  the  customer,  and 
cannot  recover  from  bank  A  which  has  re- 
ceived payment  on  a  forgery  thereof,  es- 
pecially as  the  latter  did  not  part  with  the 
proceeds  until  after  advice  of  payment  and 
would,  therefore,  be  prejudiced  if  compelled 
to  refund.    {Inquiry  from  Miss.,  Feb.,  1916.) 

Rule  in  Missouri 

1457.  Under  the  law  of  Missouri  a  bank 
cashing  a  check  upon  which  the  drawer's 
signature  is  forged  is  not  liable  to  refund  the 
money  to  the  drawee  which  has  paid  the 
check.  Nat.  Bk.  of  Rolla  v.  First  Nat.  Bk. 
of  Salem,  125  S.  W.  (Mo.)  513.  Nat.  Bk.  of 
Commerce  v.  Mechanics  Nat.  Bk.,  127  S.  W. 
(Mo.)  429.  Price  v.  Neal,  3  Burrows  1355. 
{Inquiry  from  Mo.,  May,  1911,  Jl.) 

1458.  Bank  A  turned  in  with  its  clearing 
checks  a  check  on  one  of  the  local  banks,  B, 
which  later  turned  out  to  be  forged.  Bank 
A  was  not  notified  of  the  forgery  until  two 
months  afterwards,  when  B,  which  had 
charged  the  check  to  its  customer's  account, 
requested  bank  A  to  take  the  check  back. 
Should  it  do  so?  Opinion:  It  was  held  by 
the  Court  of  Appeals  of  Missouri  in  National 
Bank  of  Rolla  v.  First  Nat.  Bank  of  Salem, 
141  Mo.  App.  719, 125  S.  W.  513  (Mo.),  that, 
where  the  drawee  bank  pays  a  check  to  an- 
other bank  which  is  a  bona  fide  holder,  such 
drawee  cannot  recover  the  money  back  on 
discovering  such  check  to  be  a  forgery, 
holding  that  the  drawee  is  bound  to  know 
the  signature  of  its  customer.  Under  the 
law  as  decided  in  this  case,  bank  A  should 
object  to  taking  the  check  back.  {Inquiry 
from  Mo.,  Oct.,  1914.) 

Non-recovery  by  drawee  in  Montana 

1459.  Bank  A  paid  its  customer's  check 
after  presentation  by  Bank  B  which  had 
cashed  it  for  one  of  its  customers.    Later 


336 


FORGED  PAPER 


[1460-1463 


the  drawee,  discovering  that  it  bore  a  forgery 
of  the  drawer's  signature,  returned  the  check 
to  the  jfirst  indorser,  who  was  the  customer 
of  Bank  B,  and  received  cash  for  same,  but 
during  the  same  day  the  customer  presented 
the  same  check  to  Bank  A  and  received  pay- 
ment. Bank  A  then  claimed  the  right  to  re- 
turn the  check  to  Bank  B  and  recover  the 
money.  Opinion:  Bank  A,  mistaking  the 
signature  of  its  customer  and  paying  money 
upon  a  forged  check,  cannot  recover  same 
from  Bank  B,  the  innocent  holder,  who  re- 
ceived payment,  and  the  fact  that  a  prior 
indorser,  after  discovery  of  the  forgery,  re- 
turned the  money  to  the  drawee,  but  after- 
wards demanded  and  received  the  same  back 
again  does  not  alter  the  case.  First  Nat. 
Bk.  V.  Bk.  of  Cottage  Grove,  117  Pac.  (Ore.) 
293.  Johnston  v.  Bk.,  27  W.  Va.  343.  Rev. 
Code  Mont.  Suppl.  1915,  Sec.  4015  a.  {In- 
quiry from  Mont.,  March,  1919,  Jl.) 

Non-recovery  by  drawee  in  Nebraska  unless 
holder  negligent 


1460.  A  person  forged  a  check  for 
signing  the  name  of  John  Doe,  drawn  on  the 
X  National  Bank.  It  was  payable  to  him- 
self and  cashed  at  a  store,  which  deposited  it 
at  the  Y  State  Bank.  It  was  paid  by  the  X 
National  Bank  and  charged  to  the  account 
of  John  Doe.  When  the  latter  received  his 
cancelled  vouchers  he  discovered  the  forgery, 
and  immediately  notified  the  drawee  bank. 
The  X  bank  immediately  returned  the  check 
to  the  Y  bank,  requesting  reimbursement, 
which  was  refused  by  the  Y  bank.  Bank 
wishes  to  know  if  a  bank  is  the  loser  the 
minute  it  cashes  a  forged  check  under  the 
Nebraska  law,  or  is  the  party  the  loser 
which  cashed  the  check  for  the  forger? 
Opinion:  In  Nebraska  a  drawee  bank 
which  pays  a  check  upon  which  the  drawer's 
signature  is  forged  cannot  recover  the 
money  unless  it  pleads  and  can  prove  that 
the  holder  who  cashed  the  check,  and  from 
whom  recovery  is  sought,  was  negligent  in 
cashing  the  check  for  the  forger,  a  stranger, 
without  requiring  him  to  identify  himself. 
Nat.  Bank  of  Commerce  v.  Farmers  & 
Merchants  Bank  [Neb.]  128  N.  W.  522. 
State  Bank  v.  First  Nat.  Bank  [Neb.]  127 
N.  W.  244.  (Inquiry  from  Neb.,  March, 
1920,  Jl.) 

1461.  On  June  2nd  Mr.  A.  gave  his 
employee,  R.  W.,  a  check  for  SI  1.25,  and 
the  latter  made  a  copy,  forging  the  name  of 
Mr.  A.  on  the  copied  check.  The  forged 
check  was  cashed  and  later  deposited  at  the 
B  bank,  who  in  turn  presented  the  check  to 


the  drawee  bank  and  received  the  money. 
Several  months  later,  when  Mr.  A.  received 
his  checks,  he  discovered  the  forged  check 
and  called  upon  the  drawee  bank  for  the 
amount.  Opinion:  Under  the  law  of  Ne- 
braska the  drawee  who  pays  a  check  upon 
which  the  drawer's  signature  has  been  forged 
cannot  recover  back  the  money  unless  he 
pleads  and  proves  that  the  holder  was  negli- 
gent in  purchasing  or  indorsing  the  instru- 
ment, or  guilty  of  bad  faith.  St.  Bk.  of 
Chicago  V.  First  Nat.  Bk.  of  Omaha,  127 
N.  W.  (Neb.)  244.  Nat.  Bk.  of  Commerce 
V.  Farmers  &  Merchants  Bk.,  128  N.  W. 
(Neb.)  522.  {Inquiry  from  Neb.,  June, 
1917,  Jl.) 

Non-recovery  by  draioee  rule  in    Nebraska 
unaffected  by  one  month's  delay  in  discovery 

1462.  A  check  purporting  to  be  drawn 
by  A  to  the  order  of  B  on  bank  C  was  cashed 
at  D's  store.  D  deposited  it  with  bank  C 
which  credited  him  and  charged  A's  account 
with  it.  A  month  after  A  received  his  can- 
celled checks  he  discovered  that  the  check 
was  forged,  and  notified  the  bank.  It  is 
asked  if  this  delay  in  notification  does  not 
make  him  hable  and,  if  not,  who  stands  to 
lose  as  between  C  and  D.  Opinion:  The 
failure  of  the  drawer  of  the  check  to  dis- 
cover the  forgery  for  one  month  after 
cancelled  checks  were  sent  to  him,  he,  then, 
immediately  notifying  bank  C,  would  proba- 
bly not  be  held  such  laches  as  to  charge  him 
with  liability.  Bank  C  as  drawee,  having 
paid  a  check  upon  which  the  drawer's  signa- 
ture was  forged,  would  be  the  loser  as  be- 
tween itself  and  D  to  whom  the  credit  was 
given.  The  drawee  is  bound  to  know  the 
signature  of  the  drawer  and  cannot  recover 
back  the  money  paid  unless  it  can  prove 
that  the  holder  was  negligent  in  purchasing 
the  instrument  or  in  indorsing  it  or  withheld 
from  the  drawee  at  the  time  the  check  was 
paid  some  information  or  ground  for  suspi- 
cion witliin  his  knowledge  concerning  its 
genuineness.  See  State  Bank  v.  First  Nat. 
Bank  of  Omaha,  87  Neb.  351,  127  N.  W. 
244.  National  Bank  of  Commerce  v.  Farm- 
ers' &  Merchants'  Bank,  87  Neb.  841,  128 
N.  W.  522.    {Inquiry  from  Neb.,  Dec,  1916.) 

Rule  in  Massachusetts 

1463.  The  Massachusetts  decisions  ad- 
here with  certain  modifications  to  the  old 
rule  established  in  the  case  of  Price  v. 
Neal,  3  Burrows  1354,  that  the  drawee  of  a 
draft  is  bound  to  know  the  drawer's  signa- 
ture,   and    is    precluded    from    recovering 


337 


1464-1468] 


DIGEST  OF  LEGAL  OPINIONS 


money  paid  to  an  innocent  holder  upon  a 
forgery  thereof.  Price  v.  Neal,  3  Burrows 
1354.  Nat.  Bk.  of  North  America  v.  Bangs, 
106  Mass.  441.  First  Nat.  Bk.  of  Dan  vers 
V.  First  Nat.  Bk.  of  Salem,  151  Mass.  280. 
Dedham  Nat.  Bk.  v.  Everett  Nat.  Bk.,  177 
Mass.  392.  {Inquiry  from  N.  H.,  Sept., 
1910,  Jl.) 

Non-recovery  rule  supported  in  New  Jersey 
by  dictum 

1464.  A  check  which  he  made  payable 
to  his  own  order  drawn  on  bank  A  was  forged 
by  B  who  persuaded  another  to  indorse  it 
after  him  and  obtain  cash  for  it  at  bank  C. 
The  latter  collected  from  A,  which  asks  if 
it  cannot  hold  C  liable  under  the  circum- 
stances. Opinion:  By  the  great  weight  of 
authority  a  bank  which  has  paid  a  forged 
check  cannot  recover  the  money  from  the 
person  who  received  it,  where  the  latter  was 
a  bona  fide  holder,  having  no  connection 
with,  knowledge  of,  or  reason  to  suspect  the 
forgery.  It  seems  that  the  New  Jersey 
courts  have  had  no  occasion  to  declare  this 
rule  in  a  case  where  a  drawee  has  paid  a 
forged  check  and  sought  to  recover  the 
money,  but  the  case  of  the  National  Bank  of 
New  Jersey  v.  Berrall,  70  N.  J.L.  757,  58  Atl. 
189,  66  L.  R.  A.  599,  103  Am.  St  Rep.  821, 
supports  the  rule  by  dictum.  In  this  case, 
therefore,  A  would  seem  to  have  no  right  of 
recovery  against  bank  C  which  is  a  bona 
fide  holder.  {Inquiry  from  N.  J.,  March, 
1917.) 

Non-recovery  hy  drawee  in   New  Mexico 

1465.  A  person  draws  a  check  in  favor 
of  himself,  but  forges  another's  name.  He 
indorses  it  and  cashes  it  through  another 
person  who  presents  it  to  the  bank  where  it 
is  accepted  and  paid  and  charged  to  the  man 
whose  name  is  forged.  Later  the  forgery  is 
detected.  Who  loses?  Opinion:  The 
general  rule  is  that  a  bank  which  pays  a 
check  upon  a  forgery  of  the  signature  of  its 
customer  can  neither  charge  the  amount  to 
his  account  nor  recover  the  money  from  a 
bona  fide  holder  who  has  received  pajonent. 
Under  this  rule,  ordinarily,  the  bank,  upon 
which  the  check  was  drawn  is  the  loser.  {In- 
quiry froin  N.  M.,  Jan.,  1920.) 

Rule  in  New  York 

1466.  Inquiry  is  made  as  to  whether  or 
not  a  drawee  bank  which  paid  a  check  upon 
which  a  customer's  signature  was  forged  has 
recourse  upon  the  person  who  first  cashed 
the  check  and  deposited  it  in  his  own  bank 


for  collection.  Opinion:  If  the  person  who 
first  cashed  the  forged  check  acted  honestly 
and  not  in  collusion  with  the  forger,  the 
drawee  bank  would  have  no  recourse  upon 
him.  It  has  been  held  in  New  York  that 
where  a  bank  upon  which  a  check  has  been 
drawn  pays  it,  in  ignorance  that  the  drawer's 
signature  was  forged,  it  cannot  as  a  rule 
recover  back  the  amount  if  the  person  to 
whom  the  money  was  paid  was  a  bona  fide 
holder.  Trust  Co.  of  America  v.  Hamilton 
Bank,  127  App.  Div.  515,  112  N.  Y.  Supp. 
84.  National  Park  Bank  v.  Ninth  Nat. 
Bank,  46  N.  Y.  77,  7  Am.  Rep.  310.  {In- 
quiry from  N.  Y.,  May,  1914.) 

1467.  Bank  A  paid  a  check  upon  which 
a  customer's  signature  had  been  forged,  and 
five  months  afterwards,  when  the  customer's 
pass  book  was  balanced  and  the  fraud  dis- 
covered, made  claim  upon  bank  B,  which  had 
received  payment,  for  reimbursement.  The 
latter  refused  to  refund,  giving  as  its  reason, 
the  delay  in  making  claim,  and  the  inquiry 
is  as  to  whether  or  not  B  is  right  in  its  con- 
tention. Opinion:  As  the  signature  of  the 
drawer  was  forged,  the  general  rule  would 
apply  that  the  drawee  bank  paying  a  forged 
check  can  neither  charge  the  amount  to  the 
depositor's  account  nor  recover  the  money 
from  a  bona  fide  holder  to  whom  it  has  been 
paid,  and  the  five  months'  delay  in  having 
the  pass  book  balanced  and  discovering  the 
forgery  would  not  affect  the  question.  {In- 
quiry from  N.  Y.,  Oct.,  1916.) 

Non-recovery  hy  drawee  in  North  Carolina 

1468.  Two  checks  drawn  on  bank  A 
were  cashed  with  merchants  and  cleared 
through  a  local  bank  B  and  paid.  One  was 
discovered  to  be  forged  the  morning  after, 
and  before  the  check  was  stamped  paid,  and 
the  forgery  of  the  other  was  discovered  three 
days  afterwards.  In  neither  case  did  the 
delay  affect  indorser's  opportunity  to  collect 
from  forger.  Can  A  recover  from  B?  Opin- 
ion: The  majority  of  courts  hold  that  a 
bank  is  bound  to  know  the  signature  of  its 
depositor,  and  where  it  pays  a  forged  check 
to  a  bona  fide  holder  it  cannot  recover  the 
money  from  the  person  who  received  pay- 
ment. A  few  courts  modify  this  rule  by 
holding  that  where  the  person  taking  the 
check  from  the  forger  is  guilty  of  negHgence 
in  taking  the  same  from  a  stranger  without 
inquiry  or  identification,  this  makes  him 
liable  to  refund.  A  few  courts  also  hold 
that  where  the  person  who  received  the 
money  will  be  in  no  way  prejudiced  by  being 
compelled  to  make  repayment,  the  drawee 


i 


338 


FORGED  PAPER 


[1469-1473 


may  recover.  The  North  Carohna  courts 
do  not  appear  to  have  taken  any  stand  on 
this  question.  The  great  majority  of  courts 
hold  the  drawee  bound  and  concluded — and 
if  the  majority  rule  is  to  prevail  in  the  state, 
A  cannot  recover  the  money  and  must  stand 
the  loss.     {Inquiry  from  N.  C,  Jan.,  1918.) 

Rule  of  non-recovery  in  Ohio 

1469.  A  check  drawn  on  bank  A  was 
cashed  by  it  for  a  customer  who  had  taken 
it,  and  later  in  the  day  it  was  found  to  be 
forged.  The  customer  refused  to  make  good. 
Opinion:  In  the  case  of  First  Nat.  Bank  of 
Belmont  v.  First  Nat.  Bank  of  Barnesville, 
58  Ohio  St.  207,  50  N.  E.  723, 41  L.  R.  A.  584, 
65  Am.  St.  Rep.  748,  the  Supreme  Court 
said:  "The  general  rule  has  been,  and  is, 
that,  when  the  drawee  of  a  check  or  bill  pays 
the  same  to  a  bona  fide  holder,  such  drawee 
cannot  recover  the  money  back  upon  dis- 
covering such  check  or  bill  to  be  a  forgery. 
The  drawee  is  presumed  to  know  the  signa- 
ture of  the  drawer."  In  an  earlier  case,  ElUs 
V.  Trust  Co.,  4  Ohio  St.  628,  64  Am.  Dec. 
610,  the  Supreme  Court  recognized  this 
general  rule,  but  allowed  the  drawee  bank 
to  recover  money  paid  upon  a  forged  check 
because  of  a  local  custom  requiring  a  pur- 
chasing bank  to  ascertain  the  identity  of  the 
negotiator  of  a  check  and  make  careful 
inquiry  as  to  his  right  to  the  paper.  These 
seem  to  be  the  only  Ohio  decisions  on  the 
subject,  and,  under  the  general  rule,  bank 
A  would  be  the  loser.  {Inquiry  from  Ohio, 
July,  1917.) 

Non-recovery  by  drawee  in  Oklahoma  under 
Negotiable  Instruments  Act 

1470.  A  bank  paid  a  check  to  which  the 
drawer's  name  was  forged.  Can  it  recover 
from  the  bank  first  indorsing?  Opinion: 
The  loss  is  that  of  the  drawee  bank  which 
paid  on  a  forged  signature  of  the  drawer. 
The  rule  in  Oklahoma  is  thus  stated  in 
Cherokee  Nat.  Bank  v.  Union  Trust  Co., 
125  Pac.  (Okla.)  464:  "Where  a  bank,  in 
good  faith  and  for  value,  purchases  from  an 
indorser  a  check  upon  another  bank,  and 
thereupon  indorses  and  forwards  the  same 
to  its  collection  agency  for  collection,  and 
the  same  is  presented  by  the  collection  bank 
to  the  drawee  bank,  and  is  paid  by  the 
drawee  bank,  the  drawee  bank,  upon  there- 
after discovering  the  check  to  be  a  forgery, 
cannot,  by  reason  of  the  Negotiable  Instru- 
ments Law  (Sections  4496,  4662,  Comp. 
Laws  1909),  recover  the  money  back  from 


the  bank  to  whom  it  was  paid."     {Inquiry 
from  Okla.,  Feb.,  1921.) 

1471.  According  to  the  law  of  Okla- 
homa the  drawee  pajdng  a  forged  check 
cannot  in  the  absence  of  negligence  or  fraud 
recover  the  amount  from  a  bona  fide  holder 
receiving  payment.  Cherokee  Nat.  Bk.  v. 
Union  Tr.  Co.,  125  Pac.  (Okla.)  464.  Am. 
Exp.  Co.  V.  St.  Nat.  Bk.,  27  Okla.  824.  {In- 
quiry from  Okla.,  Nov.,  1912,  Jl.) 

1472.  A  check  drawn  on  bank  A  was 
cashed  at  a  store  and  deposited  with  bank  B 
which  collected  from  A.  The  check  was 
subsequently  found  to  be  forged,  and  the 
name  of  the  payee  fictitious.  The  inquiry 
is  as  to  A's  right  of  recourse.  Opinion:  The 
Supreme  Court  of  Oklahoma  in  the  case  of 
Cherokee  Nat.  Bank  v.  Union  Trust  Co.,  33 
Okla.  342,  125  Pac.  464,  has  held  that  (1) 
where  a  bank  in  good  faith  and  for  value 
purchases  from  an  indorser  a  check  upon 
another  bank,  and  thereupon  indorses  and 
forwards  the  same  to  its  collection  agency 
for  collection,  and  the  same  is  presented  by 
the  collection  agent  to  the  drawee  bank  and 
is  paid  by  the  drawee  bank,  the  drawee  bank, 
upon  thereafter  discovering  the  check  to  be 
a  forgery,  cannot  by  reason  of  the  Nego- 
tiable Instruments  Law  (Sections  4496  and 
4622  Comp.  Laws,  1909)  recover  the  money 
back  from  the  bank  to  whom  it  was  paid. 
(2)  A  drawee  who  pays  to  a  bona  fide  holder 
a  check  to  which  the  drawer's  name  has  been 
forged  cannot  recover  the  amount  of  such 
payment.  (3)  The  guaranty  of  an  indorse- 
ment on  a  check  apphes  onl}^  to  the  indorser, 
and  does  not  protect  the  drawee  against  the 
risk  of  cashing  a  check  to  which  the  maker's 
name  is  forged.  In  some  states  it  is  held 
that,  if  the  merchant  cashes  the  check  for  a 
stranger  without  due  inquiry,  he  is  negligent 
and  responsible  for  the  loss,  and  it  is  also 
held  in  some  states  that  where  the  indorse- 
ment of  the  payee  is  also  a  forgery,  the  bank 
can  recover  because  of  forgery  of  the  indorse- 
ment. The  courts  of  Oklahoma  have  not 
yet  passed  upon  either  proposition.  The 
probabilities  are  that  bank  A  would  have  no 
right  of  recovery  either  from  bank  B  or  the 
merchant.    {Inquiry  from  Okla.,  Feb.,  1918.) 

Guarantee  of  indorsements  does  not  apply  to 
drawer^s  signature 

1473.  A  check  drawn  on  bank  A  was 
indorsed  by  the  payee  B  and  deposited  by 
latter  with  bank  C  which  indorsed  "Previous 
indorsements  guaranteed"  and  collected 
from  A.    Four  months  later  the  check  was 


339 


1474-14761 


DIGEST  OF  LEGAL  OPINIONS 


discovered  to  be  forged,  and  A  seeks  to 
hold  C  liable  because  of  its  indorsement. 
Opinion:  A,  having  paid  the  check,  has  no 
right  of  recovery  against  bank  C  which  is  a 
bona  fide  holder.  The  fact  that  the  holder 
receiving  payment  has  indorsed  thereon 
"Previous  indorsements  guaranteed"  does 
not  give  the  drawee  a  right  of  recovery,  for, 
as  is  said  in  Cherokee  Nat.  Bank  v.  Union 
Trust  Co.,  33  Okla.  342,  125  Pac.  464,  "the 
guaranty  applies  only  to  the  indorser  and 
does  not  protect  the  drawee  against  the  risk 
of  cashing  the  check  to  wliich  the  maker's 
name  is  forged."  {Inquiry  from  Okla.,  Aug., 
1918.) 

The  rule  in  Oregon 

1474.  Where  the  drawee  pays  a  check 
bearing  the  forged  signature  of  the  drawer 
to  a  holder  who  has  received  the  same  in  due 
course,  without  fraud  or  neghgence,  it  can- 
not afterwards  recover  the  money  paid. 
First  Nat.  Bk.  v.  Bk.  of  Cottage  Grove,  117 
Pac.  (Ore.)  293.  Ore.  Laws  (Lord's)  4575  a. 
{Inquiry  from  Ore.,  Dec,  1913,  Jl.) 

Note:  The  law  in  Oregon  has  just  been 
comprehensively  stated  by  the  supreme 
court  in  a  decision  handed  down  April  19, 
1921.  A  bank  paid  checks  drawn  on  it  on 
forged  signatures  of  the  drawer,  a  corpora- 
tion, which  were  a  "good  imitation"  of  its 
genuine  signature.  The  checks  also  bore 
indorsements  corresponding  with  the  names 
of  the  payees  therein,  which,  however,  were 
the  names  of  fictitious  persons.  The  drawee 
bank  sued  the  bank  which  received  the 
checks  from  its  customers  on  their  genuine 
indorsements  and  which  received  payment 
from  such  drawee  through  the  clearing 
house.  The  indorsement  of  the  defendant 
was  merely:  "Pay  through  the  clearing 
house."  According  to  the  clearing  house 
rules  the  indorsement  acted  as  a  guaranty 
of  prior  indorsements.  The  drawer  of  the 
check  had  an  account  with  defendant  as 
well  as  with  plaintiff  drawee  and  defendant 
had  on  file  the  authorized  signatures  of  the 
officers  of  the  drawer.  Some  of  the  depos- 
itors in  order  to  protect  defendant  had 
delivered  to  it  the  amount  of  the  checks 
deposited  by  them.  Under  these  facts  the 
Supreme  Court  of  Oregon  in  an  exhaustive 
opinion  of  eight  thousand  words,  citing  one 
hundred  and  two  judicial  precedents,  held: 
(1)  The  rule  that  a  drawee  paying  a  check  on 
a  forged  signature  of  the  drawer  to  a  holder 
in  due  course  cannot  recover  is  in  applicable 
where  the  holder  has  been  guilty  of  bad 
faith  or  negligent.     (2)   An  illustration  of 


negligence  is  where  a  bank  cashes  a  check  for 
a  stranger  without  inquiry  and  without  iden- 
tification. (3)  Any  negligence  of  its  depos- 
itors cannot  be  imputed  to  defendant  bank. 
(4)  In  the  absence  of  other  suspicious  circum- 
stances defendant  was  not  negligent  as  a 
matter  of  law  in  not  comparing  the 
signatures  to  the  checks  with  those  on  file 
with  it,  especially  since  they  were  good 
imitations.  (5)  The  delivery  of  the  money 
by  the  depositors  to  the  defendant  to  pro- 
tect it  is  legally  immaterial.  (6)  Defendant's 
indorsement  with  the  clearing  house  stamp 
and  its  presentment  of  the  checks  for  pay- 
ment neither  singly  nor  together  consti- 
tuted a  warranty  of  the  genuineness  of  the 
drawer's  signature.  (7)  The  rule  that  pay- 
ment on  a  forged  indorsement  may  be  re- 
covered does  not  apply  where  the  drawer's 
signature  is  also  forged.  (8)  The  signature 
of  the  holder  of  a  check  presenting  it  for 
payment  is  not  technically  an  "indorse- 
ment." (9)  A  guaranty  of  prior  indorse- 
ments does  not  include  the  signature  of  the 
drawer.  Applying  these  rules,  the  court 
denied  plaintiff's  right  to  recover.  First 
Nat.  Bank  of  Portland  v.  United  States 
Nat.  Bank  of  Portland,  197  Pac.  (Ore.)  547. 

Non-recovery   by   drawee  in   Tennessee 

1475.  Two  checks  passed  through  a 
bank  on  May  12th,  drawn  on  a  neighbor 
bank,  one  of  which  was  received  on  deposit 
and  the  other  cashed  for  a  responsible  party. 
On  June  4th  the  neighbor  bank  discovered 
they  were  forged  and  turned  them  back. 
The  paying  bank  deducted  the  amount  of 
these  checks  from  the  amount  due  the 
neighbor  bank  in  daily  exchange  of  checks. 
Opinion:  Under  the  rule  laid  down  in  the 
case  of  Farmers  &  Merchants  Bank  v.  Bank 
of  Rutherford,  115  Tenn.  64,  in  which  the 
court  criticises  and  limits  the  prior  decision  in 
Peoples  Bank  v.  Frankhn  Bank  (88  Tenn. 
299),  a  bank  in  Tennessee  which  pays  a 
forged  check  to  a  bona  fide,  non-negligent 
holder  cannot  recover  the  money  paid  and 
the  bank,  having  cashed  one  such  check  and 
taken  the  other  from  its  customer  on  deposit, 
is  not  guilty  of  any  negligence  and  is  not 
responsible  to  the  drawee  bank.  {Inquiry 
from  Tenn.,  June,  1914-) 

1476.  A  check  drawn  on  bank  A  was 
paid  by  it  through  the  clearing  house  to 
bank  B  which  guaranteed  indorsements. 
Shortly  afterwards  the  check  was  discovered 
to  be  forged,  and  it  is  asked  if  A  can  hold 
B  hable?  Opinion:  The  rule  of  law  is  that 
a  bank  is  bound  to  know  the  signature  of  its 


II 


340 


FORGED  PAPER 


[1477-1481 


depositor,  and  where  it  mistakes  such  signa- 
ture and  pays  on  a  forgery  thereof  to  a  bona 
fide  holder,  it  is  bound  by  the  payment  and 
cannot  recover  same  back.  This  rule  is 
recognized  in  Tennessee.  See  Farmers  and 
Merchants  Bank  v.  Bank  of  Rutherford, 
115  Tenn.  64,  88  S.  W.  939,  112  Am.  St. 
Rep.  817.  In  the  absence  of  negligence  on 
the  part  of  the  holder  of  the  check,  bank  A 
cannot  recover.  {Inquiry  from  Tenn.,  Aug., 
1919.) 

1477.  A  retailer  accepted  checks,  upon 
which  drawer's  signature  was  forged,  in 
payment  of  merchandise,  indorsed  and 
transferred  them  to  a  wholesaler  and  the 
latter  deposited  them  in  a  bank  which 
collected  them  from  the  drawee.  The 
drawer's  pass  book  was  not  balanced  for 
eight  or  ten  months,  at  which  time  the 
forgery  was  discovered  and  notice  thereof 
given.  The  drawee  seeks  to  recover  the 
amount  paid.  Opinion:  The  drawee  bank 
has  no  right  of  recovery,  under  the  decisions 
in  Tennessee,  from  the  bank  receiving  pay- 
ment and  probably  under  such  decisions 
would  be  denied  recovery  from  the  retailer, 
even  though  the  latter  was  guilty  of  first 
negligence  in  accepting  the  checks  without 
proper  identification.  Farmers  &  Merchants 
Bk.  V.  Bk.  of  Rutherford,  115  Tenn.  64. 
People's  Bk.  v.  Franklin  Bk.,  88  Tenn.  299. 
{Inquiry  from  Tenn.,  Ayr.,  1918,  Jl.) 

The  rule  in  Texas 

1478.  A  draft  was  forged  by  the  payee, 
indorsed  by  him  and  by  his  brother,  cashed 
by  a  bank  on  faith  of  the  brother's  signa- 
ture, and  paid  by  the  drawee.  Opinion: 
The  drawee  must  stand  the  loss  where  it  can 
be  shown  that  the  bank  was  a  bona  fide 
holder  and  that  the  forger's  brother  was  not 
a  guilty  participant.  Rouvant  v.  San 
Antonio  Nat.  Bk.,  63  Tex.  612.  Moody  v. 
First  Nat.  Bk.,  19  Tex.  Civ.  App.  278 
{Inquiry  from  Tex.,  March,  1909,  Jl.) 

1479.  A  check  drawn  on  a  Texas  bank 
was  deposited  for  collection.  After  it  was 
paid  and  the  amount  paid  out  by  the  collect- 
ing bank,  forgery  of  the  drawer's  signature 
was  discovered.  Which  bank  stands  the 
loss?  Opinion:  Drawee  bank  which  pays 
check  upon  which  drawer's  signature  is 
forged  to  a  bank  receiving  same  in  good 
faith,  and  paying  out  the  money  before 
notice  of  the  forgery,  cannot  recover  the 
money  back.  Iron  City  Nat.  Bk.  v.  Peyton, 
15  Tex.  Civ.  App.  184.  Moody  v.  First  Nat. 
Bk.,  19  Tex.  Civ.  App.  278.  {Inquiry  from 
Tex.,  Aug.,  1918,  Jl.) 


The  rule  in  Washington 

1480.  A  check  upon  which  the  drawer's 
signature  is  forged  is  deposited  in  bank  by  a 
customer  and  paid  bj^  the  drawee  through 
the  Clearing  House.  Three  days  later  the 
forgery  is  discovered  and  re-pajinent  de- 
manded. Opinion:  The  Supreme  Court 
of  Washington  held  in  1902  that  a  drawee 
which  paid  a  forged  check  to  another  bank, 
which  had  negligently  cashed  the  check 
upon  the  payee's  indorsement,  without  in- 
quiry or  identification,  could  recover  if  it 
acted  within  a  reasonable  time;  and  also  per- 
mitted recovery  where  the  recipient  would 
not  be  prejudiced  by  the  repayment.  No 
reference  in  this  case  was  made  to  the  Ne- 
gotiable Instruments  Law  which  had  been 
in  force  in  1899,  but  since  that  decision  the 
courts  in  New  York,  Missouri,  Oregon  and 
Oklahoma  have  held  the  drawee  is  bound 
and  precluded  from  recovering  money  paid 
on  a  forged  check  to  a  bona  fide  holder  not 
guilty  of  negligence.  The  right  of  recovery 
in  the  present  case  would  be  denied  if  the 
Washington  court  should  place  a  similar 
construction  upon  the  Negotiable  Instru- 
ments Act.  Canadian  Bk.  of  Commerce  v. 
Bingham,  30  Wash.  484.  Title  Guaranty 
Co.  V.  Haven,  126  App.  Div.  (N.  Y.)  802. 
First  Nat.  Bk.  v.  Bk.  of  Cottage  Grove,  117 
Pac.  (Ore.)  293.  Nat.  Bk.  of  Rolla  v.  First 
Nat.  Bk.  of  Salem,  141  Mo.  App.  719. 
Cherokee  Nat.  Bk.  v.  Union  Tr.  Co.,  125 
Pac.  (Okla.)  464.  Colonial  Tr.  Co.  v.  Bk., 
50  Pa.  Super.  Ct.  Rep.  510.  {Inquiry  from 
Wash.,  Nov.,  1912,  Jl.) 

Note :  The  Supreme  Court  of  Washington 
in  1920  upheld  the  general  rule  holding  the 
drawee  bound.  See  note  to  next  following 
item. 

1481.  A  check  was  cashed  by  a  local  mer- 
chant, deposited  to  his  credit  in  a  local  bank 
through  which  it  was  cleared  on  the  drawee 
bank  and  paid  in  the  regular  manner.  A 
week  later  the  depositor  to  whose  account 
the  check  was  charged  reported  it  a  forgery. 
The  payor  bank  demands  refund  of  the 
amount  of  the  check  from  the  bank  through 
which  it  was  cleared.  Opinion:  The  general 
rule  is  that  a  drawee  bank  which  pays  a 
forged  check  to  a  bona  fide  holder  is  bound 
by  the  payment  and  cannot  recover  the 
money.  This  is  the  general  rule  prevaihng 
throughout  the  country.  But  in  1899  the 
Supreme  Court  of  Washington  in  Canadian 
Bank  v.  Bingham,  91  Pac.  185,  held  that 
the  drawee  had  a  right  of  recovery  unless  the 
neghgence  of  the  bank  in  mistaking  the 
signature,  or    in    discovering    and    giving 


341 


1482-1485] 


DIGEST  OF  LEGAL  OPINIONS 


notice  of  the  forgery,  would  cause  the  person 
receiving  payment  to  suffer  loss,  in  the  event 
he  was  compelled  to  refund.  If  the  Supreme 
Court  of  Washington  still  adheres  to  these 
views,  the  bank  might  have  a  right  of  re- 
covery, but  it  would  depend  upon  whether 
the  local  bank  could  recover  from  the  mer- 
chant and  whether  the  local  merchant  who 
first  cashed  the  check  would  be  in  a  worse 
position  if  compelled  to  refund  than  before 
receiving  the  money.  The  Supreme  Court 
of  Washington  held  in  that  case  that  a  mer- 
chant who  cashed  a  check  for  a  stranger 
was  guilty  of  negligence  in  not  having  the 
party  properly  identified.  {Inquiry  from 
Wash.,  March,  1917.) 

Note:  In  1920  the  Supreme  Court  of 
Washington,  in  National  Bank  of  Commerce 
v.  Seattle  Nat.  Bank,  187  Pac.  342,  dis- 
tinguishes and  hmits  the  application  of  the 
decision  in  the  Bingham  case  and  cites  with 
approval  authorities  which  uphold  the  rule 
first  above  stated. 

Non-recovery  by  Washington  drawee  from 
Idaho  merchant  unless  latter  negligent 
1482.  A  forged  check  was  originally 
cashed  by  an  Idaho  storekeeper,  who  in- 
dorsed it  to  a  bank,  and  in  due  course  it 
was  paid  by  the  drawee  bank.  The  voucher 
was  returned  to  the  customer  who  promptly 
notified  the  drawee  bank  of  the  forgery. 
What  parties  are  liable  for  the  loss?  Opin- 
ion: The  general  rule  is  that  the  drawee 
bank  is  bound  to  know  the  signature  of  its 
depositor  and  must  at  its  own  risk  detect 
a  forgery  before  paying  a  check.  National 
Bank  of  Commerce  v.  Seattle  Nat.  Bank, 
187  Pac.  (Wash.)  342.  Canadian  Bank  of 
Commerce  v.  Bingham,  71  Pac.  (Wash.) 
43.  91  Pac.  (Wash.)  185.  Under  this 
general  rule  the  drawee  bank  would  be 
bound  by  the  payment  and  could  not  charge 
the  amount  to  the  depositor  nor  recover 
from  a  bona  fide  holder  to  whom  paid.  It 
is  possible,  if  the  storekeeper  first  cashing 
this  check  took  it  from  a  stranger  without 
identification,  the  bank  would  have  a  right 
to  recover  the  money  from  him.  There  is  a 
conflict  of  authority  whether  the  cashing  of 
a  check  for  a  stranger  without  inquiry  or 
identification  is  such  negligence  as  author- 
izes the  drawee  bank  to  recover.  There  is  no 
decision  in  Idaho  on  this  point.  See  on  this 
question  Canadian  Bank  of  Commerce  v. 
Bingham,  71  Pac.  (Wash.)  43,  91  Pac. 
(Wash.)  185,  and  Bank  of  Wilhamson  v. 
McDowell  County  Bank,  66  S.  E.  (W.  Va.) 
761,  which  fully  reviews  the  authorities. 
{Inquiry  from  Wash.,  Feb.,  1921.) 


The  rule  in  West  Virginia 

1483.  Drawee  which  pays  a  check  upon 
which  the  drawer's  signature  has  been 
forged,  to  a  bona  fide  holder  free  from  negli- 
gence has  no  right  of  recovery  from  such 
holder  of  the  money  paid.  Bk.  of  Wilham- 
son V.  McDowell  Co.  Bk.,  66  S.  E.  (W.  Va.) 
761.     {Inquiry  from  W.  Va.,  Feb.,  1918,  Jl.) 

Non-recovery  rule  not  yet  declared  in 
Wisconsin 

1484.  A  check  was  presented  at  C  Bank 
drawn  on  the  F  Bank  payable  to  J.  Ashauer, 
and  signed  "John  Smith."  The  check  was 
properly  indorsed  by  J.  Ashauer,  cashed, 
and  on  the  same  or  next  day  presented  at 
the  drawee  bank,  F,  where  in  the  usual 
course  it  was  received  and  passed  to  the 
credit  of  C  Bank.  Two  weeks  later  the 
check  was  returned  to  C  Bank  with  state- 
ment that  name  of  the  drawer,  John  Smith, 
had  been  forged  and  C  Bank  was  requested 
to  make  good  the  amount  to  the  drawee 
bank.  The  C  Bank  asks  whether  the  F 
Bank,  having  accepted  and  passed  the  check 
to  the  credit  of  the  C  Bank,  after  a  lapse  of 
two  weeks,  can  claim  reimbursement  from 
C  Bank.  It  appears  that  one  John  Smith 
carries  an  account  at  the  F  Bank,  and  the 
check,  having  been  received  at  the  drawee 
bank,  was  debited  to  his  account.  Opinion: 
The  weight  of  authority  is  to  the  effect  that 
a  drawee  bank,  having  paid  a  check  bearing 
a  forgery  of  the  drawer's  signature,  cannot 
recover  the  money  back  from  a  person  who 
received  payment  of  the  check  in  good  faith. 
A  search  has  failed  to  disclose  a  Wisconsin 
case  so  holding,  but  such  is  the  well-estab- 
lished rule.  See,  for  example,  Germania 
Bank  v.  Boutell,  60  Minn.  189.  First  Nat. 
Bank  v.  Bank  of  Cottage  Grove,  117  Pac. 
(Ore.)  293.  Where  the  payee's  indorse- 
ment is  also  a  forgery,  there  is  a  conflict  in 
the  decisions  as  to  the  bank's  right  of  re- 
covery, but  where  this  element  does  not 
enter  and  the  forgery  is  simply  of  the 
drawer's  signature,  the  rule  of  non-recovery 
appHes.     {Inquiry  from  Wis.,  March,  1919.) 

Non-recovery    by    railroad    drawee 

1485.  A  filled  in  a  blank  form  of  draft 
used  by  a  railroad  company,  and  forged  an 
agent's  signature  to  it.  He  indorsed  it  as 
payee  and  got  B  to  cash  it  for  him.  The 
latter  deposited  it  in  his  bank,  which  sent  it 
through  regular  channels,  and  it  was  pre- 
sented and  paid  at  the  office  of  the  treasurer 
of  the  company.  Two  months  after  the 
forgery  was  discovered,   and  the  railroad 


342 


FORGED  PAPER 


[1486-1487 


company,  instead  of  sending  back  the  draft 
the  way  it  came,  mailed  it  to  the  auditor  of 
the  road  who  tried  to  collect  from  B  as 
indorser.  Opinion:  It  is  the  general  rule 
that  a  bank  or  other  drawee  is  bound  to 
know  the  signature  of  the  drawer,  and 
where  it  mistakes  such  signature  and  pays 
money  on  a  forgery  thereof  to  a  bona  fide 
holder,  it  cannot  recover  the  money  so  paid. 
Under  this  general  rule  a  railroad  paying  a 
draft  upon  a  forgery  of  its  agent's  signature 
is  bound  to  know  such  signature  and  could 
not  recover  the  money  from  a  bona  fide 
holder,  and  if  B,  who  cashed  the  forged 
draft  for  A,  did  so  innocently,  under  the  rule 
referred  to,  the  railroad  could  not  hold  him 
Uable  and  would  be  the  loser.  {Inquiry 
from  Miss.,  May,  1914.) 

Conflict  of  law 

Drawee's   right   of  recovery  from   holder  in 
another  state   where  conflict  of  law 

1486.  The  payee  of  a  check  drawn  on  a 
South  Carolina  bank  indorses  it  to  a  Georgia 
bank  A.  The  latter  collects  from  drawee. 
The  check  subsequently  proves  to  be  forged 
and  the  drawee  charges  A's  account  with 
the  amount,  claiming  that  under  South 
Carolina  decisions  a  guarantee  of  the  in- 
dorsement is  also  a  guarantee  of  the  signa- 
ture of  the  drawer.  The  inquiry  is  whether 
A  would  be  bound  by  Georgia  or  South 
Carolina  law  in  the  matter.  Opinion:  A 
majority  of  courts  hold  that  a  drawee  bank 
is  bound  to  know  the  drawer's  signature  and 
cannot  recover  money  paid  on  a  forged  check 
to  a  bona  fide  holder  thereof.  But  in  the 
case  of  Ford  v.  Peoples  Bank,  74  S.  C.  180, 
54  S.  E.  204,  the  court  virtually  holds  that 
the  indorsement  of  a  forged  check  by  a 
holder  receiving  same  from  the  payee  is  a 
representation  or  warranty  to  the  drawee 
that  the  drawer's  signature  is  genuine,  suffi- 
cient to  make  such  holder  liable  to  the 
drawee.  In  the  later  case  of  Newberry  Sav- 
ings Bank  v.  Bank  of  Columbia,  91  S.  C.  294, 
74  S.  E.  615,  however,  the  court  seems  to 
recognize  the  general  rule  that  the  drawee 
cannot  recover  from  a  bona  fide  holder,  but 
makes  an  exception  in  the  case  where  the 
holder  has  taken  the  check  directly  from  the 
supposed  drawer.  As  one  of  the  provisions 
of  the  South  Carolina  Negotiable  Instru- 
ments Act  is  that  the  drawee  by  accepting 
admits  the  signature  of  the  drawer,  it  is 
somewhat  uncertain  whether  the  courts  of 
that  state  would  now  take  the  view  that  A 
warranted  to  the  drawee  the  signature  of  the 
drawer.  As  to  the  law  in  Georgia,  A,  being 


a  bona  fide  holder,  taking  the  check  in  good 
faith  and  without  negligence,  would  not  be 
held  liable  to  refund.  See  Wood  v.  Colony 
Bank,  114  Ga.  683,  40  S.  E.  720.  Upon  the 
specific  question  whether  the  South  Caro- 
lina or  Georgia  law  governs  the  liability  of 
A,  assuming  there  was  a  right  of  recovery 
under  the  South  Carolina  but  not  under  the 
Georgia  law,  there  seems  to  be  no  decision 
in  any  of  the  states  where  this  question  has 
arisen  by  reason  of  the  parties  being  in 
different  states  in  which  the  law  was  in 
conflict.  The  question  must  be  determined 
on  general  principles:  (1)  If  recovery  is 
sought  on  the  ground  that  the  indorser 
warrants  genuineness  to  the  drawee,  as 
claimed  to  be  the  South  Carohna  rule,  then, 
under  the  well-established  rule  that  the  law 
of  the  place  of  indorsement  governs  the 
contract  and  liability  of  the  indorser,  the 
law  of  the  place  of  the  indorser,  Georgia,  and 
not  of  the  South  Carolina  drawee  would 
govern.  (2)  If  recovery  is  sought  in  any 
case  on  the  ground  of  the  holder's  negligence, 
then  the  law  of  the  place  where  such  negh- 
gence  occurred  would  seem  to  govern  the 
liability-  (3)  If  recovery  is  sought  on  the 
ground  that  the  holder  receiving  money  of 
the  drawee  on  a  forged  instrument  to  which 
he  has  no  title  impliedly  promises  to  refund 
the  money  to  the  drawee,  then  such  promise 
to  refund  would  seem  to  be  governed  by  the 
law  of  the  place  of  the  promisor  unless  it  is 
to  be  construed  as  a  promise  to  refund  the 
money  at  the  place  of  the  drawee  and  not  at 
the  place  of  the  promisor,  in  which  event 
the  rule  that  a  contract  made  in  one  place  to 
be  performed  in  another  is  governed  by  the 
law  of  the  place  of  performance  might 
operate.  Just  what  the  law  is,  in  the  absence 
of  decision,  is  not  free  from  doubt;  but  the 
preponderance  of  reason  seems  to  favor  the 
rule  that  the  law  of  the  place  of  the  holder 
and  not  of  the  drawee  would  govern  the 
liability  to  refund  money  received  upon  a 
forged  check,  where  the  laws  of  two  states 
differ.    (Inquiry  from  Ga.,  Oct.,  1914.) 

Difference  in  New  Jersey  and  Pennsylvania 
rule 

1487.  A  New  Jersey  bank.  A,  accepted 
for  collection  a  check  drawn  on  a  Pennsyl- 
vania bank,  B,  payable  to  the  order  of  C. 
A  received  B's  draft  in  payment  and  paid 
C,  who  had  been  identified.  The  next  day  it 
received  a  telephone  message  from  B  that 
the  check  was  a  forgery  and  that  it  had 
stopped  payment  on  its  draft.  Is  B  re- 
sponsible   for    the    loss?      Opinion:      The 


343 


1488-1489] 


DIGEST  OF  LEGAL  OPINIONS 


general  rule,  which  is  recognized  in  New 
Jersey,  is  that  a  drawee  who  mistakes  the 
signature  of  his  depositor  and  pays  a  check 
upon  a  forgery  thereof  is  bound  by  the 
payment  and  cannot  recover  the  money 
from  a  bona  fide  holder  who  has  received 
payment.  But  in  Pennsylvania,  by  Act  of 
1849,  money  paid  upon  a  forged  signature  is 
recoverable  from  the  person  or  persons 
previously  holding  or  negotiating  the  forged 
instrument.  The  Pennsylvania  courts  have 
held  that,  under  this  statute  to  entitle  the 
drawee  to  recover,  prompt  notice  of  the 
forgery  must  be  given  and  that  delay  in 
giving  notice  will  relieve  the  person  receiving 
payment  from  liability  unless  he  is  not 
prejudiced  by  such  delay.  See  case  of  Iron 
City  Bank  v.  Fort  Pitt  National  Bank,  159 
Pa.  46,  28  Atl.  195,  23  L.  R.  A.  615,  where 
the  court  said  if  the  one  sending  the  money 
could  recoup  himself  therefrom  without 
loss,  the  date  of  notice  became  immaterial 
but  otherwise  the  drawee  must  act  with  due 
dihgence  in  order  to  recover.  A  delay  of  five 
days  in  that  case  was  held  to  be  not  due 
diligence.  Bank  A  received  notice  the  day 
after  it  received  B's  draft  in  payment  that 
the  check  was  a  forgery,  although  this  was 
too  late  to  enable  it  to  save  itself  from  loss. 
If  the  law  in  Pennsylvania  would  govern  in 
this  case,  it  would  probably  be  held  the 
Pennsylvania  bank  had  given  reasonably 
prompt  notice  and  could  recover;  but  if  the 
New  Jersey  law  governs  the  liability  of  the 
holder,  there  would  be  no  right  of  recovery. 
The  question  which  law  governs  in  case  of 
conflict  is  undecided.  {Inquiry  from  N.  J., 
Sept.,  1919.) 

Non-recovery  by  Pennsylvania  drawee  from 
Oregon  bank 

1488.  An  Oregon  bank,  A,  collected 
through  its  correspondent  in  Pennsylvania 
a  check  drawn  on  a  Pennsylvania  bank,  B, 
upon  which  the  drawer's  signature  was 
forged.  A  was  not  notified  of  the  forgery 
until  twenty  days  after  receiving  notice  of 
payment,  and  up  to  a  few  days  prior  to  that 
time  it  had  in  its  hands  funds  of  its  customer 
sufficient  to  recoup  itself  in  case  it  had 
known  the  check  was  a  forgery.  It  is  asked 
if  under  the  circumstances  A  can  be  held 
liable.  Opinion:  The  general  rule  is  that 
the  drawee  of  a  check  is  bound  to  know  the 
drawer's  signature.  If  it  mistakes  the 
signature  and  pays  a  check  bearing  a  forgery 
thereof  to  a  good  faith  holder,  it  is  bound  by 
the  payment  and  cannot  recover  the  money 
back.    In  Pennsylvania,  where  payment  in 


this  case  was  made,  the  courts  early  adopted 
this  rule,  but  in  1849  the  legislature  of  that 
state  enacted  a  statute  designed  to  reHeve 
the  drawee  from  loss  by  reason  of  a  mistaken 
payment  on  a  forged  signature,  which 
statute  is  still  in  force.  Literally  construed 
it  would  permit  recovery  by  drawee  in  all 
such  cases,  but  there  have  been  several 
decisions  by  the  Pennsylvania  courts  in 
which  it  is  given  a  more  restricted  meaning, 
and  in  the  case  of  Iron  City  Nat.  Bank  v. 
Fort  Pitt  Bank,  159  Pa.  46,  28  Atl.  195,  23 
L.  R.  A.  615,  the  statute  is  construed  to 
reHeve  the  payor  bank  only  where  it  uses  due 
dihgence  to  discover  the  forgery  and  notify 
the  party  receiving  payment.  The  court  in 
this  case  held  a  delay  of  five  days  in  giving 
notice  of  the  forgery,  not  due  dihgence  and 
said,  "The  statute  does  not  dispense  with  the 
necessity  of  care  and  diligence  on  the  part 
of  the  payor,  nor  exempt  him  from  the  con- 
sequences of  his  own  negligence,  if  thereby 
loss  would  accrue  to  the  other  party."  Ap- 
plying this  ruling  to  the  present  case,  the 
drawee  bank  B,  in  a  suit  against  A,  could  not 
recover,  irrespective  of  the  question  whether 
the  liability  of  A  to  refund  is  governed  by 
the  law  of  Oregon  or  of  Pennsylvania. 
{Inquiry  from  Ore.,  Dec,  1911.) 

Recovery  by  drawee  of  money  paid  on 
forged  check 

Alteration  of  name  of  drawee 

1489.  A,  an  employee  of  B  has  cashed 
by  bank  C  a  check  purporting  to  be  drawn 
by  B  on  bank  D.  The  latter  bank  returned 
the  check  to  C  on  account  of  B  having  no 
account  with  it.  A  claimed  a  mistake  had 
been  made  as  to  drawee  bank,  and  at  his 
request  the  president  of  bank  C  changed  the 
name  of  drawee  from  bank  D  to  bank  E. 
The  latter  bank  paid  the  check,  and  a  few 
days  later  it  was  found  to  be  forged.  The 
inquiry  is — has  E  recourse  on  C?  Opinion: 
It  is  a  general  rule  of  law  that  a  bank  which 
pays  a  check  upon  which  its  customer's 
signature  has  been  forged  is  bound  by  the 
payment  and  cannot  recover  the  money 
back  from  a  bona  fide  holder  who  has  re- 
ceived payment.  It  would  seem  the  rule 
would  not  apply  in  this  case,  for  the 
reason  that  bank  C  could  not  claim  the 
status  of  a  bona  fide  holder.  That  bank 
through  its  president,  itself  changed  the 
name  of  the  drawee,  and  this  was  not  done 
at  the  instance  of  the  supposed  drawer,  but 
at  the  instance  of  the  payee.  Even  had  the 
signature  of  B  been  genuine,  neither  the 
payee  nor  bank  C  would  have  had  the  right 


344 


FORGED  PAPER 


[1490-1495 


to  have  changed  the  name  of  the  drawee 
bank  without  B's  consent,  and  such  change 
would  have  been  a  material  alteration. 
Under  the  circumstances  the  courts  would 
probably  hold  that  bank  E  was  entitled  to 
recover  the  money  from  C.  (Inquiry  from 
Ida.,  Jan.,  1916.) 

1490.  A  check  signed  "H.  Greve,"  whose 
signature  was  forged  by  the  payee,  was  pre- 
sented by  the  payee  to  the  First  National 
Bank  of  X,  Nebraska,  as  drawee.  That 
bank,  having  no  account  with  Greve,  took 
it  to  the  X  National  Bank,  where  Greve 
had  an  account,  struck  out  the  word  "First," 
inserted  "X,"  indorsed  the  check,  received 
the  money  and  paid  over  the  proceeds  to  the 
payee.  Opinion:  In  view  of  the  policy  of 
the  Nebraska  courts  to  place  the  responsi- 
bility in  case  of  a  forged  check  upon  the 
bank  which  first  takes  it  from  the  forger, 
rather  than  upon  the  drawee  which  mistakes 
the  signature  and  pays  it,  as  between  the 
two  banks,  the  First  National  Bank  would 
be  responsible  for  the  loss.  First  Nat.  Bk. 
V.  St.  Bk.  of  Alma,  22  Neb.  769.  Heady  v. 
Hollman,  decided  Ct.  of  Appeals,  Mo.,  Feb. 
7,  1910.  Title  Guar.  &  Tr.  Co.  v.  Haven, 
126  App.  Div.  (N.  Y.)  802.  Neb.  Neg.  Inst. 
A.,   Sec.   62.      {Inquiry  from    Neb.,   April, 

1910,  Jl.) 

1491.  A's  check  on  D  bank,  indorsed  by 
B,  is  paid,  and  afterwards  A  transfers  his 
account  to  C  bank.  One  year  later  the  same 
check  with  date  altered,  name  of  drawee 
changed  to  C  bank,  and  bearing  an  addition- 
al indorsement  imder  that  of  B,  is  presented 
by  D  bank  to  C  bank  and  paid.  The  cashier 
of  D  bank  does  not  know  where  he  got  the 
check  and  refuses  to  make  its  amount  good 
to  C  bank.  Opinion:  C  bank  can  recover 
from  D  bank  which  first  cashed  the  altered 
check,  under  the  rule  that  money  paid  under 
a  mutual  mistake,  without  consideration,  is 
recoverable.      {Inquiry  from   Okla.,    Nov., 

1911,  Jl.) 

Where  holder  has  knowledge  of  suspicious  facts 

1492.  It  is  the  general  rule  that  the 
drawee  bank  having  paid  a  check  bearing 
a  forgery  of  the  drawer's  signature  cannot 
recover  the  money  from  a  person  who  has 
received  payment  of  the  same  in  good  faith. 
Whether  the  fact  that  the  holder  would  not 
be  prejudiced  if  compelled  to  refund  consti- 
tutes an  exception  to  the  general  rule  is  un- 
certain in  Illinois.  It  was  held  in  an  Ilhnois 
case  where  the  holder  before  receiving  pay- 
ment on  a  forged  check  had  knowledge  of 


suspicious  facts,  which  was  not  imparted  to 
the  drawee,  and  would  be  in  no  worse  posi- 
tion if  compelled  to  refund,  that  an  exception 
to  the  rule  existed  and  the  drawee  could  re- 
cover, but  in  that  case  the  holder  was  de- 
prived of  a  status  of  good  faith  holder.  Most 
courts  hold  that  the  single  fact  that  the 
holder  would  not  be  prejudiced  if  compelled 
to  refund  is  not  of  itself  sufficient  to  create 
an  exception  to  the  general  rule  denying  the 
drawee  the  right  of  recovery  from  a  bona 
fide  holder.  Further,  a  drawee  cannot  re- 
cover from  a  bona  fide  holder  who  has  re- 
ceived payment  of  check  drawn  by  a  person 
having  no  account  in  the  bank.  Bk.  v. 
Ricker,  71  111.  439.  First  Nat.  Bk.  v. 
Northwestern  Nat.  Bk.,  152  111.,  296.  {In- 
quiry from  III.,  June,  1918,  Jl.) 

Recovery  from  payee 

1493.  The  drawee  of  a  check  on  which 
the  drawer's  signature  is  forged  can  recover 
from  payee  the  money  paid  thereon.  The 
payee  should  know  with  whom  he  is  dealing, 
and  if  the  check  is  a  forgery  he  is  liable  to  the 
drawee.  Nat.  Bk.  of  Rolla  v.  First  Nat.  Bk., 
141  Mo.  App.  719.  First  Nat.  Bk.  v.  Bk.  of 
Cottage  Grove,  117  Pac.  (Ore.)  293.  Nat. 
Bk.  of  North  America  v.  Bangs,  106  Mass. 
441.     {Inquiry  from  Miss.,  May,  1913,  Jl.) 

1494.  A  deposited  with  bank  B  a  check 
supposed  to  have  been  signed  by  C,  another 
of  the  bank's  customers.  Immediately  after 
paid  vouchers  were  returned  to  C  he  de- 
clared check  a  forgery.  The  bank  asks  if  it 
should  not  at  once  charge  amount  back  to 
A's  account.  Opinion:  If  the  check  was 
made  payable  to  A  and  was  not  received  by 
him  through  indorsement,  the  rule  that  a 
bank  is  bound  to  know  the  signature  of  its 
customer,  and  if  it  pays  a  check  upon  which 
such  signature  is  forged  it  cannot  recover  the 
money  from  a  bona  fide  holder,  would  not 
apply,  because  he  should  know  the  party 
from  whom  he  is  taking  the  check.  But  if 
the  check  was  received  by  liim  through  in- 
dorsement, he  would  probably  be  under  no 
liabiHty  to  refund  unless  he  was  guilty  of 
taking  the  check  from  a  stranger  without 
inquiry  or  identification,  in  which  event  the 
authorities  are  in  conflict  as  to  the  drawee's 
right  of  recovery.  {Inquiry  from  N.  C, 
Sept.,  1919.) 

Recovery  where  holder  has  not  parted  with 

funds  but  issued  pass  book  against  forged 

check 

1495.  A  deposited  in  a  New  York  sav- 


345 


1496-1499] 


DIGEST  OF  LEGAL  OPINIONS 


ings  bank,  B,  a  forged  check  drawn  to  his 
order  on  a  Pennsylvania  bank,  C,  and  re- 
ceived a  savings  bank  pass  book.  C  paid  the 
check  and  shortly  afterwards,  when  the 
forgery  was  discovered,  notified  B  not  to 
pay  out  money  on  the  pass  book  and  re- 
quested reimbursement.  B  claimed  its 
pass  book  was  negotiable  and  was  frequently 
used  as  a  collateral  for  loans,  and  refused  to 
pay  over  the  money  unless  C  furnished  a 
bond  of  indemnity  to  hold  it  harmless  in 
case  the  pass  book  turn  up  in  the  hands  of  an 
innocent  third  party.  It  is  asked  if  such 
procedure  is  necessary.  Opinion:  It  is  held 
by  the  courts  that  a  savings  bank  pass  book 
is  not  negotiable  but  is  only  a  receipt  for 
the  money.  As  the  savings  bank  has  not 
paid  over  the  money,  nor  issued  a  negotiable 
instrument  to  A,  but  simply  an  ordinary 
savings  bank  pass  book,  it  could  safely  pay- 
back the  money  to  bank  C  without  indemni- 
ty, for  it  would  be  difficult  to  see  how  any- 
body to  whom  A  might  pledge  or  sell  the 
book  could  acquire  any  greater  right  than 
his.    {Inquiry  from  Pa.,  May,  1916.) 

Right  of  recovery  from  payee  in  South  Carolina 

1496.  A  bank  paid,  at  different  times, 
several  small  checks  drawn  upon  it,  and 
later  ascertained  that  they  were  forged.  The 
checks  were  payable  to  a  retail  merchant 
and  were  forged  by  his  customer.  Can  the 
bank  recover  from  the  merchant?  Opinion: 
As  has  been  stated  in  other  opinions,  the 
general  rule  is  that  a  bank  is  bound  to  know 
its  depositor's  signature  and  cannot  recover 
money  paid  to  a  bona  fide  holder  on  a  for- 
gery thereof.  But  the  Supreme  Court  of 
South  Carolina  has  considerably  modified 
this  general  rule  in  the  two  cases  of  Ford  v. 
Peoples  Bank,  54  S.  E.  204,  and  Newberry 
Sav.  Bk.  V.  Bank  of  Columbia,  74  S.  E.  615. 
In  the  latter  case  the  payee  took  a  check 
from  a  person  representing  himself  to  be  a 
depositor  in  the  drawee  bank  without  re- 
quiring any  identification.  The  check  was 
paid  by  the  drawee  who  subsequently  dis- 
covered the  signature  was  a  forgery.  The 
court  held  that  the  drawee  could  recover  the 
amount,  and  said:  "The  rule  that  a  bank 
should  know  the  signature  of  its  customers 
is  not  available  to  one  who  represents  to  the 
bank  that  he  holds  in  his  hand  the  check  of 
the  customer,  without  having  taken  pre- 
cautions to  ascertain  the  identity  of  the 
person  with  whom  he  was  dealing."  In  the 
instant  case  a  forged  check  was  made 
payable  to  a  retail  merchant  who  received 
payment  from  the  payor  bank.    He  took  the 


check  directly  from  the  forger.  It  appears, 
therefore,  the  bank  can  recover  from  the 
merchant  the  amount  paid  on  the  forged 
checks.    (Inquiry  from  S.  C,  Aug.,  1914-) 

Recourse  of  drawee  against  indorser  in 
South  Dakota 

1497.  An  employee  of  a  farmer  forged 
the  latter's  name  to  three  small  checks, 
making  them  payable  to  himself.  The  em- 
ployee had  these  checks  cashed  by  a  saloon 
keeper  who  deposited  them  with  a  bank  and 
the  inquiring  bank  accepted  same  in  the 
clearing.  Opinion:  According  to  the  gener- 
al rule  prevailing  in  the  majority  of  states  a 
bank  which  pays  a  forged  check  cannot 
charge  the  amount  to  its  depositor  nor  re- 
cover the  money  back  from  a  bona  fide  holder 
to  whom  payment  has  been  made.  But  the 
Supreme  Court  of  South  Dakota  held  in 
Greenwald  v.  Ford,  21  S.  D.  28,  that  a  bank 
paying  such  check  has  a  right  to  measurably 
rely  on  the  indorsements  thereon  and  to 
claim  that  such  indorsement  misled  it  into 
supposing  the  signature  was  genuine.  This 
is  'contrary  to  what  is  generally  held  else- 
where, that  the  indorsement  does  not 
guarantee  the  genuineness  of  the  drawer's 
signature  to  the  drawee.  While,  of  course, 
the  bank  cannot  charge  the  amount  of  these 
small  checks  to  its  customer,  it  may  be  under 
the  Greenwald  case  the  bank  would  be  en- 
titled to  recover  the  money  from  the  bank 
receiving  payment,  in  which  case  the  latter 
could  recover  from  the  saloon  keeper.  (In- 
quiry from  S.  D.,  Feb.,  1913.) 

1498.  A  bank  in  South  Dakota  paid  a 
check  drawn  on  it  for  $8.50,  bearing  a  for- 
gery of  the  drawer's  signature,  said  check 
having  been  indorsed  and  presented  by 
another  bank  to  whom  the  amount  was  paid. 
A  month  later,  when  the  depositor  had  his 
bank  book  balanced,  the  forgery  was  dis- 
covered, and  the  presenting  bank  imme- 
diately notified.  The  holder  of  the  check 
disclaims  responsibility.  Opinion:  The 
general  rule  is  that  drawee  cannot  recover 
money  paid  on  forged  check  to  bona  fide 
holder  who  is  free  from  negligence.  In 
South  Dakota  exceptional  rule  exists  that 
money  is  recoverable  on  theory  that  drawee 
has  right  to  rely  on  holder's  indorsement  as 
vouching  for  genuineness  of  signature. 
Young  V.  Lehman,  63  Ala.  519.  Greenwald 
V.  Ford,  21  S.  D.  28.  '  (Inquiry  from  S.  D., 
Sept.,  1917,  Jl.) 

Recovery  of  money  paid  on  forged  hearer  check 

1499.  The   Y   Trust   Company   cashed 


I 


346 


FORGED  PAPER 


[1500-1503 


and  received  payment  of  a  forged  check 
drawn  on  the  X  Bank,  made  payable  to 
cash  or  bearer.  The  check  bore  the  signa- 
ture and  indorsement  of  R.  G.  W.,  both  of 
which  were  forgeries.  It  developed  that  the 
handwriting  of  R.  G.  W.  as  drawer  and  on 
the  back  of  the  check  was  that  of  a  former 
customer  of  the  Y  Trust  Company,  whose 
signature  they  had  on  file,  and  that  this 
person  had  disappeared  immediately  after 
the  check  was  cashed.  Opinion:  The 
general  rule  is  that  money  paid  upon  a  forged 
check  to  a  bona  fide  holder  is  not  recover- 
able, but  the  special  cirumstances  in  this 
case,  that  the  loss  was  incurred  before  pay- 

ff        ment  was  received  from  the  drawee,  and  that 
:        the  signature  and  indorsement  were  made  by 
''       a  former  customer  of  the  Trust  Company, 
which  should  have  known  the  identity  of 
the  person  receiving  the  cash,  and  that  he 
was  not  R.  G.  W.,  would  probably  be  held 
to    modify    the    general    rule    and    permit 
I ,       recovery.     {Inquiry  from  Miss.,  Jan.,  1912, 
I       Jl) 

1500.  A  customer  presents  a  forged 
bearer  check  to  the  drawee,  indorses  it,  and 
receives  the  money.  The  forgery  is  dis- 
covered the  same  day.  The  question  arises 
as  to  the  drawee's  right  of  recovery.  Opin- 
ion: Under  the  general  rule,  money  paid 
upon  a  forged  check  is  not  recoverable.  A 
lower  New  York  court  has  held  that  where  a 
forged  bearer  check  is  indorsed  by  the  person 
receiving  payment,  this  constitutes  an  excep- 
tion to  the  rule,  as  the  indorsement  is  un- 
necessary and  tends  to  divert  the  drawee 
from  scrutiny  of  the  drawer's  signature;  but 
this  decision  has  not  been  taken  to  the  high- 
est court  and  has  been  criticised.  Williams- 
burg Tr.  Co.  V.  Tum  Suden.  120  App.  Div. 
(N.  Y.)  518.  Title  Guarantee  &  Tr.  Co.  v. 
Haven,  89  N.  E.  (N.  Y.)  1082.  {Inquiry 
from  N.  Y.,Sept.,  1911,  Jl.) 

Forgery    of    signature    by    mark 

Drawee  can  require  guaranty  before  payment 
and  has  right  of  recovery 

1501.  A  customer  left  his  written  signa- 
ture at  a  bank  and  two  j'-ears  later  his  check 
was  presented,  signed  by  a  mark  with  two 
witnesses  unknown  to  the  bank.  The  check 
had  been  cashed  by  another  bank  which 
refused  to  guarantee  the  signature.  Opin- 
ion: The  drawee  before  paying  the  check  is 
entitled  to  require  a  guaranty  or  satisfactory 
evidence  of  the  genuineness  of  the  signature. 
In  the  event  the  drawee  should  pay  the 
check  and  it  should  prove  to  be  a  forgery,  the 


rule  that  a  bank  is  bound  to  know  its  cus- 
tomer's signature  and  cannot  recover  money 
paid  a  bona  fide  holder  on  a  forgery  thereof 
has  never  been  applied  where  the  check  was 
signed  by  mark  with  witnesses,  and  in  such 
case  the  bank  receiving  payment  is  equally 
bound  with  the  drawee  to  know  the  genuine- 
ness of  the  signature  and  the  credibility  of 
the  witnesses.  Hankowska  v.  Buffalo  Sav. 
Bk.,  140  N.  Y.  S.  {Inquiry  from  Cal, 
June,  1913,  Jl.) 

Recovery  by  drawee  from  witness  to  signature 

1502.  Sam  Smith  has  an  account  with  a 
bank,  and  being  unable  to  write,  signs  checks 
with  a  mark,  having  some  one  to  witness  the 
same.  Henry  Jones,  representing  himself  to 
a  merchant  as  Sam  Smith,  fills  out  a  check 
on  the  bank  to  his  own  order,  which  l^ears 
the  forged  signature 

his 
"Sam  X  Smith" 
mark 
and  the  signature  of  the  merchant  as  a  wit- 
ness.   The  bank  paid  Henry  Jones  the  cash 
on  this  check,  and  seeks  to  hold  the  mer- 
chant  liable.     Opinion:     When   a   person 
signs  his  name  as  witness  to  a  signature  by 
mark  upon  a  check,  which  signature  is  a 
forgery,  the  witness  is  liable  to  the  drawee 
bank  which  pays  the  check  in  reliance  upon 
such  signature  as  witness.    State  Nat.  Bk. 
V.  Freedmen's  Sav.  &  Tr.  Co.,  2  Dill.  (U.  S.) 
11.    Second  Nat.  Bk.  v.  Curtiss,  153  N.  Y. 
681.    {Inquiry  from  Ga.,  May,  1918,  Jl.) 

Recovery  by  drawee  from  holder  and  from 

witness 

1503.  A  check  of  a  depositor  who  could 
not  sign  his  name  was  given  to  a  bank.  It 
was  properly  drawn  and  the  mark  was  made 
and  properly  witnessed  by  an  official  of  the 
bank,  and  when  presented  to  the  drawee 
bank  was  paid.  The  bank  cashing  the  check 
admits  that  the  depositor  is  not  the  man 
who  made  the  mark  and  received  the  money. 
Another  check  signed  by  mark  was  witnessed 
by  the  payee  and  cashed  by  a  merchant. 
This  check  too  was  forged.  The  drawee 
bank  paid  this  check  also.  What  is  the 
liability  of  the  drawee  bank  and  against 
whom  may  recovery  be  had,  if  anyone? 
Opinion:  The  rule  that  a  bank  is  bound  to 
know  the  signature  of  its  depositors  docs  not 
apply  to  a  signature  by  mark  with  witnesses. 
In  such  a  case  the  bank  receiving  paj^ment 
is  equally  bound  with  the  drawee  to  know 
the  genuineness  of  the  signature,  and  is  in  a 
better  position  to  test  the  credibihty  of  the 


347 


1504-1507] 


DIGEST  OF  LEGAL  OPINIONS 


witnesses.  Hankowska  v.  Buffalo  Sav. 
Bank,  140  N.  Y.  Supp.  891.  Second  Nat. 
Bank  v.  Curtiss,  2  N.  Y.  App.  Div.  508 
Caff'd  153  N.  Y.  681).  State  Nat.  Bank  v. 
Freedmen's  Sav.  &  Tr.  Co.,  2  Dill.  (U.S.) 
11.  A  witness  to  a  forged  signature  is  liable 
to  one  paying  money  in  reliance  thereon. 

The  bank  cashing  the  first  check  would 
probably  be  liable,  because  of  negligence  in 
not  requiring  a  proper  identification,  and 
for  much  the  same  reason  the  merchant 
would  seem  to  be  liable  to  the  drawee.  In 
the  first  stated  case,  assuming  the  act  of 
witnessing  was  an  official  act  of  the  cashing 
bank,  it  would  also  be  liable  as  witness  to 
the  forged  signature;  if  unoSicial,  the  oflacer 
would  be  personally  liable  to  the  drawee,  if 
it  was  necessary  to  have  recourse  upon  him. 
{Inquiry  from  Ga.,  Jan.,  1921.) 

Recovery  of  money  paid  on  forged  payee's 
signature  to  certificate  of  deposit  hy  mark 

1504.  Bank  A  issued  a  time  certificate 
of  deposit  to  Mr.  and  Mrs.  John  Doe,  who 
are  illiterate  and  give  their  signature  by 
mark.  Dick  Smith,  having  forged  the  sig- 
natures of  the  payees  by  mark,  deposited  the 
certificate  in  Bank  0,  which  in  turn  for- 
warded it  to  Bank  B  and  received  a  remit- 
tance, although  before  maturity.  Bank  B 
held  the  instrument  for  three  months  until 
the  date  of  maturity  and  upon  presentment 
the  amount  was  paid  by  Bank  A.  The  pay- 
ees claimed  that  their  purported  indorse- 
ment was  forged  and  sue  Bank  A  for  pay- 
ment. Opinion:  A  bank  which  pays  a 
certificate  of  deposit  upon  forgery  of  the 
payee's  signature,  made  by  mark  and  wit- 
ness, remains  liable  to  the  payee  for  the 
money  but  has  right  of  recovery  from  the 
bank  which  collected  the  certificate  upon 
forged  indorsement.  Bank  C,  therefore, 
must  bear  the  loss.  The  rule  which  has  been 
held  in  one  or  two  cases  that  a  bank  is  bound 
to  know  the  payee's  indorsement  upon  its 
certificate  of  deposit  has  no  application 
where  the  indorsement  is  by  mark  and 
witness.  The  fact  that  Bank  B  remitted  to 
Bank  C  before  maturity  of  the  certificate 
and  held  the  same  until  maturity  before  col- 
lecting from  Bank  A  would  have  no  bearing 
on  the  question  of  liabihty.  {Inquiry  from 
Wis.,  July,  1918,  Jl.) 

Special  statutory  rule  in  Pennsylvania 

Forgery  where  signatures  of  drawer  and  payee 
are  the  same 

1505.  A  bank  paid  a  forged  check  upon 
which   the   signatures   of   the   drawer   and 


payee  were  the  same.  Two  months  later  the 
forgery  was  discovered.  The  bank  receiving 
payment  guaranteed  prior  indorsements. 
Opinion:  The  drawee  bank  may  have  a  fair 
chance  of  recovery  from  the  bank  receiving 
payment.  The  Act  of  1849,  still  in  force  in 
Pennsylvania,  favors  the  drawee's  recovery 
provided  it  gives  prompt  notice  "according 
to  the  circumstances  and  the  usage  of  the 
business;"  and  the  date  of  notice  is  imma- 
terial if  the  one  receiving  it  can  recoup  him- 
self without  loss.  Iron  City  Bank  v. 
Fort  Pitt  Nat.  Bank,  159  Pa.  46.  See 
citations  in  Opinion  No.  1509.  Levy  v. 
Bk.,  1  Binney  27.  Act  April  5,  1849,  Sec. 
10  Pa.,  Laws  426.  Price  v.  Neal,  3  Burrows 
1355.  Neg.  Inst.  A.,  Sec.  62  (Comsr's.  dft.). 
{Inquiry  from  Pa.,  Oct.,  1912,  Jl.) 

Prompt  notice  of  forgery  necessary 

1506.  A  check  drawn  on  bank  A  was 
taken  by  a  merchant  in  a  distant  city  in  pay- 
ment for  merchandise.  It  was  paid  by 
drawee  to  bank  C  through  the  clearing 
house,  and,  at  the  end  of  the  month  when 
A's  customer's  account  was  balanced,  dis- 
covered to  be  forged,  when  prompt  notice 
was  given  to  bank  C  which  refused  to  reim- 
burse A  because  of  delay  in  notification. 
Opinion:  Under  the  law  of  Pennsylvania 
a  bank  which  mistakes  its  customer's  signa- 
ture has  a  right  of  recovery  from  a  person 
receiving  payment  (Iron  City  Bank  v.  Fort 
Pitt  Nat.  Bank,  159  Pa.  46,  28  Atl.  195,  23 
L.  R.  A.  615)  provided  notice  of  forgery 
is  given  promptly.  In  the  present  case 
there  does  not  appear  to  be  unreason- 
able delay  in  discovery  of  the  forgery,  for  it 
was  discovered  immediately  by  the  customer 
when  his  account  was  balanced  at  the  end 
of  the  month  and  thereupon  prompt  notice 
was  given.  If  there  had  been  any  delay 
after  the  discovery  in  giving  notice,  the  case 
would  be  different.  {Inquiry  from  Pa., 
April,  1915.) 

1507.  On  August  19th  a  check  bearing 
the  forged  signature  of  the  drawer  was 
deposited  by  a  merchant,  a  bona  fide  holder, 
and  was  paid  by  the  drawee.  On  October 
11th  the  forgery  was  discovered  and  the 
drawee  notified.  Opinion:  In  Pennsylvania 
the  drawee  can  recover  from  the  holder  re- 
ceiving payment  under  the  Act  of  1849,  pro- 
vided prompt  notice  of  the  forgery  is  given. 
The  question  of  what  is  prompt  notice  is 
somewhat  uncertain  under  the  Pennsylvania 
decisions.  Delay  in  giving  notice  will  reheve 
the  person  receiving  payment  from  HabiUty 
unless  he  is  not  prejudiced  by  such  delay. 


348 


FORGED  PAPER 


[1508-1511 


Union  Nat.  Bk.  v.  Franklin  Nat.  Bk.,  94 
Atl.  (Pa.)  1085.  Iron  City  Nat.  Bk.  v. 
Fort  Pitt  Nat.  Bk.,  159  Pa.  46.  {Inquiry 
from  Pa.,  Nov.,  1915,  Jl.) 

Where  hank  notified  of  blank  check  stolen 

1508.  A,  a  customer  of  bank  B,  notified 
it  that  one  of  its  blank  checks  had  been 
stolen  from  him  and  asked  that  payment  be 
stopped.  Later,  bank  C  cashed  a  check 
payable  to  D  upon  which  A's  signature  was 
forged  and  it  was  paid  by  B,  the  drawee.  D 
claimed  that  his  indorsement  was  forged 
also  but  there  was  no  one  connected  with 
bank  C  where  he  was  known  who  remem- 

J  bered  from  whom  it  received  the  check.  As 
■  C  guaranteed  indorsement,  the  question  is — 
Is  it  not  responsible?  Opinion:  It  was  held 
in  Second  Nat.  Bank  v.  Guaranty  Trust 
Co.,  206  Pa.  616,  that  a  bank  which  paid 
a  check  on  a  forgery  of  the  payee's  indorse- 
ment could  recover  the  money  from  the 
.  bank  which  guaranteed  prior  indorsements, 
i  and  in  Pennsylvania  there  is  a  statute  which 
enables  the  bank  to  recover  money  paid 
notwithstanding  forgery  of  the  drawer's 
signature,  provided  there  is  no  other  negli- 
gence on  the  part  of  the  bank  and  prompt 
notice  is  given.  As  to  the  notice  to  stop 
payment,  this  must  have  been  simply  a 
warning  to  look  out  for  a  check  without  de- 
scribing a  particular  check  as  to  amount, 
payee,  etc.  This  would  probably  be  held 
not  such  effective  notice  as  would  estop  B 
from  recovery  and  deprive  it  of  its  right  to 
look  to  C  for  reimbursement.  {Inquiry 
from  Pa.,  Feb.,  1919.) 

Delay  of  thirty  days  between  payment  and 
notification 

1509.  A  check  bearing  the  fictitious 
name  of  a  payee  was  cashed  by  a  bank  for 
the  payee  and  paid  by  the  drawee.  One 
month  later  the  drawee  discovered  the  for- 
gery of  the  drawer's  signature.  Upon  whom 
should  the  loss  fall?  Opinion:  In  Pennsyl- 
vania, under  the  Act  of  1849,  a  bank  which 
pays  money  upon  a  forged  check,  purporting 
to  be  drawn  upon  it,  is  not  precluded  from 
recovering  the  money  paid,  provided  it  gives 
notice  with  reasonable  diligence.  What  is 
reasonable  dihgence,  and  whether  a  delay  of 
thirty  days  between  pajnnent  and  notifica- 
tion, notice  being  given  immediately  upon 
discovery,  would  be  unreasonable,  is  not 
clearly  defined  by  Pennsylvania  decisions. 
Colonial  Tr.  Co.  v.  Nat.  Bk.  of  Western  Pa., 
50  Pa.  Super.  Ct.  Rep.  510.  Iron  City  Nat. 
Bk.  V.  Fort  Pitt  Nat.  Bk.,  159  Pa.  46.    Mc- 


Neely  Co.  v.  Bk.  of  North  America,  221  Pa. 
588.    {Inquiry  from  Pa.,  April,  1919,  Jl.) 

Notice  seven  days  after  payment 

1510.  A  filled  out  a  check  payable  to  his 
own  order  and  forged  B's  signature  to  it.  He 
cashed  it  at  bank  C  which  through  its  cor- 
respondent D  collected  from  the  drawee 
bank  E.  The  latter,  seven  days  later, 
discovered  the  forgery  and  immediately 
notified  both  C  and  D.  The  inquiry  is  as 
to  E's  right  of  recovery.  Opinion:  Under 
the  Pennsylvania  Act  of  1849  payment  by 
a  drawee  of  a  forged  check  is  recoverable 
provided  prompt  notice  of  the  forgery  is 
given  to  the  prior  holder.  If  the  one  re- 
ceiving the  money  can  recoup  himself  with- 
out loss,  the  date  of  the  the  notice  is  im- 
material. In  Iron  City  Bank  v.  Fort  Pitt 
Nat.  Bank,  159  Pa.  46,  28  Atl.  195,  23  L.  R. 
A.  615,  the  court  held  that  where  the  drawee 
allowed  five  days  to  elapse  during  which  the 
party  receiving  the  money  had  paid  it  out 
in  reliance  upon  the  drawee's  act  in  making 
payment,  the  latter  was  held  not  to  have 
acted  with  due  dihgence  and  barred  from 
recovery.  In  the  present  case  the  delay  was 
seven  days,  but  the  money  was  paid  out 
by  bank  C  before  it  was  collected,  and  this 
fact  might  have  a  bearing,  for,  if  bank  E  had 
refused  payment  of  the  check,  the  money 
might  have  been  lost  to  C.  In  the  case  of 
Union  Nat.  Bank  v.  Frankhn  Nat.  Bank, 
249  Pa.  375,  94  Atl.  1085,  the  drawee  bank 
did  not  sue  the  bank  which  cashed  the  forged 
check,  but  sued  the  bank  which  collected. 
Fifteen  days  later  the  forgery  was  dis- 
covered, and  the  drawee  was  held  entitled 
to  recover  because  it  was  held  that  at  the 
time  of  the  notice  of  the  forgery  the  collect- 
ing bank  had  not  remitted  the  funds.  In 
the  present  case  if  D  had  not  accounted  to 
C  at  the  time  it  received  notice  of  the  for- 
gery, E  would  have  a  right  of  recovery 
against  it  under  the  decision  in  the  Union 
Bank  case,  and,  if  it  had  accounted,  and  E's 
suit  was  against  bank  C,  the  question  would 
be  whether  the  seven  days'  notice  was 
sufficientlv  prompt.  {Inquiry  from  Pa., 
Oct.,  1919.) 

Drawee  can  sue  collecting  bank  or  prior 
indorser 

1511.  Bank  A  cashed  a  check  drawn  on 
bank  B  for  a  payee  who  was  unknown  to  it. 
After  passing  through  three  lianks  the  draw- 
ee honored  the  check,  and  twenty-three 
days  later  notified  A  that  drawer's  signature 
was  forged .  As  it  claimed  reimbursement  from 


349 


1512-1513] 


DIGEST  OF  LEGAL  OPINIONS 


A,  the  latter  asks  whether  or  not,  if  any  one 
is  Hable  to  drawee,  that  bank  should  not 
look  first  to  the  bank  from  which  it  received 
the  check?  Opinion:  The  general  rule  is 
that  the  drawee  which  pays  a  check  on  a 
forgery  of  a  drawer's  signature  is  bound  by 
the  payment  and  cannot  recover  the  money 
back.  This  rule  was  abrogated  by  statute  in 
Pennsylvania  in  1849,  and  the  rule  in  that 
state  is  that  money  paid  upon  a  forgery  is 
recoverable  provided  prompt  notice  of  the 
forgery  is  given.  In  construing  the  Act  of 
1849,  the  court  held,  in  the  case  of  Union 
Nat.  Bank  v.  Frankhn  Nat.  Bank,  249  Pa. 
375,  94  Atl.  1085,  that  prompt  notice  of  the 
forgery  by  the  drawee  is  necessary  unless 
delay  in  giving  notice  works  no  injury,  as  in 
a  case  where  demand  has  been  made  upon 
the  bank  collecting  the  check  while  it  still 
has  the  funds  in  its  possession  and  before  it 
has  remitted  them  to  the  holder.  It  would 
appear  also  from  the  case  that  the  drawee 
bank  can  sue  either  the  bank  collecting  the 
check  or  any  of  the  prior  indorsers,  and 
the  test  is  whether  the  notice  of  the  forgery 
has  been  given  with  reasonable  diligence. 
In  the  present  case  twenty  three  days 
elapsed,  and  the  question  would  be  whether 
this  was  too  long  a  time.  {Inquiry  from  Pa., 
Nov.,  1919.) 

Statutory  rule  not  repealed  by  N.  I.  Act 

1512.  On  June  17  a  customer  deposited 
a  check  drawn  on  the  Scranton  bank  payable 
to  the  order  of  "cash"  and  signed  and  in- 
dorsed with  the  name  of  A.  B.,  Jr.,  which 
proved  to  be  forged.  On  July  1  the  bank 
receiving  payment  was  notified  and  asked  to 
refund.  Opinion:  The  rule  that  the  drawee 
is  bound  to  know  the  drawer's  signatiu-e  and 
cannot  recover  money  paid  on  the  forgery 
thereof  has  been  changed  by  a  statute  in 
Pennsylvania,  passed  in  1849,  permitting 
recovery  where  there  has  been  due  diligence 
in  the  discovery  and  notice  of  the  forgery. 
In  this  case  the  drawee  probably  would  be 
held  to  have  used  due  diligence.  The  Nego- 
tiable Instruments  Act  has  been  held  in  a 
recent  case  not  to  have  repealed  the  Act  of 
1849.  Iron  City  Nat.  Bk.  v.  Fort  Pitt  Nat. 
Bk.  159  Pa.  46.  Levy  v.  Bk.,  1  Binney  27. 
Colonial  Tr.  Co.  v.  Nat.  Bk.  of  Western 
Pa.,  50  Pa.  Super.  Ct.  Rep.  510.  (Inquiry 
from  Pa.,  Aug.,  1914,  JI-) 

Non-recovery  hy  Pennsylvania  from  Ohio  bank 

1513.  A  check  drawn  on  a  Pennsylvania 
bank  with  forged  signature  and  counter- 
signature, and  with  the  name  of  the  payee 


altered,  was  deposited  for  collection  Janu- 
ary 4,  1921,  with  an  Ohio  bank,  which 
refused  to  allow  the  depositor  to  draw 
against  the  item  until  it  received  advice  of 
credit,  including  this  item,  together  with  a 
statement  that  the  amount  would  be  avail- 
able as  a  reserve  January  6th,  because  of  its 
having  been  received  too  late  for  clearing 
on  the  5th.  On  the  11th  and  12th  the  Ohio 
bank  permitted  the  withdrawal  of  the 
amount  of  the  check.  The  drawee  bank  did 
not  discover  that  the  check  was  forged,  but 
had  its  attention  called  to  it  by  the  drawer 
after  he  had  received  his  January  statement. 
The  Ohio  bank  refuses  to  take  responsibility 
on  the  ground  that  the  drawee  bank  should 
have  known  the  signature  of  the  depositor 
and  that  had  it  discovered  the  forgery  upon 
presentation  of  the  voucher,  no  loss  would 
have  occurred.  Is  it  justified  in  doing  so? 
Opinion:  Ohio  follows  the  general  rule  that 
a  drawee  bank  paying  upon  a  forged  signa- 
ture of  the  drawer  cannot  recover  the  money 
from  a  bona  fide  holder  who  has  received 
payment.  Belmont  First  Nat.  Bank  v. 
Barnesville  First  Nat.  Bank,  58  Ohio  St. 
207,  50  N.  E.  723.  Ellis  v.  Ohio  L.  Ins.,  etc., 
Co.,  4  Ohio  St.  628.  In  Pennsylvania,  how- 
ever, by  Act  of  April  5,  1849,  the  right  is 
given  to  a  drawee  bank  to  recover  money 
paid  by  it  on  the  forged  signature  of  its 
depositor.  Union  Nat.  Bank,  v.  Frankhn 
Nat.  Bank,  249  Pa.  St.  375  (holding  that  the 
act  was  not  repealed  by  Sec.  137  of  the  Neg. 
Insts.  Law,  as  amended  by  the  Act  of  1909, 
as  there  was  no  inconsistency  between  the 
acts).  Colonial  Trust  Co.  v.  Western  Pa. 
Nat.  Bank,  50  Pa.  Super.  Ct.  510.  See  also 
Judge  V.  West  Phila.  Title  &  Trust  Co.,  68 
Pa.  Super.  Ct.  310.  However,  due  diligence 
in  giving  notice  of  the  forgery  is  a  condition 
of  recovery.  Iron  City  Nat.  Bank  of  Pitts- 
burg V.  Fort  Pitt  Nat.  Bank,  28  Atl.  (Pa.) 
195,  stating  that  the  drawee  is  not  "abso- 
lutely bound,  as  at  common  law,  to  discover 
and  give  notice  of  the  forgery  on  the  very 
day  of  payment.  AU  that  he  need  do,  in 
any  case,  is  to  give  notice  promptly  accord- 
ing to  the  circumstances  and  the  usage  of 
the  business  and,  unless  the  position  of  the 
party  receiving  the  money  has  been  altered 
for  the  worse  in  the  meantime,  it  would 
seem  that  the  date  of  the  notice  is  not  ma- 
terial. But,  on  the  other  hand,  the  statute 
does  not  dispense  with  the  necessity  of  care 
and  dihgence  on  the  part  of  the  payor,  nor 
exempt  him  from  the  consequences  of  his 
own  negUgence,  if  thereby  loss  would  accrue 
to  the  other  party."    In  that  case  where  the 


350 


FORGED  PAPER 


[1514-1518 


drawee  bank  discovered  the  forgery  five  days 
after  payment  it  was  held  that  its  lack  of 
diligence  barred  it  from  recovering  when  in 
the  meantime  the  bank  receiving  the  money 
had  paid  it  out  in  reliance  upon  the  action  of 
the  drawee  bank.  The  rule  of  this  case 
would  seem  to  preclude  recovery  in  the  case 
submitted,  even  should  it  be  held  the  law 
of  Pennsylvania  and  not  of  Ohio  governed 
the  liability  of  the  Ohio  bank,  a  point  which 
has  not  been  decided.  {Inquiry  from  Ohio, 
March,  1921.) 

Recovery  where  holder  negligent 

Recourse  of  Iowa  drawee  upon  prior  negligent 
indorser 

1514.  A  customer  deposited  for  collec- 
tion a  check  drawn  on  a  local  bank  which 
was  duly  paid  through  the  clearings.  Thirty 
days  later  the  drawee  bank  discovered  that 
the  drawer's  signature  had  been  forged  and 
seeks  to  hold  the  collecting  bank  hable  as 
indorser.  Opinion:  In  Iowa  a  drawee  which 
paj's  to  a  bona  fide  holder  a  check  upon 
which  the  drawer's  signature  is  forged  can- 
not recover  the  money,  but  if  the  holder  has 
been  negligent  in  acquiring  the  check  with- 
out due  inquiry,  recovery  is  allowed.  Where 
payment  is  made  to  a  bona  fide  indorsee  of 
a  neghgent  holder,  the  latter  is  not  liable  but 
the  drawee  has  recourse  upon  the  prior  in- 
dorser who  is  quilty  of  negligence.  First 
Nat.  Bk.  V.  Marshalltown  St.  Bk.,  107 
Iowa  327.  {Inquiry  from  Iowa,  Dec,  1917, 
Jl.) 

Rule  in  Tennessee 

1515.  A  customer  cashed  a  forged  check 
at  his  bank,  which  in  turn  received  payment 
from  the  drawee  bank.  A  month  later 
the  drawee  discovered  the  forgery  of  its  de- 
positor's signature.  Opinion:  Recovery  of 
payment  by  the  drawee,  under  the  law  of 
Tennessee,  depends  on  whether  or  not  the 
customer  was  neghgent  in  taking  the  check 
from  the  forger.  Bank  v.  Bank,  88  Tenn. 
299.     {Inquiry  from  Tenn.,  Jan.,  1910,  Jl.) 

Recovery  by  drawee  where  check  cashed 
for  stranger 

Majority  of  courts,  induding  Illinois,  allow 
recovery 

1516.  A  merchant  cashed  a  forged  check 
for  a  stranger,  without  inquiry  as  to  his 
identity,  and  the  check,  in  due  course,  was 
paid  by  the  drawee.  Can  the  latter  recover 
from  the  merchant?  The  collecting  bank 
guaranteed  prior  indorsements.    What  effect 


would  this  have?  Opinion:  The  general 
rule  is  that  the  drawee  cannot  recover 
money  paid  upon  a  forged  check  to  a  bona 
fide  holder,  and  some  courts  hold  the  fact 
that  a  purchaser  takes  a  forged  check  from 
a  stranger  without  inquiry  as  to  his  identity 
and  without  disclosing  the  fact  to  the  drawee 
bank  is  not  negligence  sufficient  to  deprive 
him  of  the  status  of  a  bona  fide  holder,  so  as 
to  make  him  liable  to  refund  to  the  drawee. 
Supporting  decisions  will  be  found  in  N.  Y., 
Md.,  Minn.,  and  Vermont.  But  more  courts 
hold  that  a  bank  or  person  cashing  a  check 
for  a  stranger  should  make  reasonable  in- 
quiry as  to  his  identity  and  by  indorsing  the 
check  imphedly  represents  it  has  performed 
that  duty,  and  where  inquiry  is  not  made, 
the  rule  that  the  drawee  is  bound  does  not 
apply.  Decisions  to  this  effect  will  be  found 
in  Iowa,  Ga.,  Mass.,  Ky.,  Neb.,  North 
Dakota,  Oregon,  Tennessee,  Tex.,  S.  C, 
W.  Va.,  and  Washington.  The  111.  case  of 
First  Nat.  Bank  of  Quincy  v.  Ricker,  71  111. 
439,  also  tends  to  support  this  view.  The 
drawee  bank  in  this  case  might,  therefore, 
recover  from  the  merchant  upon  this  ground. 
No  liability  is  created  by  the  bank  guaranty 
of  prior  indorsements,  for  that  does  not  in- 
clude the  signature  of  the  drawer.  {Inquiry 
from  III.,  Jan.,  1921.) 

1517.  A  drawee  bank  paid  six  forged 
checks  to  banks  which  cashed  them  for 
strangers  without  identification.  Opinion: 
The  drawee  cannot  charge  them  to  drawer's 
account,  but  would  probably  have  a  right  of 
recovery  against  the  bank  under  the  Illinois 
decisions,  unless  the  Negotiable  Instruments 
Law  is  construed  as  precluding  recovery. 
Bk.  V.  Ricker,  71  111.  439.  First  Nat.  Bk.  v. 
Northwestern  Nat.  Bk.,  152  111.  296.  Price 
V.  Neal,  3  Burrows  1355.  Neg.  Inst.  A., 
Sec.  16  (Comsr's  dft.)  Inquiry  from  III., 
Oct.,  1913,  Jl.) 

Rule  not  declared  in  California 

1518.  Bank  A  cashes  a  forged  check 
drawn  on  bank  B  without  inquiry  or  identi- 
fication and  receives  payment.  It  asks  if  B 
has  any  recourse  against  it?  Opinion:  "The 
drawee  of  a  check  is  bound  at  his  peril  to 
know  the  handwriting  of  the  drawer  and  if 
he  paj'S  the  check  to  which  the  signature  of 
the  drawer  was  forged  he  must  suffer  the 
loss  as  between  himself  and  the  drawer  or 
an  innocent  holder  to  whom  he  has  made 
payment."  This  is  the  rule  in  California  as 
laid  down  in  Redington  v.  Woods.  45  Cal. 
406.  Under  this  general  rule  B  cannot 
recover  unless  the  California  courts  follow 


351 


1519-1522] 


DIGEST  OF  LEGAL  OPINIONS 


the  cases  which  hold  that  such  a  rule  does 
not  apply  where  a  bank  cashes  a  check  for  a 
stranger  and  fails  to  make  reasonable  in- 
quiry as  to  his  identity.  See  First  Nat. 
Bank  v.  Marshalltown  State  Bank,  107 
Iowa,  327,  77  N.  W.  1045,  44  L.  R.  A.  131. 
Woods  V.  Colony  Bank,  114  Ga.  683,  40 
S.  E.  720,  56  L.  R.  A.  929.  To  the  contrary 
some  cases  hold  that  the  fact  that  a  bank  re- 
ceives a  check  from  a  stranger  and  does  not 
communicate  that  fact  to  the  drawee  does 
not  render  it  liable  where  the  latter  pays 
the  check  and  afterwards  discovers  it  to  be  a 
forgery.  See  Commercial  and  Farmers  Nat. 
Bank  v.  First  Nat.  Bank,  30  Md.  11.  Pen- 
nington County  Bank  v.  First  State  Bank, 
110  Minn.  263,  125  N.  W.  119.  The  point 
has  not  been  decided  in  Cahfornia  {Inquiry 
from  Cal,  Feb.,  1916.) 

Not  decided  in  Colorado 

1519.  A  merchant  cashed  a  forged  check 
for  an  unidentified  stranger.  He  deposited 
it  with  his  bank  and  it  was  cleared  in  the 
regular  way.  Should  the  drawee  bank, 
which  paid  the  check,  or  the  merchant  stand 
the  loss?  Opinion:  The  general  rule  is  that 
a  drawee  bank  which  pays  on  a  forged  signa- 
ture of  the  drawer  is  bound  by  the  payment 
when  made  to  a  bona  fide  holder  and  cannot 
recover  the  money  back.  Several  states, 
however,  recognize  an  exception  where  an 
indorsee  has  acquired  the  check  from  a 
stranger  without  inquiring  as  to  his  identity 
and  hold  that  this  constitutes  such  negli- 
gence as  will  allow  recovery  by  the  drawee. 
Other  states  do  not  recognize  this  exception. 
No  Colorado  cases  have  been  found  on  this 
question,  and  it  will  require  a  judicial  de- 
cision to  establish  the  rule  for  that  state. 
(Inquiry  from  Colo.,  Jan.,  1921.) 

The  law  in  Indiana 

1520.  A  customer  of  a  bank  lost  a  blank 
check;  his  name  was  forged  to  it  and  it  was 
presented  to  a  bank  by  a  stranger  who 
desired  to  open  an  account.  The  stranger 
took  most  of  the  proceeds  in  cash  and  the 
small  balance  was  credited  to  him  as  a  de- 
posit. The  stranger  gave  an  address,  which 
on  investigation  proved'to  be  false,  and  this 
was  the  only  means  of  identification  the 
bank  had.  In  due  course  of  the  clearings 
the  check  was  paid  by  the  drawee  bank.  Has 
the  bank  any  defense  against  its  liability  to 
the  depositor  on  the  ground  that  he  was 
negligent  in  losing  his  check?  May  it  re- 
cover from  the  bank  cashing  the  check? 
Opinion:    The  customer  is  not  responsible 


for  the  result  of  the  losing  of  his  blank  check, 
and  the  bank  has  no  defense  on  this  score. 
As  to  the  recovery  by  the  drawee  the  general 
rule  is  that  he  is  bound  to  know  the  signa- 
ture and  cannot  recover;  but  some  courts 
make  (while  others  disallow)  an  exception 
where  the  purchaser  acquires  the  check 
from  a  stranger  without  inquiry.  In  Indiana 
(Commercial  &  Sav.  Bank  v.  Citizens  Nat. 
Bank,  120  N.  E.  670)  the  court  says:  "The 
weight  of  authority  is  to  the  effect  that 
responsibility  of  the  bank  or  drawee  who 
pays  such  forged  check  is  absolute  only  in 
favor  of  one  who  has  not  by  his  own  fault  or 
negligence  contributed  to  the  success  of  the 
fraud,  or  by  his  conduct  misled  the  bank  or 
in  some  sense  induced  a  sense  of  safety 
which  reasonably  may  have  caused  such 
bank  to  have  lessened  its  vigilance  by  re- 
liance upon  such  conduct.  This  court  has 
heretofore  recognized  this  principle.  First 
Nat.  Bank  of  Crawfordsville  v.  First  Nat. 
Bank  of  Lafayette,  4  Ind.  App.  355.  In- 
diana Nat.  Bk.  V.  First  Nat.  Bank,  9  Ind. 
App.  185."  But  the  court  holds  that  where 
the  parties  are  both  at  fault,  the  law  will 
leave  the  loss  where  the  parties  have  placed 
it  and  will  not  come  to  the  assistance  of 
either.  It  is  to  be  gathered  from  this  case 
(which  did  not  involve  the  taking  of  a 
forged  check  from  a  stranger)  that  the  cash- 
ing bank  would  be  at  fault  and  liable  to 
refund,  unless  there  was  some  special  negli- 
gence of  the  drawee,  beyond  the  mere  mis- 
taking of  its  customer's  signature.  {In- 
quiry from  Ind.,  Jan.,  1921.) 

Nebraska  drawee  may  recover  from  holder 
taking  from  stranger 

1521.  Where  the  drawee  paid  a  forged 
check,  it  can  under  the  law  of  Nebraska 
recover  the  money  paid  from  the  party  who 
cashed  the  same,  but  who  failed  to  require 
proof  of  the  identity  of  the  person  presenting 
the  check.  St.  Bk.  of  Alma  v.  First  Nat. 
Bk.  of  Orleans,  22  Neb.  769.  Canadian  Bk.  of 
Commerce  v.  Bingham,  30  Wash.  484.  First 
Nat.  Bk.  of  Lisbon  v.  Wyndmere,  15  N. 
Dak.  299.  {Inquiry  from  Neb.,  Nov., 
1908,  Jl.) 

Rule  not  declared  in  Kansas 

1522.  Within  the  period  of  a  month 
three  checks  purporting  to  be  drawn  by  A 
on  bank  B  were  cashed  at  a  local  bank  C 
and  paid  by  the  drawee  bank.  It  was  soon 
discovered  that  they  had  been  cleverly 
forged  and,  on  being  questioned,  neither  the 
paying  teller  of  bank  C  nor  anyone  else  in 


352 


FORGED  PAPER 


[1523-1524 


the  bank  was  able  to  give  any  information 
as  to  who  the  indorsers  were  or  anything 
about  them.  The  checks  seemingly  had 
been  cashed  at  the  bank  without  anyone 
connected  with  it  ever  knowing  the  parties. 
Upon  being  requested  to  assist  in  locating 
them,  the  officials  of  bank  C  absolutely  re- 
fused to  give  any  aid,  and  made  no  effort 
whatever  in  the  matter.  The  drawee  bank 
asks  if  under  these  circumstances  it  must 
suffer  the  loss?  Opinion:  Where  a  bank 
cashes  for  a  person  with  whom  it  is  un- 
acquainted a  check  drawn  upon  another 
bank,  without  taking  the  trouble  of  ascer- 
L«  taining  the  holder's  identity,  or  looking  into 
it  the  validity  of  the  check,  there  is  a  conflict 
of  authority  as  to  the  right  of  the  drawee 
bank  to  recover  the  payment  upon  dis- 
covering that  the  signature  is  a  forgery. 
There  appears  to  be  no  decision  by  the  Kan- 
sas courts  upon  the  subject.  Some  au- 
thorities hold  that  the  cashing  bank  is 
It  bound  to  make  reasonable  inquiry  as  to  the 
identity  of  the  stranger  and  reasonable 
attempt  to  ascertain  whether  or  not  the 
instrument  is  valid,  and  that,  by  indorsing  it 
or  presenting  it,  it  impliedly  represents  that 
it  has  performed  this  duty.  In  these  cases 
it  is  held  that  the  rule  requiring  the  bank  to 
know  the  drawer's  signature  does  not  apply 
and  that  the  drawee  may  recover  the  money 
paid  on  the  forged  check.  Some  of  the  cases 
80  holding  are  First  Nat.  Bank  v.  Marshall- 
town  State  Bank,  107  Iowa  327,  77  N.  W. 
Rep.  1045,  44  L.  R.  A.  131.  Woods  v.  Col- 
ony Bank,  114  Ga.  683,  40  S.  E.  Rep.  720. 
First  Nat.  Bank  v.  First  Nat.  Bank,  151 
Mass.  280,  24  N.  E.  44,  21  Am.  St.  Rep.  450. 
National  Bank  of  North  America  v.  Bangs, 
106  Mass.  441.  First  Nat.  Bank  v.  State 
Bank,  22  Neb.  769,  36  N.  W.  289.  First 
Nat.  Bank  v.  Bank  of  Wyndmere,  15  N.  D. 
299,  108  N.  W.  546.  Newberry  Savings 
Bank  v.  Bank  of  Columbia,  91  S.  C.  299,  74 
S.  E.  615.  Peoples  Bank  v.  Frankhn  Bank, 
88  Tenn.  299,  12  S.  W.  716,  6  L.  R.  A.  724, 
17  Am.  St.  Rep.  884.  Texas  State  Bank  v. 
First  Nat.  Bank,  Tex.  Civ.  App.  168  S.  W. 
504.  Cases  which  hold  to  the  contrary  are 
Commercial  &  Farmers  Nat.  Bank  v.  First 
Nat.  Bank,  30  Md.  11,  Pennington  County 
Bank  v.  First  State  Bank,  110  Minn.  263, 
125  N.  W.  119,  Bank  of  St.  Albans  v. 
Farmers  Bank,  10  Vt.  141.  (Inquiry  from 
Kan.,  Jan.,  1917.) 

Minnesota  drawee  cannot  recover  from  holder 
although  check  taken  from  stranger 
1523.     A  drawee  bank  paid  two  checks 
upon    which    the    drawer's   signature    was 


forged.  The  checks  had  been  cashed  at  sa- 
loons in  the  town  and  the  saloonkeepers  were 
unable  to  identify  the  indorsements.  The 
bank  admits  its  liability  to  the  drawer  but 
seeks  to  hold  the  indorsers  responsible  for 
cashing  the  checks  for  strangers.  Opinion: 
Drawee  cannot  recover  money  paid  upon 
check  bearing  forgery  of  drawer's  signature 
from  bona  fide  holder,  but  may  recover  when 
payment  is  made  to  one  not  a  bona  fide 
holder.  If  the  holder  takes  the  check  under 
circumstances  which  would  put  an  ordinarily 
prudent  man  upon  inquiry  and  makes  no 
attempt  to  ascertain  the  truth,  he  is  not  a 
bona  fide  holder,  but  in  Minnesota  the  one 
circumstance  that  holder  takes  check  from 
an  entire  stranger  without  inquiry  is  not 
sufficient  to  deprive  him  of  status  of  bona 
fide  holder.  If  payee's  indorsement  is  also 
forged,  the  drawee,  under  Minnesota  rule, 
may  recover  from  subsequent  indorser  as 
warrantor  of  genuineness,  notwithstanding 
forgery  of  drawer's  signature.  Germania 
Bk.  of  MinneapoHs  v.  Boutell,  et  al.,  60 
Minn.  189,  62  N.  W.  327.  Pennington  Co. 
Bk.  V.  First  St.  Bk.  of  Moorehead,  125  N. 
W.  (Minn.)  118.  {Inquiry  from  Minn., 
Sept.,  1917,  Jl.) 

Not  decided  in  Missouri 

1524.  A  check  with  forged  signature  was 
cashed  by  a  bank  for  a  stranger,  no  effort 
being  made  to  identify  the  forger.  It  was 
cleared  through  the  clearing  house,  accepted 
and  paid.  As  between  the  cashing  bank  and 
the  drawee  bank,  which  stands  the  loss? 
Opinion:  It  has  been  held  in  Missouri  that 
where  a  drawee  bank  pays  a  check  on  an- 
other bank,  which  is  a  bona  fide  holder,  such 
drawee  cannot  recover  the  money  back  on 
discovering  such  check  to  be  a  forgery  in  the 
absence  of  any  negligence  by  the  bank  to 
which  the  check  has  been  paid.  National 
Bank  of  RoUa  v.  First  Nat.  Bank  of  Salem, 
125  S.  W.  (Mo.)  513. 

There  is  a  conflict  of  authority  among 
courts  of  different  states  upon  the  question 
whether  a  bank  which  purchases  a  check 
from  a  stranger  without  taking  the  trouble 
of  ascertaining  his  identity  is  guilty  of  such 
negligence  thereby  as  will  bar  recovery.  See, 
for  the  negative,  Commercial  and  Farmers 
Nat.  Bank  v.  First  Nat.  Bank,  30  Md.  11. 
For  the  affirmative,  see  Bank  of  Williamson 
V.  McDowell  County  Bank,  66  S.  E.  (W. 
Va.)  761,  which  contains  a  full  review  of  the 
authorities.  The  Missouri  courts  have 
apparently  not  passed  upon  the  question. 
{Inquiry  from  Mo.,  Feb.,  1921.) 


353 


1525-1528] 


DIGEST  OF  LEGAL  OPINIONS 


New  York  drawee  may  recover  notwithstand- 
ing check  taken  from  stranger 

1525.  Bank  A  cashed  a  check  for  a 
stranger  without  inquiry  as  to  his  identity 
and  character  and  collected  amount  from 
the  drawee  bank  B.  The  check  was  later 
discovered  to  be  forged,  and  the  claim  is 
made  that  A  is  liable  because  of  negligence. 
Opinion:  The  general  rule  prevailing  in 
New  York  is  that  a  bank  is  bound  to  know 
the  signature  of  its  depositor,  and  if  it  pays 
a  check  to  a  bona  fide  holder  upon  which 
such  signature  is  a  forgery  it  cannot  recover 
the  money  paid.  In  a  number  of  states  the 
above  rule  is  held  not  to  apply  if  the  party 
receiving  the  money  has  contributed  by  his 
own  negligence  to  the  success  of  the  fraud, 
as  by  taking  the  check  from  a  stranger  with- 
out inquiry,  but  in  New  York  the  rule 
probably  is  that  this  is  not  negligence.  See 
Salt  Springs  Bank  v.  Syracuse  Sav.  Inst.,  62 
Barb.  (N.  Y.)  101.  {Inquiry  from  N.  Y., 
April,  1919.) 

Present  rule  in  Oklahoma  doubtful 

1526.  In  Oklahoma,  drawee  who  pays 
forged  check  to  a  bona  fide  holder  free  from 
negligence  cannot  recover  money  paid. 
Since  the  passage  of  the  Negotiable  Instru- 
ments Act,  in  1912,  the  question  is  an  open 
one  in  the  state,  whether  holder  taking 
check  from  stranger  without  inquiry  as  to 
identity  is  negligent  and  responsible  to  the 
drawee.  Cherokee  Nat.  Bk.  v.  Union  Tr. 
Co.,  125  Pac.  (Okla.)  464.  Am.  Ex. 
Co.  V.  St.  Nat.  Bk.,  113  Pac.  (Okla.) 
711.  Title  Guaranty  &  Tr.  Co.  v.  Haven, 
126  App.  Div.  (N.  Y.)  802.  First  Nat.  Bk. 
v.  Northwestern  Bk.,  152  111.  296.  McCall 
V.  Croning,  3  La.  Ann.  409.  First  Nat.  Bk. 
V.  Marshalltown  St.  Bk.,  107  la.  327.  St. 
Bk.  V.  Cumberland  Sav.  &  Tr.  Co.,  85  S.  E. 
(N.  C.)  5  Tr.  Co.  of  America  v.  Hamilton 
Bk.,  112  N.  Y.  S.  84.  Bk.  of  Williamson  v. 
McDowell  Co.  Bk.,  66  S.  E.  (W.  Va.)  761. 
Farmers  Nat.  Bk.  v.  Farmers  &  Traders  Bk., 
166  S.  W.  (Ky.)  986.  {Inquiry  from  Feb., 
1917,  Jl.) 

Former  Oklahoma  decision  allowing  recovery 
overruled  but  question  yet  in  doubt 

1527.  A  check  upon  which  the  drawer's 
signature  was  forged  was  cashed  by  a  bank 
in  Oklahoma,  which  took  it  from  a  stranger 
without  identification.  Relying  upon  the 
express  guarantee  of  the  bank  that  the  pay- 
ee's indorsement  was  genuine,  the  drawee 
paid  the  check.  Opinion:  The  drawee 
can  recover  the  money.    Am.  Exp.  Co.  v. 


St.  Nat.  Bk.,  113  Pac.  (Okla.)  711.    {Inquiry 
from  Okla.,  April,  1911,  Jl.) 

Note:  The  above  digest  of  opinion  is 
based  on  the  decision  of  the  Supreme  Court 
of  Oklahoma  rendered  in  January,  1911,  in 
the  case  of  American  Express  Co.  v.  State 
Nat.  Bank,  27  Okla.  824,  113  Pac.  711,  33 
L.  R.  A,  (U.  S.)  188,  which  allowed  a  drawee 
to  recover  money  paid  on  a  forged  check 
where  the  payee  was  negligent  in  re- 
ceiving the  check  or  where  he  would  be  in 
a  worse  position  if  the  mistake  were  corrected 
than  before  the  payment.  This  case  was 
practically  overruled  by  the  court  in  a  later 
decision  handed  down  in  July,  1912,  Chero- 
kee Nat.  Bank  v.  Union  Trust  Co.,  33  Okla. 
342, 125  Pac.  464,  which  contains  the  present 
law  of  Oklahoma  on  the  subject  and  holds 
that  under  the  Negotiable  Instruments  Act 
where  a  bank  in  good  faith  and  for  value 
purchases  from  an  indorser  a  check  upon 
another  bank  and  thereupon  indorses  and 
forwards  the  same  to  its  collection  agency 
for  collection,  and  the  same  is  presented  by 
the  collection  bank  to  the  drawee  bank,  and 
is  paid  by  the  drawee  bank,  the  drawee  bank, 
upon  thereafter  discovering  the  check  to  be  a 
forgery,  cannot  recover  the  money  back  from 
the  bank  to  which  it  was  paid ;  holding  that  a 
drawee  who  pays  to  a  bona  fide  holder  a 
check  to  which  the  drawer's  name  has  been 
forged  cannot  recover  the  amount  of  such 
payment.  The  guaranty  of  an  indorsement 
on  a  check  applies  only  to  the  indorser,  and 
does  not  protect  the  drawee  against  the  risk 
of  cashing  a  check  to  which  the  maker's 
name  is  forged.  This  decision,  however, 
leaves  the  question  somewhat  in  doubt 
whether  a  purchaser  requiring  a  check  from 
a  stranger  without  inquiry  or  identification 
is  a  neghgent  or  a  good  faith  holder.  March, 
1921. 

Rule  uncertain  in  Virginia 

1528.  A  check  upon  which  the  drawer's 
signature  and  the  payee's  indorsement  were 
forged  was  cashed  by  a  bank  in  Virginia, 
which  took  it  from  a  stranger  without  identi- 
fication. The  drawee  bank  paid  the  same 
and  three  months  later  the  forgeries  were 
discovered.  Is  the  drawee  entitled  to  re- 
cover? Opinion:  The  rule  is  well  estab- 
lished that  the  drawee  which  pays  a  forged 
check  to  a  bona  fide  holder  who  is  without 
fault  cannot  recover  the  money  from  the 
person  to  whom  payment  is  made.  De  Voss 
V.  City  of  Richmond,  18  Grat.  (Va.)  359. 
Johnston  v.  Bank,  27  W.  Va.  343.    Bk.  of 


354 


FORGED  PAPER 


[1529-1530 


Williamson  v.  McDowell  County  Bank,  66 
S.  E.  (W.  Va.)  761 .  But  there  is  a  conflict  of 
authority  upon  the  proposition  whether,  if 
the  person  or  bank  which  cashes  the  check 
takes  same  from  a  stranger  without  inquiry, 
this  is  such  negligence  as  will  prevent  him 
from  claiming  protection  of  the  rule  holding 
the  drawee  bound.  If  the  same  rule  laid 
down  by  the  Supreme  Court  of  Appeals  of 
West  Virginia  in  the  Bank  of  Williamson 
case  cited,  supra,  should  be  applied  to  the 
present  case  by  the  Virginia  courts,  there 
would  be  a  right  of  recovery  because  the 
bank  cashed  the  check  for  a  stranger  with- 
out inquiry  as  to  his  identity.  But  some 
courts  hold  the  contrary,  namely,  that  the 
fact  that  the  presenter  of  the  check  is  a 
stranger  does  not  take  from  the  cashing 
bank  the  character  of  a  bona  fide  holder  and 
it  is  not  liable  to  the  drawee  for  the  money 
collected  upon  a  forged  check.  The  deci- 
sions upholding  this  rule  are  referred  to  by 
Brannon,  J.,  in  his  dissenting  opinion  in  the 
Wilhamson  case  above  referred  to,  and 
which  decision  fully  gives  the  law  upon  the 
subject.    {Inquiry  from  Va.,  May,  1920.) 

Drawer's  signature  and  payee's  indorse- 
ment both  forged 

1529.  (Note)  Some  courts  hold  that  a 
bank  may  recover  money  paid  on  a  check 
bearing  a  forged  indorsement  notwith- 
standing the  fact  that  the  drawer's  signature 
is  also  forged:  First  National  Bank  v. 
Northwestern  National  Bank,  152  111.  296. 
Farmers  National  Bank  v.  Farmers  & 
Traders  Bank,  166  S.  W.  (Ky.)  986.  McCaU 
v.  Corning,  3  La.  Ann.  409.  Germania 
Bank  v.  Boutelle,  60  Minn.  189  (dictum). 
State  Bank  of  Chicago  v.  First  National 
Bank  of  Omaha,  127  N.  W.  (Neb.)  244. 
Other  courts  deny  the  right  of  recovery  in 
such  case :  First  National  Bank  v.  Marshall- 
town  State  Bank,  107  Iowa  327.  State  Bank 
V.  Cumberland  Savings  &  Trust  Co.,  85  S.  E. 
(N.  C.)  5.  Commercial  &  Savings  Bank  v. 
Citizens  Nat.  Bank,  120  N.  E.  (Ind.)  670. 
National  Bank  of  Commerce  v.  Seattle  Nat. 
Bank,  187  Pac.   (Wash.)  342. 

In  New  York,  in  Trust  Co.  of  America  v. 
Hamilton  Bank,  127  App.  Div.  515,  where 
both  drawer's  signature  and  payee's  in- 
dorsement were  forged,  the  court  referred 
to  the  Illinois  case  above  cited  but  said  that 
under  the  Negotiable  Instruments  Act  an 
instrument  is  payable  to  bearer  where  it  is 
payable  to  the  order  of  a  fictitious  or  non- 
existing  person  and  such  fact  is  known  to 
the  person  making  it  so  payable,  and  that 
whoever  forged  the  signature  knew  that  the 


person  named  as  payee  would  never  have 
any  interest  in  the  instrument;  therefore,  the 
court  reasoned  that  the  instrument  could  be 
treated  as  payable  to  bearer  and  having  been 
paid  on  a  forgery  of  the  drawer's  signature 
the  drawee  cannot  recover  the  money  paid. 
The  Supreme  Court  of  the  United  States 
has  now  declared  in  favor  of  the  non- 
recovery  rule  in  United  States  v.  Chase 
National  Bank,  252  U.  S.  485.  In  that  case 
a  check  purporting  to  be  drawn  by  one  S, 
made  payable  to  the  order  of  S,  was  a  forgery 
both  as  to  signature  of  the  drawer  and  in- 
dorsement of  the  payee.  The  court  applied 
the  rule  that  drawee  is  bound  to  know  the 
signature  of  drawer  and  cannot  recover 
money  paid  an  innocent  holder  on  a  forgery 
thereof  and  refused  to  permit  the  fact  that 
previous  indorsement  was  also  forged  to 
constitute  an  exception.  The  court  said: 
"The  drawee  failed  to  detect  the  forged 
signature  of  the  drawer.  The  forged  in- 
dorsement puts  him  in  no  worse  position 
than  he  would  occupy  if  that  were  genuine." 
{13  A.B.  A.  Journal,  Sept.,  1920.) 

Recovery  by  drawee  where  cashing  bank  attests 
payee's  signature  by  mark 

1530.  On  September  10,  1919,  a  bank 
paid  a  check  upon  which  its  customer's 
name  was  forged.  The  person  who  forged 
the  signature  also  forged  the  name  of  an- 
other person  as  payee.  The  check  was 
presented  to  a  bank  who  (supposedly)  knew 
the  payee,  and  the  assistant  cashier  made 
the  indorsement  for  the  supposititious  payee 
by  mark  and  attested  same,  giving  deposit 
for  $150  and  cash  for  $400.  Before  cashing 
the  check  the  other  bank  called  up  the  drawee 
bank  on  the  phone,  and  thej'  "O.K.'d" 
the  check.  Drawee  bank  wishes  to  know  if 
they  have  a  right  of  recovery  against  the 
bank  cashing  the  check.  Opinion:  Where 
the  signature  of  the  drawer  and  of  the  person 
named  as  payee  are  forged  upon  a  check 
which  is  cashed  by  a  bank  and  the  money 
collected  from  the  drawee,  and  the  cashing 
bank  makes  the  indorsement  for  the  paj^ee 
by  mark  and  attests  same,  it  would  probably 
be  held  that  the  drawee  has  a  right  of  re- 
covery, notwithstanding  the  general  rule 
that  money  paid  upon  a  forged  check  cannot 
be  recovered  from  a  bona  fide  holder  (Young 
V.  Lehman,  63  Ala.  519),  for  in  this  case  the 
payee's  name  was  also  forged,  and  its 
genuineness  expressly  warranted  by  the 
cashing  bank  which  attested  the  payee's 
signature  by  mark.  {Inquiry  from  Ala., 
Dec,  1918,  Jl.) 


355 


1531-1535] 


DIGEST  OF  LEGAL  OPINIONS 


Rule  uncertain  in  Alabama 

1531.  Drawee  bank  A  paid  to  collecting 
bank  B  a  check  upon  which  the  signatures 
of  both  drawer  and  payee  had  been  forged. 
A  now  seeks  to  hold  B  as  last  indorser,  claim- 
ing that  bank  liable  because  of  having 
guaranteed  previous  indorsements.  Opin- 
ion: The  general  rule  is  that  a  drawee  bank 
which  pays  a  check  under  the  forgery  of  the 
drawer's  signature  cannot  recover  the 
amount  from  the  person  to  whom  paid.  The 
fact  that  the  indorsement  is  also  a  forgery 
has  been  held  to  lead  to  a  different  result  in 
some  states,  while  in  others  the  drawee  can- 
not recover  money  paid  upon  a  forged  in- 
dorsement where  the  drawer's  signature  is 
also  forged.  The  point  has  not  been  decided 
in  Alabama.    {Inquiry  from  Ala.,  Feb.,  1914.) 

Amount  not  chargeable  to  drawer  and  right 
of  recovery  by  drawee  unsettled  in  Arkansas 

1532.  A  drawee  bank  paid  a  check  that 
some  three  months  afterwards  was  dis- 
covered to  be  forged.  Subsequent  investiga- 
tion showed  payee's  indorsement  also  to  be 
forged.  The  check  was  cashed  by  a  mer- 
chant B  who  deposited  it  with  bank  A,  and 
the  latter  sent  it  on,  indorsing  "All  prior 
indorsements  guaranteed."  Drawee  asks  if 
it  can  hold  any  or  all  indorsers,  or  charge 
amount  to  drawee.  Opinion:  The  general 
rule  is  that  a  bank  paying  a  check  upon  a 
forged  signature  cannot  recover  the  money 
from  a  bona  fide  holder  who  has  received 
payment;  but  where  the  indorsement  of 
payee  is  also  forged  it  has  been  held  by  some 
courts  that  a  bank  may  recover  money  paid 
on  a  check  bearing  a  forged  indorsement 
notwithstanding  the  fact  that  the  drawer's 
signature  is  also  a  forgery;  but  other  courts 
hold  to  the  contrary.  As  to  whether  a  mer- 
chant who  cashes  a  forged  check  for  a 
stranger  without  inquiry  as  to  his  identity 
is  negligent  to  such  a  degree  as  will  make 
him  liable  to  refund  the  money  to  the  payor 
bank  is  a  question  where  there  is  also  much 
conflicting  decision.  The  Arkansas  courts 
do  not  seem  to  have  settled  either  question 
involved,  so  there  would  be  a  fair  chance  for 
drawee  to  recover  from  prior  indorsers  under 
the  decisions  stated.  It  could  not  charge 
the  amount  back  to  customer.  {Inquiry 
from  Ark.,  June,  1918.) 

Liability  of  indorser  who  vouches  for  presenter 

1533.  A  bank  paid  a  check  upon  which 
the  signatures  of  both  drawer  and  payee 
were  forged,  and  payment  was  made  to  the 
supposed  payee  upon  the  indorsement  of 


one  T,  a  customer  of  the  bank,  below  the 
forged  indorsement  of  the  payee.  The  bank 
had  first  refused  to  pay  the  check,  which  was 
payable  to  H  and  presented  by  a  stranger, 
without  a  good  indorsement  and  the  pre- 
senter thereupon  went  to  T  and  requested 
him  to  indorse  the  check,  saying  that  he 
brought  the  check  in  to  get  it  cashed  for  his 
friend  H  and  that  he  had  indorsed  it  for  H 
who  could  not  write.  T,  thereupon,  indorsed 
the  check  and  upon  the  second  presentation 
the  bank  paid  it.  Opinion:  It  would  seem 
in  a  case  of  this  kind,  where  the  right  of  the 
presenter  to  the  money  was  especially 
vouched  for  by  the  bank's  customer  who 
indorsed  to  enable  him  to  obtain  payment, 
that  the  bank  could  recover  from  T  on  his 
breach  of  warranty  of  the  genuineness  of 
the  forged  indorsement.  Redington  v. 
Woods,  49  Cal.  406.  Bk.  of  Lisbon  v.  Bk.  of 
Wyndmere,  15  N.  D.  299.  Canadian  Bk.  of 
Commerce  v.  Bingham,  30  Wash.  484.  First 
Nat.  Bk.  V.  Marshalltown  St.  Bk.,  107  Iowa, 
327.  First  Nat.  Bk.  v.  Northwestern  Nat. 
Bk.,  152  111.  296.  {Inquiry  from  Cat.,  Nov., 
1909,  Jl.) 

Not  decided  in  Connecticut 

1534.  A  bank  paid  several  forged  checks, 
upon  which  the  indorsement  of  the  payee,  a 
fictitious  person,  was  also  forged.  Opinion: 
The  decisions  are  in  conflict  upon  the  draw- 
ee's right  of  recovery  from  the  bank  to  which 
the  checks  were  paid.  In  Connecticut  the 
question  has  not  been  passed  upon.  First 
Nat.  Bk.  V.  Northwestern  Nat.  Bk.,  152 
111.  296.  Farmers  Nat.  Bk.  v.  Farmers  & 
Traders  Bk.,  166  S.  W.  (Ky.)  986. 
Contrary  cases.  First  Nat.  Bk.  v.  Marshall- 
town,  107  Iowa  327.  St.  Bk.  v.  Cumberland 
Sav.  &  Tr.  Co.,  85  S.  E.  (N.  C.)  5.  Tr.  Co.  v. 
Hamilton  Bk.,  127  App.  Div.  (N.  Y.)  515. 
{Inquiry  from  Conn.,  May,  1916,  Jl.) 

Right  of  recovery  uncertain  in  Idaho 

1535.  Bank  A  received  a  check  on  de- 
posit from  a  customer  and  collected  from 
the  drawee  B.  Within  a  few  weeks  the  check 
was  found  to  be  forged.  A's  depositor  re- 
fused to  refund  and  there  are  circumstances 
which  make  it  quite  probable  that  the  name 
of  the  payee  was  a  fictitious  one  and  that  the 
indorsement  was  made  by  the  same  person 
who  forged  the  name  of  the  drawer.  The 
inquiry  is  as  to  A's  status  and  whether  B 
could  recover  amount  from  it.  Opinion: 
The  general  rule  is  that  a  bank  is  bound  to 
know  the  drawer's  signature  and  cannot  re- 
cover money  paid  to  a  bona  fide  holder  upon 


356 


FORGED  PAPER 


[1536-1538 


a  forgery  thereof.  In  this  case  should  the 
drawer's  signature  only  prove  to  be  forged, 
B  could  not  recover.  Where  the  payee's 
indorsement  is  also  a  forgery,  the  decisions 
are  in  conflict  upon  the  right  of  the  drawee 
to  recover.  In  Idaho  the  point  has  never 
been  decided.  A,  it  would  seem,  would  be 
considered  a  l)ona  fide  holder,  but  if  the 
Idaho  courts  should  hold  with  those  cases 
which  favor  the  drawee's  right  of  recovery 
where  the  indorsement  is  also  forged,  this 
would  not  relieve  that  bank  from  liability. 
{Inquiry  from  Idaho,  June,  1917.) 

Recovery  by  Illinois  drawee  where  signature 
and    indorsement    both  forged 

1536.  A  check  purporting  to  be  signed  by 
A  in  favor  of  B,  drawn  on  bank  C,  is  cashed 
by  bank  D  which  indorses  it  "Pay  to  bank 
E  or  order,"  The  latter  bank,  indorsing  "Pay 
any  bank  or  banker.  Previous  indorse- 
ments guaranteed,"  sent  check  to  bank  F 
which  collected  from  C.  Shortly  afterwards 
the  check  was  found  to  be  forged  and  payee 
denied  all  knowledge  of  the  check.  The 
question  is,  can  C  recover?  Opinion:  Or- 
dinarily a  bank  which  mistakes  a  depositor's 
signature  and  pays  on  a  forger}--  thereof,  is 
bound  by  the  payment  and  cannot  recov- 
er the  money  back  where  paid  to  a  bona 
fide  holder.  But  it  has  been  expressly  held 
in  Illinois  that  where  the  payee's  indorse- 
ment is  forged  as  well  as  the  drawer's  signa- 
ture, the  drawee,  while  estopped  to  deny  the 
drawer's  signature,  is  not  estopped  to  deny 
the  genuineness  of  the  payee's  indorsement 
which  the  subsequent  indorser  warrants. 
See  First  Nat.  Bank  of  Chicago  v.  The 
Northwestern  National  Bank,  152  111.  296, 
38  N.  E.  739,  26  L.  R.  A.  289,  43  Am,  St, 
Rep.  247.  Upon  the  authority  of  this  case 
C  would  have  a  right  of  recovery  from  D 
who  would  be  responsible  for  the  genuine- 
ness of  payee's  indorsement,  (Inquiry  from 
III,  May,  1914.) 

Depositor  not  liable  for  blank  checks  carelessly 

left  around  and  drawee  cannot  recover  in 

Indiana 

1537.  A  check  drawn  on  bank  A  was 
cashed  by  bank  B,  and  a  few  weeks  later  the 
latter  was  advised  that  the  signature  and 
also  the  indorsement  on  the  check  were 
forged  and  was  asked  to  make  good.  The 
check  used  was  a  printed  form  with  the  name 
and  business  of  A's  depositor  at  the  top. 
Investigation  showed  that  a  numljcr  of  these 
blanks  had  been  stolen  out  of  the  depositor's 
check  book  which  he  had  carelessly  left  lying 


around  in  his  office.  The  inquiry  is  as  to 
whether  or  not  B  is  liable.  Opinion:  The 
drawee  cannot  recover  from  a  bona  fide 
holder  money  paid  on  a  forged  check  unless 
the  Indiana  courts  should  take  the  view  that 
there  was  a  right  of  recovery  where  the  in- 
dorsement as  well  as  the  signature  proved  a 
forgery,  which  point  does  not  seem  to  have 
been  passed  upon  by  them  as  yet.  There  is  a 
conflict  of  authority  in  other  states  on  this 
point.  The  carelessness  of  the  depositor  in 
leaving  blank  checks  around  would  not  be 
such  responsible  neghgence  as  to  charge  him 
with  the  payment.  In  Leff  v.  Security 
Bank,  157  N,  Y,  Supp,  92,  the  fact  that  a 
depositor  who  was  informed  that  blank 
checks  were  missing  from  his  check  book 
did  not  notify  the  bank  thereof  was  held 
insufficient  to  raise  the  issue  of  his  neghgence 
in  an  action  by  him  against  the  bank  to 
recover  the  amount  paid  upon  a  forged 
check,  (Inquiry  from  Ind.,  March,  1917.) 
Note:  In  Commercial  &  Savings  Bank 
Co.  V.  Citizens  Nat.  Bank,  120  N.  E.  (Ind.) 
670,  decided  in  1918,  where  the  names  of  the 
drawer  and  indorser  of  a  check  were  both 
forged,  recovery  by  the  drawee  was  denied. 

Recovery  by  drawee  in  Iowa  where  signature 
and    indorsement    both   forged 

1538.  A  merchant  inquired  by  telephone 
of  bank  as  to  whether  a  certain  depositor's 
check  was  good  for  a  stated  amount,  and, 
receiving  satisfactory  answer,  cashed  a 
check  purporting  to  be  drawn  by  such  de- 
positor, and  deposited  it  in  a  local  bank 
which  received  payment  from  drawee. 
Within  a  day  or  so  it  was  discovered  that 
both  signature  and  indorsement  were  forged, 
and  the  question  is  who  must  stand  the  loss? 
Opinion:  It  has  been  held  in  the  case  of  the 
First  Nat.  Bank  v.  Marshalltown'  State 
Bank,  107  la.  327,  77  N.  W.  1075,  44  L,  R. 
A.  131,  that  as  between  drawee  and  good 
faith  holder  of  check,  the  payment  on  forged 
signature  is  final,  except  when  the  holder  has 
been  neghgent  in  not  making  due  inquiry. 
If  the  circumstances  were  such  as  to  demand 
inquiry  when  he  took  the  check,  the  drawee 
may  recover.  But  the  negligence  of  the  first 
holder  is  not  imputable  to  a  sul^scquent 
good  faith  holder,  so  as  to  make  him  liable 
to  the  drawee,  nor  can  the  drawee  paying  a 
check  bearing  a  forged  signature  recover 
from  the  indorser  as  warrantor  of  a  prior 
forged  indorsement,  since  the  forgerj--  of  the 
indorsement  is  not  the  cause  of  the  loss.  Un- 
less there  was  some  negligence  on  the  part  of 
the  merchant  who  cashed  the  check  for  the 


357 


1539-1543] 


DIGEST  OF  LEGAL  OPINIONS 


forger,  the  drawee  would  have  no  right  of 
recovery  against  him  under  this  decision,  nor 
from  the  bank  which  received  payment. 
{Inquiry  from  Iowa,  April,  1916.) 

Rule  not  declared  in  Kansas 

1539.  A  check  upon  which  both  the 
maker's  signature  and  the  payee's  indorse- 
ment were  forged  was  cashed  by  A  at  the 
store  of  a  merchant  B  who  deposited  it  in 
bank  C  which  collected  from  the  drawee  and 
the  latter  asks  if  it  has  recourse  on  bank  C 
or  the  merchant  B?  Opinion:  The  general 
rule  is  that  the  drawee  which  pays  a  forged 
check  to  a  bona  fide  holder  cannot  recover 
the  money  from  the  latter.  Where  the  in- 
dorsement of  the  payee  is  also  a  forgery, 
some  courts  hold  (and  others  deny)  that  the 
bank  may  recover  the  money  on  the  ground 
that  the  case  does  not  come  within  the  rule 
which  precludes  a  drawee  from  recovering 
the  money  it  has  paid  on  a  check  bearing  a 
forged  signature,  but  within  the  rule  which 
permits  the  recovery  of  money  paid  on  a 
forged  indorsement.  The  point  has  not  yet 
been  decided  in  Kansas.  (Inquiry  from 
Kan.,  Oct.,  1917.) 

Kentucky  drawee  can  recover  money  paid  on 

forged    indorsement    although    drawer's 

signature  also  forged 

1540.  Where  a  check,  made  payable  to 
J.  P.  H.,  bore  the  forged  signature  of  the 
drawer,  and  the  indorsement  of  the  payee, 
J.  P.  H.,  was  likewise  forged,  can  the  drawee 
bank  recover  from  the  collecting  bank? 
Opinion:  It  has  been  decided  by  the  Court 
of  Appeals  in  Kentucky  in  the  case  of  Farm- 
ers' Nat.  Bank  of  Augusta  v.  Farmers'  & 
Traders'  Bank  of  Maysville,  159  Ky.  141, 
166  S.  W.  986  (1914),  that,  while  a  bank  is 
bound  to  know  the  signature  of  its  depositor 
and  cannot  recover  the  money  from  a  bona 
fide  holder  to  whom  a  check  bearing  a  for- 
gery of  such  signature  has  been  paid,  never- 
theless, where  a  bank  cashes  a  forged  check 
on  another  bank,  the  indorsement  also  being 
a  forgery,  without  inquiry  or  question,  and 
without  any  identification  of  the  holder,  and 
indorses  it  and  sends  it  for  payment  to  the 
drawee  bank,  the  latter  bank,  upon  dis- 
covering the  forgery  after  having  paid  the 
check,  can  recover  the  amount  from  the 
former,  under  the  general  rule  which  permits 
a  recovery  of  money  paid  under  a  mistake 
of  fact,  such  case  not  coming  within  the 
exception  to  such  rule  which  does  not  permit 
the  drawee  to  recover  money  paid  under  a 
forged  check,  but  within  the  rule  as  to  forged 


indorsements.      (Inquiry  from    Ky.,    Oct., 
1919.) 

1541.  Two  neighbor  banks  of  the  bank 
of  B  cashed  two  checks  forged  on  a  customer 
of  the  B  bank.  These  checks  were  indorsed 
by  the  payee,  who  may  have  been  the  forger 
or  another  person.  The  checks  were  cleared 
through  the  mails  without  detection  by  the 
drawee  bank,  and  charged  to  its  customer's 
account.  Sixty  days  thereafter,  when  the 
customer  had  his  bank  book  balanced,  he 
discovered  the  forgeries  and  immediately 
reported  them  to  the  bank.  The  question  is 
whether  the  drawee  bank  or  the  cashing 
bank  [who  guaranteed  the  indorsements]  is 
liable.  Opinion:  Under  the  law  of  Ken- 
tucky a  drawee  bank  which  pays  a  check 
upon  the  forgery  of  the  drawer's  signature 
can  recover  from  the  holder  receiving  pay- 
ment if  the  indorsement  of  the  payee  was 
also  forged.  Furthermore,  if  such  indorse- 
ment was  genuine,  there  probably  would  be 
a  right  of  recovery  if  the  holder  receiving 
payment  acquired  the  check  from  the  payee 
without  inquiry  or  proof  as  to  his  identity. 
Farmers  Nat.  Bank  v.  Farmers  &  Traders 
Nat.  Bank  [Ky.]  166  S.  W.  986.  But  see 
Deposit  Bank  v.  Fayette  Nat.  Bank  [Ky.] 
13  S.  W.  339.  (Inquiry  from  Ky.,  March, 
1920,  Jl.) 

Recovery   hy  Louisiana  drawee  where  both 
signature   and   indorsement  forged 

1542.  A  presented  a  check  signed  by 
B  and  indorsed  in  blank  by  the  payee.  The 
check  was  paid  by  the  drawee,  and  upon 
faith  of  such  payment  A  paid  over  the  pro- 
ceeds. Later  it  was  discovered  that  B's  sig- 
nature was  forged.  Opinion:  The  drawee 
cannot  recover  from  the  bona  fide  holder. 
If  payee's  indorsement  was  also  forged, 
authorities  conflict  as  to  drawee's  right  of 
recovery;  but  in  Louisiana  recovery  would 
be  allowed.  McCall  v.  Corning,  3  La.  Am. 
409.  McKleroy  v.  Bk.,  14  La.  Ann.  458. 
Howard  v.  Bk.,  28  La.  Ann.  727.  Nat.  Bk., 
of  Commerce  v.  Mech.  Amer.  Nat.  Bk.,  127 
S.  W.  429.  Title  Guarantee  &  Tr.  Co.  v. 
Haven,  111  N.  Y.  S.  305.  First  Nat.  Bk.  v. 
Marshalltown  St.  Bk.,  107  Iowa  327.  First 
Nat.  Bk.  V.  Northwestern  Nat.  Bk.,  152 
111.  296.  St.  Bk.  V.  First  Nat.  Bk.,  127  N.  W. 
(Neb.)  244.  (Inquiry  from  La.,  July,  1911, 
Jl.) 

1543.  A  check  purporting  to  be  drawn 
by  A  to  the  order  of  B  was  deposited  with 
bank  C  for  collection.  The  latter,  before 
cashing  it,  received  word  from  the  drawee 


358 


FORGED  PAPER 


1544-1547 


bank  that  it  had  remitted  on  the  collection, 
and  later  the  check  was  found  to  be  forged 
both  as  to  signature  and  indorsement,  and 
the  question  is — Who  bears  the  loss?  Opin- 
ion: The  rule  estabhshed  in  Louisiana,  in 
accord  with  the  great  weight  of  authority 
elsewhere,  is  that  a  bank  which  has  paid  a 
forged  check  to  a  bona  fide  holder  is  bound 
by  the  payment  and  cannot  recover  the 
money  from  the  person  who  received  it.  See 
Howard  v.  Mississippi  Valley  Bank,  26  La. 
Ann.  727.  Accordingly,  the  loss  in  this  case 
would  fall  upon  the  drawee  bank  which  paid 
the  forged  check,  mistaking  the  signature  of 
its  customer,  unless  the  fact  that  the  in- 
dorsement, being  also  a  forgery,  would  per- 
mit recovery  under  the  rule  that  payment 
of  a  check  bearing  a  forged  indorsement,  is 
recoverable  by  the  payor  bank.  Some  courts 
have  held  that  in  such  a  case  the  drawee  may 
recover;  but  other  courts  have  held  that  the 
forgery  of  the  indorsement  is  not  the  pri- 
mary cause  of  loss  and  that  the  rule  holding 
the  drawee  bound  and  precluded  from  re- 
covering applies.  In  Louisiana  the  drawee 
in  such  case  has  been  held  entitled  to  re- 
cover. McCall  V.  Corning,  3  La.  Ann.  409. 
{Inquiry  from  La.,  April,  1919.) 

Law  in  Michigan  uncertain 

1544.  A  farm  hand  filled  out  a  blank 
check,  forging  his  employer's  name  as  maker, 
using  a  fictitious  name  for  payee,  and  in- 
dorsing with  that  name.  The  check  was 
drawn  on  bank  A  where  the  employer  had 
an  account,  and  was  cashed  at  the  store  of  a 
merchant  who  did  not  require  identification. 
The  latter  deposited  it  in  bank  A  where  he 
also  dealt,  and  was  given  credit  for  same. 
The  forgery  was  discovered  a  few  weeks 
later,  and  the  merchant  refused  to  stand  the 
loss.  Opinion:  The  general  rule  supported 
by  numerous  authorities  is  that  a  drawee 
which  pays  a  forged  check  to  a  bona  fide 
holder  is  bound  by  the  pajTnent  and  cannot 
recover  the  money  back.  Where  in  addition 
to  the  signature  the  indorsement  is  also 
forged  there  are  conflicting  decisions  as  to 
the  right  of  the  drawee  to  recover.  There 
are  also  conflicting  decisions  as  to  such 
right,  where  the  check  is  acquired  from  a 
stranger  without  identification.  The  law  of 
Michigan  is  uncertain  on  both  these  ques- 
tions.    {Inquiry  from  Mich.,  Oct.,  1915.) 

Recourse  of  Illinois  hank  drawee  upon  Illinois 
bank  collecting  for  Missouri  bank 

1545.  A  Missouri  bank,  A,  received 
from  a  depositor  who  had  cashed  it  a  draft 


drawn  on  an  Illinois  bank,  B.  It  was  sent 
to  bank  C  in  Ilhnois,  which  collected  from 
the  drawee  bank,  and  later  the  check  was 
discovered  to  be  forged,  but,  as  the  indorse- 
ment also  turned  out  to  be  a  forgerj^,  the 
drawee  bank  B  claims  it  is  not  responsible. 
Opinion:  It  has  been  held  by  the  Supreme 
Court  of  Illinois  in  the  case  of  First  National 
Bank  v.  Northwestern  National  Bank,  152 
111.  296,  38  N.  E.  739,  that  a  bank  which 
pays  a  supposed  check  on  which  both  draw- 
er's signature  and  payee's  indorsement  are 
forged  cannot  deny  the  forged  signature 
but,  assuming  it  to  be  genuine,  has  a  right 
to  recover  because  of  the  forgery  of  the  in- 
dorsement. This  decision  would  probably 
govern  this  case  as  the  bank  which  collected 
from  the  drawee  as  well  as  the  drawee  bank 
itself  are  both  located  in  Ilhnois.  It  seems 
that,  under  the  decision  referred  to,  which 
is  directly  in  point,  bank  B  would  be  entitled 
to  recover  from  the  bank  in  Illinois  which 
received  payment  and  that  bank,  in  turn, 
would  have  recourse  on  the  Missouri  bank 
which,  in  turn,  would  have  recourse  on  its 
depositor.     {Inquiry  from  Mo.,  June,  1914-) 

Conflict  of  law  between  Nebraska  and  Iowa 

1546.  Two  checks  were  drawn  on  a 
Nebraska  bank  on  which  the  signatures  of 
both  the  drawer  and  of  the  payee  were 
forged.  These  checks  were  cashed  for  the 
forger  by  two  banks  in  Nebraska  and  in- 
dorsed over  to  two  banks  in  Iowa,  which 
banks  received  payment  from  the  drawee 
bank.  Opinion:  Under  the  law  of  Nebraska 
the  drawee  can  recover  from  the  last  en- 
dorser as  warrantor  of  a  prior  forged  in- 
dorsement. Under  the  law  of  Iowa  the 
drawee  could  not  recover.  St.  Bk.  of  Chica- 
go V.  First  Nat.  Bk.  of  Omaha,  127  N.  W. 
244.  First  Nat.  Bk.  of  Chicago  v.  North- 
western Nat.  Bk.,  152  111.  296.  Contrary 
case.  First  Nat.  Bk.  v.  Marshalltown  St. 
Bk.,  107  Iowa  327.  {Inquiry  from  Neb., 
April,  1911,  Jl.) 

New  York  drawee  cannot  recover 

1547.  A  bank  in  New  York,  a  bona  fide 
holder,  cashed  a  check  upon  which  the 
drawer's  signature  and  the  payee's  in- 
dorsement were  forged.  Opinion:  Under 
the  New  York  law  the  drawee  bank  which 
paid  the  check  is  the  loser,  and  cannot  re- 
cover from  the  New  York  bank.  Title 
Guarantee  &  Tr.  Co.  v.  Haven,  126  App. 
Div.  (N.  Y.)  802.  Tr.  Co.  of  America  v. 
Hamilton  Bk.,  127  App.  Div.  (N.  Y.)  515. 
First  Nat.  Bk.  v.  Northwestern  Nat.  Bk., 


359 


1548-1562] 


DIGEST  OF  LEGAL  OPINIONS 


152  111.  296.     {Inquiry  from  N.   F.,  Jan., 
WIS,  Jl.) 

1548.  A  made  out  a  check  to  a  fictitious 
payee  and  forged  the  signature  of  B  as 
drawer.  Using  the  fictitious  name  he  in- 
dorsed the  check  and  cashed  it  at  a  store.  It 
was  deposited  in  bank  C  which  indorsed 
"Prior  indorsements  guaranteed,"  and  col- 
lected from  the  drawee  bank.  The  latter 
makes  inquiry  as  to  its  liability.  Opinion: 
The  rule  in  this  state  is  well  established  that 
a  bank  which  pays  a  check  on  a  forgery  of 
the  drawer's  signature  to  a  bona  fide  holder 
cannot  recover  the  money,  and  the  fact  that 
the  forger  inserts  the  name  of  a  fictitious 
person  as  payee  and  indorser  does  not  en- 
title the  payor  bank  to  recover  from  a  bank 
which  guarantees  the  prior  indorsements. 
See  Trust  Co.  of  America  v.  Hamilton  Bank, 
127  App.  Div.  515,  112  N.  Y.  Supp.  84,  in 
which  it  was  so  held.  See  also  United  States 
V.  Chase  Nat.  Bank,  241  Fed.  535.  In  the 
present  case  the  drawee  bank  under  the  law 
will  be  the  loser,  without  the  right  to  charge 
the  amount  to  its  customer's  account  and 
without  the  right  of  recovery  from  bank  C. 
{Inquiry  from  N.  Y.,Jan.,  1918.) 

Rule  in  Ohio  uncertain 

1549.  A  person,  representing  himself  to 
be  A,  opened  an  account  with  bank  B  by 
depositing  cash  and  a  check  which  pur- 
ported to  be  signed  by  C  drawn  to  A's  order 
on  bank  D.  The  check  was  sent  through 
the  clearing  house  and  D  paid  it,  but  dis- 
covered a  few  days  afterwards  that  the  check 
was  forged,  and  requested  reimbursement 
from  B  which  had  in  the  meanwhile  paid  out 
most  of  the  money  represented  by  the  de- 
posit to  the  person  who,  it  was  learned,  had 
impersonated  A  and  indorsed  his  name  as 
payee  of  the  bogus  check.  Opinion:  The 
general  rule  is  that  a  drawee  which  pays  a 
forged  check  to  a  bona  fide  holder  is  bound 
by  the  payment  and  cannot  recover  the 
money  back.  But  where  in  addition  to  the 
signature  the  indorsement  is  also  forged,  the 
authorities  are  in  conflict  as  to  drawee's 
right  of  recovery.  In  some  states  it  has  been 
held  that,  while  the  drawee  is  estopped  to 
deny  the  genuineness  of  the  drawer's  signa- 
ture, he  is  not  estopped  as  to  the  payee  and 
can  recover  where  the  indorsement  of  the 
payee  is  forged.  In  some  other  states  it  has 
been  held  that  the  drawee  cannot  recover  in 
such  a  case,  as  forgery  of  the  indorsement  is 
not  the  cause  of  the  loss.  It  does  not  appear 
that  the  Ohio  courts  have  passed  upon  the 
question,  and  bank  B's  right  of  recovery 


will  depend  upon  whether  its  courts  adopt 
the  one  or  the  other  rule  above  set  forth. 
{Inquiry  from  Ohio,  July,  1919.) 

1550-1559   Transferred  to  other  sections. 

Point  not  decided  in  Oklahoma 

1560.  A  drawee  bank  paid  a  check  upon 
which  the  drawer's  signature  and  the  payee's 
indorsement  were  forged.  The  bank  re- 
ceiving payment  stamped  the  check  "Prior 
indorsements  guaranteed."  Opinion:  The 
question  of  drawee's  right  of  recovery  has 
never  been  passed  upon  in  Oklahoma.  The 
decisions  of  other  states  on  this  proposition 
are  conflicting.  Cherokee  Nat.  Bk.  v. 
Union  Tr.  Co.,  125  Pac.  (Okla.)  464.  See 
also  citations  in  Opinion  No.  1534.  {Inquiry 
from  Okla.,  July,  1915,  Jl.) 

Recourse  of  South  Carolina  drawee 

1561.  A  drawee  bank  cashed  a  check  for 
a  merchant  which  bore  the  forged  names  of 
both  maker  and  indorser,  the  same  having 
been  originally  cashed  by  the  merchant  at 
the  request  of  the  forger.  About  30  days 
thereafter  when  the  forgery  was  discovered, 
the  paying  bank  made  demand  on  the  mer- 
chant for  reimbursement.  The  question  is 
asked  upon  whom  the  loss  falls.  Opinion: 
The  general  rule  is  that  the  drawee  which 
pays  money  to  a  bona  fide  holder  upon  a 
forgery  of  its  depositor's  signature  to  a  check 
is  bound  by  the  payment  and  cannot  re- 
cover back  the  money.  Where,  however, 
the  indorsement  is  also  a  forgery,  some  cases 
hold  that  there  is  a  right  of  recovery.  In 
South  Carolina  (Ford  v.  Peoples  Bank,  etc., 
54  S.  E.  204)  the  court  held  that  the  rule 
which  precludes  recovery  of  money  paid  on 
a  forged  check  does  not  apply  in  favor  of  a 
holder  who  by  his  own  negligence  has  con- 
tributed to  the  success  of  the  fraud  and 
whose  conduct  has  had  a  tendency  to  mis- 
lead the  bank,  the  latter  being  free  from 
actual  fault.  If  the  merchant  in  the  present 
case  cashed  the  check  for  a  stranger  without 
due  inquiry  and  identification,  he  would 
probably  be  liable  under  this  rule;  and 
should  the  South  CaroHna  courts  adopt  the 
rule  that  money  paid  on  a  forged  indorse- 
ment is  recoverable,  notwithstanding  forgery 
of  the  drawer's  signature,  the  merchant 
would  be  required  to  refund.  {Inquiry 
from  S.  C,  Feb.,  1919.) 

Non-recovery  by  drawee  in  Washington 

1562.  A  forged  check  bearing  a  forged 
indorsement  was  deposited  in  a  bank  by  its 


r 


360 


FORGED  PAPER 


[1563-1564 


customer  and  paid  through  the  clearing 
house  by  the  drawee.  The  drawee  returned 
the  check  to  the  collecting  bank  with  nota- 
tion "Forged  indorsement."  Before  charging 
the  customer  with  the  amount,  it  was  dis- 
covered that  the  drawer's  signature  was  also 
forged,  and  the  collecting  bank  seeks  to  hold 
the  drawee  liable.  Opinion:  Where  the 
drawer's  signature  and  payee's  indorsement 
are  both  forged,  the  decisions  conflict  as  to 
the  drawee's  right  to  recover  money  paid  on 
check  to  a  bona  fide  holder.  In  Washington 
the  drawee  paying  the  forged  check  is  held 
entitled   to  recover  unless   the   holder  re- 

^1  ceiving  payment  would  be  in  a  worse  posi- 
:  tion  if  compelled  to  refund  than  before  he 
received  payment.  Canadian  Bk.  of  Com- 
merce V.  Bingham,  71  Pac.  (Wash.)  43. 
Farmers  Nat.  Bk.  v.  Farmers  &  Traders  Bk., 
160  S.  W.  (Ky.)  986.  First  Nat.  Bk.  v. 
Northwestern  Nat.  Bk.,  152  111.  296.  First 
Nat.  Bk.  V.  Marshalltown  St.  Bk.,  107  Iowa 
327.  St.  Bk.  V.  Cumberland  Sav.  &  Tr.  Co., 
85  S.  E.  (N.  C.)  5.  U.  S.  v.  Chase  Nat.  Bk., 
241  Fed.  535.  {Inquiry  from  Wash.,  Aug., 
1918,  Jl.) 

Note:  But  in  National  Bank  of  Com- 
merce V.  Seattle  National  Bank,  187  Pac. 
342,  decided  1920,  where  drawee's  signature 
and  payee's  indorsement  were  both  forged, 
the  court  denied  recovery  under  the  N.  I. 
Act  and  held  that  Canadian  Bank  of  Com- 
merce V.  Bingham  was  decided  under  the 
common  law  without  reference  to  that  Act. 

Where  money  refunded  drawee 

Holder  voluntarily  refunding  to  drawee  money 

collected  on  forged  check  cannot  hold  prior 

indorser 

1563.  A  check  drawn  on  a  Tennessee 
bank,  A,  in  favor  of  D,  was  deposited  by  the 
C  Hotel  Company  in  a  Georgia  bank,  B. 
Three  weeks  later  the  check,  having  been 
found  to  be  forged,  was  returned  to  B  with 
a  request  from  drawee  that  it  voluntarily 
refund  the  money  and  look  to  the  hotel  for 
reimbursement.  The  hotel  declined  to  re- 
deem the  check,  and  the  inquiry  is  whether 
it  can  be  held  liable,  and  also  as  to  B's 
status.  Opinion:  The  majority  of  courts 
have  recognized  the  rule  that  the  drawee 
is  bound  to  know  the  signature  of  the  drawer 
and  cannot  recover  money  paid  to  an  inno- 
cent holder  of  a  forged  check.  But  some 
courts  have  made  exceptions  where  the 
holder  to  whom  payment  has  been  made  has 
been  negligent  in  acquiring  the  check  from 
a  stranger  without  identification,  or  where 
the  holder  would  be  in  no  worse  position  if 


compelled  to  refund  than  before  receiving 
the  money.  B  would  not  be  Hable  to  A  for 
return  of  money,  as  it  is  reasonably  clear 
that  a  drawee  who  pays  a  forged  check  to  a 
holder  free  from  negligence,  as  was  bank  B, 
would  not  be  awarded  recovery  from  that 
bank,  either  by  the  Georgia  or  Tennessee 
Courts.  See  Farmers  &  Merchants  Bank  v. 
Bank  of  Rutherford,  115  Tenn.  64,  88  S.  W. 
939.  Wood  V.  Colony  Bank,  114  Ga.  683, 
40  S.  E.  720.  The  hotel  company,  by  its 
indorsement,  has  warranted  bank  B  the 
genuineness  of  the  check,  and  if  A  had  re- 
fused payment  of  it,  bank  B  could  have 
recovered  from  C  on  its  warranty.  But  the 
check,  having  been  paid  and  the  drawee 
being  precluded  from  disputing  its  genuine- 
ness, it  would  seem  that,  if  B  voluntarily 
paid  back  the  money  to  A  and  then  sought  to 
recover  from  C  on  its  warranty,  the  latter 
would  have  a  good  defense  on  the  ground 
that  the  check  had  been  paid  and  settled, 
and,  therefore,  there  was  no  loss  to  B  for 
which  C  as  indorser  would  be  liable.  See 
Van  Wert  Nat.  Bank  v.  First  Nat.  Bank, 
6  Ohio  Cir.  Ct.  Rep.  130,  3  O.  C.  D.  380. 
{Inquiry  from  Ga.,  Dec,  1913.) 

Holder  voluntarily  refunding  to  drawee  money 
paid  on  forged  check  cannot  recover  it  hack 
1564.  A  took  a  check  in  payment  of 
merchandise  and  deposited  it  with  bank  B 
which  collected  from  the  drawee  bank.  The 
latter  bank,  six  weeks  later,  notified  A  that 
the  check  was  forged,  and  requested  him  to 
reimburse  it,  which  he  did.  The  inquiry  is 
as  to  whether  or  not  the  drawee  bank  could 
have  held  A  liable.  Opinion:  It  is  a  general 
rule  that  payment  by  a  drawee  of  a  check 
upon  which  the  drawer's  signature  has  been 
forged  is  non-recoverable  from  a  bona  fide 
holder  to  whom  paid.  The  bank  is  pre- 
sumed to  know  its  depositor's  signature, 
and  is  bound  by  the  payment.  In  Pennsyl- 
vania, however,  an  exception  to  this  rule  is 
made  by  statute,  and  the  drawee  can  recover 
if  prompt  notice  of  the  forgery  is  given.  But 
this  is  an  uncertain  question  under  the 
decisions  of  the  state  courts  just  what  length 
of  time  will  be  held  prompt  notice.  In  the 
present  case  A  reimbursed  the  drawee  and 
took  the  forged  check  back  and  even  if  the 
law  was  that  he  need  not  return  the  money, 
it  is  doubtful  if  he  would  be  successful  in 
getting  it  back  as  he  voluntarily  paid  it  in 
behef  that  he  was  liable  to  refund,  and  it  is 
a  general  rule  that  a  voluntary  payment 
under  a  mistake  of  law  is  non-recoverable. 
Real  estate  Sav.  Inst'n  v.  Linder,  74  Pa.  St. 
371.    {Inquiry  from  Pa.,  Aug.,  1916.) 


361 


1565-1568] 


DIGEST  OF  LEGAL  OPINIONS 


Liability  of  drawee  after  money  refunded 

1565.  A  forged  check  was  deposited  in 
bank  and  in  due  course  of  collection  was  paid 
by  the  drawee  bank.  A  dispute  arose  be- 
tween the  drawee  bank  and  the  last  collect- 
ing bank  with  respect  to  liabiUty,  and,  in 
view  of  the  inconvenience  caused  to  such 
collecting  bank,  the  bank  in  which  the  check 
was  first  deposited  directed  its  correspondent 
to  have  the  item  returned  to  it.  The  last 
collecting  bank  gave  credit  to  the  drawee 
bank  and  was  reimbursed  by  its  transferee, 
which  was  given  credit  by  the  bank  accept- 
ing the  deposit.  May  the  latter  bank  re- 
cover from  the  drawee  bank?  Opinion: 
Under  a  well  settled  rule,  a  drawee  bank, 
which  pays  a  check  on  the  forged  signature 
of  the  drawer,  cannot  recover  the  money 
from  a  bona  fide  holder  receiving  payment. 
Hence  the  drawee  had  no  right  to  charge  the 
check  back  to  the  last  collecting  bank.  But 
when  the  last  collecting  bank  voluntarily 
refunded  the  money  to  drawee  by  crediting 
its  account,  the  rule  would  probably  operate 
that  payment  under  a  mistake  of  law,  with 
full  knowledge  of  facts,  cannot  be  recovered 
back  unless  the  refund  would  be  regarded 
as  made  under  mistake  of  mixed  law  and 
fact,  in  which  case  recovery  might  be 
allowed.  See  Ward  v.  Ward,  12  Ohio  Cir. 
Dec.  59.    {Inquiry  from  Wash.,  Dec,  1920.) 

When    is    forged    check    paid 

Credit  by  teller  in  depositor's  pass  book  as 
payment 

1566.  The  questions  are  asked:  If  a 
bank  teller  receives  a  number  of  checks 
from  a  depositor  and,  without  examining 
them,  enters  the  amount  which  he  finds  on  the 
deposit  sHp  in  the  pass  book  and  later  in  the 
day  finds  one  of  the  checks  is  drawn  on  his 
own  bank  and  is  forged,  is  the  bank  allowed 
to  charge  that  up  to  the  depositor?  Or,  if 
a  single  check  is  brought  in  with  a  forged 
signature,  and  the  teller  examines  it  and 
enters  it  on  the  pass  book  and  later,  before 
having  it  entered  on  the  ledger,  he  dis- 
covers the  forgery,  is  the  bank  responsible? 
Opinion:  Where  a  check  drawn  by  one 
depositor  is  presented  over  the  counter  by 
another  depositor  of  the  same  bank  and 
credited  by  the  teller  in  the  latter's  pass 
book,  the  courts  quite  generally  hold  such 
credit  is  equivalent  to  payment  and  ir- 
revocable. Amongst  a  number  of  cases 
where  credit  by  the  teller  in  the  pass  book 
of  one  depositor  of  the  overdrawn  check  of 
another  depositor  has  been  held  to  con- 
stitute payment,  the  same  as  if  the  cash  was 


drawn  out  and  redeposited,  see  City  Nat. 
Bank  v.  Burns,  68  Ala.  267.  Bryan 
V.  Bank,  205  Pa.  7,  54  Atl.  480.  Oddie  v. 
Nat.  City  Bank,  45  N.  Y.  735,  6  Am.  Rep. 
660.  It  would  seem  the  same  rule  would 
equally  applj'-  to  credit  of  the  amount  of  a 
forged  check  on  the  bank  in  the  pass  book 
of  the  depositor.  It  was  so  held  in  the  early 
case  of  Levy  v.  Bank,  1  Binney  27,  decided 
by  the  Supreme  Court  of  Pennsylvania  in 
1802.  The  rule  is  pretty  well  estabhshed 
that  credit  in  pass  book  is  a  pajnnent  and 
the  fact  of  non-eximaintion  before  credit 
would  not  make  any  difference.  {Inquiry 
from  Conn.,  March,  1920.) 

Forged  check  on  same  bank  received  on 
deposit 

1567.  A  bank  receives  on  deposit  a 
check,  drawn  on  the  depositing  bank,  on 
which  the  name  of  the  maker  was  forged. 
The  forgery  was  not  detected  until  later  on 
the  same  day,  when  it  was  returned  to 
depositor.  Has  the  bank  a  right  to  charge 
back  the  amount  on  the  ground  that  the 
check  had  not  been  paid?  Opinion:  The 
weight  of  authority  is  to  the  effect  that, 
when  the  credit  is  duly  given,  it  is  final  and 
irrevocable,  but  some  courts,  as  in  Califor- 
nia, hold  that  the  check  is  simply  received 
for  collection  and  that  the  bank  has  untU 
the  close  of  the  day  to  determine  whether 
the  check  is  good  and,  if  not,  can  charge  it 
back.  This  question  seems  not  to  have  been 
decided  in  South  Dakota  but,  according  to 
the  weight  of  authority,  the  check  was  paid 
and  the  rule  holding  the  drawee  bound 
would  apply.  {Inquiry  from  S.  D.,  March, 
1917.) 

Recovery    of    money    paid    on    forged 
indorsement 

Fact  that  payee  whose  name  forged  is  also 

customer  of  drawee  does  not  affect  ft 

recovery  ^ 

1568.  M,  a  customer  of  A  bank,  sent  to 
P,  another  customer  of  A  bank,  a  check  for 
$100  through  the  mail,  drawn  on  A  bank. 
A  son  of  P  obtained  possession  of  the  check, 
indorsed  the  name  of  P  thereto,  together 
with  his  own  name,  and  took  same  to  bank 
B,  which  cashed  it  for  him.  Bank  B  then 
sent  the  check  through  the  usual  channels, 
indorsed  "All  prior  indorsements  guaran- 
teed," and  bank  A  honored  same,  faihng  to 
discover  the  forged  indorsement  of  P.  Bank 
A  wishes  to  know  what  recourse  it  has 
against  bank  B.  The  son  of  P  is  now  in  the 
navy,  and  the  bank  also  wishes  to  know  if 


362 


FORGED  PAPER 


1569-1571 


it  can  take  steps  to  get  him  out  of  navy  for 
purpose  of  prosecution.  Opinion:  A  bank 
which  pays  a  check  upon  which  the  in- 
dorsement of  the  payee  is  a  forgery  has  a 
right  of  recovery  from  the  bank  receiving 
payment  (WeUington  Nat.  Bank  v.  Robbins, 
71  Kan.  748.  Corn  Exch.  Bank  v.  Nassau 
Bank,  91  N.  Y.  74.  Met.  Nat.  Bank  v. 
Loyd,  90  N.  Y.  530.  Produce  Exch.  Bank 
V.  Twelfth  Ward  Bank,  119  N.  Y.  S.  988), 
and  the  fact  that  the  paj^ee,  whose  name 
was  forged,  is  also  a  customer  of  the  drawee 
bank  does  not  affect  its  right  of  recovery, 
for  a  bank  is  only  bound  to  know  its  cus- 
tomer's signature  as  drawer  of  a  check,  and 
is  not  chargeable  with  knowledge  of  the 
genuineness  of  a  customer's  signature  where 
it  appears  as  indorser  on  a  check.  (First 
Nat.  Bank  v.  Northwestern  Nat.  Bank,  152 
111.  296.  Mo.  Lincoln  Trust  Co.  v.  Third 
Nat.  Bank,  154  Mo.  App.  89).  As  to  the 
forger,  the  first  step  to  take  is  to  have  him 
indicted  for  the  crime  of  forgery;  then  have 
the  prosecuting  attorney,  or  other  proper 
authority,  apply  to  the  Navy  Department 
for  his  surrender  to  the  civil  authorities  for 
trial.    {Inquiry  from  Ala.,  March,  1920,  Jl.) 

Recovery  where   lost  check   paid   on  forged 
indorsement  after  receipt  of  stop  order 
which  misdescribed  check 

1569.  The  payee  of  a  check  drawn  by  a 
corporation  X  on  bank  A  lost  it  and  notified 
the  drawer;  he  also  notified  A  to  stop  pay- 
ment, but  misdecribed  the  check,  stating  it 
was  drawn  by  a  concern  affiliated  with  X 
that  also  had  an  account  with  bank  A.  The 
payee's  indorsement  was  forged  and  the 
check  was  cashed  for  a  stranger  by  a  busi- 
ness firm  Z,  and  deposited  with  bank  B 
which  collected  from  A  several  days  after 
latter  had  been  notified  of  loss.  X  received 
the  cancelled  check  a  month  after  its  pay- 
ment, but  did  not  notify  drawee  of  forgery 
until  three  months  later.  A  asks  reimburse- 
ment. Opinion:  Z  having  cashed  the 
check  for  a  stranger  upon  the  forged  in- 
dorsement of  payee's  name  and  collected  the 
money  from  A,  the  drawee,  through  B, 
would  be  lial)le  to  refund  under  the  general 
rule  that  a  drawee  bank  may  recover  money 
paid  upon  a  forged  indorsement,  unless 
there  was  some  negligence  or  delay  on  the 
part  of  the  drawee  or  drawer  which  would 
preclude  such  recovery.  The  payee  does  not 
seem  to  be  guilty  of  any  responsible  negli- 
gence in  so  far  as  it  would  affect  Z's  liability, 
although  he  misled  bank  A  in  misdecribing 
the  check  which  would  probably  relieve  that 


bank  from  the  charge  of  negligence.  If  there 
was  any  neglect  of  duty  on  the  part  of  X,  by 
reason  of  the  three  months'  delay  in  notifica- 
tion, this  would  probably  not  be  available 
as  a  defense  to  Z  which  cashed  the  check  for 
a  stranger  on  a  forged  indorsement.  Z 
probably  would  be  held  liable  to  refund  the 
money  and  the  payee  would  be  entitled  to 
receive  it  from  the  drawer  X.  {Inquiry 
from  Ariz.,  May,  1918.) 

Procedure  where  check  never  received  by  payee 
paid  on  forged  indorsement 

1570.  A  sent  a  check  to  B  who  claims  he 
did  not  receive  it.  The  check  indorsed  with 
B's  name  came  in  due  course  through  clear- 
ings to  drawee  which  charged  amount  to 
A's  account  and  remitted  to  bank  C.  The 
indorsement  of  B  later  on  was  shown  to  be 
forged,  and  he  is  anxious  to  clear  himself 
from  accusation  of  having  received  the  check. 
Drawee  desires  to  know  what  would  be  the 
right  procedure.  Opinion:  The  indorse- 
ment of  B  having  been  shown  to  be  forged, 
the  drawee  would  have  no  right  to  charge 
amount  to  A's  account.  It  w^ould  be  well 
for  drawee  to  get  the  check  from  A,  attach 
thereto  an  affidavit  by  B  that  he  never 
indorsed  the  check,  and  then  make  demand 
for  return  of  money  from  C  If  that  bank 
refused  to  make  good,  drawee  could  sue  C 
for  return  of  money  and  prove  the  check 
was  collected  under  forged  indorsement. 
B's  testimony  that  the  signature  was  not 
his  would  establish  a  prima  facie  case,  and 
unless  C  could  prove  the  contrary,  and  that 
the  person  who  cashed  the  check  was  B, 
himself,  the  drawee  would  recover.  If  the 
check  was  given  by  A  for  money  owing  B, 
then  B,  not  having  received  same,  would, 
have  a  right  of  action  against  A.  {Inquiry 
from  Ariz.,  Jan.,  1920.) 

Unauthorized  indorsement  of  check  payable 
to  corporation 

1571.  A,  a  promoter  of  the  H  Company, 
sold  a  block  of  the  proposed  stock  to  B  who 
gave  him  his  check  for  it  payable  to  the  H 
Company  drawn  on  bank  C.  with  the  under- 
standing that  it  should  not  l)c  presented 
until  the  company  was  organized  and  had 
conferred  authority  on  some  officer  to  cash 
the  check  and  issue  stock  in  lieu  thereof. 
Before  this  was  done  A  indorsed  the  check 
"H  Company  by  A  vice  president,"  and 
cashed  it  at  bank  D,  an  officer  of  which 
knew  the  circumstances.  D  indorsed  "Pay 
to  any  bank  or  banker.  All  prior  indorse- 
ments guaranteed,"  and  received  payment 


363 


1572-1575] 


DIGEST  OF  LEGAL  OPINIONS 


from  C,  the  latter  charging  amount  to  B's 
account.  The  organization  of  the  company- 
was  never  completed  and  B  within  a  month 
after  receiving  paid  vouchers  discovered  the 
indorsement  made  by  A  was  void.  Through 
bank'C  he  immediately  asked  reimburse- 
ment from  D,  and  the  question  is  as  to  its 
liability.  Opinion:  Where  a  bank  acquires 
a  check  upon  which  the  indorsement  is 
unauthorized  it  is  obliged  to  refund  the 
money  the  same  as  if  the  indorsement  were  a 
forgery.  The  Negotiable  Instruments  Act 
provides  that  "Where  a  signature  is  forged 
or  made  without  the  authority  of  the  person 
whose  signature  it  purports  to  be,  it  is 
wholly  inoperative,  and  no  right  to  retain 
the  instrument,  or  to  give  a  discharge  there- 
for, or  to  enforce  payment  thereof  against 
an}  party  thereto,  can  be  acquired  through 
or  lender  such  signature  unless  the  party 
against  whom  it  is  sought  to  enforce  such 
right  is  precluded  from  setting  up  the  for- 
gery or  want  of  authority."  As  the  H 
Company  never  completed  its  organization, 
and  never  authorized  any  one  to  indorse  for 
it,  it  would  seem  to  be  a  clear  case  of  lia- 
bility of  bank  D  which  cashed  the  check  for 
A  and  collected  the  money  thereon  and  it 
should  refund  the  money.  The  fact  that  an 
oflScer  of  bank  D  knew  that  A  had  no  au- 
thority would  be  cumulative  evidence  of 
want  of  authority  but  even  if  this  were  not 
so,  as  the  corporation  had  never  completed 
its  organization,  there  was  nobody  who 
could  confer  authority  to  indorse,  and  even 
though  bank  D  might  have  believed  A  had 
authority,  this  would  not  relieve  it  from 
liability.     {Inquiry  from  Ida.,  Feb.,  1917.) 

Recovery  where  check  paid  before  receipt  of 
stop  order 

1572.  A  business  concern  drew  a  pay 
check  to  the  order  of  an  employe  which  the 
latter  did  not  receive,  and  the  next  day 
notified  the  drawee  bank  A  to  stop  pay- 
ment. The  check  in  the  meanwhile  had  been 
cashed  at  bank  B  by  C  and  paid  by  the 
drawee  which  later  returned  it  to  B  with 
request  for  reimbursement.  Opinion:  A 
bank  is  obliged  to  obey  the  stop-payment 
order  of  its  customer  and  if  it  pays  in  de- 
fiance of  such  order  it  cannot  charge  the 
amount  to  its  customer's  account  where  he  is 
prejudiced  by  the  payment.  This  is  so, 
although  there  is  no  question  of  forgery 
involved.  Had  A  received  the  stop-pay- 
ment before  it  had  paid  the  check,  it,  of 
course,  would  not,  have  paid  it,  and  B  would 
have  been  the  loser  unless  it  could  recover 


the  amount  from  C.  In  this  case  the  in- 
dorsement was  forged.  A,  therefore,  has 
recourse  upon  B,  as  a  bank  which  acquires  a 
check  upon  a  forged  indorsement  takes  no 
title  and  where  it  collects  the  amount  from 
the  drawee  it  must  refund.  (Inquiry  from 
Iowa,  Oct.,  1913.) 

Check  cashed  by  merchant  on  forged  indorse- 
7nent  and  collected  through  bank 

1573.  A  check  drawn  by  A  to  B's  order 
was  cashed  by  an  impostor  at  C's  store.  C 
deposited  it  with  bank  D  which  collected 
from  the  drawee  bank.  B  denies  ever 
having  seen  the  check  and  claims  the  in- 
indorsement  purporting  to  be  his  a  forgery. 
The  question  is — who  bears  the  loss?  Opin- 
ion: The  payor  bank  has  a  right  of  re- 
covery of  the  money  paid  on  a  forged  in- 
dorsement from  the  person  to  whom  paid. 
D  would  be  compelled  to  refund  the  money 
received  on  the  check,  but  in  turn  has  the 
right  to  charge  the  amount  back  to  C's 
account.  The  latter  by  indorsing  the  check 
warranted  to  bank  D  that  the  prior  indorse- 
ment was  genuine  and  is  liable  to  it  for  a 
breach  of  this  warranty,  and  is,  therefore, 
the  loser.     {Inquiry  from  Md.,  Jan.,  1917.) 

Recovery   by   drawee  from   holder   receiving 
payment  under  forged  indorsement 

1574.  A  drew  a  check  payable  to  B.  A 
person,  who  was  supposed  to  be  B,  indorsed 
it  and  gave  it  to  C  who,  after  indorsing  it, 
took  it  to  the  drawee  bank  D,  where  he 
received  cash  for  it.  When  A's  account  was 
balanced  he  declared  the  first  indorsement  a 
forgery.  The  bank  desires  to  know  where 
it  stands  as  to  payment.  Opinion:  It  is  the 
well-settled  rule  that,  where  a  bank  pays  a 
check  upon  which  the  indorsement  of  the 
payee  is  forged,  there  is  a  right  of  recovery 
from  the  person  receiving  payment.  In  this 
case  bank  D  would  have  a  right  of  action 
against  C,  and,  if  the  latter  was  irresponsible 
the  bank  would  be  the  loser.  If  C  was  in 
collusion  with  the  forger  he  would  be  crimi- 
nally liable.  {Inquiry  from  N.  J.,  March, 
1918.) 

Forgery  of  indorsee's  name  on  foreign  draft 

1575.  A  foreign  draft  drawn  on  bank  A, 
payable  to  Doe  &  Co.,  was  indorsed  by 
latter  to  B.  It  was  paid  by  A  to  bank  C 
which  presented  it  for  payment,  but  did 
not  guarantee  indorsements.  A  month 
afterward  B  informed  bank  A  that  the 
indorsement  purporting  to  be  his  was  a 
forgery.     The  question  is,  has  A  recourse 


364 


FORGED  PAPER 


[1576-1581 


upon  bank  C?  Opinion:  A  bank  which 
pays  a  check  or  draft  upon  which  an  indorse- 
ment is  a  forgery  has  a  right  to  recover  from 
the  holder  receiving  payment.  Muller  v. 
National  Bank  of  Cortland,  96  N.  Y.  App. 
Div.  71.     (Inquiry  from  N.  Y.,Feb.,  1913.) 

Forgery  of  indorsement  "John  Doe,  Treasurer" 

1576.  A  draws  a  check  payable  to  the 
order  of  "John  Doe,  Treas."  and  mails  it  so 
addressed.  The  check  bearing  the  indorse- 
ments "John  Doe,  Treas."  and  "Peter  Doe" 
was  cashed  for  the  latter  person  by  bank  B 
which  collected  from  drawee.  Afterwards 
one  Joseph  Doe  claimed  that  the  check  was 

V.  intended  for  him  and  that  the  indorsement 
'i  "John  Doe,  Treas."  on  the  check  was  a 
forgery.  Is  B  liable?  Opinion:  If  it  is 
proved  that  the  indorsement  "John  Doe, 
Treas."  is  a  forgery,  bank  B,  having  received 
payment  of  a  check  to  which  it  had  no  title, 
would,  of  course,  be  liable  for  the  amount. 
(Inquiry  from  N.  D.,  Aug.,  1919.) 

Unauthorized   indorsement   of  corporation's 
name  by  treasurer 

1577.  C  drew  a  check  on  bank  E,  pay- 
able to  a  corporation  A,  and  gave  it  to  B, 
the  latter's  agent,  who  fraudulently  in- 
dorsed the  corporation's  name,  per  himself 
as  treasurer,  and  received  cash  for  check 
from  bank  D  which  bank  collected  from  E. 
The  inquiry  is  as  to  the  status  of  the  parties. 
Opinion:  The  check  having  been  paid  upon 
an  unauthorized  indorsement,  the  drawee, 
bank  E,  cannot  charge  the  same  to  the 
drawer  C.  The  ultimate  loser  will  be  bank 
D  which  cashed  the  check  for  the  fraudulent 
agent.    (Inquiry  from  Ohio,  May,  1916.) 

Drawee  cannot  charge  drawer  but  may  recover 
from  holder 

1578.  Where  a  check  on  which  the 
payee's  indorsement  is  forged  is  cashed  by  a 
merchant,  is  deposited  in  a  bank  and  col- 
lected of  the  drawee,  the  latter  cannot 
charge  payment  to  the  drawer,  but  has  the 
right  of  recovery  from  the  l)ank  receiving 
payment  which  in  turn  has  recourse  upon 
the  merchant.  The  elapsing  of  several  days 
before  discovery  of  the  forgery  would  not  af- 
fect the  right  of  recovery  where  prompt  no- 
tice was  given.  Russell  v.  First  Nat.  Bk. ,  56 
So.  (Ala.)  868.  Jordan  Marsh  Co..  v  Nat. 
Shawmut  Bk.,  87  N.  E.  (Mass.)  740.  Wel- 
lington Nat.  Bk.  v.  Bobbins,  71  Kan.  748. 
Second  Nat.  Bk.  v.  Guarantee  T.  &  S.  D. 
Co.,  206  Pa.  616.  (Inquiry  from  Okla.,  Oct., 
1913,  Jl.) 


Collecting  bank  must  refund 

1579.  A  check  drawn  by  A  to  the  order 

of  B  on  bank  C  was  sent  to  the  latter  by  an 
out-of-town  bank  D  which  indorsed  "For 
collection  only."  As  the  payee  is  unknown 
to  the  drawee  bank  it  inquires  as  to  whether 
bank  D's  indorsement  would  be  a  guarantee 
of  B's  indorsement.  Opinion:  As  bank  C 
knows  the  signature  of  the  maker,  it  could 
safely  pay  the  check,  for,  if  the  indorsement 
of  the  payee  was  a  forgery,  the  sending  bank 
would  be  bound  to  refund  the  money.  Al- 
though it  had  made  no  special  guarantee  of 
genuineness  of  the  prior  indorsement,  still, 
if  it  had  collected  money  upon  an  instrument 
bearing  a  forged  indorsement,  it  would  be 
bound  to  refund.  (Inquiry  from  Okla.,  Jan., 
1919.) 

Charge  to  customer's  account  of  check  cashed 
for  him  on  forged  indorsement 

1580.  A  bank  which  cashes  for  the 
second  indorser,  who  is  its  customer,  a 
check  upon  which  the  payee's  indorsement 
is  forged  has  the  right  to  charge  the  amount 
to  the  customer's  account.  (Inquiry  from 
Pa.,  Oct.,  1909,  Jl.) 

Recovery  of  payment  made  after  stop  order 
received  describing  another  check 

1581.  A  drew  a  check  on  bank  B  in  favor 
of  C  who  lost  it.  It  was  cashed  at  D's  store 
and  deposited  with  bank  E.  The  latter 
collected  from  drawee  which  had  been  noti- 
fied b}'-  A  to  stop  payment  on  a  check  issued 
to  F.  Ten  days  after  pa>Tnent  A  notified 
bank  B  that  the  check  to  C  had  been  nego- 
tiated by  an  unauthorized  person  and  de- 
manded reimbursement.  The  question  is — 
upon  whom  does  the  rcsponsibihty  rest? 
Opinion:  The  payment  of  the  check  in 
question  was  not  stopped,  and  if  C's  indorse- 
ment was  forged  and  B  gave  notice  to  bank 
E  as  soon  as  notified  by  its  depositor,  which 
was  ten  days  after  payment,  this  would 
prolmbly  be  held  reasonable  time  and  bank 
B  would  have  recourse  upon  l)ank  E  which, 
in  turn,  would  have  recourse  upon  its  own 
customer  D.  But  if  it  should  I)e  the  fact 
that  C's  name  was  not  forged,  but  that  he 
had  indorsed  the  check  in  blank  and  then 
lost  it,  and  it  was  cashed  for  the  finder  by  a 
bona  fide  holder,  then  payment  would  be 
chargeable  to  B's  depositor  A,  and  not  re- 
coveral)lc  by  it  from  bank  E,  and  C  would 
be  the  loser.  (Inquiry  from  Pa.,  June, 
1916.) 


365 


il 


1582-1586] 


DIGEST  OF  LEGAL  OPINIONS 


Recovery  from  express  company 

1582.  A  check  payable  to  a  firm  whose 
indorsement  was  forged  was  paid  to  an  ex- 
press company  by  a  bank  after  it  had  tele- 
phoned the  maker.  Opinion:  The  bank 
cannot  charge  the  amount  to  the  drawer's 
account  unless  the  latter  was  negligent  in 
giving  notice  after  the  discovery  of  the  for- 
gery. The  bank  has  a  right  of  recovery 
against  the  express  company,  provided  the 
indorsement  to  the  latter  was  in  unrestricted 
form.  Cunningham  v.  First  Nat.  Bk.,  219 
Pa.  310.  Second  Nat.  Bk.  v.  Guarantee  T. 
&  S.  D.  Co.,  206  Pa.  616.  First  Nat.  Bk.  v. 
Northwestern  Nat.  Bk.,  152  111.  296.  Wel- 
lington Nat.  Bk.  V.  Robbins,  71  Kan.  748. 
Nat.  Park  Bk.  v.  Seaboard  Bk.,  -114  N.  Y. 
28.    (Inquiry  from  Pa.,  Nov.,  1916,  Jl.) 

Dispute  as  to  authority  for  indorsement 

1583.  A  bank  has  received  payment  of  a 
check  indorsed  with  the  payee's  name  by 
another  and  has  guaranteed  the  indorse- 
ment. There  is  a  dispute  as  to  the  authority 
for  the  indorsement.  Opinion:  If  the  in- 
dorsement was  authorized,  the  bank  would 
not  be  responsible  to  any  one.  If  unau- 
thorized, it  would  be  liable  to  the  payor  bank 
which,  having  paid  the  check  to  one  not 
authorized  by  the  payee,  could  not  charge 
the  amount  to  the  drawer's  account  and 
would  have  a  right  of  action  against  the 
bank  for  having  received  its  money  without 
consideration.  If,  however,  the  indorse- 
ment was  authorized,  as  the  bank's  cus- 
tomer claims,  there  is  no  liability.  Further- 
more, if  the  contrary  should  prove  the  case 
and  the  bank  was  held  liable,  it  would  be 
entitled  to  reimbursement  from  its  customer. 
(Inquiry  from  S.  C,  May,  1914.) 

Recovery  by  drawee 

1584.  A  bank  which  cashes  a  check 
bearing  the  forgery  of  the  payee's  indorse- 
ment acquires  no  title,  and  where  it  receives 
payment  from  the  drawee  must  refund.  (In- 
quiry from  Tenn.,  July,  1913,  Jl.) 

Grounds    upon    which    drawee   may    recover 
money  paid  on  forged  indorsement 

1585.  A  bank  received  from  a  Texas 
bank  for  collection  a  check  drawn  on  it 
and  the  amount  was  immediately  remitted. 
A  few  weeks  later  it  was  discovered  that  the 
payee's  indorsement  had  been  forged  and 
an  affidavit  to  that  effect  was  immediately 
sent  to  the  sending  bank  with  request  for 
refund,  which  was  refused.    Opinion:    The 


law  is  clear  that  a  bank  or  person  acquiring 
a  check  upon  which  the  payee's  indorsement 
is  forged  takes  no  title  and  where  pajnnent 
has  been  received  from  the  drawee  is  liable 
to  refund.  It  is  not  a  case  of  forgery  of  the 
drawer's  signature  as  to  which  the  drawee 
might  be  responsible  but  a  case  of  forgery 
of  the  payee's  indorsement  concerning 
which  the  drawee  knows  no  more  than 
the  holder.  Different  courts  adjudge  re- 
covery upon  two  grounds:  (1)  that  the 
bank  receiving  payment  warrants  the  genu- 
ineness of  the  prior  indorsement,  (2)  that  the 
bank  receiving  payment  has  received  money 
under  mistake  of  fact  without  consideration 
which  the  law  implies  a  contract  to  repay. 
(Inquiry  from  Tenn.,  Sept.,  1913.) 


Recovery   of 


money   paid   on 
indorsement 


unauthorized 


1586.  John  Doe  gives  his  check  to 
Richard  Roe.  It  was  indorsed  as  follows: 
"Richard  Roe,  by  S.  E.  T.",  "Pay  to  the 
order  of  any  bank,  banker  or  trust  company, 
Bank  of  Smallville,  Washington,"  "Pay  to 
any  bank,  banker  or  trust  company,  Bank 
of  Oregon,  Portland,  Oregon,"  and  mailed 
by  the  latter  to  the  drawee  for  collection  and 
credit.  It  developed  later  that  "S.  E.  T." 
had  no  authority  to  indorse.  On  whom  does 
the  loss  fall?  Opinion:  The  drawee  paying 
the  check  upon  which  the  payee's  indorse- 
ment was  unauthorized  may  recover  the 
money  from  the  party  receiving  payment, 
unless  there  was  unreasonable  delay  in 
giving  notice  after  discovery  of  the  forged 
or  unauthorized  indorsement.  There  is  con- 
flict of  authority  whether  indorsement  "Pay 
any  bank  or  banker"  is  general  or  restrictive. 
There  is  a  line  of  cases  to  the  effect  that  said 
form  of  indorsement  is  not  title-conveying 
but  restrictive  and  agent-creating,  and  does 
not  of  itself  guarantee  prior  indorsements. 
The  courts  in  Massachusetts,  Georgia  and 
Missouri  hold  this  view.  A  Nebraska  case 
held  such  form  of  indorsement  not  a  restric- 
tive but  a  general  indorsement,  or  title-con- 
veying form,  and  this  rule  is  supported  by 
the  better  reason.  Under  either  rule  the 
Bank  of  Smallville  is  the  ultimate  loser, 
provided  it  received  prompt  notice  of  the 
error.  Nat.  Bk.  of  Commerce  v.  Bosse- 
meyer,  162  N.  W.  (Neb.)  503.  Corn  Exch. 
Bk.  V.  Nassau  Bk.,  91  N.  Y.  74.  Nat.  Exch. 
Bk.  V.  U.  S.,  151  Fed.  402.  Cunningham  v. 
First  Nat.  Bk.,  68  Atl.  (Pa.)  731.  McNeeley 
Co.  V.  Bk.  of  North  America,  70  Atl.  (Pa.) 
891.  First  Nat.  Bk.  of  Minneapohs  v.  City 
Nat.  Bk.  of  Holyoke,  182  Mass.  130.    Bk. 


366 


4 


FORGED  PAPER 


[1587-1590 


of  Ind.  Ter.  v.  First  Nat.  Bk.,  109  Mo.  App. 
665.  First  Nat.  Bk.  v.  Savannah  Bk.  &  Tr. 
Co.,  68  S.  E.  (Ga.)  872.  {Inquiry  from  Wash., 
Aug.,  1917,  Jl.) 

Forgery  of  indorsement  of  railway  pay  check 

1587.  In  March  a  bank  customer  cashed 
a  railway  pay  check  on  which  the  indorse- 
ment was  forged.  It  was  deposited  and  in 
due  course  paid  by  the  drawee.  In  July  the 
check  was  returned  by  the  drawee,  with 
affidavit  by  the  payee  that  he  never  received 
the  check  and  that  indorsement  of  his  name 
was  a  forgery.  The  customer  refunded  the 
money.  Would  not  delay  in  giving  notice 
of  forgery  make  either  the  railway  company 
or  the  drawee  liable  here?  Opinion:  The 
customer,  having  cashed  the  check  on  a 
forged  indorsement,  and  collected  same 
through  his  bank,  would  be  the  loser  in  such 
case,  unless  there  was  some  responsible 
negligence  on  the  part  of  the  payor  bank,  or 
the  railway  company,  which  would  work  an 
estoppel.  The  check  was  cashed  in  March 
and  returned  in  July.  The  bank  which  paid 
the  check  in  March  would  have  a  right  of 
recovery,  provided  that  after  the  discovery  of 
the  forgery,  and  notice  to  them  by  the  railway 
company,  they  gave  prompt  notice  thereof. 
There  is  no  known  rule  of  law  which  would 
make  it  the  duty  of  the  railway  to  immedi- 
ately discover  that  an  indorsement  was 
forged.  Upon  the  whole  case  stated  the  cus- 
tomer is  undoubtedly  responsible  and  having 
already  refunded  the  money,  there  is  nothing 
further  that  he  could  do  in  the  matter 
beyond  effecting  the  apprehension  of  the 
forger.     {Inquiry  from  Wis.,  Aug.,  1919.) 

Non-recovery  of  money  paid  on  forged 
indorsement 

Liability  of  drawer  to  payee  of  lost  draft  on 
German  hank  paid  on  forged  indorsement 

1588.  An  Ohio  bank  drew  its  draft  upon 
a  German  bank,  payable  to  A.  The  draft 
was  paid  by  the  drawee  upon  a  forged  in- 
dorsement. A  claims  that  neither  the  draft 
nor  its  proceeds  were  ever  received  by  her, 
and  demands  refund  of  the  purchase  money 
from  the  Ohio  bank.  Opinion:  Under  the 
German  law  the  paying  drawee  is  not  re- 
sponsible for  the  genuineness  of  indorse- 
ments. Had  the  payee  received  this  draft 
over  the  counter  of  the  Ohio  bank,  she  would 
be  the  loser.  Assuming  the  draft  was  for- 
warded by  mail  to  and  never  received  by  the 
payee,  the  question  of  responsibility  would 
depend  upon  whether  the  method  of  for- 
warding was  by  her  authority.    If  author- 


ized, the  risk  of  miscarriage  would  rest 
with  the  purchaser;  but  if  forwarded  at  the 
risk  of  the  bank,  it  would  remain  liable  for 
a  consideration  never  delivered.  German 
Law  on  Bills  of  Exch.,  7  Art.  36.  German 
Check  Law  of  1908,  Art.  14.  English  Bills 
of  Exch.  Act,  Sec.  60.  Roth  v.  Travellers' 
Prot.  Assn.,  115  S.  W.  (Tex.)  31.  Gaar  v. 
Taylor,  128  Iowa  636.  30  Cyc.  1186.  {In- 
quiry from  Ohio,  Feb.,  1913,  Jl.) 

Non-recovery  from  agent  bank  after  payment 
of  proceeds  to  principal 

1589.  A  drew  a  check  in  favor  of  B  on 
bank  C  and  mailed  it  to  B's  agent,  D.  The 
latter  forged  the  payee's  indorsement  and 
indorsed  his  own  name  underneath.  Bank 
E  took  the  check  from  him  for  collection  and 
made  the  notation  after  its  indorsement, 
"This  item  is  taken  for  collection  by  us 
from  parties  who  are  strangers  to  us."  The 
drawee  bank  paid  the  check,  and  bank  E 
then  paid  the  amount  to  D.  As  between  C 
and  E,  which  must  suffer  the  loss?  Opinion: 
Bank  E,  although  it  indorsed  its  name  on  the 
check,  coupled  that  indorsement  with  a 
plain  statement  that  the  item  was  taken  for 
collection  from  strangers.  This  was  plain 
notice  to  the  drawee  that  bank  E  was  agent 
and  not  owner.  Under  the  Negotiable  In- 
struments Act  an  indorser  warrants  genuine- 
ness only  to  subsequent  holders  in  due 
course,  and  the  definition  of  a  holder  in  due 
course  provided  by  that  Act  excludes  the 
drawee.  Therefore,  bank  C  would  not  have 
the  status  of  a  holder  in  due  course.  The 
remed}^  of  a  drawee  bank  which  pays  a  check 
upon  which  the  payee's  indorsement  has 
been  forged  is  against  the  owner  receiving 
payment  for  money  paid  without  considera- 
tion. If  bank  E  appeared  as  the  actual  or 
apparent  owner,  it  would  be  liable  to  the 
drawee  bank  to  refund  the  money,  but  ap- 
pearing as  agent  by  its  own  plain  notice  on 
the  paper,  the  drawee  bank,  it  would  seem, 
must  look  beyond  it  to  its  principal.  {In- 
quiry frojii  Ohio,  Aug.,  1913.) 

Non-recovery  by  drawee  of  money  paid  on 
forged  indorsement  of  stopped  check 

1590.  A  received  a  check  from  C,  drawn 
on  a  bank  of  S,  which  check  was  lost,  and 
found  by  an  unknown  person  who  forged  the 
indorsement  of  A  and  had  it  cashed  by  B 
In  due  course  the  check  was  presented  to 
bank  of  S  and  honored.  In  the  interim  a 
stop-pajonent  order  had  been  issued  by  the 
drawer  and  a  duphcate  check  issued  to  A. 
The  drawee  bank  overlooked  the  stop-pay- 


367 


1591-1594] 


DIGEST  OF  LEGAL  OPINIONS 


ment  order,  and  likewise  honored  the  dupH- 
cate  check.  Bank  wishes  to  know  if  B  is 
hable  on  the  original  check  on  which  the 
name  of  A  had  been  forged;  also  if  failure  of 
drawee  bank  to  obey  stop-payment  order 
would  change  the  status  of  the  case.  Opin- 
ion: The  general  rule  is  that  where  a  check 
has  been  lost  and  is  paid  by  the  drawee 
bank  on  a  forged  indorsement,  the  latter  has 
a  right  of  recovery  from  the  person  receiving 
payment;  but  where,  before  making  pay- 
ment, the  drawee  has  received  a  stop-pay- 
ment order,  which  is  disregarded,  this,  ac- 
cording to  decisions  in  Oklahoma  precludes 
the  drawee  from  recovering.  (Nat.  Bank 
of  Commerce  v.  First  Nat.  Bank  of  Coweta 
[Okla.  1915]  152  Pac.  596.)  {Inquiry  from 
Okla.,  May,  1920,  Jl) 

Statute    of   limitations    as    applied    to 
forged  indorsement 

California  statute  of  limitations  of  actions 
upon  "forged  or  raised  checks" 

1591.  A  bank  paid  a  check  which  bore 
a  forged  indorsement.  A  year  and  two 
months  later  it  was  notified  of  such  forgery. 
A  statute  in  California  provides  a  one  year 
limitation  for  the  commencement  of  an  ac- 
tion "by  a  depositor  against  a  bank  for  the 
payment  of  a  forged  or  raised  check."  The 
bank  is  uncertain  as  to  whether  said  statute 
covers  forged  indorsements.  Opinion:  A 
New  Jersey  case  holds  that  such  a  statute 
applies  to  forged  indorsements,  but  it  is 
doubtful  whether  the  courts  will  construe 
the  statute  in  California  to  cover  forged 
indorsements.  It  is  probable  that  it  was 
the  intention  that  the  statute  should  apply 
to  a  check  bearing  forgery  of  drawer's  signa- 
ture, or  to  a  raised  check,  and  that  the  limi- 
tation applies  to  depositors  who  are  negli- 
gent in  failing  to  discover  the  forgery  or 
alteration  and  notify  the  bank.  Cal.  Code 
of  Civ.  Proc,  Sec.  340  (3).  Ore.  Laws 
(1911),  Sec.  4575  a.  N.  Y.  Consol.  Laws 
(1909),  Sec.  326,  p.  5528.  Pratt  v.  Union 
Nat.  Bk.,  75  Atl.  (N.  J.)  313.  Bowling  v. 
U.  S.,  41  App.  D.  C.  11.  N.  J.  Neg.  Inst. 
A.,  Sec.  189  a.  Kirby  v.  State,  1  Ohio  St.  185. 
(Inquiry  from  Cal,  Feb.,  1919,  Jl.) 

New  Jersey  statute  of  limitations  of  actions 
upon  "forged  or  raised  checks" 

1592.  A  bank  paid  a  check  with  a  forged 
indorsement.  The  question  is  asked — how 
long  after  such  payment,  or  the  return  of 
the  check  to  the  maker,  has  the  maker  a 
right  of  action  for  the  recovery  from  the 
paying  bank?    Opinion:  Where  a  bank  pays 


a  check  upon  a  forged  indorsement  and  re- 
turns the  item  to  the  depositor  as  a  paid 
voucher,  the  latter's  right  of  action  for  the 
deposit,  in  the  absence  of  specific  statute 
upon  the  subject,  does  not  accrue  until  de- 
mand is  made,  and  the  statute  of  limitations 
does  not  begin  to  run  until  the  bank  is  in 
default,  unless  the  bank  has  disclaimed  lia- 
bihty  so  as  to  make  demand  unnecessary,  in 
which  case  right  of  action  would  accrue  at 
time  bank  is  in  default  by  such  denial  and 
would  be  barred  within  six  years.  New  Jer- 
sey and  a  large  number  of  other  states  have 
passed  the  following  statute:  "No  bank 
shall  be  liable  to  a  depositor  for  the  payment 
by  it  of  a  forged  or  raised  check,  unless 
within  one  year  after  the  return  to  the  de- 
positor of  the  voucher  of  such  payment  such 
depositor  shall  notify  the  bank  that  the  check 
so  paid  was  forged  or  raised."  It  is  doubtful 
whether  this  statute  will  be  held  to  apply  to 
actions  by  a  depositor  against  his  banker  for 
money  paid  on  checks  bearing  forged  indorse- 
ments. {Inquiry  from  N.  J.,  April,  1918,  Jl.) 

1593.  There  is  a  statute  in  New  Jersey 
which  limits  the  liability  of  a  bank  to  its 
depositor  for  the  pajnnent  of  forged  or  raised 
checks  to  one  year  after  the  return  of  the 
voucher,  unless  notice  is  given  the  bank. 
A  certain  New  Jersey  decision  seems  to  take 
the  view  that  this  statute  covers  the  pay- 
ment of  a  check  upon  a  forged  indorsement, 
but  the  point  was  not  positively  decided  and 
such  statute  has  not  been  generally  under- 
stood to  cover  forged  indorsements  as  dis- 
tinguished from  forged  or  raised  checks. 
N.  J.  Neg.  Inst.  A.,  Sec.  189  a.  Pratt  v. 
Union  Nat.  Bk.,  75  Atl.  (N.  J.)  312.  {In- 
quiry from  N.  J.,  Oct.,  1911,  Jl.) 

Recovery    where    indorsement 
guaranteed 

Recovery  by  drawee  from  guaranteeing  bank 

1594.  A  drawee  bank  paid  a  check 
bearing  forgery  of  the  payee's  signature  to 
the  collecting  bank,  which  had  guaranteed 
all  prior  indorsements.  Thirty  days  elapsed 
before  the  drawer  notified  the  drawee  of  the 
forgery  and  the  drawee  in  turn  promptly 
notified  the  bank  receiving  payment,  which 
bank  refused  to  refund.  Opinion:  The 
drawee  bank  has  a  right  of  recovery  from 
the  collecting  bank  and  the  fact  that  30  days 
elapsed  before  notice  of  the  forgery  was 
given  to  the  collecting  bank,  such  bank  hav- 
ing been  notified  as  soon  as  the  forgery  was 
discovered,  does  not  bar  the  right  of  re- 
covery. The  rule  is  that  notice  should  be 
given  within  a  reasonable  time  after  the 


368 


FORGED  PAPER 


[1595-1599 


» 


forgery  has  been  discovered.  First  Nat.  Bk. 
V.  Northwestern  Nat.  Bk.,  152  111.  296. 
WelHngton  Nat.  Bk.  v.  Robbins,  71  Kan. 
748.  Second  Nat.  Bk.  v.  Guarantee  T.  & 
S.  D.  Co.,  56  Atl.  (Pa.)  72.  Corn  Exch.  Bk. 
V.  Nassau  Bk.,  91  N.  Y.  74.  Nat.  Exch.  Bk. 
V.  U.  S.,  151  Fed.  402.  {Inquiry  from  Ark., 
April,  1918,  Jl.) 

Guarantee  of  indorseme  nt  does  notwarrant 
genuineness   of  drawer's   signature 

1595.  A  check  on  A  bank,  payable  to 
and  indorsed  in  blank  by  D,  followed  by 
indorsement  of  R,  to  order  of  Bank  of  B,  and 
indorsed  by  latter  "Previous  indorsements 
guaranteed,"  was  paid  to  B  bank.  Drawer 
pronounces  check  a  forgery.  Opinion :  The 
drawee  cannot  hold  B  bank.  Money  paid 
upon  forged  check  cannot  be  recovered  from 
a  bona  fide  holder  who  received  payment. 
The  guaranty  of  prior  indorsements  does 
not  warrant  genuineness  of  drawer's  signa- 
ture. Woods  V.  Colony  Bk.,  114  Ga.  683. 
{Inquiry  from  Fla.,  June,  1911,  Jl.) 

Drawee  liable  to  drawer  hut  may  recover  on 
guaranty 

1596.  Where  C  bank  draws  its  draft  on 
G  bank  in  favor  of  D.  F.  Co.,  and  the  in- 
dorsement of  the  payee  is  forged  and  the 
draft  deposited  in  H  bank,  which  guaran- 
tees the  indorsement  and  collects  from  the 
drawee  through  I  bank,  C  bank,  on  learning 
of  the  forgery  six  months  later,  has  the  right 
of  recovery  against  drawee  G,  which  in  turn 
has  remedy  against  I  and  H  banks,  the 
latter  being  the  ultimate  loser.  Murphv  v. 
Metropolitan  Nat.  Bk.,  191  Mass.  "159. 
Critten  v.  Chemical  Nat.  Bk.,  171  N.  Y.  219. 
{Inquiry  from  Ky.  Sept.,  1908,  Jl.) 

Liability    of   bank    upon   guaranty 

1597.  A  check  payable  to  the  order  of  A 
was  indorsed  by  B  under  payee's  name  and 
cashed  for  him  by  a  merchant  C  who  in- 
dorsed and  deposited  it  with  bank  D.  From 
there  it  was  sent  to  bank  E  which  sent  it  to 
bank  F,  the  latter  collecting  from  the  drawee 
bank,  all  the  banks  guaranteeing  prior  in- 
dorsements. The  payee  subsequently  made 
affidavit  that  the  indorsement  was  not  his 
or  authorized  by  him,  and  F  credited  the 
drawer  bank  with  the  amount.  Bank  D 
refused  to  refund,  stating,  as  a  reason,  that 
its  depositor  C  stood  ready  to  defend  any 
action  brought  upon  the  check.  The  inquiry 
is  as  to  whether  bank  D's  position  is  tenable. 
Opinion:  If  the  indorsement  of  A  is  forged, 
or  made   without   his   authority,    C,    who 


cashed  the  check,  would  be  the  loser.  Banks 
D  and  E  having  guaranteed  prior  indorse- 
ments, E  should  allow  F  to  charge  the 
amount  back  to  it  and  in  turn  should  be 
allowed  to  charge  back  to  D  which  should 
charge  the  amount  back  to  its  depositor  C. 
Under  the  circumstances  the  proper  proce- 
dure would  seem  to  be  to  bring  suit  against 
bank  D  upon  its  guaranty.  If  the  indorse- 
ment is  not  authorized  or  is  a  forgery,  re- 
covery is  certain,  {Inquiry  from  Alass., 
June,  1917.) 

Recourse  of  drawee  upon  remote  guarantor 
1598.     A  check  drawn  on  the  T 


Trust  Company,  with  the  forged  indorse- 
ment of  the  payee,  was  deposited  for  col- 
lection with  the  C Trust  Company. 

This  trust  company  indorsed  the  check  to 

the  U Bank  of  Boston,   using  the 

regular  form  of  indorsement  stamp  with  the 
words    "Prior    indorsements    guaranteed." 

The  U Bank  of  Boston  collected  the 

amount  of  the  check  from  the  T Trust 

Company  and  later  discovered  the  forgery. 

May  the  T Trust  Company  recover 

from  the  C Trust  Company  on  its 

guaranty?     Opinion:    Whether  or  not  the 

T Trust  Company  has  recourse  upon 

the    C Trust    Company    upon    its 

guaranty,  involving  the  question  whether  a 
special  guaranty  of  indorsement  operates  in 
favor  of  another  than  the  immediate  in- 
dorsee, the  T Trust  Company  would 

have  a  right  of  recovery  from  the  C- 


Trust  Company  on  the  ground  that  the 
latter  collected,  through  an  agent,  namely, 
theU  bank,  money  of  the  T Trust  Com- 
pany upon  a  check  to  which  it  had  no  title 
which  money  it  is  bound  to  refund.  Or  if, 
the  U  bank  still  holds  the  proceeds  there 
would  be  a  direct  action  against  it  and  in 
such  case  the  U  bank  would  have  recourse 

upon   C Trust   Company  upon   its 

guaranty.   {Inquiry  from  Mass.,  Feb.,  1921.) 

Recovery  upon  guaranty  where  payee's  in- 
dorsement irregular 

1599.  A  check  drawn  on  bank  A  to  the 
order  of  John  Doe  is  indorsed  "John  A. 
Doe"  with  the  initials  C.  D.  written  under 
Doe.  The  check  was  paid  by  A  to  bank  B 
which  had  indorsed  "Prior  indorsements 
guaranteed."  The  drawer  claims  that 
John  Doe  did  not  get  the  money  or  credit. 
The  question  is — Can  A  collect  from  B? 
Opinion:  A  would  have  a  right  of  recovery 
from  B  in  case  the  indorsement  of  the  payee 
was  unauthorized.     The  fact  that  the  in- 


369 


1600-1603] 


DIGEST  OF  LEGAL  OPINIONS 


dorsement  was  irregular  or  faulty  would  not 
estop  it  from  recovering,  as  such  indorse- 
ment was  expressly  guaranteed  by  B  and  A 
has  a  right  to  rely  on  such  guaranty.  {In- 
quiry from  N.  H.,  March,  1920.) 

Agent  hank   not   liable   after  proceeds   paid 

principal    unless    hank    has    specially 

guaranteed  forged  indorsement 

1600.  The  payee's  indorsement  on  a 
check  drawn  on  bank  A  was  forged  by  B 
who  gave  it  to  C.  Bank  D  took  it  for  col- 
lection, indorsed  "All  prior  indorsements 
guaranteed"  and  sent  it  to  bank  E  which 
collected  from  A,  and,  under  instructions 
from  bank  D,  paid  the  money  to  C.  Bank 
E  repaid  A  and  looked  to  D  for  reimburse- 
ment. The  question  is — Are  all  the  indors- 
ers  held  for  any  length  of  time,  and  would 
bank  D  have  been  relieved  from  liability  if 
it  had  placed  on  the  check  a  quahfied  in- 
dorsement instead  of  the  one  it  did?  Opin- 
ion: Bank  E  can  recover  from  Bank  D. 
By  expressly  guaranteeing  the  indorsement, 
D  made  itself  liable  as  warrantor  of  the  gen- 
uineness of  the  payee's  signature.  If  D  had 
not  put  on  this  special  guaranty  it  still 
would  have  been  liable,  except  if  C  had  in- 
dorsed it  for  collection,  so  as  to  show  that 
D  was  agent  and  not  owner,  it  would  not 
have  been  liable  after  payment  over  of  the 
proceeds  to  the  principal,  in  the  absence  of 
special  guaranty.  In  other  words,  where 
the  owner,  real  or  apparent,  of  a  check  upon 
which  the  payee's  indorsement  is  forged, 
collects  the  check  from  the  drawee,  whether 
directly  or  through  an  agent,  the  owner  is 
responsible  to  the  drawee  to  return  the 
money.  But  the  law  is  that  an  agent  who 
collects  the  check  is  not  responsible,  unless 
he  specially  guarantees,  after  the  proceeds 
have  been  turned  over  to  his  principal. 
Mere  delay  in  discovering  the  forgery  does 
not  affect  the  drawee's  right  of  recovery. 
But  if  after  discovery  there  is  delay  in  noti- 
fication of  the  parties  from  whom  redress  is 
sought,  this  will  prejudice  the  right  of  re- 
covery.    (Inquiry  from  Okla.,  Aug.,  1913.) 

Recourse  of  drawee  upon  guaranteeing  hank 

1601.  A  bank  as  drawee  received  a  check 
of  $15,000,  payable  to  James  Smith.  It  was 
indorsed  "James  Smith,  by  Florence  Smith" 
and  had  the  regular  stamp  indorsements  of 
several  banks,  reciting  "All  previous  in- 
dorsements guaranteed."  Would  drawee  be 
protected  in  paying  check  in  event  James 
Smith  claimed  he  never  received  the  money? 
Opinion:    Where  the  payee's  indorsement  is 


forged  and  such  indorsement  is  followed  by 
the  indorsement  of  a  bank  guaranteeing 
prior  indorsements,  the  drawee  bank  is  pro- 
tected in  making  payment,  for,  while  liable 
for  the  amount  to  the  drawer,  the  drawee 
has  full  recourse  upon  the  guaranteeing 
bank.     (Inquiry  from  Okla.,  Dec,  1918,  Jl.) 

Right   of   recovery   on   special   guaranty   of 

money   paid   on  forged  indorsement  of 

stopped  check 

1602.  A  drawee  bank  paid  a  check  upon 
the  forged  indorsement  of  the  payee  in 
violation  of  the  maker's  stop  payment  order. 
The  indorsement  was  expressly  guaranteed. 
Opinion :  Until  the  courts  have  passed  upon 
the  question  the  right  of  recovery  is  some- 
what problematical.  In  this  particular  case 
the  drawee  might  recover  upon  the  special 
guaranty  of  genuineness  of  the  payee's 
indorsement  on  the  ground  that  it  relieved 
the  drawee  of  any  duty  of  inquiry  as  to  that 
particular  fact.  In  a  given  case  where  there 
is  no  such  guaranty  there  might  be  ground 
for  a  contention  that  a  stop  payment  notice 
puts  the  drawee  on  inquiry  as  to  equities 
which  would  estop  it  from  recovering  from 
a  bona  fide  holder.  Public  Grain  &  Stock 
Exch.  App.  137.  (Inquiry  from  Pa.,  Jan., 
1914,  Jl.) 

Note:  It  was  held  in  1915  in  National 
Bank  of  Commerce  v.  First  National  Bank 
of  Coweta,  152  Pac.  (Okla.)  596,  that  where, 
after  the  check  is  stopped,  the  drawee  negli- 
gently pays  the  same,  it  is  precluded  from 
setting  up  the  forgery,  and  cannot  recover 
money  so  paid  as  against  an  innocent  holder 
for  value. 

Guaranty  of  wife's  indorsement 

1603.  A  bank's  customer  sent  a  check  to 
his  wife  in  care  of  some  relatives  Uving  in 
Kansas.  The  letter  was  delivered  to  a  wrong 
party  who,  after  forging  the  wife's  indorse- 
ment thereon,  took  the  check  to  a  Kansas 
bank  which  evidently  received  same  for 
collection  and  afterwards  forwarded  it  to  the 
payor  bank  for  collection,  guaranteeing 
indorsement.  Opinion:  Where  a  bank 
pays  a  check  on  a  forged  indorsement,  it 
pays  its  own  money  to  one  who  has  no  title 
to  the  check  and  has  a  right  of  action  for  the 
recovery  of  money  paid  without  considera- 
tion. In  the  present  case  there  is  an  express 
warranty  of  the  genuineness  of  the  indorse- 
ment for  the  breach  of  which  the  payor 
bank  would  have  right  of  action  against  the 
bank  receiving  the  money.  (Inquiry  from 
S.  D.,  April,  1914-) 


370 


FORGED  PAPER 


[1604-1606 


Indorsement    by    owner    "For    Collection"; 
"Pay  any  bank"  not  a  guaranty 

1604.  A  check  is  made  payable  to  B 
who  indorses  same  in  blank  to  his  bank 
which  indorses  same,  ''For  collection — pay  to 
the  order  of  any  bank,  banker  or  trust  com- 
pany," and  the  question  is  asked  whether 
this  indorsement  guarantees  the  genuineness 
of  this  blank  indorsement;  also  if  there  is 
any  guaranty  contained  in  this  restrictive 
indorsement  for  collection  in  case  the  pay- 
ee's indorsement  proves  a  forgery.  Opin- 
ion :  Where  a  check  is  payable  to  an  individ- 
ual who  indorses  same  in  blank  to  his  bank, 
the  latter  becomes  the  apparent  owner  of  the 
check.  When  the  bank,  indorses  "For  col- 
lection— pay  any  banker"  it  does  not  in- 
dorse the  check  for  value  but  appoints  an 
agent  to  collect  it.  There  does  not  seem  to 
be  any  guaranty  contained  in  the  restrictive 
indorsement  for  collection,  but  the  indorsing 
bank,  being  owner,  if  the  indorsement  of  the 
payee  proved  a  forgery,  would  be  liable 
to  the  payor  bank  upon  the  ground  of  re- 
ceiving money  without  consideration  upon 
an  instrument  to  which  it  had  no  title, 
which  it  must  refund.  In  other  words, 
there  is  a  liability  of  the  bank  in  such  case, 
but  the  courts  do  not  generally  place  it  upon 
the  ground  of  guaranty,  but  more  frequently 
upon  the  ground  ofrecei  ving  money  without 
consideration.  (Inquiry  from  Tex.,  March, 
1917.) 

Right   of  true  payee   to   recover  from 
purchaser 

Liability  of  purchasing  bank  to  payee  corpora- 
tion for  check  acquired  under  unauthorized 
indorsement  of  president 

1605.  An  incorporated  concern  received 
from  a  customer  a  check  payable  to  its  order 
which  the  treasurer  of  the  company  only 
was  authorized  to  indorse.  The  president 
of  the  company  without  any  authority  in- 
dorsed the  corporate  name  on  the  check  and 
his  own  underneath  and  deposited  it  to  his 
personal  credit  with  bank  A  which  collected 
from  the  drawee  bank  and  allowed  him  to 
draw  the  proceeds  on  his  personal  check. 
The  question  is — can  the  corporation  hold 
the  bank  in  any  way  responsible?  Opinion: 
In  the  present  case  bank  A  would  probably 
be  held  liable  to  the  corporation,  for,  in 
a  very  similar  case  decided  in  1917,  the 
Appellate  Division  of  the  New  York  Su- 
preme Court  held,  where  the  president  of  a 
corporation  without  authority  indorsed 
checks  in  the  name  of  his  company  and 
deposited  them  to  his  personal  credit,  that 


the  bank  was  liable  to  the  company.  E. 
Moch  Co.  V.  Security  Bank,  176  App.  Div. 
842,  163  N.  Y.  Supp.  277,  Aff'd  225  N.  Y. 
723,  122  N.  E.  879,  without  opinion.  The 
Appellate  Division  in  its  opinion  said  the 
president  "had  no  authority  to  indorse  the 
checks  for  the  corporation,  and  the  bank  was 
chargeable  with  notice  that  the  indorse- 
ments were  in  his  handwriting  and  was 
l)ound  at  its  peril  to  inquire  with  respect  to 
his  authority  to  indorse  the  checks,  and  to 
deposit  them  to  his  credit  individually,  and 
having  failed  to  do  so,  it  is  chargeable  with 
knowledge  of  the  facts  which  presumably 
would  have  been  disclosed  on  proper  in- 
quiry." According  to  the  above  a  bank  has 
no  right  to  assume  that,  because  a  man  is  a 
president  of  a  corporation,  he  has  the  au- 
thority to  indorse  and  negotiate  checks 
payable  to  it,  but  is  bound  at  its  peril  to 
inquire  with  respect  to  his  authorit3^  If 
the  bank  acquires  the  check  upon  the  un- 
authorized indorsement  it  is  liable  for  pro- 
ceeds to  the  true  payee.  {Inquiry  from 
N.  Y.,  Nov.,  1919.) 

Bank    cashing    checks  for    employee    under 
unauthorized  indorsement 

1606.  An  employee  of  a  business  opened 
the  mail  and  withheld  several  checks  pay- 
able to  the  company,  which  he  indorsed 
with  the  name  of  the  company,  per  his 
own  name.  These  checks  were  cashed  by 
one  of  the  local  banks  with  which  the  com- 
pany had  never  had  an  account;  nor  were 
signature  cards  on  file  showing  authority  to 
sign  or  indorse  checks,  nor  had  the  employee 
any  authority  whatever  to  sign.  Can  the 
owner  of  the  business  recover  the  amount 
of  the  checks  from  the  bank  cashing  the 
checks  for  the  employee?  Opinion:  Re- 
covery may  be  had.  The  signature  without 
authority  was  a  forgery;  the  bank  derived  no 
title  and  would  be  liable  to  the  owner  of  the 
business  for  the  conversion  of  the  checks. 
A.  Blum,  Jr.'s  Sons  v.  Whipple,  80  N.  E. 
(Mass.)  501.  Rosenberg  v.  Germania  Bank, 
88  N.  Y.  Supp.  952.  U.  S.  Portland  Cement 
Co.  V.  U.S.  Nat.  Bank,  157  Pac.  (Colo.)  202. 
Buckley  v.  Second  National  Bank,  35  N.  J. 
Law,  400.  Knoxville  Water  Co.  v.  East 
Tennessee  Nat.  Bank,  131  S.  W.  (Tenn.) 
447.  Schaap  v.  State  Nat.  Bank.  208  S.  W. 
(Ark.)  309.  Hope  Vacuum  Cleaner  Co.  v. 
Commercial  Nat.  Bank,  168  Pac.  (Kan.) 
870.  Kaufman  v.  State  Sav.  Bank,  114 
N.  W.  (Mich.)  863.  Meyer  v.  Rosenheim 
&  Co.  73  S.  W.  (Ky.)  1129.  {Inquiry  from 
Ohio,  Feb.,  1921.) 


371 


1607-1609] 


DIGEST  Of  legal  opinions 


Liability  for  conversion  continues  until  out- 
lawed  by   statute   of   limitations 

1607.  Checks  with  indorsements  forged 
by  an  agent  of  the  payee  were  cashed  by 
various  banks  and  in  due  course  of  collection 
paid  under  such  circumstances  that  the  for- 
geries were  not  discovered  for  four  or  five 
years  after  the  practice  of  forging  began. 
Are  the  banks  cashing  the  checks  hable  to 
the  payee?  Opinion:  The  courts  have  held 
that  where  the  payee's  indorsement  to  a 
check  is  forged  and  the  money  collected  by 
an  innocent  purchaser,  the  latter  is  liable 
to  the  true  owner  for  the  money  collected 
on  the  ground  that  he  has  converted  the 
property  of  another.  The  banks  cashing 
the  checks  would  be  liable  to  the  payee 
until  an  action  for  conversion  would  be  out- 
lawed by  the  statute  of  limitations,  unless 
in  some  way  the  payee,  by  acquiescence, 
could  be  held  to  have  ratified  the  indorse- 
ment of  its  name  by  its  agent,  or  facts  could 
be  shown  that  it  held  him  out  to  the  public 
as  authorized  not  only  to  receive  payment 
but  also  to  indorse  checks  received,  sufficient 
to  make  out  a  case  of  implied  authority.  In 
this  case  there  was  no  delay,  after  discovery, 
in  giving  notice.  In  A.  Blum,  Jr,'s  Sons  v. 
Whipple,  194  Mass.  253,  where  the  payee 
sued  the  purchaser  and  there  was  more  than 
two  years'  delay  between  discovery  and 
notification  of  the  forgery,  the  court  said : 
"Nor  was  plaintiff  guilty  of  such  negligence 
or  laches  as  to  take  away  its  right  of  re- 
covery. ***  It  did  not  appear  that  any  loss 
was  caused  to  the  defendants  or  that  their 
position  was  in  any  way  changed  by  failure 
of  the  plaintiff  to  notify  them  earlier  than 
it  did."    (Inquiry  from  S.  C,  Feb.,  1921.) 

Recourse  of  payee  upon  bank  cashing  check 
for  building  material  on  forged  indorsement 

1608.  T  sold  building  material  to  C, 
which  went  into  a  building  belonging  to  R. 
Apparently  C  is  not  solvent,  and  when  R 
came  to  settle,  he  drew  a  check  payable  to 
T  on  the  X  bank.  C  indorsed  the  name  of 
T  and  had  it  cashed  by  the  Y  bank.  Is 
there  any  question  as  to  the  liability  of  Y, 
who  cashed  the  check  on  the  forged  indorse- 
ment? Opinion:  Assuming  that  C  had  no 
authority  from  T  to  indorse  his  name  as 
payee,  the  indorsement  was  a  forgery  and 
the  bank  that  cashed  the  check  would  be 
liable.  It  has  been  held  in  several  cases  that 
a  bank  receiving  and  collecting  a  check  on  a 
forged  indorsement  of  the  payee's  name  is 
liable  to  the  payee  for  its  proceeds.  This  on 
the  ground  that  the  bank  has  converted  the 


payee's  property  and  is  liable  in  damages 
to  the  true  owner.  The  better  procedure 
for  the  payee  would  probably  be  directly 
against  the  bank  cashing  and  collecting  the 
check  for  converting  his  property,  rather 
than  looking  to  the  drawer  for  another  check 
since  T  did  not  give  the  consideration  di- 
rectly to  R,  the  drawer,  and  there  might  be 
difficulty  in  obtaining  another  check,  if  R 
should  take  the  stand  that,  although  he  made 
the  check  payable  to  T,  he  in  reality  owed 
C,  and  should  have  made  the  check  payable 
to  him.    {Inquiry  from  Wis.,  Feb.,  1913.) 

Right   of  true  payee   to   recover   from 
drawee 

Decisions  conflict  but  majority  hold,  under 
N.  I.  Act,  drawee  not  liable  to  payee 

1609.  A  gave  his  check  to  John  Doe 
drawn  on  the  X  bank.  The  check  was 
stolen  from  John  Doe  and  paid  by  the  X 
bank  to  a  person  representing  himself  to  be 
the  payee.  Two  weeks  later  the  real  John 
Doe  demanded  the  money  from  the  X  bank. 
Is  the  X  bank  answerable  for  the  money  to 
the  real  John  Doe,  or  only  to  the  drawer  of 
the  check?  Opinion:  Upon  the  question 
whether  the  drawee  is  liable  to  the  payee, 
prior  to  the  Negotiable  Instruments  Act  it 
was  held  in  a  number  of  cases  that  the 
drawee  who  had  paid  a  check  upon  a  forged 
indorsement  was  liable  thereon  to  the  true 
payee.  (The  following  are  some  but  not  all 
of  the  cases  to  this  effect:  Commercial 
National  Bank  v.  Lincoln  Fuel  Co.  67  111. 
166.  Pickle  v.  Muse,  88  Tenn.  380.  Gra- 
ham V.  U.  S.  Sav.  Inst.  46  Mo.  186.)  In 
some  cases  the  decision  went  on  the  theory 
that  the  drawee  by  paying  had  accepted  the 
check,  and  was  liable  as  acceptor.  Other 
cases  were  decided  under  the  rule,  now 
abolished  by  the  Negotiable  Instruments 
Act,  that  a  check  is  an  assignment  and  the 
payee  can  sue  the  drawee  thereon  before 
acceptance.  Some  courts,  however,  held 
that  the  payee  could  not  sue  the  drawee,  not 
recognizing  that  the  check  was  an  assign- 
ment and  holding  that  payment  upon  forged 
indorsement  was  not  an  acceptance  in  favor 
of  the  true  payee.  See,  for  example,  First 
Nat.  Bank  v.  Whitman,  94  U.  S.  343. 

Since  the  Negotiable  Instruments  Act, 
the  weight  of  authority  is  to  the  effect  that 
where  a  check  is  paid  on  forged  indorsement 
and  charged  to  the  account  of  the  drawer, 
this  is  not  an  acceptance  of  the  check  within 
meaning  of  the  N.  I.  Act  and  does  not  create 
a  liability  against  the  bank  in  favor  of  the 
true  holder  or  payee.    Elyria  Sav.  &  Bkg. 


372 


FORGED  PAPER 


11610-1612 


Co.  V.  Walker  Bin  Co.  Ill  N.  E.  (Ohio)  147. 
B  &  O.  R.  Co.  V.  First  Nat.  Bank,  47  S.  E. 
(Va.)  837.  State  Bank  of  Chicago  v.  Mid- 
City  Trust  &  Sav.  Bank,  129  N.  E.  (111.) 
498.  Lonier  v.  State  Sav.  Bank,  112  N.  W. 
(Mich.)  1119.  State  v.  Bank  of  Commerce, 
202  S.  W.  (Ark.)  834.  But,  contra,  in 
Louisville  &  N.  R.  Co.  v.  Citizens  &  Peoples 
Nat.  Bank,  77  So.  (Fla.)  104,  it  was  held  the 
payee  may  bring  an  action  of  trover  against 
the  drawee,  the  court  saying:  "The  section 
in  the  Negotiable  Instruments  Act  providing 
that  a  check  of  itself  does  not  operate  as  an 
assignment  of  any  part  of  the  funds  to  the 
credit  of  the  drawer  and  that  the  bank  is  not 
hable  to  the  holder  unless  and  until  it  accepts 
or  certifies  the  check  does  not  apply.  The 
plaintiff  (payee)  is  not  suing  the  bank  for 
breach  of  a  contract  in  not  paying  the  check. 
It  is  suing  the  bank  because  the  latter  has 
undertaken  to  exercise  ownership  over  a 
check  which  belonged  to  the  plaintiff  with- 
out its  authority — because  the  bank  had  in 
its  possession  funds,  the  proceeds  of  the 
check,  which  it  should  have  paid  to  the 
plaintiff,  but  negligently  failed  to  do  so. 
*  *  *  The  defendant  (bank)  has  undertaken 
to  dispose  of  the  check  as  its  own  by  charg- 
ing it  to  the  drawers'  account  and  returning 
it  to  them."  And  it  has  recently  been  held, 
in  Kansas,  that  the  retention  by  the  drawee 
of  a  check  bearing  an  unauthorized  indorse- 
ment and  charging  it  to  the  drawer's  account 
is  an  acceptance  under  the  Negotiable 
Instruments  Act  which  makes  the  drawee 
liable  to  the  payee  as  an  acceptor.  Cham- 
berlain Metal  Weather  Strip  Co.  v.  Bank  of 
Pleasanton,  160  Pac.  (Kan.)  1138. 

The  point  does  not  appear  to  have  been 
decided  in  Alabama.  According  to  the 
weight  of  authority,  the  drawee  in  the  case 
submitted  is  not  liable  to  the  payee  but  only 
to  its  depositor.  (Inquiry  from  Alabama, 
May,  1921.) 

Liahilily  of  Indiana  drawee,  paying  check  on 
forged  indorsement,  to  true  'payee 

1610.  A  purchased  a  draft  to  his  own 
order  and  sent  it  to  a  creditor  in  payment  of 
a  bill,  ])ut  neglected  to  indorse  it.  A  clerk 
of  the  creditor  forged  A's  indorsement  on  the 
draft  and  cashed  it  at  the  drawee  bank 
which  refused  to  reimburse  on  the  ground 
that  A  was  negligent  in  not  making  proper 
indorsement.  Can  A  hold  the  drawee  liable 
or  must  he  look  to  the  drawer?  Opinion: 
In  this  case  the  payment  was  made  directly 
to  the  forger  so  that  the  drawee  bank  is 
doubtless  the  loser.    The  fact  that  the  payee 


forwarded  the  draft,  payable  to  his  order,  to 
his  creditor  without  indorsing  same  would 
not  be  held  such  negligence  as  to  deprive 
him  of  title  to  the  draft.  Upon  the  question 
whether  the  drawee  is  liable  to  the  payee, 
A,  it  was  held  in  Indiana  in  1884  (Indiana 
Nat.  Bank  v.  Holtsclaw,  98  Ind.  85)  that 
the  fact  that  a  check  has  been  paid  on  a 
forged  indorsement  does  not  prevent  the 
payee  from  bringing  suit  thereon  against 
the  drawee  precisely  as  though  there  had 
been  no  indorsement  and  payment,  but 
since  the  N.  I.  Act,  the  Indiana  courts  may 
take  a  different  view.  {Inquiry  from  Ind., 
March,  1918.) 

1611.  An  arrangement  was  made  with 
a  loan  company  to  take  up  a  mortgage  then 
being  foreclosed,  and  a  check  covering  the 
amount  due,  drawn  to  the  order  of  C,  the 
holder  of  the  past  due  mortgage  was  de- 
Uvered  to  his  attorney,  appearing  in  the  ac- 
tion, who  indorsed  it  in  the  name  of  payee  per 
himself  and  cashed  it  at  bank  A.  It  was 
paid  by  drawee  bank  B.  The  attorney  de- 
faulted, and  C  claims  that  bank  B  is  liable 
to  him  for  amount  of  check.  Opinion:  An 
authority  to  an  agent  or  attorney  to  collect 
an  account  does  not  include  authority  to 
indorse  the  principal's  name  as  payee  on  a 
check  payable  to  his  order  received  in  col- 
lection and  unless  C  gave  express  authority 
to  the  attorney  to  indorse  his  name  to  the 
check,  such  indorsement  was  unauthorized 
and  a  forgery.  There  is  a  conflict  of  au- 
thority whether  in  such  case  the  payee  can 
maintain  an  action  against  the  drawee  bank 
which  paid  the  check.  In  Indiana  Nat; 
Bank  v.  Holtsclaw,  98  Ind.  85,  the  payee 
was  held  entitled  to  sue  the  drawee,  but 
since  the  N.  I.  Act  the  Indiana  courts  may 
take  a  different  view  if  the  question  is  again 
presented.    {Inquiry  from  Ind.,  May,  1919.) 

1612.  A  traveling  salesman  for  a  whole- 
sale house,  authorized  to  collect  for  goods 
sold,  received  in  paj^ment  checks  payable  to 
his  firm,  which  he  indorses  in  the  firm  name, 
collects  from  the  drawee  and  absconds.  Is 
the  drawee  bank  liable  to  the  firm?  Opin- 
ion: Authority  in  an  agent  to  sell  goods  and 
to  collect  docs  not  constitute  authority  to 
indorse  the  principal's  name  to  checks  taken 
in  payment.  Hamilton  Nat.  Bk.  v.  Nye,  37 
Ind.  App.  464.  However,  if  an  agent  has 
been  permitted  to  indorse  checks  payable  to 
his  principal,  this  constitutes  implied  au- 
thority, and  the  principal  cannot  recover 
from  one  who  cashes  such  a  check  for  the 
agent  where  the  agent  appropriates  the  pro- 


373 


1013-1618] 


DIGEST  OF  LEGAL  OPINIONS 


ceeds.  Best  v.  Krey,  85  N.  W.  (Minn.)  822. 
Applying  these  principles  to  the  case  sub- 
mitted, in  the  absence  of  express  authority 
to  indorse  or  permission  to  indorse  with 
knowledge,  the  payment  by  the  drawee 
bank  would  be  on  a  forged  indorsement  of 
the  firm's  name.  The  drawee  bank  can  not 
charge  such  payment  to  the  drawer,  and  the 
sole  recourse  of  the  bank  would  be  upon  the 
person  for  whom  it  cashed  the  checks. 

Upon  the  question  whether  the  drawee 
bankishabletothe  firm,  the  weight  of  author- 
ity, since  the  Negotiable  Instruments  Act,  is 
to  the  effect  that  the  payee  has  no  right  of 
action  against  the  drawee,  but  must  look  to 
the  drawer  who,  of  course,  can  hold  the 
drawee  responsible;  but  a  minority  of  courts 
hold  that  the  drawee  has  converted  the 
check  and  its  proceeds  and  is  liable  to  the 
payee.  In  an  early  case  in  Indiana  (Indiana 
National  Bank  v.  Holtsclaw,  98  Ind.  85)  it 
was  held  that  the  payee  can  recover  from 
the  drawee.  But  whether,  since  the  Nego- 
tiable Instruments  Act,  this  rule  will  be 
adhered  to  by  the  courts  of  Indiana,  or  the 
weight  of  authority,  which  is  to  the  contrary, 
followed,  is  uncertain.  If,  in  any  case,  the 
payee  cannot  sue  the  drawee,  he  has  a  right 
of  action  against  the  drawer  because  of  non- 
payment to  him  of  the  check  and  the  drawer, 
in  such  case,  could  hold  the  drawee  re- 
sponsible. {Inquiry  from  Ind.,  April,  1921, 
Jl) 

Drmcee  not  liable  to  payee  in  Georgia 

1613.  A  check  drawn  in  favor  of  C  on 
bank  A  was  cashed  by  that  bank  for  B,  a 
stranger,  after  identification.  The  next  day 
A  received  word  from  C  that  the  check  had 
been  lost  or  stolen  and  not  to  pay  it.  B  was 
arrested,  and  sentenced  for  robbery,  but 
the  question  of  forgery  was  not  brought  up. 
Now  C  claims  that  B  forged  his  indorsement 
and  sues  the  bank  for  amount  of  check. 
Opinion:  Although  the  indorsement  be 
actually  forged,  C  cannot  recover  against 
A,  the  drawee,  but  only  from  the  drawer  of 
the  check.  See  Freeman  v.  Savannah  Bank, 
88  Ga.  252,  14  S.E.  577,  in  which  it  was  held 
that  the  payee  of  a  check,  whose  indorse- 
ment has  been  forged,  has  no  right  of  action 
against  the  drawee  which  has  paid  it  upon 
forged  indorsement,  since  the  check  has 
neither  been  paid  nor  accepted  by  the  bank. 
(Inquiry  from  Ga.,  Aug.,  1911.) 

1614.  A  check  drawn  on  bank  A  by  B, 
payable  to  C,  is  cashed  by  the  drawee  bank 
for  D  who  is  known  by  that  bank  to  have  no 
connection  with  payee  whose  indorsement 


turns  out  to  be  forged.  The  question  is — 
Is  bank  A  Hable  to  C?  Opinion:  Bank  A  is 
not  liable  to  C,  under  the  Georgia  rule,  but 
is  liable  to  the  drawer  of  the  check  and  C's 
recourse  is  upon  the  drawer.  {Inquiry  from 
Ga.,  April,  1913.) 

Purchaser  acquires  no  title 

Bank  purchasing  draft  under  forged 
indorsement 

1615.  A  bank  cashed  a  draft  drawn  by 
a  bank  in  South  Dakota  upon  a  bank  in 

Minneapolis,  payable  to  A.  M.  U upon 

forged  indorsement  of  the  payee's  name  by 

one  S .    The  person  presenting  the  draft 

was  accompanied  by  a  well  known  resident 
of  the  town.  The  bank  inquires  as  to  its 
rights  in  the  matter.  Opinion:  Upon  the 
facts  presented,  the  law  is  clear  that  the 
bank  took  no  title  to  the  draft  so  acquired 
under  a  forged  indorsement  and  must  lose 
the  amount.  The  person  presenting  the 
draft  being  a  stranger,  the  bank  should  have 
taken  the  precaution  to  have  the  resident 
who  accompanied  him  indorse  the  draft 
with  a  guaranteee  of  the  payee's  indorse- 
ment. This  would  have  given  the  bank  re- 
course upon  him  where  the  guarantee  was 
broken.     {Inquiry  from  Va.,  March,  1920.) 

Bank  purchasing  forged  draft 

1616.  A  bank  purchasing  a  forged  draft 
against  a  lost  letter  of  credit  is  the  loser 
unless  the  draft  is  paid  by  the  drawee,  in 
which  case  the  latter  would  probably  be 
bound  by  payment.  {Inquiry  from  Wyo., 
June,  1914,  JI-) 

Indorser's   liability   to   subsequent 
purchaser 

Indorser  of  forged  check  warrants  genuine- 
ness to  indorsee 

1617.  A  bank  cashed  a  check,  payment 
of  which  was  refused  on  the  ground  that 
the  drawer's  signature  was  a  forgery.  The 
bank  sought  to  recover  the  amount  from  the 
indorser.  Opinion:  The  indorser  of  the 
check  warrants  the  genuineness  of  the  check 
to  a  subsequent  purchaser  and,  if  the  check 
is  forged,  is  hable  upon  breach  of  such 
warranty.  Neg.  Inst.  A.,  Sees.  65,  66  (111. 
&  Comsr's.  dft.)  Farmers  &  Merchants  Bk. 
V.  Bk.  of  Rutherford,  88  S.  W.  (Tenn.)  939. 
{Inquiry  from  III.,  Feb.,  1917,  Jl.) 

Delay  in  notification 

1618.  On  October  21,  1916,  a  bank 
cashed  a  check  dated   October  20,    1916, 


374 


FORGED  PAPER 


[1619-1620 


signed  by  E.  S.  P.,  payable  to  C.  H.  F., 
indorsed  C.  H.  F,  and  also  by  A  and  M. 
On  the  front  and  left  hand  corner  was  the 
notation  "Room  rent  for  negroes  Sept.  3  to 
Nov.  3."  This  check  was  deposited  by  the 
bank's  customer  M,  on  October  21,  and  was 
paid  by  the  drawee  on  the  same  day.  C.  H. 
F.  has  made  affidavit  that  his  indorsement 
was  forged,  and  asks  that  the  money  be 
refunded.  M  claims  that  E.  S.  P.  has  a 
receipt  from  C.  H.  F.  showing  he  received 
the  money  on  the  check,  but  C.  H.  F. 
claims  he  gave  the  receipt  to  A  upon  the 
understanding  he  would  procure  a  check 
for  liim  from  E.  S.  P.  A  delivered  the  re- 
ceipt to  E.  S.  P.  who  then  delivered  the 
check  to  A,  but  C.  H.  F.  claims  A  never 
delivered  the  check  to  him.  Eight  months 
have  expired  since  cashing  the  check  and 
notification  that  the  indorsement  was  forged. 
The  bank  asks  who  is  liable.  Opinion:  As- 
suming the  indorsement  of  the  payee  of 
this  check  was  forged,  there  would  be  a 
liabilit}^  of  the  cashing  bank  to  the  payee, 
and  recourse  by  that  bank  against  its  cus- 
tomer. The  fact  that  A  was  an  agent  au- 
thorized to  procure  the  check  and  deliver 
the  receipt  did  not  give  him  authority  to 
indorse  the  payee's  name  and  negotiate  the 
check,  and  such  indorsement  was  a  forgery. 
It  appears  there  was  eight  months'  delay 
after  discovery  of  the  forgery  in  giving 
notice  of  it.  According  to  some  courts, 
where  a  drawee  pays  a  check  on  forged 
indorsement,  and  unreasonably  delays  to 
give  notice,  after  discovery  of  the  forgery, 
such  delay  is  fatal  to  recovery.  See  Cun- 
ningham V.  First  Nat.  Bk.,  68  Atl.  (Pa.) 
731,  where  there  was  six  weeks'  delay  after 
making  discovery  of  a  forged  instrument 
before  giving  notice  thereof.  This  was  held 
fatal  to  recovery.  See  also  McNeely  v. 
jBank  of  N.  A.,  70  Atl.  (Pa.)  891,  in  which 
it  is  held  to  be  the  duty  of  a  depositor  whose 
check  has  been  paid  on  a  forged  indorse- 
ment to  promptly  notify  the  bank  when  he 
discovers  same.  But  the  above  cited  cases 
are  those  where  the  depositor  whose  check 
has  been  paid,  and  who  has  discovered  that 
an  indorsement  thereon  is  a  forgery,  has 
failed  to  promptly  notify  the  bank.  It  is 
doubtful  if  the  same  rule  would  apply  to 
prevent  recovery  by  the  payee  where  he 
discovers  a  forgery  of  his  indorsement  and 
fails  to  give  prompt  notice.  The  action  by 
the  payee  would  be  for  conversion  of  the 
check  and  the  right  of  action  would  con- 
tinue until  the  expiration  of  the  statute  of 
limitations  unless  he  was  estopped  by  some 


laches.  In  A.  Blum  Jr.'s  Sons  v.  Whipple, 
194  Mass.  253,  where  the  payee  sued  the 
purchaser  and  there  was  more  than  two 
years'  delay  between  discovery  and  notifi- 
cation, the  court  said:  "Nor  was  plaintiff 
guilty  of  such  negligence  or  laches  as  to  take 
away  its  right  of  recovery  *  *  *  it  did  not 
appear  that  any  loss  was  caused  to  the  de- 
fendants or  that  their  position  was  in  any 
way  changed  by  failure  of  the  plaintiff  to 
notify  them  earlier  than  it  did."  It  would 
seem  there  would  be  liability  of  the  cashing 
bank  in  this  case  unless  it  can  prove  that 
the  eight  months'  delay  of  the  payee  after 
discovery  in  giving  notice  of  the  forgery 
worked  an  injury  to  it  which  an  earlier 
notice  would  have  prevented.  {Inquiry 
from  Iowa,  June,  1917.) 

Right  of  drawee  to  recover  money  paid  on 

forged    indorsement    not    discovered  for 

eleven  months  where  notice  promptly 

given 

1619.  A  check  drawn  on  bank  A  to  the 
order  of  B  was  indorsed  by  bank  C's  cus- 
tomer D.  Payment  was  made  by  drawee  to 
C,  and  eleven  months  afterwards  payee's 
indorsement  was  found  to  be  a  forgery. 
Notice  was  at  once  given  by  A  to  C.  In- 
quiry is  made  as  to  whether  Bank  C  and  its 
customer  are  liable.  Opinion:  The  rule  is 
well  settled  that  when  a  bank  pays  a  check 
drawn  upon  it  by  one  of  its  customers  and 
it  is  afterwards  discovered  that  the  payee's 
indorsement  is  a  forgery,  it  may  recover  the 
money  back  from  the  party  to  whom  the 
payment  is  made.  First  Nat.  Bank  v. 
Northwestern  Nat.  Bank,  152  111.  296,  38 
N.  E.  739,  26  L.  R.  A.  289,  43  Am.  St.  Rep. 
247.  It  has  been  held  that  a  drawee  bank 
is  under  no  obligation,  as  far  as  the  holder 
is  concerned,  to  discover  promptly  a  forgery 
of  the  indorsement,  but,  upon  discovery, 
should  give  prompt  notice,  as  was  done  by 
A.  Corn  Exchange  Bank  v.  Nassau  Bank, 
91  N.  Y.  74.  Schroeder  v.  Harvey,  75  111. 
638.  Bank  A  has  the  right  under  the  law  to 
recover  amount  paid  from  bank  C,  and  the 
latter  bank  in  turn  has  the  right  to  look  to 
its  customer  D  who  by  his  indorsement  has 
warranted  to  it  the  genuineness  of  the 
payee's  indorsement.  {Inquiry  from  Fla., 
Jan.,  1917.) 

Discovery  by  drawee  of  forged  indorsement 
more  than  year  after  payment  and  prompt 
notice    to    collecting    bank 

1620.  Bank  A  paid  a  check  through  the 
clearings  to  bank  B.     A  little  over  a  year 


375 


1621-1622] 


DIGEST  OF  LEGAL  OPINIONS 


afterwards  it  was  discovered  that  the  pay- 
ee's indorsement  was  a  forgery,  and  B  was 
promptly  notified,  but  refused  to  refund 
because,  as  it  claimed,  the  right  to  return 
the  item  and  recover  the  amount  was  barred 
at  the  end  of  one  year.  Opinion:  Section 
326  of  the  New  York  Negotiable  Instru- 
ments Act  provides  that  "No  bank  shall  be 
liable  to  a  depositor  for  the  payment  by  it 
of  a  forged  or  raised  check,  unless  within 
one  year  after  the  return  to  the  depositor 
of  the  voucher  of  such  payment,  such  de- 
positor shall  notify  the  bank  that  the  check 
so  paid  was  forged  or  raised."  But  this 
section  simply  appHes  as  between  depositor 
and  bank,  and  it  is  doubtful  whether  it 
covers  forged  indorsements  as  distinguished 
from  forged  or  raised  checks,  although  there 
is  a  New  Jersey  case  which  indicates  that  it 
applies  to  forged  indorsements.  In  this 
case  the  general  rule  that  money  paid  upon 
a  forgery  of  an  indorsement  is  recoverable 
would  in  all  probability  apply,  and  A 
would  not  be  estopped  by  the  delay  and  could 
recover  from  B.  See  Oriental  Bank  v.  Gullo, 
112App.Div.360,98N.Y.Supp.561.Aifmd. 
188  N.  Y.  610,  81  N.  E.  1170.  Corn  Ex- 
change Bank  v.  Nassau  Bank,  91  N.  Y.  74, 
43  Am.  Rep,  655.  But  while  the  drawee  bank 
is  not  bound  to  discover  a  forged  indorse- 
ment, it  should  give  prompt  notice  when  it 
has  in  fact  ascertained  that  it  has  made 
payment  on  such  a  forgery.  If  there  is 
neghgence  after  discovery,  in  giving  notifica- 
tion, and  this  works  to  the  injury  of  the 
bank  which  has  received  payment,  the  payor 
bank  might  be  estopped  from  recovering. 
See  Bank  of  Commerce  v.  Union  Bank,  3 
N.  Y.  230.  {Inquiry  from  N.  Y.,  March, 
1920.) 

Pennsylvania  rule  as  to  effect  of  delay  of 

drawee  in  giving  notice  after  discovery  of 

forgery 

1621.  A  check  issued  by  a  railroad  com- 
pany to  an  employee  was  cashed  at  a  store 
and  deposited  with  bank  A  which  collected 
through  its  correspondent  bank  B  from  the 
drawee  bank  C.  The  latter,  six  months 
after  payment,  notified  B  that  the  payee's 
indorsement  was  forged,  the  payee  making 
affidavit  to  this  effect,  and  demanded  reim- 
bursement. Opinion:  The  general  rule  is 
that  money  paid  by  the  drawee  bank  upon 
a  forged  indorsement  is  recoverable,  and 
the  only  question  in  the  present  case  is 
whether  the  six  months'  delay  in  notifica- 
tion of  the  forgery  is  a  defense  to  repay- 
ment.   In  McNeely  Co.  v.  Bank  of  North 


America,  221  Pa.  588,  70  Atl.  891,  it  was 
held  that  a  bank  which  has  paid  and  charged 
to  the  account  of  a  depositor  checks  bearing 
forged  signatures  or  indorsements  is  not 
liable  to  the  depositor  where  he  fails  to 
notify  the  bank  promptly  upon  discovering 
the  forgeries,  regardless  of  whether  such 
notification  would  have  enabled  the  bank  to 
protect  itself.  In  Connors  v.  Old  Forge 
Discount  Bank,  245  Pa.  97,  91  Atl.  210, 
where  the  drawer  neglected  to  notify  the 
drawee  bank  for  forty-two  days  after  he  had 
discovered  the  indorsement  forged,  it  was 
held  that  he  could  not  hold  that  bank 
Hable,  and,  of  course,  subsequent  indorsers 
were  under  no  liabihty  to  refund.  And  in 
the  case  of  Cunningham  v.  First  Nat.  Bank, 
219  Pa.  310,  68  Atl.  731,  it  was  held  the 
delay  of  six  weeks  on  drawer's  part  before 
notifjdng  bank  after  discovery  that  indorse- 
ment was  forged,  released  drawee  from 
liabihty.  If  the  facts  in  the  present  case 
show  that  the  railroad  company  which  drew 
the  check  was  guilty  of  delay  after  lit  dis- 
covered that  payee's  indorsement  was 
forged  before  giving  notice,  this  delay 
would  be  a  good  defense.  If  the  forgery  was 
not  discovered  for  six  months  and  then 
notice  was  promptly  given,  the  general  rule 
would  probably  apply  that  money  paid  on  a 
forged  indorsement  is  recoverable,  in  which 
event  the  customer  of  bank  A  would  be  the 
one  ultimately  liable.  {Inquiry  from  Pa., 
March,  1920.) 

Payee's  right  of  recovery  from  purchasing 

bank  unaffected  by  delay  unless  latter 

prejudiced 

1622.  A  bank  received  for  collection 
several  checks  from  C,  its  depositor,  who 
was  acting  as  collector  of  B,  a  French  Fund 
for  Orphans,  which  was  named  as  payee 
and  to  whom  the  checks  were  donated.  The 
checks  bore  the  indorsements  of  the  payee 
and  of  C,  and  were  paid  by  the  drawee  bank. 
After  two  years  had  elapsed,  B  claims  that 
his  indorsement  was  a  forgery  and  demands 
restitution.  Opinion:  Where  the  payee's 
indorsement  on  certain  checks  is  forged  and 
the  forger  deposits  the  checks  in  a  bank 
which  collects  them  from  the  drawee,  the 
payee  has  a  right  of  action  against  the  in- 
dorsee bank  for  the  proceeds  of  such  checks 
and  a  delay  of  two  years  before  giving  notice 
will  not  affect  his  right  of  recovery  unless  the 
indorsee  bank  has  been  prejudiced  by  such 
delay  or  suffered  a  loss,  which  an  earlier 
notice  might  have  prevented.  Laws  of 
Mass.  1912,  Chap.  277.    Meyer  v.  Rosen- 


I 


376 


i 


FORGED  PAPER 


11623-1626 


heim,  73  S.  W.  (Ky.)  1129.  A.  Blum,  Jr.'s 
Sons  V.  Whipple,  194  Mass.  253.  Murphy 
V.  Metropohtan  Nat.  Bk.,  191  Mass.  159. 
Hamlin  v.  Sears,  82  N.  Y.  327.  {Inquiry 
from  Mass.,  March,  1919,  Jl.) 

Conflict  between  federal  and  state  rules  as  to 

effect   of  unreasonable   delay   in   giving 

notice  after  discovery 

1623.  A  drawee  bank  paid  a  draft,  upon 
which  the  payee's  indorsement  was  forged, 
and  eight  months  later  discovered  the  for- 
gery. Three  and  one-half  months  after 
said  discovery  the  drawee  notified  the  bank 
which  cashed  the  draft  and  demanded  a 
return  of  the  money.  Opinion:  According 
to  the  rule  adopted  in  a  number  of  States, 
the  drawee's  delay  in  giving  notice  after 
discovery  bars  its  recovery,  provided  the 
bank  receiving  payment  was  damaged  by 
such  delay;  but  under  the  theory  of  the 
United  States  Supreme  Court,  the  drawee 
can  recover  upon  breach  of  warranty,  irre- 
spective of  the  unreasonable  delay  in  giving 
notice.  The  right  of  recovery  would,  there- 
fore, seem  to  depend  upon  the  jurisdiction 
in  which  the  action  is  brought.  Yatesville 
Banking  Co.  v.  Fourth  Nat.  Bk.,  72  S.  E. 
(Ga.)  528.  Canal  Bk.  v.  Bk.  of  Albany,  1 
Hill  (N.  Y.)  291.  Corn  Exch.  Bk.  v.  Nas- 
sau Bk.,  91  N.  Y.  74.  Continental  Nat.  Bk. 
V.  Metropolitan  Nat.  Bk.,  107  111.  App.  455. 
(Contrary  case — U.  S.  v.  Nat.  Exch.  Bk., 
214  U.  S.  319.)  WeUington  Nat.  Bk.  v. 
Robbins,  71  Kan.  748.  Muller  v.  Nat.  Bk. 
of  Cortland,  96  App.  Div.  (N.  Y.)  71.  Sec- 
ond Nat.  Bk.  V.  Guarantee  T.  &  S.  D.  Co., 
206  Pa.  616.  (Inquiry  from  Miss.,  Jan., 
1914,  Jl) 

Notice  of  forged  indorsement  given  by  drawee 
four  months  after  payment 

1624.  A  check  payable  to  A,  drawn  by 
B  on  bank  C,  was  cashed  by  bank  D  which 
collected  through  its  correspondent  E  from 
drawee  bank  C.  The  latter  bank,  over  four 
months  afterwards,  requested  reimburse- 
ment from  bank  D,  on  the  ground  that 
payee's  indorsement  was  forged,  and  it  is 
asked  if  this  delay  in  notification  does  not 
release  D  from  liability.  Opinion:  It  has 
been  held  in  a  number  of  cases  that  the 
drawer  of  a  check,  when  it  is  returned  to 
him  as  a  paid  voucher,  is  not  charged  with 
the  duty  of  detecting  and  reporting  within 
a  reasonable  time  a  forgery  of  the  payee's 
indorsement,  and  that  the  case  is  different 
from  one  where  the  drawer's  signature  has 
been  forged  or  the  amount  raised.     If  the 


forgery  of  the  indorsement  of  this  payee  had 
been  discovered  immediately  and  there  was 
three  or  four  months'  delay  after  discovery, 
before  notification,  and  it  could  be  proved 
that  the  holder  who  received  payment  was 
prejudiced  by  this  delay  in  obtaining  re- 
dress, there  might  be  a  chance  for  success- 
fully defending  against  liability,  but  many 
cases  hold  that  delay  in  discovery  does  not 
affect  the  right  of  recovery  provided  reason- 
able notice  is  given  when  discovery  is  made. 
It  would  seem  in  this  case  that  bank  D 
would  be  liable  to  refund  notwithstanding 
the  four  months'  delay.  {Inquiry  from  Mo., 
Sept.,  1913.) 

Limitation  of  time   of  making  claim   upon 
forged  indorsement  in   New  Jersey 

1625.  Inquiry  is  made  as  to  the  length 
of  time  a  bank  has  in  which  to  make  a  claim 
for  a  forged  indorsement  on  a  check  received 
from  a  corresponding  bank  with  indorse- 
ment guaranteed.  Opinion:  As  soon  as  a 
bank  learns  that  an  indorsement  has  been 
forged  upon  a  check  paid  by  it,  it  should 
give  notice  to  its  correspondent  and  make 
claim  for  reimbursement;  otherwise,  if  it 
delays  an  unreasonable  time  and  the  corre- 
spondent is  injured  by  the  delay,  the  payor 
bank  may  be  estopped  from  recovering.  If 
reasonable  notice  has  been  given  after  dis- 
covery of  the  forgery,  the  bank  would  have 
the  full  period  of  the  statute  of  limitations, 
namely,  six  years,  in  which  to  bring  action  to 
recover  the  money  paid  on  a  forged  indorse- 
ment or  for  a  breach  of  guarantee.  The  New 
Jersey  Act  of  April  13,  1908,  providing  that 
no  bank  shall  be  liable  to  a  depositor  for 
payment  by  it  of  a  forged  or  raised  check, 
unless  within  one  year  after  the  return  to 
the  depositor  of  the  voucher,  the  depositor 
shall  notify  the  bank  that  the  check  was 
forged  or  raised,  has  been  held  not  directly, 
but  by  implication,  in  the  case  of  Pratt  v. 
Union  Nat.  Bank,  79  N.  J.L.  117,  75  Atl.313, 
to  apply  to  forged  indorsements.  If  this 
ruling  be  adhered  to,  then,  if  a  Ixink  paid  a 
check  upon  af  orged  indorsement  and  returned 
same  to  its  depositor  as  a  paid  voucher 
and  the  latter  failed  to  notify  the  bank 
of  the  forgery  within  a  year,  the  amount 
charged  to  the  depositor's  account  could  not 
be  questioned  by  him,  and  the  bank  in  such 
case  would  have  no  right  of  action  against 
the  correspondent.  {Inquiry  from  N.  J., 
June,  1919.) 

Two  months'  delay  by  drawee  after  discovery  in 
giving  notice 

1626.  Where  the  drawee  bank  delayed 


377 


1627-1632] 


DIGEST  OF  LEGAL  OPINIONS 


the  giving  of  notice  for  more  than  two 
months  after  the  discovery  of  the  forgery  of 
the  payee's  indorsement,  it  cannot  recover 
under  the  rule  adopted  in  a  number  of 
States,  provided  the  bank  receiving  pay- 
ment can  show  that  the  delay  caused  it  a 
loss.  Under  the  rule  laid  down  by  the 
United  States  Supreme  Court,  the  drawee 
can  recover,  regardless  of  the  unreasonable 
delay  in  giving  notice  of  the  forgery.  See 
citations  in  Opinion  No.  1623.  {Inquiry 
from  S.  D.,  Jan.,  1914,  Jl.) 

Notice  by  drawee  of  forgery  four  months  after 
payment 

1627.  On  February  6th  a  bank  cashed  a 
check  upon  which  the  payee's  indorsement 
was  forged,  the  forger  having  been  intro- 
duced to  the  bank  as  the  payee  by  one  of 
its  depositors  who  left  the  city  in  April  and 
cannot  be  located.  On  June  27th  the  bank 
was  notified  of  the  forgery  by  the  payor  of 
the  check.  Opinion:  If  there  was  unreason- 
able delay  after  discovery  of  the  forgery  in 
giving  notice  thereof,  accompanied  by  loss 
sustained  by  the  bank,  the  drawee  of  the 
check  could  not  recover.  Mere  delay,  how- 
ever, in  discovering  the  forgery  is  no  defense. 
If  the  forgery  was  discovered  soon  after  the 
check  was  paid,  the  delay  in  giving  notice  to 
the  bank  might  be  a  good  defense,  assuming 
there  was  recourse,  which  was  lost,  upon  the 
depositor  who  misrepresented  the  forger  as 
the  payee.  Under  the  federal  rule,  however, 
the  money  is  recoverable  by  the  drawee, 
notwithstanding  unreasonable  delay,  on  the 
ground  of  breach  of  implied  warranty  of 
genuineness.  Brixen  v.  Nat.  Bk.,  5  Utah 
504.  Lahay  v.  City  Nat.  Bk.,  15  Colo.  339. 
(Inquiry  from  Utah,  Aug.,  1912,  Jl.) 


Indorsement  by  person  of  same  name 

Indorsement  a  forgery  and  purchasing  bank 
takes  no  title 

1628.  An  indorsement  of  a  draft  by  a 
person  of  the  same  name  but  not  the  payee 
intended  is  a  forgery,  and  the  bank  cashing 
the  draft  is  responsible  for  the  loss,  in  the 
absence  of  any  neghgence  on  the  part  of  the 
drawer.  Cockran  v.  Atchinson,  27  Kan. 
728.  Rossi  V.  Nat.  Bk.  of  Commerce,  71 
Mo.  App.  570.  Graves  v.  Amer.  Exch.  Bk., 
17  N.  Y.  205.  Beattie  v.  Nat.  Bk.  of  111., 
174  111.  571.  Exception  to  Rule  in  Weis- 
berger  v.  Barberton  Sav.  Bk.  Co.,  95  N.  E. 
(Ohio)  379.  (Inquiry  from  Fla.,  Sept., 
1911,  Jl.) 


Mailing  draft  to  payee  without  street  address 
not  negligent 

1629.  The  purchaser  of  a  draft  mailed 
it  to  himself  at  his  home  city  with  no  partic- 
ular street  address,  and  draft  was  delivered 
to  a  person  of  the  same  name,  who  cashed  it 
at  the  bank  upon  his  forged  indorsement. 
The  bank  collected  the  draft.  Opinion: 
The  indorsement  was  a  forgery  and  the 
purchasing  bank  derived  no  title  and  is  liable 
to  the  drawee.  It  is  doubtful  if  a  defense  of 
negligence  can  be  successfully  maintained. 
Weisberger  v.  Barberton  Sav.  Bk.  Co.,  95 
N.  E.  (Ohio)  397.  See  also  citations  in 
Opinion  No.  1628.  (Inquiry  from  Ind.,Jan., 
1910,  Jl.) 

Check  addressed  to  payee  at  one  city  re- 
addressed  to  another  city 

1630.  A  check  payable  to  the  order  of 
John  Smith  was  sent  by  letter  directed  to 
Denver,  and  upon  a  forwarding  order  sent 
to  the  town  of  B,  where  letter  was  received 
by  one  John  Smith  who  cashed  the  check. 
It  was  subsequently  claimed  that  the  party 
who  indorsed  and  cashed  the  check  was  not 
the  real  payee.  Opinion:  An  indorsement 
of  a  check  by  a  person  of  the  same  name,  but 
not  the  real  payee  intended  by  the  drawer, 
is  not  a  valid  indorsement  but  a  forgery  and 
no  title  is  acquired  by  a  purchaser  under 
such  indorsement  and  where  there  is  no 
fault  of  the  drawer  he  cannot  be  held  on  the 
check.    (Inquiry  from  Kan.,  Oct.,  1915.) 

Purchaser  acquires  no  rights 

1631.  A  bank  purchased  a  draft  payable 
to  ''G.  Smith."  The  draft  was  indorsed  by 
a  person  of  the  same  name,  not  the  real 
payee.  Opinion:  The  indorsement  is  a 
forgery  and  purchaser  derived  no  title.  See 
citations  in  Opinion  No.  1628.  (Inquiry 
from  La.,  March,  1913,  Jl.) 

Recovery  by  drawee 

1632.  Two  checks  fell  into  the  hands  of  a 
person  of  the  same  name  as  the  payee.  One 
of  these  checks  was  paid  by  the  drawee  bank. 
Payment  was  stopped  upon  the  other  check, 
but  not  before  the  same  had  been  cashed  by 
a  bank  for  the  purported  payee  upon  the 
identification  of  a  responsible  person,  who, 
however,  did  not  indorse  the  check.  Who 
stands  the  loss?  Opinion:  Where  a  bank 
pays  a  check  upon  the  indorsement  of  a 
person  of  the  same  name,  but  not  the  true 
payee,  the  bank  cannot  charge  the  amount 
to  the  drawer's  account,  unless  the  latter 


378 


FORGED  PAPER 


[1633-1636 


>  is  negligent,  for  the  indorsement  of  the  pur- 
(  ported  payee  is  a  forgery  and  confers  no 
authority  on  the  bank  to  make  payment. 
'  The  payor  bank,  however,  has  a  right  of 
action  against  the  person  receiving  payment 
to  recover  the  money  as  paid  by  mistake. 
A  bank  pm-chasing  a  check  upon  which  the 
payee's  indorsement  is  forged  as  above 
indicated  acquires  no  enforceable  rights. 
Weisberger  v.  Barberton  Sav.  Bk.,  84  Ohio 
St.  21.  Hartford  v.  Greenwich  Bk.,  142 
N.  Y.  S.  287.  {Inquiry  from  N.  C,  March, 
1918,  Jl) 

Check   mailed   to   payee   addressed 
"Rome,  N.  Y." 

1633.  A  check  was  made  payable  and 
mailed  to  A,  Rome,  N.  Y.  There  are  in 
Rome  two  or  more  persons  of  the  same  name, 
and  the  letter  containing  the  check  was  de- 
hvered  to  the  wrong  A,  who  indorsed  and 
cashed  same  at  the  bank  where  made 
payable.  Opinion:  The  courts  take  the 
view  that  indorsement  of  a  check  by  a  per- 
son of  the  same  name,  but  not  the  real  paj^ee 
intended  by  the  drawer,  is  not  a  valid  in- 
dorsement and  that  the  bank  which  pur- 
chases a  check  upon  such  indorsement  is  not 
protected  nor  can  the  drawee  bank  which 
pays  such  a  check  charge  the  amount  to  the 
drawer.  See  Graves  v.  American  Exch. 
Bk.,  17  N.  Y.  205.  The  mailing  to  A  at 
Rome  without  street  address  would  prob- 
ably be  held  not  sufficient  neghgence  of  the 
drawer  to  charge  him  with  the  amount. 
{Inquiry  from  N.  Y.,Oct.,  1915.) 

Purchaser  acquires  no  title  hut  could  hold 
indorser 

1634.  A  check  was  sent  by  mail  to 
payee's  proper  post  office  address  and  re- 
ceived by  another  person  of  the  same  name, 
who  indorsed  the  same  and,  after  being 
identified,  obtained  cash  for  it  from  bank 
A.  The  latter  was  unable  to  collect  from 
drawee  bank,  because  the  drawer  of  the 
check  had  stopped  payment.  It  inquires 
as  to  its  status.  Opinion:  The  courts  in 
several  cases  have  held  that  an  indorsement 
of  a  person  of  the  same  name  as  the  payee, 
but  not  the  true  payee,  is  a  forgery,  and 
that  the  purchaser  of  a  check  under  such  an 
indorsement  acquires  no  title.  In  this  case, 
as  the  maker  mailed  the  check  to  payee  at 
his  correct  address,  he  would  not  be  held 
negUgent  because  there  happened  to  be 
another  person  of  the  same  name  who  re- 
ceived his  mail  at  the  post  ofiice.  Bank 
A's  sole  recourse,   as  it  cannot  hold  the 


drawer  liable,  would  be  against  the  person 
from  whom  it  received  the  check,  unless  the 
person  who  identified  the  holder  indorsed 
the  check,  in  which  case  it  could  look  to 
him  also.  {Inquiry  from  N.  Y.,  March, 
1920.) 

Drawee  liable  although  person  of  same  name 
as  payee  personally  known  to  it 

1635.  A  check  payable  to  John  Smith 
was  mailed  by  the  drawer  to  the  paj^ee,  but 
was  delivered  to  another  person  of  the  same 
name,  who  was  personally  known  to  the 
drawee,  and  who  received  payment  on  his 
indorsement.  Opinion:  The  indorsement 
is  a  forgery  and  the  drawee  cannot  charge 
the  amount  to  the  drawer,  in  the  absence  of 
drawer's  negligence  in  mailing  the  check, 
but  can  recover  from  the  person  receiving 
payment.  {Inquiry  from  Okla.,  June,  1916, 
Jl.) 

Purchasing  bank  liable  to  drawee 

1636.  M.  S.  &  Co.,  of  New  York  City, 
mailed  a  check  to  Samuel  Jackson,  and  the 
P.  O.  department  delivered  the  letter  to 
another  person  having  same  name.  Person 
receiving  check  presented  same  at  local 
bank  for  deposit,  and,  being  known  to  teller 
who  waited  upon  him,  as  Samuel  Jackson, 
check  was  accepted  and  placed  to  his  credit. 
In  course  of  month  he  withdrew  these  funds 
from  his  account.  The  correct  Samuel 
Jackson,  not  receiving  the  check  from  M.  S. 
&  Co.,  advised  them,  and  they  issued  duph- 
cate  check  and  forwarded  same  to  correct 
party,  and  it  was  duly  dehvered  to  him. 
This  transaction  occurred  about  a  month 
after  the  original  check  had  been  presented  to 
drawee  bank  and  charged  to  account  of 
M.  S.  &  Co.  The  latter  issued  duphcate 
check  without  inquiry  at  their  bank  regard- 
ing fate  of  original  check.  Query — what  is 
Habihty,  if  any,  of  collecting  bank,  which 
gave  value  for  check  without  any  knowledge 
or  notice  of  any  irregularity,  or  mistaken 
identity?  Opinion:  The  rule  is  that  an  in- 
dorsement of  a  check  by  a  person  having 
the  same  name  as  the  person  to  whom  the 
check  is  payable,  but  not  the  true  payee,  is 
a  forgery.  One  purchasing  the  check  under 
such  indorsement  acquires  no  title  thereto 
and  the  bank  which  pays  the  check  upon 
such  forged  indorsement  cannot  ordinarily 
charge  the  amount  to  the  drawer's  account, 
in  the  absence  of  negligence  on  the  part  of 
the  latter;  and  the  bank  which  receives  pay- 
ment is  liable  to  refund  to  the  drawee  bank. 
In  this  case  the  bank  which  received  the 


379 


1637-1641] 


DIGEST  OF  LEGAL  OPINIONS 


check  on  deposit  is  liable.  Russell  v.  First 
Nat.  Bank  [Ala.]  56  So.  868.  Beattie  v. 
Nat.  Bank  of  111.  [111.]  501  N.  E.  602. 
Graves  v.  American  Exch.  Nat.  Bank,  17 
N.  Y,  205.  But  see  Weisberger  Co.  v. 
Barberton  Sav.  Bank  Co.  [Ohio]  95  N.  E. 
379,  where  drawer  was  held  guilty  of  negU- 
gence  in  mailing  check  to  a  wrong  address, 
which  made  him  responsible  to  the  drawee 
bank  for  payment  to  the  wrong  payee  of  the 
same  name.  {Inquiry  from  Pa.,  July,  1912, 
Jl.) 

Purchaser  must  refund 

1637.  Last  June  a  bank  cashed  a 
Government  bonus  check  for  a  person  whose 
indorsement  we  recognized  as  that  on  several 
items  handled  through  the  bank.  In  De- 
cember the  Government  charged  the  bank 
with  the  check,  claiming  forged  indorse- 
ment, and  sent  affidavit  supporting  claim. 
The  name  of  person  cashing  check  is  the 
same  as  that  of  the  person  verifying 
affidavit.  Opinion:  The  courts  have  held 
in  a  number  of  cases  that  an  indorsement  by 
a  person  of  the  same  name,  but  not  the  real 
payee,  is  a  forgery,  and  that  a  bank  or  per- 
son acquiring  the  instrument  under  such 
indorsement  takes  no  title,  and  if  it  has 
collected  the  money,  it  is  liable  to  refund. 
The  fact  that  six  months  elapsed  before  the 
Government  charged  the  bank  with  the 
ch(.'ck,  claiming  forged  indorsement,  is  not 
such  delay  as  will  prevent  the  Govern- 
ment's right  of  recovery.  It  is  apparent 
that  the  bank  is  liable  and  must  refund. 
{Inquiry  from  Tex.,  March,  1920.) 

Question  undecided  whether  drawer  negligently 

mailing  to  wrong  address  estopped  to  deny 

purchaser's  title 

1638.  A  check  was  mailed  to  the  payee 
and  delivered  to  the  wrong  person  of  the 
same  name  who  indorsed  and  negotiated 
it  to  a  purchaser  for  value.  Opinion:  The 
indorsement  was  a  forgery  and  the  pur- 
chaser took  no  rights.  Where  the  maker  of 
the  check  is  guilty  of  negligence  in  letting 
the  check  get  into  the  hands  of  the  wrong 
person  it  has  been  held  as  between  drawer 
and  drawee  bank,  the  loss  will  fall  upon  the 
drawer;  but  whether  mailing  to  a  wrong 
address  would  be  a  responsible  breach  of 
duty  to  a  purchaser  has  never  yet  been 
decided,  and  is  doubtful.  {Inquiry  from  W. 
Va.,  June,  1910,  Jl.) 

1639.  The  drawer  of  a  check  mailed  it 
to  one  J.  Smith,  to  whom  payable,  at  No. 
2701  A  Street  instead  of  No.  2701  B  Street. 


Another  J.  Smith,  who  happened  to  live 
at  the  former  address,  received  the  check 
and  cashed  it  at  a  bank,  which  was  an  in- 
nocent purchaser  for  value.  Opinion:  The 
indorsement  was  a  forgery  and  the  purchaser 
took  no  title  nor  right  to  enforce  against  the 
maker.  Where  the  drawer  negligently  mails 
a  check  to  the  wrong  address,  and  it  gets  into 
the  hands  of  a  person  of  the  same  name, 
who  forges  the  indorsement,  an  Ohio  case 
holds  that  the  drawer  is  liable  to  the  drawee 
which  pays  the  check;  but  it  is  doubtful  that 
such  h  ability  would  extend  to  the  purchaser 
of  the  check  from  the  forger.  {Inquiry  from 
W.  Va.,  Oct.,  1914,  Jl.) 

Where  drawer  misnames  payee 

1640.  The  drawer  of  a  check,  who  owed 
"George  P.  Bent,"  by  mistake  drew  and 
mailed  his  check  to  "George  A.  Bent."  The 
latter  received  and  cashed  the  check. 
Opinion:  The  general  rule  is  that  indorse- 
ment by  a  person  of  the  same  name,  is  a 
forgery  and  that  the  depositor  is  not  liable 
for  payment.  But  if  the  drawer  is  guilty  of 
negligence,  the  loss  will  be  his  and  not  the 
banks.  In  this  case,  drawer  will  probably 
be  held  the  loser,  as  payment  was  made 
by  the  bank  as  a  result  of  his  negligence  in 
misnaming  the  payee.  Weisberger  Co.  v. 
Barberton  Sav.  Bk.  (Ohio)  95  N.  E.  379. 
{Inquiry  from  S.  C,  Nov.,  1911,  Jl.) 

Indorsement  by  precise  person  intended 

Check    payable    to    impostor    impersonating 
owner  of  property 

1641.  An  impostor  F  obtained  a  loan  on 
real  property  he  claimed  to  own,  from  A  who 
gave  him  his  check,  requiring  F,  before  so 
doing,  to  have  his  acknowledgment  to  a 
mortgage  taken  before  a  notary  public  where 
F  claimed  to  reside  and  to  be  known.  The 
deed  to  F  turned  out  to  be  a  forgery  through- 
out, even  the  notary's  seal  having  been 
stolen.  In  all  the  transactions  the  impostor 
used  a  fictitious  name  very  similar  to  his 
real  name.  The  check  indorsed  as  drawn 
was  cashed  by  bank  B  which  indorsed,  "All 
prior  indorsements  guaranteed,"  and  for- 
warded to  bank  C  which  collected  from 
drawee.  A  asks  if  he  can  hold  bank  B. 
Opinion :  A  would  have  no  recourse  against 
bank  B.  The  courts  have  held  that  where 
a  stranger,  falsely  representing  himself  to  be 
another,  obtains  a  loan  for  which  the  lender 
gives  him  his  check  payable  to  the  person  he 
represents  himself  to  be,  the  check  having 
been  issued  to  the  person  to  whom  the 
drawer  intended  to  make  payment^  its  pay- 


380 


FORGED  PAPER 


[1642-1645 


ment  is  chargeable  by  the  drawee  to  the 
drawer;  that  the  indorsement  is  not  a  for- 
gery but  by  the  precise  person  intended  by 
the  drawer  to  receive  the  money  and  neither 
a  purchaser  of  the  check  upon  such  an  in- 
dorsement nor  the  bank  of  pajnnent  is  hable 
to  the  drawer.  See,  for  example,  Land  Title 
&  Trust  Co.  V.  North  Western  Nat.  Bank, 
196  Pa.  230,  46  Atl.  420,  50  L.  R.  A.  75. 
(Inquiry  from  Ai'k.,  Feb.,  1918.) 

Railroad  pay  check  delivered  to  impersonator 
of  payee 

1642.  A  railroad  pay  check  payable  to 
R.  E.  Jones  was  through  a  mistake  delivered 
by  an  agent  of  the  railroad  to  the  wrong 
person,  who  impersonated  Jones.  The 
impersonator  indorsed  the  check  R,  E. 
Jones  and  cashed  it  at  a  bank.  The  real 
payee  seeks  to  hold  the  bank  lial^le.  Opin- 
ion: It  might  be  held  that  under  the  cir- 
cumstances the  indorsement  was  not  a 
forgery  but  by  the  precise  person  intended 
by  the  drawer  to  receive  the  money,  in  which 
case  the  railroad  company  would  be  liable. 
Weisberger  Co.  v.  Barberton  Sav.  Bk.  Co., 
95  N.  E.  (Ohio)  379.  Land  Title  &  Tr.  Co. 
v.  Bk.,  196  Pa.,  230,  211  Pa.  211.  Emporia 
Nat.  Bk.  V.  Shotwell,  35  Kan.  360.  U.  S. 
V.  Bk.,  45  Fed.  163.  {Inquiry  from  Idaho, 
Nov.,  1911,  Jl.) 

Rights  of  purchasing  hank 

1643.  A  check  is  drawn  and  delivered  to 
an  impostor,  the  drawer  beheving  him  to  be 
the  person  named  therein.  The  impostor 
indorsed  in  the  name  he  had  assumed,  and, 
upon  being  properly  identified,  cashed  the 
same  for  value  at  a  bank.  Opinion:  The 
bank  cashing  the  check  is  protected,  as  the 
indorsement  is  not  a  forgery,  but  by  the 
precise  person  intended  to  receive  the  money. 
The  majority  rule  is  as  above,  but  there  are 
a  few  cases  contra.  Burrows  v.  West.  Union 
Tel.  Co.,  86  Minn.  499.  See  citations  in  Opin- 
ion No.  1642;  also  Maloney  v.Clark&Co.,6 
Kan.  82.  Hoge  v.  First  Nat.  Bk.,  18  111. 
App.  501.  Hoffman  v.  Amer.  Exch.  Nat. 
Bk.,  2  Neb.  217.  {Inquiry  from  Minn., 
Sept.,  1911,  Jl.) 

Money  forwarded  by  one  hank  to  another  in 

response  to  impostor^s  telephone  request 

for  funds 

1644.  A  person  telephoned  a  bank  from 
another  locality,  representing  himself  to  be 
W,  a  customer,  and  asked  the  bank  to  for- 
ward all  his  money  to  him.  The  bank  sent 
a  draft  for  the  balance  to  a  bank  in  the  other 


locality  payable  to  that  bank  with  instruc- 
tions to  pay  the  money.  The  receiving 
bank  took  a  receipt  from  the  supposed  W, 
which  later  proved  to  be  a  forgery  by  his 
son.  What  rights  has  the  bank  drawing  the 
draft  against  the  payor  bank?  Opinion: 
An  analogous  situation  has  often  come  be- 
fore the  courts  where  an  impostor  impersonat- 
ing a  customer  has  wired  the  bank  asking 
that  it  send  him  funds  which  have  been 
forwarded  by  draft  payable  to  the  customer, 
and  the  impostor  has  indorsed  the  draft  in 
the  customer's  name,  and  transferred  it. 
Some  cases  hold  that  the  indorsement  is  not 
a  forgery,  but  is  by  the  precise  person 
intended  by  the  bank  to  receive  the  money, 
namely,  the  impostor  who  wired  for  it. 
Other  cases  hold  that  the  bank  intended  to 
pay  the  customer  and  the  indorsement  is  a 
forgery.  In  the  case  submitted  a  court 
might  hold  that  the  drawer  bank  intended 
the  payor  bank  to  dehver  to  the  person 
telephoning,  the  drawer  bank  supposing 
him  to  be  the  owner  of  the  account,  or  it 
might  be  held  that,  although  the  drawer  was 
deceived,  it  was  the  duty  of  the  payor  bank 
to  identify  the  person  asking  for  the  money 
and  to  pay  only  to  the  customer.  The 
equities,  however,  are  seemingly  with  the 
payor  bank  and  it  would  probably  be  held 
that,  in  paying  the  money,  it  was  acting  as 
agent  of  the  forward  ng  bank;  that  it  had 
exercised  due  care  and  was  not  responsible. 
{Inquiry  from  Mo.,  Jan.,  1921.) 

Check  of  savings  bank  forwarded  to  impostor 
mailing  book 

1645.  A  savings  bank  received  by  mail 
from  an  impostor,  who  impersonated  a 
depositor,  the  depositor's  pass  book  and  a 
forged  order  with  a  letter  requesting  pay- 
ment of  the  full  amount  due.  A  few  days 
previous  the  pass  book  had  been  presented 
with  an  order  for  part  of  the  funds,  but  pay- 
ment was  refused  because  the  signatures  did 
not  correspond.  The  savings  bank  dealt 
with  the  impostor,  beheving  him  to  be  its 
depositor,  and  mailed  to  the  impostor  in 
another  city  its  check  payable  to  the  depos- 
itor. The  impostor  indorsed  the  check  in 
the  name  of  the  depositor  to  a  bank,  which 
collected  it  and  then  paid  the  proceeds  of 
the  check  to  the  impostor.  Opinion:  The 
bank  would  have  a  fair  ground  of  defending 
against  Uability  to  the  savings  bank  (1) 
because  the  check  was  indorsed  by  the  pre- 
cise person  intended  by  the  drawer  to 
receive  payment,  and  (2)  because  the  say- 
ings bank  would  probably  be  estopped  in 


381 


1646] 


DIGEST  OF  LEGAL  OPINIONS 


setting  up  forgery  by  reason  of  negligence 
in  mailing  the  check  under  such  suspicious 
circumstances.  As  a  further  ground,  if  the 
bank  could  show  that  it  appeared  on  the 
check  as  collecting  agent,  it  could  escape 
liabihty,  after  payment  of  the  proceeds  to 
the  impostor.  See  citations  in  opinions 
Nos.  1642  and  1643;  also  Meyer  v.  Ind. 
Nat.  Bk.,  27  Ind.  App.  354.  Metzger  v. 
Franklin  Bk.,  119  Ind.  359.  {Inquiry  from 
Ohio,  June,  1914,  Jl.) 

Fictitious  payees 

Draft  to  fictitious  payee  procured  by  agent  of 
drawer    and   indorsement  forged 

1646.  A,  the  treasurer  of  a  local  lodge  of 
an  insurance  order  for  a  period  covering  two 
years,  forged  a  number  of  death  proofs 
showing  deaths  of  various  members,  and 
received  from  the  main  lodge  drafts  on  its 
treasury  issued  to  the  beneficiaries  named 
in  the  different  policies,  sent  to  him  in  vio- 
lation of  one  of  its  by-laws  providing  that 
such  drafts  should  be  sent  to  a  different 
officer.  In  each  instance  A  forged  the  in- 
dorsement of  the  beneficiary  and  cashed  the 
draft  at  some  bank,  and  it  was  eventually 
paid  out  of  the  funds  of  the  order  by  one  of 
its  local  depositaries.  The  question  is — 
would  the  banks  that  cashed  the  drafts  for 
A  and  guaranteed  the  indorsements  be  liable 
to  the  lodge,  or  would  the  fact  that  the  lodge 
was  negligent  in  not  discovering  the  fraud 
sooner  be  a  defense?  Opinion:  The  case 
is  one,  it  appears,  where  the  lodge  would  be 
held  entitled  to  recover  from  its  local  de- 
positary and  the  latter  in  turn  would  have 
recourse  upon  the  banks  that  originally 
cashed  the  drafts  for  A  and  guaranteed  the 
indorsements.  The  depositary  bank  would 
not  be  able  to  charge  the  money  paid  on 
these  checks  to  the  account  of  the  lodge 
because  of  the  fact  that  they  were  made 
payable  to  the  order  of  persons  having  no 
existence  and,  therefore,  in  legal  effect 
payable  to  bearer,  as  the  Missouri  Nego- 
tiable Instrument  Law  expressly  provides 
that  "The  instrument  is  payable  to  bearer — 
when  it  is  payable  to  the  order  of  a  fictitious 
or  non-existing  person,  and  such  fact  was 
known  to  the  person  making  it  so  payable 
and  in  this  case  the  main  lodge  was  ignorant 
of  the  non-existence  of  the  beneficiaries 
named  as  payees."  The  only  ground  for 
reaching  a  different  result  would  be  to  main- 
tain that  the  lodge,  by  allowing  itself  to  be 
duped  in  this  manner,  was  guilty  of  negli- 
gence which  would  estop  it  from  asserting 
that  the  drafts  were  paid  without  its  au- 


thority, but  it  is  doubtful  whether  a  case  of 
estoppel  by  negligence  could  be  made  out, 
as  in  some  leading  cases,  where  the  facts  ap- 
peared much  stronger  against  the  depositor 
than  in  this,  the  courts  have  held  the  de- 
positor not  negligent.  See  Shipman  v. 
Bank  of  the  State  of  New  York,  126  N.Y. 
318,  27  N.  E.  371,  12  L.  R.  A.  791,  22  Am. 
St.  Rep.  821.  Seaboard  Nat.  Bank  v.  Bank 
of  America,  193  N.  Y.  26,  85  N.  E.  829. 
{Inquiry  from  Mo.,  Jan.,  1913.) 

Note:  But  in  Equitable  Life  Assur.  Soc. 
v.  National  Bank  of  Commerce,  181  S.  W. 
(Mo.)  1176,  decided  in  1916,  where  the 
agent  of  an  insurance  company  procured  its 
check  to  a  fictitious  payee  to  be  delivered  by 
him  supposedly  to  a  real  beneficiary  and  the 
agent  forged  the  indorsement  of  the  fictitious 
payee  and  negotiated  the  check  for  value, 
the  court  held  the  drawee  bank  which  paid 
the  check  was  not  responsible  to  the  in- 
surance company.  It  held  that  the  knowl- 
edge of  the  insurance  agent  that  the  payee 
of  a  check  sent  to  him  for  delivery  in  settle- 
ment of  a  death  claim  which  he  had  forged 
was  a  fictitious  person  when,  acting  within 
the  scope  of  his  actual  or  implied  authority, 
he  delivered  the  check  and  put  it  into  circu- 
lation as  a  negotiable  instrument  was  the 
knowledge  of  the  insurance  company,  and 
that,  under  the  Negotiable  Instruments  Act, 
which  provides  that  where  a  negotiable 
instrument  is  payable  to  the  order  of  a 
fictitious  person  and  such  fact  is  known  to 
the  person  making  it  so  payable,  it  shall  be 
payable  to  bearer,  the  drawee  upon  which 
the  insurance  company  drew  the  check 
payable  to  a  fictitious  person  was  entitled 
to  the  same  protection  as  if  the  check  had 
been  payable  to  bearer  and  was  not  deprived 
of  such  protection  by  reason  of  its  failure  to 
proceed  against  the  fraudulent  agent  or 
against  the  two  banks  through  which  the 
check  had  been  presented,  when  the  agent's 
fraud  was  not  discovered  until  four  years 
after  payment. 

Also  in  Osborn,  et  al.,  v.  Corn  Exchange 
Bank  of  Chicago,  decided  by  the  Appellate 
Court  of  111.  in  Chicago,  in  April,  1920,  one 
D  in  the  employ  of  plaintiffs  procured  them 
to  sign  checks  drawn  on  the  defendant  bank 
to  the  order  of  an  insurance  company,  the 
indorsements  of  which  he  forged,  and  they 
were  paid  by  the  drawee  through  other 
banks  in  which  the  checks  were  deposited 
and,  when  returned  to  the  depositors  as 
vouchers,  they  were  destroyed  or  concealed 
by  D.  Plaintiffs  in  this  case  were  denied 
recovery  from  the  drawee  bank  (not  on  the 


382 


i 


FORGED  PAPER 


[1647-1649 


theory  that  the  checks,  being  payable  to 
fictitious  payees  with  knowledge  of  the 
agent,  were  payable  to  bearer  but)  on  the 
ground  that  plaintiffs  were  negligent  in 
giving  D  unrestrained  opportunity  to  com- 
mit the  forgeries  complained  of  and  by 
failure  to  make  any  objection  to  the  monthly 
statements  rendered  to  them. 

Conflict  of  decision  whether  check  to  fictitious 
person  issued  through  fraud  of  agent  is 

bearer  instrument 
1647.  Bank  A  cashed  a  check  for  an 
agent  of  an  insurance  company  who  had 
obtained  it  from  the  company  on  his  fraudu- 
lent representation  that  it  was  for  a  loan  to 
a  real  policy  holder  to  whom  the  check  was 
made  payable  and  whose  indorsement  was 
forged  by  such  agent.  The  bank  voluntarily 
returned  the  money  to  the  drawer,  and  the 
question  is — If  it  was  not  necessary  for  it  to 
have  done  so,  would  it  have  any  ground  to 
recover  the  money  back?  Opinion:  If 
bank  A  had  not  refunded  the  money,  there 
might  have  been  a  chance  for  it  to  have 
retained  same  and  deny  liability  in  view  of 
the  decision  in  the  Missouri  case  of  Equita- 
ble Life  V.  National  Bank  of  Commerce,  181 
S.  W.  1176.  There  the  insurance  company 
issued  a  check  through  fraud  of  its  agent  to  a 
fictitious  person,  the  agent  forged  the  in- 
dorsement and  the  drawee  bank  paid  the 
check.  It  was  held  that  a  check  payable 
to  a  fictitious  person  is  payable  to  bearer 
where  the  drawer  has  knowledge  of  the 
fiction,  and  that  the  knowledge  of  the  agent 
was  the  knowledge  of  the  company,  and 
that  the  latter  could  not  recover  from  the 
bank.  The  New  York  case  of  Shipman  v. 
Bank,  126  N.  Y.  318,  27  N.  E.  371,  12  L.  R. 
A.  791,  22  Am.  St.  Rep.  821,  holds  to  the 
contrary,  but  a  later  New  York  decision, 
Trust  Co.  V.  Hamilton  Bank,  129  App.  Div. 
515,  112  N.  Y.  Supp.  84,  would  seem  to 
support  the  proposition.  As  there  are  con- 
flicting opinions,  the  result  in  this  case 
would  be  doubtful  even  if  the  money  had  not 
been  returned.  But  here  the  money  has 
been  voluntarily  refunded.  It  is  a  general 
rule  that  money  voluntarily  paid  under  a 
mistake,  or  in  ignorance  of  the  law,  but 
with  full  knowledge  of  all  the  facts,  cannot 
be  recovered  back  where  there  has  been  no 
fraud  or  misconduct  on  the  part  of  the  per- 
son receiving  payment.  If  bank  A's  pay- 
ment was  without  legal  liability  to  refund, 
still,  having  voluntarily  repaid  the  amount, 
this  rule  would  seem  to  debar  it  from  re- 
covering it  back,  {Inquiry  from  N.  J., 
Sept.,  1916.) 


Note:  In  a  number  of  cases  it  has  been 
held  that  where  the  drawer  is  induced  upon 
representation  of  an  impostor  to  make  his 
check  payable  to  a  fictitious  name  which  is 
negotiated  with  indorsement  of  such  name 
by  the  impostor,  the  indorsement  is  a  for- 
gery and  the  drawer  not  liable.  United 
Cigar  Stores  Co.  v.  American  Raw  Silk  Co., 
171  N.  Y.  Supp.  480.  Mercantile  National 
Bank  v.  Silverman,  132  N.  Y.  Supp.  1017, 
and  National  Surety  Co.  v.  National  City 
Bank,  172  N.  Y.  Supp.  413.  Padgett  v. 
Young  County,  204  S.  W.  (Tex.)  1046.  But 
in  these  cases  the  impostor  had  no  relation 
of  agency  to  the  drawer. 

Indorsement    of  fictitious    payee  forged   by 
a^ent  of  drawer 

1648.  A  bank  cashed  a  check  drawn  by 
an  insurance  company  upon  an  indorsement 
of  a  fictitious  payee  forged  by  its  agent  and 
cashed  upon  his  identification.  The  agent 
was  in  the  habit  of  identifying  the  payees  of 
the  company's  checks,  and  of  witnessing 
their  indorsements.  Opinion:  The  bank 
is  responsible  unless  it  could  be  shown  that 
the  agent  was  acting  within  the  scope  of  his 
authority,  in  which  case  the  company  would 
be  estopped  from  asserting  that  the  in- 
dorsement was  a  forgery.  First  Nat.  Bk.  of 
Hastings  v.  Farmers  &  Merchants  Bk.,  56 
Neb.  149.  Shipman  v.  Bk.  of  St.  of  N.  Y., 
126  N.  Y.  318.  {Inquiry  from  Md.,  May, 
1910,  Jl.) 

Check  of  principal  signed  by  authorized  agent 
to  fictitious  payee 

1649.  A  was  agent  of  an  insurance  com- 
pany and  authorized  to  make  settlements  for 
losses  and  draw  drafts  upon  his  company  in 
payment  of  claims.  It  had  been  his  custom 
for  several  years  to  secure  the  indorsements 
of  different  payees,  and,  indorsing  the  drafts 
himself,  receive  cash  for  them  from  bank  B 
and  settle  with  the  payees.  Such  drafts 
were  always  honored  by  the  principal. 
Finally  he  drew  a  number  of  them,  using 
fictitious  names  for  payees,  and,  after  in- 
dorsing in  such  names,  indorsed  same  him- 
self and  they  were  cashed  by  bank  B  for 
him  in  the  belief  that  the  indorsements  were 
the  genuine  signatures  of  the  payees  named. 
The  drafts  were  returned  by  the  drawee 
bank  with  the  notation,  "Received  no  ad- 
vice," and  the  question  is — has  bank  B  a 
valid  claim  against  the  insurance  company? 
Opinion:  Bank  B  would  have  a  valid  claim 
against  the  insurance  company  as  drawer 
of  the  drafts  on  the  ground  that  the  agent 


383 


1650-1651] 


DIGEST  OF  LEGAL  OPINIONS 


had  authority  to  issue  them  and  that,  by 
making  them  payable  to  fictitious  persons, 
they  were  in  reahty  payable  to  bearer  under 
the  rule  of  the  Negotiable  Instruments  Act 
that  the  instrument  is  paj^able  to  bearer 
"when  it  is  paj-able  to  the  order  of  a  ficti- 
tious or  non-existing  person  and  such  fact 
was  known  to  the  person  making  it  so  pay- 
able."   {Inquiry  from  Tex.,  April,  1917.) 

Purchaser  of  c/d  issued  to  fictitious  payee 
without  knowledge  of  fiction  acquires  no 

title 
1650.  A  customer,  carrying  an  account 
under  the  name  of  M,  deposited  a  forged 
check  and  a  few  daj^s  later  obtained  a  de- 
mand certificate  of  deposit  for  a  portion  of 
the  deposit  payable  to  Dan  Gibson  whom 
he  represented  to  be  an  actual  person,  re- 
siding in  another  city.  The  depositor  signed 
the  name  of  Dan  Gibson  to  the  certificate 
of  deposit  and  cashed  it.  Was  the  bank 
issuing  the  certificate  justified  in  refusing 
to  pay  it  when  it  was  presented  through  the 
clearing  house?  Opinion:  The  indorse- 
ment of  this  certificate  was  a  forgery,  hence 
the  innocent  purchaser  acquired  no  title 
and  cannot  hold  the  issuing  bank  Hable 
thereon.  (1)  If  Dan  Gibson  were  a  real 
person,  the  indorsement  of  his  name  would 
be' a  forgery;  (2)  but  Dan  Gibson  was  doubt- 
less a  fictitious  person  and  here,  equally,  the 
bank  would  not  be  hable,  for  the  certificate 
would  not  be  construed  as  paj'able  to  bearer 
under  the  N.  I.  Act  which  provides  that  the 
instrument  is  payable  to  bearer  "when  it  is 
payable  to  the  order  of  a  fictitious  or  non- 
existing  person  and  such  fact  was  known  to 
the  person  making  it  so  payable."  The  bank 
did  not  know  it  was  making  the  certificate 
payable  to  a  fictitious  or  non-existing  per- 
son. (Shipman  v.  Bank,  126  N.  Y.  318. 
United  Cigar  Stores  Co.  v.  Am.  Raw  Silk 
Co.,  171  N.  Y.  Supp.  480.  Mercantile  Nat. 
Bank  v.  Silverman,  132  N.  Y.  Supp.  1017. 
Nat.  Surety  Co.  v.  National  City  Bank.  172 
N.  Y.  Supp.  413.  Padgett  v.  Young  Coun- 
ty, 204  S.  W.  [Tex.]  1046).  (3)  There  is  a 
line  of  cases  which  hold  that  where  an  in- 
strument is  made  payable  and  delivered  to 
a  person  who  assumes  to  be  another  person 
and  the  impersonator  indorses  the  instru- 
ment in  the  name  of  the  person  he  assumes 
to  be,  the  maker  is  liable  because  the  in- 
dorsement is  not  a  forgery  but  by  the  pre- 
cise person  intended  to  receive  the  money. 
(Hartford  v.  Greenwich  Bank,  142  N.  Y. 
Supp,  387,  affd.  by  court  of  appeals,  109 
N.  E.  1077.  P.  &  G.,  etc.,  Co.  v.  Fifth  Nat. 
Bank,  172  N.  Y.  Supp.  688).     But  in  the 


present  case  the  depositor  did  not  represent 
himself  to  be  Dan  Gibson  and  carried  his 
account  under  another  name,  so  that  these 
cases  have  no  application.  It  follows  that 
the  issuing  bank  was  justified  in  refusing 
payment  when  presented  through  the  clear- 
ing house.  (Inquiry  from  Utah,  June, 
1921,  Jl.) 

Forgery  of  indorsement 

Forgery    of   accommodation    indorsement    of 
collateral  note 

1651.  A  young  man,  B,  dealing  in 
horses,  would  sell  a  horse  for,  say,  $200,  re- 
ceive cash  pajnnent  of  $50,  and  would  take 
purchaser's  note  for  balance,  using  a  "retain 
title  note,"  recording  same  in  county  clerk's 
office.  He  had  these  notes  discounted  at 
bank  C.  After  several  renewals  of  these 
notes  an  arrangement  was  made  by  which 
B  gave  the  bank  his  collateral  form  note  for 
an  amount  covering  all  the  "horse"  notes, 
payable  in  90  days,  which,  according  to 
agreement,  was  indorsed,  purportedly,  by 
the  father  of  B  (by  his  mark,  and  witnessed 
by  the  alleged  signature  of  another  brother, 
D).  Upon  dishonor  of  the  collateral  note, 
the  father  disclaimed  his  indorsement 
thereof,  charging  that  the  affixing  of  his 
signature  was  a  forgery,  the  brother  alleg- 
ing, likewise,  that  his  signature  as  witness 
to  his  father's  signature  was  a  forgery.  It 
afterwards  developed  that  the  makers  of  the 
several  "horse"  notes  had  surrendered  the 
horses  to  B,  and  that  he  had  resold  them. 
The  bank  desires  to  know  if  the  makers  of 
the  notes  are  now  liable  thereon;  if  the  father 
can  be  held  on  his  alleged  indorsement;  and 
of  what  crime,  if  any,  is  B  guilty.  Opinion: 
As  to  the  collateral  note,  the  indorsement 
is  either  genuine  or  a  forgery.  If  genuine, 
the  father  can  be  held  liable  thereon.  If  it 
is  a  forgery,  and  the  signature  of  the  brother, 
D,  is  genuine,  then  he  is  liable  as  witness  to 
a  forged  signature.  If  the  note  is  a  forgery, 
then  B  could  be  prosecuted  and  convicted 
under  the  Virginia  Forgery  Statute  (Pol- 
lard's Va.  Code,  Sec.  3737).  Furthermore, 
it  is  probable  that  B  is  guilty  of  larceny  for 
reselling  the  horses  returned  by  the  condi- 
tional vendees,  since  title  to  them  vested  in 
the  bank  upon  the  assignment  of  the  pur- 
chase money  notes  to  it.  Lastly,  if  these  lat- 
ter notes  were  negotiable,  and  transferred  to 
the  bank  before  maturity,  the  makers  would 
very  likely  be  still  liable  thereon  to  the 
holder  thereof,  the  bank.  (See  Davis  v. 
Miller,  14  Gratt.  [Va.]  1).  {Inquiry  from 
Va.,  June,  1916.) 


384 


I 


I 


FORGED  PAPER 


1652-1656 


Indorsement  in  trade  name 

1652.  Checks  payable  to  a  trade  name 
assumed  by  a  depositor  were  indorsed  in 
that  name  by  a  son  of  the  depositor,  credited 
to  depositor's  account  in  that  name  and 
collected.  The  depositor  having  defrauded 
the  drawer  of  the  checks,  the  latter  seeks  to 
hold  the  bank  on  the  ground  that  the  in- 
dorsement of  the  checks  was  unauthorized 
and  a  forgery.  The  bank  inquires  whether 
a  check  may  be  made  payable  to  a  person 
in  a  trade  or  assumed  name  and  whether  the 
indorsement  of  such  trade  or  assumed  name 
is  valid  to  pass  title  to  the  bank.  Opinion: 
Assuming  that  the  trade  name  was  adopted 
and  used  by  the  depositor  in  his  business,  the 
indorsement  of  the  checks  payable  to  such 
name  by  him,  or  under  his  authority,  would 
be  just  as  valid  as  if  the  checks  were  made 
payable  to  the  depositor  in  his  own  name 
and  indorsed  by  him.  Assuming  that  the 
son  had  authority  to  indorse  the  father's 
name,  then  all  indorsements  of  the  checks 
were  valid  and  there  would  be  no  right  of 
action  against  the  bank  for  acquiring  these 
checks  under  forged  indorsements  and  col- 
lecting the  money  thereon.  (Inquiry  from 
Iowa,  Dec,  1916.) 

Forged  indorsement  on  check  payable  to  A  or 
hearer 

1653.  A  check  was  issued  to  A  or  bearer. 
A  lost  same  and  the  finder  indorsed  A's  name 
and  negotiated  the  check  to  B,  who  indorsed 
to  C,  guaranteeing  prior  indorsements,  and 
drawee  bank  paid  the  check  to  C,  overlook- 
ing a  stop-payment  order.  Can  drawee  bank 
collect  this  amount  from  C,  and  can  C  in 
turn  collect  it  from  B?  Opinion:  The 
check  was  payable  to  bearer  under  the  Nego- 
tiable Instruments  Act,  and,  notwith- 
standing the  forgery  of  the  indorsement, 
continued  negotiable  by  delivery;  hence  B 
was  a  holder  in  due  course  entitled  to  pay- 
ment, and  the  money  is  not  recoverable  by 
the  drawee  from  C,  nor  by  C  from  B,  but 
the  payment  is  chargeal^le  to  the  drawer,  as 
the  overlooking  of  the  stop  order  resulted  in 
no  damage  to  him,  and  the  loss  falls  upon  A 
to  whom  the  check  was  given.  (Neg.  Inst. 
Law,  Sees.  9,  30,  40).  (inquiry  from  Pa., 
Jan.,  1921,  Jl.) 

Estoppel     to     assert     forgery     of 
indorsement 

Where  person  sees  note  containing  forgery  of 

his  indorsement  and  fails  to  disclose 

forgery 

1654.  A,  the  maker,  forges  the  indorse- 


ments of  B  and  C  to  his  note,  which  is  dis- 
counted for  A  by  a  bank.  At  maturity  B 
and  C  are  notified  but  pay  no  attention 
thereto,  and  afterwards  B  sees  the  note  and, 
instead  of  disclosing  the  forgery,  says  he  will 
endeavor  to  get  A  to  renew  with  additional 
indorsers.  Afterwards,  upon  A's  death, 
leaving  no  estate,  B  and  C  assert  forgery. 
Opinion:  If  C's  silence  when  it  was  his  duty 
to  speak  and  B's  affi;-mative  representation 
of  the  genuineness  of  the  indorsements  were 
intended  to  and  did  prevent  the  bank  from 
protecting  itself  from  the  loss,  there  would 
seem  fair  ground  for  holding  B  and  perhaps 
C  Hable.  Neg.  Inst.  A.,  Sec.  23  (111.  & 
Comsr's.  dft.).  Beatty  v.  College,  177  111. 
280.  Chester  v.  Wabash,  etc.,  R.  Co.,  182 
111.  382.  Maring  v.  Meeker,  263  111.  136. 
Richards  v.  Street,  31  App.  D.  C.  427. 
Tobias  v.  Morris,  126  Ala.  535.  Harris  v. 
Amer.  Bldg.,  etc.,  Assoc,  122  Ala.  545. 
Buck  V.  Wood,  85  Me.  204.  Rothschild  v. 
Title  Guar.  &  T.  Co.,  204  N.  Y.  458.  Sackett 
V.  Fast,  39  Pa.  Super.  Ct.  431.  (Inquiry 
from  III.,  June,  1916,  Jl.) 

1655.  The  maker  of  a  note  upon  which 
the  indorser's  name  is  forged  lets  it  go  to 
protest.  The  purported  indorser,  upon  being 
notified  and  questioned,  does  not  inform 
the  bank  of  the  forgery,  but  makes  an 
evasive  reply.  After  the  dishonor  of  a 
second  note  hkewise  forged,  the  purported 
indorser  for  the  first  time  notified  the  bank 
of  both  forgeries.  The  maker  died  insolvent. 
Opinion:  The  purported  indorser  is  liable 
if  he  knew  of  the  forgery  of  the  first  note  and 
his  failure  to  notify  the  bank  caused  a  loss. 
Forbes  v.  Espy,  21  Ohio  St.  474.  Bk.  v. 
Weston,  172  N.  Y.  259.  Morris  v.  Bethell, 
L.  R.  5  C.  P.  47,  21  L.  T.  Rep.  U.  S.  323. 
Barber  v.  Gingell.  3  Esp.  60.  McKenzie  v. 
British  Linen  Co.,  6  App.  Cas.  82.  (In- 
quiry from  N.  Y.,  Sept.,  1913,  Jl.) 

Pay-roll  check  cashed  for  stranger  on 
forged  indorsement 

16.56.  A  bank  was  in  the  habit  of 
cashing  for  payees  the  pay-roll  checks  of  a 
corporation  drawn  on  another  bank  and, 
because  such  checks  were  cashed  for  stran- 
gers without  identification,  in  order  to  afford 
better  protection  it  requested  the  corpora- 
tion to  notify  it  of  any  stop  order  as  soon 
as  it  was  filed  with  such  corporation.  The 
corporation  replied  that  it  would  be  "glad 
to  co-operate  with  you  in  the  matter  and  do 
all  we  can  to  avoid  fraud  and  swindhng 
in  connection  with  pay  checks,"  May  the 
bank    recover    from    the    corporation    the 


385 


1657-1660] 


DIGEST  OF  LEGAL  OPINIONS 


amount  of  a  check  cashed  by  it  on  forgery 
of  indorsement  four  days  after  a  stop  order 
had  been  received  by  the  corporation,  notice 
of  which  it  did  not  transmit  to  the  bank? 
Opinion:  The  bank  acquired  the  check 
under  forged  indorsement  and  took  no  title. 
It  cannot  recover  from  the  corporation  for, 
although  the  letter  of  the  corporation  might 
be  reasonably  interpreted  as  a  promise  to 
give  prompt  notice  of  stop  orders,  which  was 
broken,  such  promise  was  not  supported 
by  a  sufficient  consideration  to  create  a 
liabiUty.    (Inquiry  from  III,  May,  1921,  Jl.) 


Waiver  of  identification  of  payee  hy  drawer 
not  available  to  purchaser 

1657.  A  customer  cashed  a  stolen  rail- 
way pay  check  upon  a  forged  indorsement. 
The  check  was  drawn  on  the  same  bank  in 
which  the  customer  kept  his  account  and 
upon  deposit  the  customer's  account  was 
credited.  Two  weeks  later  the  payee  who 
lost  the  check  notified  the  bank.  The  makers 
of  the  check  had  sent  the  drawee  a  letter  in 
which  they  stated:  "We  will  waive  identi- 
fication of  the  person  presenting  check  for 
payment."  Opinion:  The  customer  must 
refund  to  the  bank.  The  two  weeks  delay 
will  not  affect  the  drawer's  right  of  recovery 
nor  the  payee's  claim  against  the  company. 
The  waiver  is  available  as  a  protection  only 
to  the  bank  and  not  to  the  merchant  cashing 
the  check  upon  a  forged  indorsement.  {In- 
quiry from  Mich.,  Feb.,  1915,  Jl.) 

Drawer  not  estopped  by  opinion  that  sample 

signature  and  payee's  forged  signature 

agree 

1658.  A  forger  impersonating  A  de- 
posited for  collection  a  draft  payable  to  A. 
To  make  sure  that  the  payee's  indorsement 
was  genuine,  the  bank  holding  the  draft 
sent  a  sample  of  the  supposed  A's  signature 
to  the  drawer  (with  whom  A  formerly  had 
an  account)  for  verification.  The  drawer, 
having  compared  the  genuine  and  the  forged 
signatures  of  A,  returned  the  signature  sent 
on  for  verification,  also  a  sample  signature 
of  their  customer,  to  the  bank,  with  the 
statement  that  in  its  judgment  the  two  sig- 
natures agreed.  Opinion:  The  bank  cash- 
ing the  draft  on  the  forgery  and  collecting 
from  the  drawee  is  obliged  to  refund.  The 
drawer  by  its  statement  is  not  estopped  from 
denying  the  genuineness  of  the  payee's 
signature.  {Inquiry  from  Wyo.,  Aug., 
1911,  Jl.) 


Authority  of  agent  to  indorse 

Check  given  to  company   indorsed  and 
negotiated  by  agent 

1659.  A  merchant  gave  his  check  to  A 
company  for  his  share  of  a  pony  contest 
which  the  latter  was  promoting,  as  did 
several  other  merchants  of  the  same  city. 
The  check  was  indorsed  "A  company  by  B 
agent"  and  delivered  by  B  to  a  hotel- 
keeper  in  settlement  of  his  account.  After 
indorsing  same,  the  hotel-keeper  had  the 
check  cashed  by  the  inquiring  bank,  the 
latter  receiving  pajonent  from  another 
bank.  It  is  stated  that  B  had  no  authority 
to  indorse  the  name  of  A  company  to  the 
check  and  negotiate  it.  Opinion:  If  the 
agent  of  A  company  had  authority  to  in- 
dorse their  name  to  the  check  and  to  nego- 
tiate it,  then  payment  of  the  check  was 
properly  chargeable  to  the  drawer's  account 
and  he  must  look  to  A  company  for  the 
money.  If  on  the  other  hand,  the  agent  was 
without  authority  to  indorse  the  A  com- 
pany's name  to  the  check,  then  the  bank 
which  paid  it  cannot  charge  the  amount  to 
the  drawer's  account  but  has  recourse  upon 
the  inquiring  bank  which  collected  the 
money  and  it  in  turn  has  recourse  upon  the 
hotel-keeper  who,  by  his  indorsement, 
warranted  the  genuineness  of  the  payee's 
indorsement  as  well  as  the  authority  of  the 
agent  to  indorse  the  name  of  the  payee.  In 
such  event  the  hotel-keeper  would  have  to 
look  to  B.  The  whole  case  turns  upon  the 
question  of  fact,  whether  or  not  the  agent 
had  authority  to  indorse.  {Inquiry  from 
W.  Va.,  Feb.,  1916.) 

Agent's   authority  to  collect  does  not  include 

authority  to  indorse  principal's  name  to 

checks  taken  in  collection 

1660.  A  salesman.  A,  who  had  authority 
to  collect  accounts,  indorsed  a  check  taken 
in  collection  payable  to  his  employer  B, — 
"B  per  A,"  and  cashed  it  at  bank  C.  A 
failed  to  turn  over  the  money  to  B,  and  the 
latter  claims  that,  as  he  had  given  no  au- 
thority to  A  to  indorse,  the  bank  is  liable. 
Opinion :  The  courts  hold  that  the  authority 
given  one  to  collect  a  debt  does  not  include 
authority  to  indorse  his  principal's  name  to 
check  taken  in  collection.  Consequently 
if  the  salesman  A  was  without  authority  to 
indorse  the  payee's  name,  bank  C,  which 
cashed  the  check,  took  no  title  and  is  liable. 
Deering  v.  Kelso,  74  Minn.  41;  Thompson 
V.  Bk.  of  British  N.  A.  82  N.  Y.  1.  {Inquiry 
from  III,  Nov.,  1919.) 


386 


FORGED  PAPER 


[1661-1665 


Implied  authority  of  agent  succeeding  agent 
who   had   express   authority 

1661.     A  firm,  Doe  &  Co.,  shipped  mer- 
chandise to  a  town  where  it  had  a  salesman 
or  representative.   A,  making  an  arrange- 
ment with  A  to  deliver  the  merchandise  to 
customers.     It  gave  to  A  authority  to  in- 
dorse checks  payable  to  the  firm  and  given 
in  payment  for  goods,  to  deposit  them  in 
bank,  and  to  make  remittances  to  the  firm. 
A  went  out  of  business  and  Doe  &  Co.  made 
arrangements  with  B  to  carry  on  the  de- 
livery work  apparently  on  the  same  basis 
as  was  the  arrangement  with  A.    Business 
was  carried  on  in  the  same  manner  as  for- 
l'     merly  for  several  months.  Doe  &  Co.  making 
I     no  complaints  or  objection,  until,  claiming 
that  it  had  given  no  authority  to  B  to  col- 
lect, or  to  indorse  checks  made  out  to  it  as 
payee,  it  sought  to  hold  bank  C  liable  for 
cashing    certain    checks    so    indorsed,   the 
amount   of   which   it   claimed   B   had   not 
remitted.    The  bank  desires  to  know  where 
it  stands  in  the  matter.     Opinion:    A  col- 
lecting agent  has  no  implied  authority  to 
indorse  checks  in  the  name  of  his  principal 
merely  because  he  has  the  power  to  collect 
accounts,  receive  money  and  checks  payable 
to  his  principal, — but  authority  to  do  so 
may  be  implied  from  the  latter's  acts.     It 
has  been  held  that  where  an  agent  is  per- 
mitted  to  indorse   checks   payable   to   his 
principal,  authority  to  indorse  will  be  im- 
plied, and  the  principal  cannot  recover  from 
one  who  cashes  a  check  for  the  agent  where 
the  agent  appropriates  the  proceeds.    Best 
V.  Krey,  83  Minn.  32,  85  N.  W.  822.    Bank 
C's  liabihty  will  depend  upon  whether  or 
not  it  can  make  out  a  case  of  implied  au- 
thority on  the  part  of  B  to  indorse  checks 
payable  to  Doe  &  Co.    His  predecessor  had 
express  authority  so  to  do,  and  the  custom 
was  continued  by  B.   If  Doe  &  Co.  knew  of 
this  practice  and  made  no  objection,  even 
if  they  gave  no  express  authority  to  B  as 
they  had  to  A,  it  would  probably  be  held, 
against  an  innocent  purchaser  such  as  bank 
C,  that  B  had  implied  authority,  and  that 
bank  C  would  not  be  responsible.    (Inquiry 
from  Kan.,  Oct.,  1919.) 

Liability    of  person   identifying   payee 

Identifier   not   liable   unless   he   indorses   or 
makes  a  false  statement  of  fact  which  is 

relied  on 

1662.     A  bank  cashed  a  check  payable  to 

one  L,  on  the  verbal  statement  of  D,  a 

customer,  that  he  knew  L,  knew  his  father, 

whose  name  was  signed  to  the  check,  to  be 


very  wealthy,  and  that  he  had  no  doubt  but 
that  the  check  would  be  paid.  The  signa- 
ture of  the  drawer  was  a  forgery  and  drawee 
bank  refused  payment  of  same.  Is  D  liable? 
Opinion:  If  bank  had  obtained  D's  in- 
dorsement on  the  forged  check,  he  could 
have  been  held  liable  as  indorser.  But  not 
having  obtained  his  indorsement,  the  facts 
would  hardly  seem  to  be  sufficient  to  hold 
him  liable  in  an  action  of  deceit.  To  support 
such  action  there  must  be  proof  that  a  false 
statement  or  representation  of  fact  was  made 
by  him  to  induce  the  bank  to  cash  the  check, 
(Lahay  v.  City  Nat.  Bank,  15  Colo.  339). 
D  did  not,  it  would  seem,  represent  that  he 
knew  the  signature  of  the  drawer  of  the 
check  to  be  genuine,  but  simply  that  he 
knew  L,  whose  name  was  signed  to  the 
check,  that  he  was  the  father  of  the  payee, 
that  he  was  wealth}'-,  and  that  he  had  no 
doubt  but  that  the  check  would  be 
paid.  Presumably  what  D  stated  as 
a  matter  of  fact  was  true,  namely,  that 
he  knew  the  father  of  the  payee  and  that  he 
was  wealthy.  His  further  statement,  that 
he  had  no  doubt  but  that  the  check  would  be 
paid,  was  not  a  statement  of  fact  but  a 
mere  matter  of  opinion  for  which  he  could 
not  be  held  responsible.  {Inquiry  from  W, 
Va.,  Dec,  1911.) 

Liability  for  false  statement  of  fact 

1663.  A  bank  cashed  a  forged  draft  for 
a  forger  identified  at  the  bank  by  A.  Opin- 
ion: A  is  liable  to  the  bank,  provided  he 
made  a  false  statement  of  fact  upon  which 
the  bank  relied  to  its  injury.  See  1757-1758. 
{Inquiry  from  Ark.,  Sept.,  1914,  JI-) 

1664.  The  customer  of  a  bank  who 
identified  the  holder  of  a  forged  check  as  the 
payee  is  liable  to  the  bank  cashing  the  check, 
because  of  a  false  representation,  though 
innocently  made.  Lahy  v.  City  Nat.  Bk., 
15  Colo.  339.  {Inquiry  from  Colo.,  Oct., 
1913,  Jl.) 

Indorsement  by  identifier  desirable 

1665.  The  question  is  asked.  If  parties 
holding  Government  allotment  checks  are 
unable  to  give  reliable  indorsement,  is  there 
any  way  a  bank  can  get  their  money 
for  them  without  risk  on  bank's  part? 
Opinion:  Wherever  there  is  suspicion  con- 
cerning the  identity  of  the  payee,  it  would 
not  be  wise  for  a  bank  to  cash  such  checks 
unless  it  could  procure  a  responsible  person 
who  would  vouch  for  the  identity  of  the 
payee  and  the  genuineness  of  the  indorse- 


es? 


1666-1669] 


DIGEST  OF  LEGAL  OPINIONS 


ment,    he   also   indorsing   the   instrument. 
{Inquiry  from  Ga.,  Oct.,  1918.) 

Liability  of  witness  to  forged  signature 

Indorser  signing  as  witness  to  'payee's 
signature 

1666.  A  check  drawn  on  Bank  A  is 
payable  to  John  Doe  who  claims  his  in- 
dorsement has  been  forged;  Bank  B  cashes 
it  for  John  Smith  who  has  signed  his  name 
underneath  John  Doe  as  witness  to  payee's 
signature.  The  word  "witness"  is  scratched 
out  by  the  paying  teller  at  the  time  and  the 
addition,  "cash  for  J.  S.,"  inserted.  Smith 
denies  that  he  received  the  cash,  and  asserts 
that  he  simply  witnessed  John  Doe's  signa- 
ture, and  refuses  to  make  the  amount  good. 
Opinion:  If  Smith  received  cash  and  in- 
dorsed the  check,  he,  of  course,  warranted  to 
B  the  genuineness  of  John  Doe's  signature, 
which,  being  a  forgery,  B  would  be  liable  to 
refund  to  the  paying  Bank  A,  but  could  re- 
cover from  Smith.  Even  if  Smith  did  not 
receive  the  proceeds,  but  simply  witnessed 
the  signature  of  John  Doe,  he  would  be 
Hable  to  Bank  B,  as  witness  of  a  forged  signa- 
ture. So  that  in  either  event  Smith  is 
liable  to  B,  and  B  in  turn  is  liable  to  Bank 
A  which  paid  it  the  money  upon  forgery  of 
the  payee's  indorsement.  {Inquiry  from 
La.,  March,  1919.) 

Officers  of  benevolent  society  signing  as  witness 

1667.  A  voucher  check  issued  by  a  benev- 
olentorderto  beneficiaiy  underabenefit  cer- 
tificate, in  form  "Pay  to  Mary  Doe"  and  di- 
recting where  payable,  having  on  its  face  a 
receipt  purporting  to  be  signed  by  the  payee 
in  the  presence  of  two  officers  of  a  subordi- 
nate society,  as  required  by  the  rules  of  the 
order,  was  deposited  by  a  customer  with 
bank  A  for  collection  and  was  accepted  and 
paid  by  bank  B  which  returned  the  check  to 
A  eight  months  later  with  a  request  for 
reimbursement  on  the  ground  that  the  signa- 
ture of  the  beneficiary  attached  was  a  for- 
gery. The  question  is  asked — Does  not  the 
responsibihty  rest  with  the  society?  Opin- 
ion: The  drawee  bank  which  paid  this 
voucher  check  on  a  forgery  of  the  signature 
of  the  paj^ee  or  beneficiary  is  entitled  to 
recover  the  amount  from  bank  A,  and  bank 
A  in  turn  is  entitled  to  recover  the  amount 
from  its  customer.  But  as  the  signature 
of  the  beneficiary  was  witnessed  by  the 
officers  of  the  subordinate  society,  they 
probably  would  be  Hable  and  bank  A's  cus- 
tomer would  have  recourse  upon  them  for 
the  amount.    It  has  been  held  that  the  wit- 


ness to  a  forged  signature  is  personally  liable. 
The  voucher  in  question  is  not  negotiable, 
not  being  payable  to  order,  but  this  does  not 
affect  the  question  of  responsibihty.  {In- 
quiry from  N.  Y.,  May,  1919.) 

Liability    of   hank    witnessing    signature    by 
mark    of    drawer    of    check 

1668.  A  check  drawn  on  a  bank  in 
North  CaroHna,  is  signed  by  mark  and  the 
signature  is  witnessed  by  a  Virginia  bank 
to  whom  the  check  is  paid.  The  check  is  a 
forgery.  Can  the  drawee  recover  from  the 
Virginia  bank?  Opinion:  In  the  case 
stated,  the  rule  does  not  apply  that  the  bank 
is  bound  to  know  the  signature  of  its  de- 
positor and  cannot  recover  payment  made 
on  a  forgery  thereof.  The  reason  underlying 
the  rule  is  wanting  in  a  case  where  the 
depositor  signs  by  mark.  In  such  case 
the  bank  witnessing  the  mark  and  receiving 
pajonent  of  the  check  would  be  responsible 
as  warrantor  of  genuineness.  The  North 
Carohna  bank  would  have  a  right  of  action 
against  the  Virginia  bank  as  virtual  war- 
rantor of  genuineness  of  the  drawer's  signa- 
ture as  well  as  because  the  latter  has  received 
money  upon  a  forged  instrument  without 
consideration  in  a  case  where  the  drawee  is 
not  estopped  to  question  the  genuineness 
of  the  signature.  {Inquiry  from  Va.,  July, 
1917.) 

Protest    of   forged    check    unnecessary 

Indorser  warrants  genuineness  to  indorsee 

1669.  A  swindler,  named  Smith,  draws 
a  check  on  U  bank  in  the  name  of  Cook, 
payable  to  Y,  and,  after  indorsing  the  check 
in  the  name  of  Y,  obtains  the  cash  thereon 
from  K,  who  indorses  and  deposits  it  in  the 
S  bank  from  which  bank,  through  other 
banking  channels,  it  comes  to  U  bank,  which 
does  not  pay  same  but  delays  two  or  three 
days  before  protesting,  and  K  refuses  to  be 
responsible  for  the  amount  because  of  U 
bank's  delay  in  protesting.  Opinion:  The 
check  above  referred  to  is  a  forged  check 
and  no  protest  thereof  was  necessary.  It  is 
not  a  genuine  check  drawn  by  a  depositor 
in  the  U  bank  upon  an  account  which  is  not 
good,  but  the  whole  instrument  was  manu- 
factured by  a  swindler  for  the  purpose  of 
defrauding  K.  The  check  would  be  held  a 
forged  check  under  the  decisions.  An  in- 
dorser of  a  genuine  check  which  has  been 
dishonored  is  reheved  from  liability  by  delay 
in  protest  and  notice  of  dishonor;  but  the 
indorser   of   a   forged   check   warrants   its 


H 


388 


FORGED  PAPER 


[1670-167^ 


genuineness  to  the  indorsee  and  K  is  liable 
upon  such  a  warranty  to  the  S  bank  and 
there  must  be  a  refunding  all  along  the  line 
down  to  the  last  bank.  In  this  case  K  is  the 
loser.     {Inquiry  from  Tenn.,  April,  1917.) 

Indorsement    by     mistake 

Liability    of   person    indorsing    by    mistake 

where  payee's  indorsement  subsequently 

forged 

1670.  A  drew  a  check  payable  to  B  and 
gave  it  to  C  for  delivery.  The  latter  by 
mistake  indorsed  the  check,  thinking  it  his 
own,  and  lost  it.  It  was  cashed  by  a  stranger 
at  bank  D  where  C  was  a  depositor,  on  the 
strength  of  C's  indorsement  which  was 
written  under  what  purported  to  be  the 
payee's.  Bank  D  collected  from  the  drawee 
bank  which  soon  after  returned  the  check 
to  it  when  it  was  learned  that  payee's  in- 
dorsement was  forged,  and  charged  amount 
to  C's  account.     The  latter  questions  its 

:^  right  to  do  so.  Opinion:  Bank  D  would, 
li  of  course,  be  obliged  to  refund  to  the  payor 
bank,  but  it  is  very  doubtful  if  it  had  the 
right  to  charge  the  check  to  C's  account. 
The  latter  put  his  signature  on  the  back  of 
the  check  b}^  mistake,  not  for  the  purpose  of 
indorsing  it  or  guaranteeing  the  signature  of 
the  payee,  but  thinking  it  his  own.  Under 
these  circumstances  he  would  not  seem  to 
be  responsible  to  bank  D  upon  such  an  in- 
dorsement as  a  guarantor  of  the  signature  of 
the  payee  B.  Caulkins  v.  Whisler,  29  Iowa, 
495.    (Inquiry  from  Mich.,  Oct.,  1913.) 

Forged  entry  in  pass  book 

Bank  not  responsible  for  forged  entries  made 
by  person  entrusted  with  book 

1671.  A  merchant  was  in  the  habit  of 
sending  by  an  employee  his  day's  receipts 
late  in  the  evening  to  bank  where  he  depos- 
ited, the  moneys  so  sent  being  left  with  the 
janitor  of  the  bank  and  next  day  counted  by 
a  representative  of  depositor  who  made 
deposit.  On  an  examination  of  customer's 
pass  book  it  was  discovered  that  he  had 
much  less  to  his  credit  in  bank  than  his  pass 
book  called  for  and  that  several  entries  had 
been  made  in  it  by  some  one  not  connected 
with  the  bank.  The  question  is — Is  the 
bank  in  any  way  liable?  Opinion:  The 
bank  received  so  much  monej'  and  credited 
that  amount  in  the  pass  book,  and  for  that 
it  is  liable.  The  fact  that,  in  addition,  some 
one  not  connected  with  the  bank  makes 
false  entries  in  the  pass  book  to  deceive 
the  depositor,  and  "pockets,"  instead  of 
depositing,   the    money  cannot  place    any 


liability  on    the  bank  for  such   amounts. 
{Inquiry  from  Pa.,  Aug.,  1911.) 

Forgery  of  notes 

Maker  paying  interest  on  note  ratifies  forgery 
of  his  signature 

1672.  A  husband  claimed  that  the  sign- 
ing of  his  name  as  the  maker  of  a  note  by  his 
wife  was  unauthorized  and  a  forgery.  He 
thereafter  paid  interest  on  the  note.  Is  he 
liable?  Opinion:  The  payment  of  interest 
would  indicate  that  the  husband  authorized 
his  wife  to  sign  it  in  his  name  and  make  it 
his  note.  Even  assuming  that  she  signed 
the  note  without  his  knowledge,  the  fact 
that  he  afterwards  paid  interest  would  con- 
stitute a  ratification  and  render  him  liable. 
As  indicating  that  a  person  whose  name  is 
forged  may  ratify  his  signature  so  as  to  make 
himself  civilly  liable  on  the  contract  see  Fay 
V.  Slaughter,  194  111.  157.  See  also  Chicago 
Edison  Co.  v.  Fay,  164  111.  323.  Hefner  v. 
Vandolah,  62  111.  483.  Livings  v.  Wilher, 
32  111.  387.  Bulger  v.  Gleason,  123  111 
App.  42.     {Inquiry  from  III.,  Aug.,  1916.) 

Surety  on  forged  note 

1673.  Wliat  is  the  habiUty  of  a  surety 
for  the  maker  of  a  note,  where  the  signature 
of  the  maker  is  forged?  Opinion:  There  is 
no  liabihty.  Selsor  v.  Brock,  3  Ohio  St.  302. 
{Inquiry  from  III.,  April,  1920.) 

Necessity  for  person  whose  name  forged  as 
maker   to   appear  and  defend 

1674.  A  person  signed  a  note  payable  to 
himself,  and  at  the  same  time  signed  three 
other  names  thereto.  The  first  the  three 
others  learned  that  their  names  had  been  put 
thereon  was  when  they  received  notice  from 
bank  that  the  note  was  due.  A  suit  was  the 
brought  on  the  note,  and  the  bank  inquires 
whether  these  men  will  be  obliged  to  appear 
in  court  and  prove  that  they  did  not  sign  the 
note.  Opinion:  The  persons  whose  names 
were  signed  to  the  note  without  authority, 
of  course,  are  not  liable  thereon.  As  to  them 
the  note  is  a  mere  nullity.  Munroe  v. 
Stanley,  107  N.  E.  (Mass.)  1012.  But 
having  been  sued  on  the  note  by  a  holder 
upon  the  presumption  that  their  signatures 
are  genuine,  it  will  be  necessary  for  them  to 
make  answer  denying  their  signatures  to 
avoid  judgment  being  entered  against  theni, 
unless  the  bank  which  holds  the  note  is 
wiUing  to  discontinue  the  suit  against  them; 
for,  otherwise,  judgment  might  be  entered 
against  them.  The  loss,  of  course,  will  fall 
on   the   bank   which   purchased   the   note, 


389 


1675-1677] 


DIGEST  OF  LEGAL  OPINIONS 


unless  it  can  be  collected  from  the  person 
who  executed  it  and  forged  the  names  of  the 
other  makers.  {Inquiry  from  Tex.,  June, 
1917.) 

Burden  of  proof  of  forged  indorsement 

Mere  allegation  of  forgery  of  indorsement  does 
not  justify  repayment 

1675.  A  person,  introducing  himself  as 
F,  opened  an  account  with  bank  A,  and  a 
few  days  later  deposited  a  certified  check 
drawn  to  his  order  on  bank  B.  The  latter 
shortly  after  payment  to  A  advised  that 
bank  that  it  had  received  information 
that  the  indorsement  of  F,  the  payee,  was 
not  genuine,  and  requested  credit  for  amount 
of  check.  A  takes  the  position  that  the  in- 
dorse ment  of  the  payee  is  genuine  unless  B 
can  produce  evidence  to  the  contrary. 
Opinion:  Should  it  be  the  fact  that  the 
payee's  signature  is  forged,  A  would  be 
liable  at  suit  of  B  to  refund  the  amount;  but 
before  A  would  be  held  liable,  the  fact  of  the 
forgery  would  have  to  be  established  by 
proof.  B  should  produce  some  proof  of  the 
forgery  of  the  payee's  signature  before  ex- 
pecting A  to  give  it  credit  for  the  amount; 
otherwise  A  would  be  refunding  money  upon 
B's  mere  hearsay  without  knowing  or  having 
reasonable  ground  to  determine  whether  or 
not  the  pa3^ee's  signature  was  forged.  (In- 
quiry from  Fla.,  Feb.,  1918.) 

Affidavit  of  forgery   by  payee    sufficient    to 
entitle  charge  of  amount  to  customer 

1676.  A  check,  drawn  by  A  to  the  order 
of  B  on  bank  C,  bore  the  indorsements  of  B, 
D  and  E,  the  latter  depositing  it  in  bank  F 
which  later,  receiving  word  from  C  that 
payment  was  made,  credited  E's  account 
with  the  amount,  a  portion  of  which  was 
turned  over  to  D.  About  three  months 
later  bank  C  returned  the  check  to  F  with 
an  affidavit  attached,  made  by  B  to  the 
effect  that  the  indorsement  purporting  to  be 
made  by  him  was  a  forgery.  It  is  asked  if 
bank  F  was  justified  in  charging  amount 
back  to  E  who  threatens  suit  because  of 
that  bank  doing  so.  Opinion:  The  rule  is 
well  settled  that  a  drawee  bank  which  pays 
out  money  on  a  forged  indorsement  may  re- 
cover the  same  from  the  person  who  re- 
ceives the  money.  Pursuant  to  this  rule, 
the  drawee  C  returned  the  check  to  bank 
F,  and  the  question  is  whether  F  can  charge 
E's  account  with  the  amount.  The  affida- 
vit of  the  payee  that  he  had  never  indorsed 
the  check,  created  a  prima  facie  case  of 
forgery,  suflficient  to  entitle  bank  F  to  charge 


the  check  back  to  its  depositor  and  make 
refund  to  bank  C.  If  E  should  sue  bank  F, 
the  burden  of  proof  would  probably  be  on 
the  bank  to  establish  the  forgery.  This 
could  be  done  by  the  testimony  of  the 
payee  to  the  fact,  and  unless  the  depositor 
could  contradict  this,  and  prove  that  the 
indorsement  of  the  check  was  genuine,  he 
could  not  recover.  {Inquiry  from  Md., 
June,  1919.) 

Affidavit  by  "John  Philip"  that  indorsement 

of  check  payable  to  "John  Phillips"  a 

forgery 

1677.  Bank  A  cashed  a  check  drawn  on 
bank  B,  payable  to  "John  Phillips."  Ten 
months  thereafter  the  drawee  bank  returns 
the  cancelled  check,  with  notice  that  the 
payee's  name  has  been  forged,  and  accom- 
panied by  an  affidavit  signed  by  one  "John 
Philip"  to  the  effect  that  said  check  was 
made  payable  to  "John  Philip"  and  that  he 
did  not  indorse  the  check  or  receive  the 
money.  In  case  of  suit  by  the  drawee,  upon 
whom  is  the  burden  of  proof  as  to  forgery  of 
the  indorsement?  Would  delay  of  ten 
months  in  making  affidavit  and  giving 
notice  to  Bank  A  release  the  latter  from 
liability?  Opinion:  (1)  Where  the  drawee 
bank  alleges  that  the  signature  of  the  payee 
has  been  forged,  under  the  common  law 
system  of  pleading  the  burden  of  proof  is  on 
the  party  holding  the  affirmative  of  the 
issue  to  establish  the  substance  of  his  con- 
tention by  the  required  preponderance  of 
evidence.  (Tillis  v.  McKinna,  114  Ala.  311. 
Chicago,  etc.,  R.  Co.  v.  Lambert,  119  111.  255. 
Loring  v.  Sleineman,  1  Mete.  [Mass.]  204. 
Heinemann  v.  Heard,  62  N.  Y.  448.)  It 
follows  that  where  a  defendant  denies  an 
allegation  material  to  plaintiff's  case,  the 
burden  is  on  plaintiff  to  establish  its  truth, 
whether  the  action  be  in  contract  or  in  tort. 
(Nash  V.  Cooney,  108  111.  App.  211.  Star- 
ratt  V.  Mullen,  148  Mass.  570.  Eastman  v. 
Gould,  63  N.  H.  89.  Pares  v.  St.  Louis,  etc., 
R.  Co.,  [Tex.]  57  S.  W.  301.)  Under  statu- 
tory pleading  the  doctrine  of  constructive 
admission  is  rejected,  and  each  allegation  in 
the  statement  of  a  plaintiff's  claim  not  dis- 
tinctly admitted  is  regarded  as  denied,  and 
the  burden  of  proof  is  on  plaintiff  to  estab- 
lish such  allegations,'' even  though  the  denial 
is  argumentative.  (Homire  v.  Rodgers,  74 
Iowa  395.  Chamberlain  v.  Woolsey,  66 
Neb.  516.)  At  the  beginning  of  every  trial 
the  burden  of  proof  and  the  burden  of  evi- 
dence are  on  the  same  party  as  to  the  exist- 
ence of  every  fact  essential  to  the  affirmative 


390 


FORGED  PAPER 


[1678-1681 


case.  (Land  Mort.,  etc.,  Co.  v.  Preston,  119 
Ala.  290.  Peck  v.  Scoville  Mfg.  Co.,  43  111. 
App.  360.  Wilder  v.  Coles,  100  Mass.  570). 
The  burden  of  evidence  as  to  any  particular 
fact  rests,  generally  speaking,  upon  him  to 
whose  case  the  fact  is  material.  (Brandon 
V.  Cabiness,  10  Ala.  155.  Willett  v.  Rich, 
142  Mass.  356.  Whitney  v.  Morrow,  50 
Wis.  197).  Applying  these  rules  in  the 
instant  case,  the  drawee  bank,  the  plaintiff, 
would  have  the  burden  of  proving  the 
forgery  of  the  indorsement  of  the  payee  of 
the  check,  the  material  allegation  of  its 
complaint,  where  put  in  issue.  It  would 
seem  that  the  discrepancy  between  the  name 
of  the  payee  "John  Phillips"  and  that  of  the 
affiant,  "John  Philip,"  is  sufficient  to 
warrant  a  demand  on  the  part  of  the  cashing 
bank  of  further  proof  of  the  identity  of  the 
payee  with  such  affiant  before  making  a 
settlement  with  the  drawee  bank.  (2)  It 
would  not  seem  that  the  point  of  delay  in 
[  giving  notice  of  the  alleged  forgery  could  be 
|i'  successfully  urged,  in  the  absence  of  proof 
'  that  the  real  payee  or  the  drawee  bank  de- 
layed unduly  to  give  notice  after  the  forgery 
was  discovered,  or  that  the  cashing  bank 
was  injured  by  such  delay.  {Inquiry  from 
Wyo.,  May,  1920.) 

Forgery  of  indorsement  of  certificate  of 
deposit 

Liability  of  express  company  to  refund  money 

received  by  agent  on  certificate  of  deposit 

bearing  forged  indorsement 

1678.  A  demand  certificate  of  deposit 
issued  by  bank  A  was  cashed  by  bank  B  for 
an  express  company's  agent  who  issued  ex- 
press orders  for  amount  of  certificate.  B 
held  the  certificate  for  a  little  over  two 
months  and  presented  to  A  for  payment, 
which  was  refused  on  the  ground  that  pay- 
ment had  been  stopped  by  depositor  who 
claimed  that  the  certificate  had  been  stolen 
and  his  indorsement  forged.  Can  B  recover 
from  the  agent  or  the  express  company, 
which  claims  that  because  of  B's  delay  in 
presenting  for  payment  it  was  deprived  of 
the  opportunity  of  stopping  the  payment  of 
the  express  orders.  Opinion:  The  imputed 
laches  of  bank  B  because  of  the  delay  in 
presenting  the  certificate  would  not  affect 
its  right  of  recovery.  The  certificate  was 
payable  on  demand,  and  not  due  until  de- 
manded. The  express  company  received 
value  from  B;  by  transferring  and  indorsing, 
it  warranted  the  genuineness  of  the  prior 
indorsements,  and  B  could  recover  from  it. 
This  is  on  the  assumption  that  what  the 


agent  did  was  within  the  apparent  scope  of 
his  authority.  If  it  were  not,  the  company 
would  not  be  bound,  but  the  agent  could  be 
held  personally  liable.  If  the  agent's  general 
course  of  deaUng  with  the  pubUc  and  his 
position  were  such  that  he  was  held  out  to  the 
world  as  having  authority  to  accept  checks, 
certificates  of  deposit,  etc.,  in  payment  for 
express  money  orders  and  to  negotiate  same, 
then  the  express  company  would  be  bound 
by  the  acts  of  the  agent  within  the  apparent 
scope  of  his  authorit}'-,  including  the  in- 
dorsement of  the  certificate  of  deposit  in 
question,  whether  he  actually  had  such  au- 
thority or  not.  {Inquiry  from  III.,  Jan. 
1917.) 

Issuing  bank  bound  to  know  payee's  signature 
where  kept  on  file 

1679.  A  bank  is  bound  to  know  the  in- 
dorsement of  its  depositor  as  payee  of  a 
certificate  of  deposit,  similarly  as  in  the  case 
of  a  signature  on  a  check,  and  cannot  recover 
money  paid  to  a  bona  fide  holder  on  the  for- 
gery thereof.  But  this  rule  is  based  on  and 
limited  to  cases  where  the  bank  keeps  a  file 
of  the  signatures  of  depositors  to  whom  cer- 
tificates are  issued,  and  where  such  signatures 
are  not  kept  the  rule  would  not  apply,  and 
money  paid  on  a  forged  indorsement  would 
be  recoverable.  Stout  v.  Benoist,  39  Mo. 
277.  St.  Nat.  Bk.  v.  Freedmen's  Sav.  &  Tr. 
Co.,  2  Dill.  (U.  S.)  11.  Yatesville  Banking 
Co.  V.  Fourth  Nat.  Bk.,  72  S.  E.  (Ga.)  528. 
Am.  &  Eng.  Encycl.  Law  (2nd  Ed.)  Vol.  5, 
p.  810.  Honig  V.  Pac.  Bk.,  73  Cal.  464. 
Fiore  v.  Ladd,  29  Pac.  (Ore.)  435.  Frank- 
fort First  Nat.  Bk.  v.  Bremer,  7  Ind.  App. 
685.  Devine  v.  Baldwin,  91  Wis.  68.  Mer- 
chants Bk.  V.  Marine  Bk.,  3  Gill  (Md.)  96. 
Daniel  on  Neg.  Inst.  (6th  Ed.),  Sec.  1700. 
{Inquiry  from  Iowa,  Jan.,  1914,  Jl) 

1680.  A  bank  is  bound  to  know  the 
indorsement  of  its  depositor  as  payee  of  a 
certificate  of  deposit,  similarly  as  in  the  case 
of  the  signature  on  a  check.  Where  a  bank 
paid  a  certificate  of  deposit  upon  the  forged 
indorsement  of  its  depositor  as  payee,  it  is 
liable.  But  this  rule  would  seem  to  be 
limited  to  cases  where  the  bank  keeps  the 
paj^ee's  signature  on  file.  Stout  v.  Benoist, 
39  Mo.  277.  St.  Nat.  Bk.  Freedmen's  Sav. 
&  Tr.  Co.,  2  Dill.  (U.  S.)  11.  Price  v.  Neal, 
3  Burrows  1354.  {Inquiry  from  Ohio,  Aug., 
1913,  Jl.) 

Issuing   bank    not   bound   to    know   payee's 
signature  where  no  file  kept 

1681.  A  certificate  of  deposit  issued  by 


391 


1682-1684] 


DIGEST  OF  LEGAL  OPINIONS 


bank  A  to  B  was  cashed  for  a  forger  at  bank 
C  and  paid  by  A.  A  month  afterwards  B 
notified  bank  A  to  stop  payment  on  certifi- 
cate as  he  had  lost  it.  An  examination  of 
certificate  showed  B's  indorsement  to  be 
forged.  Can  A  look  to  C  for  reimburse- 
ment? Opinion:  Few  authorities  exist  on 
the  subject,  but  it  would  appear  that 
if  bank  A  had  B's  signature  on  file  it  would  be 
bound  to  know  same  and  could  not  recover 
the  money  paid.  But  if  it  kept  no  file  of 
signatures  of  depositors  to  whom  it  issued 
certificates,  it  would  not  be  bound  to  know 
the  payee's  signature  any  more  than  the 
maker  of  an  ordinary  note  would  be  bound 
to  know  the  payee's  signature  and  it  could 
recover  from  C  the  money  paid  on  the  forged 
indorsement.  A.  B.  A.  Journal  Jan.  1919, 
p.   501.  {Inquiry  from  Minn.,  May,  1916.) 

Holder  notifying  of  loss  after  payment  of 
certificate  of  deposit  on  forged  indorsement 
1682.  A  certificate  of  deposit  issued  by 
a  Nebraska  bank  A  to  B,  payable  in  one  year, 
was  given  by  a  stranger  thirteen  months 
after  issue  to  bank  C  in  Utah  for  collection, 
which  bank  collected  from  A  and  paid  over 
proceeds  to  holder.  A  month  later  B  dis- 
covered the  loss  of  the  certificate  and  waited 
three  months  longer  before  he  notified  bank 
A  of  the  fact,  and  asked  that  payment  be 
stopped  as  the  certificate  had  been  stolen. 
The  certificate  had  been  paid  on  a  forged 
indorsement.  Is  A  liable  to  depositor,  and, 
if  so,  would  it  have  recourse  upon  C? 
Opinion:  The  payment  of  a  certificate  of 
deposit  upon  a  forgery  of  the  payee's  in- 
dorsement does  not  relieve  the  issuing  bank 
from  habihty  to  the  depositor,  and  in  the 
present  case  it  is  very  doubtful  whether  the 
three  months'  delay  of  B,  after  finding  that 
the  certificate  had  been  lost  or  stolen,  in 
notif^ang  bank  A  to  stop  pajTnent  (the 
delay  being  not  in  giving  notice  of  a  forgery 
of  his  signature  after  discovery  thereof  but 
in  giving  notice  of  the  loss  of  the  certificate) 
would  be  such  neghgence  as  would  estop 
him  from  recovering  the  amount  where  A 
had,  before  receipt  of  such  notice,  paid  the 
certificate  upon  the  forgery  of  B's  indorse- 
ment. There  is  also  the  added  fact  that  the 
certificate  was  actually  paid  before  the  date 
when  B  discovered  that  his  certificate  had 
been  lost  or  stolen.  As  to  whether  bank  A 
would  have  a  right  of  recovery  against  C,the 
few  cases  which  exist  on  the  subject  are  to 
the  effect  that  a  bank  is  bound  to  know  the 
signature  of  a  depositor  who  is  payee  of  a 
certificate  of  deposit,  which  signature  it 
keeps  on  file,  equally  as  it  is  bound  to  know 


the  signature  of  a  depositor  whose  deposits 
are  subject  to  check,  and  if  it  pays  on  a 
forgery  of  the  payee's  signature,  it  is  bound 
by  such  payment  and  cannot  recover  from 
a  bona  fide  holder  who  has  received  pay- 
ment; the  rule  being  different,  however, 
where  the  signature  is  not  kept  on  file.  As- 
suming A  was  bound  to  know  the  signature 
in  this  case  and  ordinarily  precluded  from 
recovering,  it,  however,  might  have  a  fair 
ground  of  recovery  against  C  on  the  theory 
that  the  latter  took  the  certificate  from  a 
stranger  without  identification  and  without 
notifying  A  of  that  fact,  and  was,  therefore, 
negligent,  although  there  is  much  conflict  of 
authority  upon  this  proposition.  If  the 
question  was  to  be  determined  by  the  Ne- 
braska courts,  upon  the  authority  of  the 
decisions  in  First  Nat.  Bank  of  Orleans  v. 
State  Bank  of  Alma,  22  Neb.  769,  36  N.  W. 
289,  3  Am.  St.  Rep.  294,  and  State  Bank  v. 
First  Nat.  Bank,  87  Neb.  351,  127  N.  W. 
244,  bank  A  could  probably  recover  from  C. 
{Inquiry  from  Neb.,  Jan.,  1921.) 

Indorsement  "C  as  conservator  ofB" 

1683.  A  time  certificate  of  deposit 
issued  by  bank  A  in  favor  of  B  is  presented 
to  that  bank  for  payment  bearing  the  in- 
dorsement ''C  as  conservator  of  B,"  also 
the  indorsements  of  l^anks  D  and  E.  The 
question  is.  Would  A  have  recourse  on  the 
indorsing  banks  should  it  turn  out  that  C 
was  an  impostor?  Opinion:  If  the  indorse- 
ment of  the  certificate  to  bank  E  is  not 
restrictive,  that  bank  would  be  responsible 
and  obliged  to  return  the  money  paid  in 
case  the  first  indorsement  of  the  certificate 
proved  unauthorized.  If  its  indorsement  is 
restrictive,  so  that  the  bank  is  merely  an 
agent  for  collection,  and  not  owner  of  the 
certificate,  bank  A  would  have  the  same  re- 
course upon  bank  D,  provided  that  bank 
appeared  as  owner.  The  rule  that  a  bank  is 
bound  to  know  the  signature  of  its  depositor  j 
and  cannot  recover  upon  a  forgery  thereof' 
would  not  apply  in  the  present  case  so  as  to 
make  bank  A  bound  to  know  the  signature 
of  the  payee  of  the  certificate  of  deposit, 
preventing  recover}^  by  it  from  the  prior 
indorsers  should  that  signature  turn  out  to 
be  forged  or  unauthorized,  as  the  signature 
is  not  by  the  depositor  himself,  but  by  a 
representative.  {Inquiry  from  N.  D.,  July, 
1914.) 

Bank  loaning  money  on  certificate  of  deposit 

of  loan  association  transferred  through 

forgery  of  indorsement 

1684.  A  note  made  by  a  building  and 


392 


FORGED  PAPER 


[1685-1688 


loan  association,  payable  to  the  order  of  A 
and  secured  by  mortgage,  was  indorsed  over 
to  the  latter's  wife.  After  A's  death  the 
note  came  into  the  hands  of  B,  who  had  been 
appointed  administrator  of  A's  estate,  who 
forged  Mrs.  A's  indorsement  thereto  and  had 
the  association  issue  a  certificate  of  deposit 
payable  to  her  in  place  of  it.  B  obtained  a 
loan  from  bank  C  on  the  certificate,  the 
indorsement  to  this  being  also  forged.  The 
building  and  loan  association  was  compelled 
by  the  courts  to  settle  with  the  widow,  and 
the  inquiry  is — How  shall  the  certificate 
held  by  bank  C  be  redeemed?  Opinion:  As 
the  issue  of  the  certificate  of  deposit  payable 
to  Mrs.  A  was  procured  through  fraud  of  B 
in  exchange  for  the  surrender  of  a  note  and 
mortgage  owned  by  Mrs.  A,  and  as  the  loan 
association  has  been  compelled  to  make  good 
to  her  the  amount  of  the  note  and  mortgage, 
and  as  the  bank  acquired  the  certificate 
through  B's  forgery  of  the  indorsement  of 
Mrs.  A  and  hence  took  no  title  to  them,  it 
would  be  difficult  to  find  any  ground  upon 
which  the  loan  association  could  be  com- 
pelled to  redeem  the  certificate  in  the  hands 
of  bank  C  or  how  the  bank  can  get  the  value 
of  the  money  loaned  out  of  the  certificate. 
It  would  seem  that,  having  loaned  the 
money  without  any  actual  transfer  of  se- 
curity, the  sole  recourse  of  the  bank  would 
be  against  B  personally.  {Inquiry  from 
Ohio,  Jan.,  1911.) 

Forgery    of    indorsement    on    certified 
check 

Bond  of  indemnity  to  protect  bank  in  making 
payment  if  allegation  of  forgery  of  in- 
dorsement not  sustained 

1685.  A  drew  a  check  on  bank  B  payable 
to  C  and  delivered  it  to  D,  a  representative 
of  C,  who,  after  procuring  certification, 
forged  C's  indorsement  and  negotiated  it. 
Payment  was  stopped,  and  when  check  was 
presented  to  bank  B  through  a  correspond- 
ent bank,  it  was  protested.  C  looked  to 
bank  B  for  payment  and  offered  to  give  a 
bond  of  indemnity.  The  question  is  as  to  the 
amount  for  which  bond  should  be  made  out 
and  length  of  time  it  should  run.  Opinion: 
If  the  indorsement  is  a  forgery,  there  would 
be  no  hability  on  the  part  of  bank  B  to  pay 
any  innocent  purchaser  of  the  certified  check 
under  forged  indorsement.  But  there  is 
the  possibility  to  be  guarded  against  that 
the  indorsement  was  authorized  and  not 
forged,  which  makes  it  proper  that  B  should 
have  a  satisfactory  bond  of  indemnity,  be- 
fore paying  over  the  money  to  C,  to  cover  the 


face  amount  of  check  and  any  prospective 
costs,  should  B  defend  pa^inent  and  ulti- 
mately be  compelled  to  pay  to  an  innocent 
purchaser,  and,  as  the  statute  of  limitations 
would  begin  to  run  from  the  time  B  refused 
payment  of  the  check,  six  years  would  be  the 
proper  time  for  the  bond  to  run.  {Inquiry 
from  Pa.,  June,  1918.) 

Forgery    of   indorsement    on    cashier's 
check 

Issuing  hank  not  bound  to  know  indorsement 
and  may  recover  money  paid  on  forgery 

1686.  The  inquiry  is  made  as  to  whether 
or  not  a  bank  issuing  its  cashier's  check  to 
an  unknown  payee,  at  the  request  of  a  de- 
positor or  any  other  person,  has  a  right  of 
recovery  against  the  indorsing  bank  to  which 
it  paid  the  check,  in  the  event  the  indorse- 
ment of  the  payee  whose  signature  is  un- 
known to  the  issuing  bank  proves  to  be  a 
forgery.  Opinion:  The  rule  prohibiting  the 
recovery  of  money  paid  on  the  forgery  of  a 
check  drawer's  signature,  or  forgery  of  the 
payee  of  a  certificate  of  deposit  where  the 
signature  of  the  payee  is  on  file,  is  based 
upon  the  fact  that  the  bank  is  bound  to 
know  the  signature  and  is  estopped  to  assert 
the  forgery  against  a  bona  fide  holder.  But 
this  reason  does  not  exist  in  the  case  of  a 
cashier's  check,  and  a  bank  issuing  one  is  not 
bound  to  know  the  signature  of  the  payee 
which  is  not  kept  on  file  and  may  recover 
money  paid  upon  forgery  of  such  signature. 
See  A.  B.  A.  Journal  May  1916,  p.  1015. 
{Inquiry  from  Neb.,  Feb.,  1919.) 

1687.  A  bank  paid  its  own  cashier's 
check,  upon  which  the  payee's  indorsement 
was  forged.  The  check  was  presented  bear- 
ing the  previous  indorser's  stamp  guarantee- 
ing prior  indorsements.  Opinion:  The  bank 
maj^  recover  the  money  paid.  It  is  not 
bound  to  know  the  signature  of  the  payee 
which  is  not  kept  on  file.  {Inquiry  from 
Kan.,  May,  1916,  Jl.) 

1688.  If  a  bank  draws  its  cashier's  check 
and  the  payee  cashes  it  at  some  other  bank, 
is  the  bank  that  issues  it  held  responsible 
as  to  the  signature  of  the  payee?  Opinion: 
A  bank  issuing  a  cashier's  check  is  not 
bound  to  know  the  signature  of  the  payee 
which  is  not  kept  on  file,  and  may  recover 
money  paid  upon  a  forgery  of  such  signature. 
A  cashier's  check  may  be  issued  either  to  a 
depositor  or  to  a  purchaser  who  is  not  a 
depositor.  In  either  event  it  would  not 
come  under  the  rule  which  requires  the  bank 
to    know    its    depositor's    signature.      The 


393 


1689-1691] 


DIGEST  OF  LEGAL  OPINIONS 


cashier's  check  is  different  from  a  check 
drawn  upon  the  bank  on  which  the  signature 
of  the  depositor  is  a  forgery,  where  invaria- 
bly the  signature  of  the  depositor  is  kept  on 
file  and  the  bank  is  bound  to  know  same. 
{Inquiry  from  Ore.,  March,  1917.) 

Recovery  of  money  paid  on  forged  indorse- 
ment by  mark  and  witness  guaranteed  by 
collecting  bank 

1689.  Bank  A  issued  its  cashier's  check 
payable  to  one  John  Brown,  Bank  B  cashed 
this  check  for  one  known  to  it  as  John 
Brown,  but  who,  it  now  appears,  is  a  different 
person  from  the  one  to  whom  the  check  was 
made  payable.  The  man  for  whom  bank 
B  cashed  the  check  indorsed  same  by  mark 
and  the  indorsement  was  witnessed.  The 
check  was  paid  by  bank  A,  who  had  the 
signature  of  their  customer,  John  Brown, 
on  file,  but  who  accepted  an  indorsement  by 
mark,  while  their  customer  could  write. 
Opinion  desired  as  to  who  is  the  loser  in  this 
case.  Opinion:  Where  a  cashier's  check, 
issued  to  John  Brown,  who  can  write  and 
whose  signature  is  on  file  as  a  customer  of 
the  issuing  bank,  is  cashed  by  another  bank 
for  a  man  known  to  them  as  John  Brown, 
who  indorses  the  check  by  mark  and  wit- 
ness and,  upon  guaranty  of  indorsement  by 
the  cashing  bank,  the  check  is  paid  by  the 
issuing  bank,  the  latter  is  not  bound  to 
know  the  genuineness  of  the  payee's  signa- 
ture, nor  estopped  to  deny  its  genuineness, 
but  may  rely  on  the  guaranty  of  the  pre- 
senting bank,  and  can  recover  the  money 
paid  upon  the  forged  indorsement.  First 
Nat.  Bank  v.  Northwestern  Nat.  Bank,  152 
111.  296.  Barter  v.  Mechanics  Nat.  Bank, 
63  N.  J.  L.  578.  Foster  v.  Shattuck,  2 
N.  H.  446.  Graves  v.  American  Exch.  Nat. 
Bank,  17  N.  Y.  205.  Mo.  Lincoln  Trust 
Co.  v.  Third  Nat.  Bank,  154  Mo.  App.  189. 
Mead  v.  Young,  4  Tenn.  Rep.  28.  See, 
however,  Weisberger  v.  Barberton  Sav. 
Bank  [Ohio]  95  N.  E.  379.  (Inquiry  from 
N.  J.,  May,  1920,  Jl.) 

Cashier's  check  to  name  supplied  by  forger 

1690.  Bank  A,  in  exchange  for  $150 
currency  and  a  forged  check  for  $75.50, 
issued  to  a  forger  its  cashier's  check  payable 
to  a  different  person  for  $225.50.  The 
forger  indorsed  the  payee's  name  and  forged 
the  indorsement  of  another  person  as  identi- 
fier and  succeeded  in  cashing  the  check  at 
Bank  B  in  a  neighboring  town,  to  which 
Bank  A  paid  the  full  amount.  Bank  A  de- 
manded that  Bank  B  refund  the  amount. 


Opinion:  Bank  A  cannot  recover  the  $150 
for  which  it  received  full  value.  As  to  the 
$75.50,  it  can  recover  the  amount  on  the 
ground  that  Bank  B  took  the  check  under  a 
forged  indorsement  and  acquired  no  title. 
Although  the  check  was  payable  to  a  name 
supplied  by  the  forger,  it  cannot  be  regarded 
as  payable  to  bearer  under  the  Negotiable 
Instruments  Act,  as  the  drawer  was  without 
knowledge  that  the  payee  was  fictitious. 
Nor  can  the  indorsement  be  regarded  as 
made  by  the  precise  person  intended  to  re- 
ceive the  money,  and  therefore  not  a  forgery, 
because  the  bank  did  not  intend  to  make  it 
payable  to  the  person  who  received  the  check 
but  to  a  different  person  whose  name  was 
supplied  by  the  forger.  Boles  v.  Harding, 
87  N.  E.  (Mass.)  481.  Jordan  Marsh  Co.  v. 
Nat.  Shawmut  Bk.,  87  N.  E.  (Mass.)  740. 
Second  Nat.  Bk.  v.  Guarantee  T.  &  S.  D. 
Co.,  56  Atl.  (Pa.)  72.  Trust  Co.  of  America 
V.  Hamilton  Bk.,  127  App.  Div.  (N.  Y.)  515. 
Snyder  V.  Corn  Exch.  Bk.,  70  Atl.  (Pa.)  876. 
Hartford  v.  Greenwich  Bk.,  142  N.  Y.  S. 
387.     (Inquiry  from  Idaho,  Jan.,  1917,  Jl.) 


Cashier's   check   to   stranger   payee 

1691.  A  stranger  representing  himself  as 
B  presented  to  the  drawee  bank  a  check 
payable  to  the  order  of  B,  and  the  bank 
delivered  to  the  stranger  its  cashier's  check 
payable  to  the  order  of  B.  The  stranger  in- 
dorsed the  chasier's  check  in  the  name  of  B 
to  another  bank  and  that  bank  received  pay- 
ment. Opinion:  As  between  the  bank  de- 
livering the  cashier's  check  and  the  bank  re- 
ceiving payment,  the  former  would  be  the 
loser  in  the  event  the  indorsement  is  not  that 
of  B.  U.  S.  V.  Nat.  Exch.  Bk.,  45  Fed.  163. 
Contrary  case,  Dodge  v.  Bk.,  30  Ohio  St.  1. 
(Inquiry  from  Mo.,  June,  1911,  Jl.) 

Note:  There  is  a  conflict  of  authority 
upon  this  proposition.  In  Gallo  v.  Brooklyn 
Savings  Bank,  199  N.  Y.  222,  an  impostor 
presented  an  order  on  a  savings  bank  and, 
not  being  able  to  satisfactorily  identify 
himself  as  the  depositor,  received,  instead 
of  money,  a  check  payable  to  the  order  of 
the  depositor.  The  Appellate  Division  held 
the  drawer  liable  to  an  innocent  purchaser 
because  (1)  delivery  of  the  check  to  the 
person  claiming  to  be  the  payee  was  a  repre- 
sentation by  the  drawer  that  he  was  the 
payee  which  he  was  estopped  to  deny,  (2)  the 
drawer  was  negligent  in  issuing  the  check  to 
a  stranger  whom  it  could  not  identify.  But 
the  court  of  appeals  reversed  the  judgment 
and  held  the  drawer  not  liable.    To  the  con- 


394 


i 


FORGED  PAPER 


1692-1694 


trary,  however,  is  Montgomery  Garage  Co. 
V.  Manufacturers  Liability  Ins.  Co.,  109 
Atl.  (N.  J.)  296  (decided  in  1920),  where  one 
E,  representing  himself  to  be  T,  delivered  a 
bogus  check  and  received  from  the  drawer 
in  exchange  a  check  payable  to  T.  The 
drawer  was  held  liable  to  an  innocent  pur- 
chaser who  had  received  the  check  from  E 
indorsed  by  him  as  T.  The  court  held: 
"Where  the  drawer  of  a  check  delivers  it, 
for  a  consideration  which  turns  out  to  be 
fraudulent,  to  an  impostor  under  the  belief 
that  he  is  the  person  whose  name  he  has 
assumed  and  to  whose  order  the  check  is 
made  payable,  a  bona  fide  holder  for  a 
valuable  consideration,  paid  to  the  impostor 
upon  his  indorsement  of  the  payee's  name, 
is  entitled  to  recover  from  the  drawer;  it 
appearing  that  the  person  to  whom  the 
check  was  delivered  was  the  very  person 
whom  the  drawer  intended  should  indorse 
it  and  receive  the  money,  and  that  the 
drawer  made  no  inquiry  before  issuing  the 
check  concerning  the  identity  or  credit  of 
the  named  payee,  who  was  unknown  to  the 
drawer." 

1692.  A  bank  issued  a  cashier's  check 
for  S431.44to  a  stranger,  who  claimed  to  be 
Samuel  Jones,  in  exchange  for  a  check  pay- 
able to  and  indorsed  by  Samuel  Jones.  On 
the  following  day  the  cashier's  check  was 
presented  by  a  stranger  to  a  clerk  in  a 
Houston  store  who  became  convinced  that 
the  person  was  Samuel  Jones  and  aided  him 

in  getting  same  cashed  in  the  S Bank 

of  Houston.  The  cashier's  check  was  paid 
by  the  issuing  bank,  and  it  was  later  dis- 
covered that  the  original  check  was  a  "for- 
gery," and  also  that  the  handwriting  of  the 
names  indorsed  on  these  checks  was  entirely 
dissimilar.  The  question  asked  is  whether 
the  issuing  bank  has  any  recourse  on  the 

S Bank.  Opinion:  If  the  cashier's  check 

payable  to  Samuel  Jones  was  indorsed  by  the 
person  to  whom  it  was  delivered  and  who 
represented  himself  to  be  Samuel  Jones, 
such  indorsement  would  not,  it  seems,  be 
held  a  forgery  but  by  the  precise  person 
to  whom  it  was  intended  to  make  payment; 
therefore,  there  would  be  no  right  of  re- 
covery by  the  issuing  bank  against  the  bank 
holding  the  check  under  such  indorsement. 
But  if  it  was  indorsed  by  another  person — 
and  the  facts  indicate  that  it  was  in  a  differ- 
ent handwriting  from  that  of  the  person  who 
represented  himself  to  be  Samuel  Jones  and 
who  indorsed  the  check  in  that  name  in 
exchange  for  which  the  cashier's  check  was 
given — so  that  the  indorsement  would  be  a 


forgery,  there  would  be  a  right  of  recovery. 
The  case  turns  upon  this  essential  fact: 
whether  the  indorsement  was  by  the  person 
to  whom  the  check  was  delivered  and  who 
represented  himself  to  be  Samuel  Jones. 
{Inquiry  from  Tex.,  Jan.,  1920.) 

Forgery  of  voucher  checks 

Money    paid    on  forgery    of   payee's   name 
recoverable 

1693.  A  voucher  check  in  form  "X  Y 
Z  Trust  Company  to  John  Doe,  Dr."  after 
reciting  statement  requiring  approval,  reads, 
"When  receipt  below  is  signed  by  party  to 
whom  voucher  is  payable,  this  voucher  be- 
comes a  check  upon  the  X  Y  Z  Trust  Com- 
pany." The  question  is  asked — Should  the 
name  of  John  Doe  or  of  a  merchant  who 
cashes  the  check  for  him  be  forged,  could 
the  Trust  Company  which  pays  the  same  to 
presenting  bank,  after  discovering  forgery 
in  a  reasonable  time,  recover  from  indorser? 
Opinion:  The  paper  is  not  a  negotiable 
instrument,  as  it  does  not  conform  to  the 
requirements  of  negotiabihty.  It  contains 
no  unconditional  promise  or  order  to  pay 
the  bearer,  or  to  order,  a  sum  certain  in 
money.  The  mere  fact  that  it  is  designated 
to  become  a  check  when  the  receipt  is  signed 
does  not  make  it  a  negotiable  check  where 
the  requirements  of  negotiability  are  not 
observed.  In  the  case  of  a  negotiable  check, 
the  rule  is  that  the  drawee  bank  is  bound  to 
know  the  signature  and  cannot  recover  the 
money  paid  on  a  forgery  thereof  to  a  bona 
fide  holder  who  had  received  payment,  but 
in  case  of  a  non-negotiable  voucher  such  as 
this,  it  is  doubtful  if  this  rule  would  apply, 
but  rather  the  general  rule  that  money  paid 
under  mistake  of  fact  would  be  recoverable, 
and  the  merchant  who  cashed  the  forged 
voucher  and  collected  the  money  would  be 
obtaining  the  money  under  mistake  of  fact, 
without  consideration,  and,  therefore,  liable 
If  the  indorsement  of  the  merchant  was  for- 
ged, there  would  be  a  right  of  recovery  by  the 
drawee  from  the  person  or  bank  receiving 
payment  under  the  general  rule  that  money 
paid  under  mistake  of  fact  is  recoverable. 
{Inquiry  from  N.C.,  Nov.,  1917.) 

Recovery  of  money  paid  on  forged  signature 
to  voucher  check  after  four  years'  delay 

1694.  A  bank  submits  a  voucher  check 
drawn  by  the  Chesapeake  &  Ohio  Railway 

Co.,  in  favor  of  J.  J.  T. which  the 

bank  cashed  on  March  27,  1912,  and  atten- 
tion is  particularly  called  to  the  clause  there- 
in  reading    as   follows:     "When   properly 


395 


1695-1698] 


DIGEST  OF  LEGAL  OPINIONS 


receipted,  this  voucher,  if  presented  for 
payment  within  30  days  from  March  26, 
1912,  becomes  a  sight  draft  on  C.  E.  Potts, 
Asst.  Treasurer,  Ches.  &  Ohio  Rwy.  Com- 
pany." The  voucher  check  is  marked,  "Paid, 
March  28,  1912,"  by  the  Railway  Company. 
On  January  28,  1915,  the  voucher  was 
mailed  to  the  bank  with  request  to  be  ad- 
vised as  to  whom  the  money  was  paid  "and 
in  the  event  you  are  unable  to  do  so  please 
send  us  your  check  for  $97.50  to  reimburse 
us  for  the  amount"  which  the  company  stated 
it  had  been  compelled  to  pay  a  garnishee 

creditor  of  J.  J.  T ,  it  having  been 

proved  that  his  signature  had  been  forged. 
The  bank  inquires  whether  in  view  of  the 
payment  of  voucher  check  by  the  Railway 
Com])any  the  bank's  responsibihty  ceased. 
Opinion:  This  voucher  check  is  not  a 
negotiable  instrument,  but  is  a  form  of 
contract  under  which  in  substance  the  rail- 
road acknowledges  an  indebtedness  to  J.  J. 

T and   agrees  that  when   properly 

receipted  the  voucher  will  become  a  draft 

by  T on  the  railroad  for  the  amount. 

If  a  draft  in  the  name  of  T had  been 

drawn  on  the  railroad  in  his  own  favor  and 
this  draft  had  been  cashed  by  the  bank  and 
payment  received  from  the  railroad,  then, 

upon  discovery  that  the  signature  of  T , 

the  drawer  of  the  draft,  was  forged,  the  case 
would  probably  come  under  the  rule  that 
the  drawee  is  bound  to  know  the  signature 
of  the  drawer  and,  if  it  pays  upon  a  forgery, 
cannot  recover  the  money  paid  from  a  bona 
fide  holder.  Virtually  the  present  case 
would  seem  to  come  under  the  principle  of 
this  rule  and  if  so,  the  railroad  would  be 
debarred  from  recovery.  If  not,  then  the 
general  rule  would  apply  that  money  paid 
under  mistake  of  fact  can  be  recovered  as 
the  person  receiving  payment  gives  no 
consideration  therefor.  In  this  case  the 
money  was  paid  the  bank  by  reason  of  the 

mistake  as  to  T 's  signatiue.  But  there 

is  an  important  qualification  of  the  above 
rule  to  the  effect  that  money  cannot  be 
recovered  where  the  person  receiving  pay- 
ment has  changed  his  position  to  his  preju- 
dice because  thereof  and  cannot  be  put 
in  statu  quo  by  the  payor.  In  the  present 
case  the  payment  was  made  four  years  ago 
and  doubtless  the  bank,  by  reason  of  this 
delay,  would  not  be  in  the  same  position  as 
to  recouping  itself  as  if  prompt  notice  of  the 
mistake  had  been  given.  It  would  seem, 
even  under  the  rule  that  money  paid  by 
mistake  can  be  recovered,  that  the  four 
years'  delay  would  probably  be  fatal  to  the 


railroad's  right  of  recoverv.     {Inquiry  from 
Va.,  Feb.,  1916.) 

Forged  order  on  savings  deposit 

Protection  of  bank  under  savings  bank  rule 
where  due  core  used 

1695.  The  savings  book  of  a  depositor 
was  abstracted  from  his  trunk  by  another 
person,  who,  wearing  the  clothes  of  the  de- 
positor, presented  the  book  and  obtained  the 
money  on  a  forged  order.  A  rule  contained 
in  the  pass  book  exempts  the  bank  from 
liability  for  payments  made  to  any  person 
presenting  the  book  prior  to  notice  that  it 
has  been  stolen.  Opinion:  A  rule  such  as 
contained  in  the  book  has  been  construed 

by  the  courts  to  protect  the  bank  onlj?^  in  the  j, 
event  of  the  exercise  of  due  care.  The  test  of  ll 
hability  is  whether  or  not  the  bank  was 
negligent,  which  is  a  matter  entirely  for  the 
jury.  Of  course,  if  the  depositor  was  in 
collusion  with  the  person  presenting 
book,  the  pa\Tiient  would  be  valid  on  the 
ground  of  estoppel.  {Inquiry  from  III., 
May,  1917.) 

1696.  A  forged  check  and  a  pass  book 
were  presented  at  a  bank  by  a  man  who 
had  been  in  the  habit  of  making  deposits  for 
the  customer  of  the  bank  owning  the  savings 
deposit.  The  signature  of  the  forged  check 
seemed  identical  with  the  genuine  signature. 
Opinion:  The  bank  is  protected  under  its 
rules  where  the  person  receiving  payment 
presents  the  pass  book  and  reasonable 
care  is  exercised  by  the  bank  in  making 
the  pa\'ment.  {Inquiry  from  Kan.,  March, 
1911,  Jl.) 

1697.  Where  payment  is  made  by  a 
savings  bank  on  a  forged  order  to  one  pre- 
senting the  depositor's  pass  book,  and  the 
rule  of  the  bank  is  that  payment  to  one 
presenting  the  pass  book  is  valid,  the  bank 
is  protected  if  reasonable  care  is  used;  other- 
wise, not.  Langdale  v.  Citizens  Bk.  of 
Savannah,  48  S.  E.  (Ga.)  708,  121  Ga.  105. 
Cosgrove  v.  Provident  Inst.,  64  N.  J.  L. 
653.  Kenney  v.  Harlem  Sav.  Bk.,  114  N. 
Y.  S.  749.  Gifford  v.  Rutland  Sav.  Bk.,  63 
Vt.  108.  Eaves  v.  People's  Sav.  Bk.,  27 
Conn.  229.  Appleby  v.  Erie  Co.  Sav.  Bk., 
62  N.  Y.  12.  Kummel  v.  Germania  Sav. 
Bk.,  127  N.  Y.  488.  Tobin  v.  Manhattan 
Sav.  Inst.,  6  Misc.  (N.  Y.)  110.  Chase  v. 
Waterbury  Sav.  Bk.,  77  Conn.  295.  {In- 
quiry from  Kan.,  March,  1910,  Jl.) 

Comparison  of  signatures  as  reasonable  care 

1698.  A  man  not  purporting  to  be 


396 


FORGED  PAPER 


[1699-1703 


depositor  on  presentment  of  a  pass  book 
and  a  forged  order  received  payment  from  a 
savings  bank.  One  of  the  by-laws  of  the 
bank  subscribed  to  by  the  depositor  read 
that  "a  payment  on  presentment  of  a  pass 
book  shall  be  a  discharge  to  the  bank  for  the 
amount  so  paid."  Opinion:  The  by-law 
protected  the  bank  where  reasonable  care 
was  used.  In  the  absence  of  suspicious 
circumstances,  where  the  bank  compared 
the  signatures  and  found  them  similar,  a 
court  would  likely  hold  that  it  used  reason- 
able care.  Kingsley  v.  Whitman  Sav.  Bk., 
182  Mass.  252.  Goldrick  v.  Bristol  Co.  Sav. 
Bk.,  123  Mass.  320.  Jochumsen  v.  Suffolk 
Sav.  Bk.,  3  Allen  (Mass.)  87,  88.  Ladd  v. 
Augusta  Sav.  Bk.,  96  Me.  510.  Levy  v. 
FrankHn  Sav.  Bk.,  117  Mass.  448.  Hough 
Ave.  Sav.,  etc.,  Co.  v.  Anderson,  78  Ohio 
St.  341.  Allen  v.  Williamsburgh  Sav.  Bk., 
69  N.  Y.  314.  (Inquiry  from  Ky.,  Nov., 
1912,  Jl.) 

Mother's  signature  forged  by  daughter 

1699.     A  daughter  of  a  depositor  in  the 
savings  department  of  a  bank  forged  her 
mother's  signature  to  a  draft  and  presented 
same,  accompanied  by  the  pass  book,  and 
had  same  honored.     The  bank  has  a  rule 
printed   in   its   pass  books   reading:     "Al- 
though    the    company    will    endeavor    to 
prevent   fraud   on   its   depositors,    yet   all 
payments  to  persons  producing  the    pass 
books  issued  by  the  company  shall  be  vaUd 
payments  to  discharge  the  company."     Is 
the  bank  liable  in  view  of  this  printed  rule? 
Opinion:  In  the  case  of  an  ordinary  check  on 
a  commercial  account,  the  bank  which  pays 
upon  a  forgery  cannot  charge  the  amount  to 
its  depositor's  account.     In  the  case  of  a 
savings  bank,  or  savings  department  of  a 
bank,  the  law,  however,  is  different.    It  is 
the  custom  of  such  banks  or  departments  to 
provide  a  pass-book  rule,  similar  to  that 
quoted  supra,  protecting  the  bank  where  it 
pays  upon  production  of  the  pass  book  ac- 
companied by  a  forged  order.     The  courts 
hold  these  rules  to  be  binding  as  contracts 
between  bank  and  depositor,  but  they  do 
not  give  them  Uteral  effect.    In  other  words, 
they  hold  that,  notwithstanding  such  rule 
exempting  a  bank  from  liability,  the  bank 
must  prove  that  it  has  used  reasonable  care 
in  each  particular  case.    The  question  in  the 
instant  case,  therefore,  would  be  whether,  in 
making  payment  to  the  daughter,  the  bank 
used  reasonable  care,  and  this  would  be  a 
question  of  fact  for  the  jury.    {Inquiry  from 
N.  J.,  Feb.,  1917.) 


Collecting  bank's  duty  as  to  drawer's  identity 
1700.     A  depositor  of  bank  A,  having  an 
account  with  it  in  the  name  of  John  Pico, 
presented  a  savings  bank  pass  book,  bearing 
the  name  Giovanni  Pico,issued  by  an  out- 
of-town  bank,  B,  made  a  draft  on  that  bank 
in  the  name  of  Giovanni  and  requested  A  to 
collect  the  balance.     He  said  that  he  was 
Giovanni  and  carried  his  account  with  B  in 
that  name,  but  that  he  was  now  known  as 
John.  The  question  is  asked— If  A  advises 
B  that  drawer  is  unknown  to  it  and  that  it 
did  not  warrant  genuineness  of  signature, 
how  far  does  its  liabiUty  extend,  if,  after 
payment,  it  is  shown  that  John  and  Gio- 
vanni are  different  persons  and  that  the 
former  has  forged  the  name  of  Giovanni? 
Opinion:    The  drawee  bank  should  be  ad- 
vised that  the  draft  with  pass  book  drawn  m 
the  name  of  Giovanni   is  drawn  by  a  man 
who  keeps  a  deposit  with  bank  A  as  John, 
coupled  with  a  disclaimer  of  warranty  of 
genuineness  of  signature  of  drawer.    If  the 
drawee  bank  chooses  to  pay  under  such 
conditions,  then  it  takes  the  risk  of  forgery 
by  John  of  the  name  of  Giovanni  and  bank 
A  can  credit  the  amount  to  the  account  of 
John  who  may  be  the  same  person.     (In- 
quiry from  N.  Y.,  June,  1920.) 

Printed  regulations  only  protect  bank  where 
due  care  used 

1701.  The  printed  regulations  in  a 
savings  pass  book  are  binding  upon  the 
depositor,  but  they  do  not  absolutely  relieve 
the  bank  from  responsibihty  in  case  of  pay- 
ment to  a  wrong  person  who  presents  the 
book  with  a  forged  order,  because  the 
courts  add  thereto  the  imphed  condition 
that  the  bank  in  making  such  payment  must 
have  exercised  reasonable  care.  Hough 
Ave.  Sav.,  etc., Co.  v.  Anderson,  78  Ohio  St. 
341.    (Inquiry  from  Ohio,  May,  1914-  J^-) 

1702.  May  a  savings  bank  charge  a 
payment  on  a  forged  order  to  the  account  of 
its  customer?  Opinion:  The  contract, 
generally  printed  in  the  pass  books  of 
savings  banks,  relieving  them  from  pay- 
ment on  forged  orders,  is  generally  held 
effective  when  the  bank  has  used  due  care 
(Burrill  v.  Dollar  Savings  Bank,  92  Pa.  134), 
but  of  no  avail  when  this  degree  of  care  has 
not  been  exercised.  See  People^  Savings 
Bank  V.  Cupps,  91  Pa.  315.  The  law  as  to 
what  constitutes  due  care  varies  in  the  differ- 
ent states.    (Inquiry  from  Pa.,  April,  1918.) 

1703.  Where  a  bank  exercises  due  care, 
it  is  not  responsible  when  it  pays  a  savings 


397 


1704-1706] 


DIGEST  OF  LEGAL  OPINIONS 


deposit  to  the  wrong  person  on  presentation 
of  the  pass  book  with  a  forged  order.  Lang- 
dale  V.  Citizens  Bk.  of  Savannah,  121  Ga. 
105.  Cornell  v.  Emigrants  Industrial  Sav. 
Bk.,  9  N.  Y.  Rep.  72.  {Inquiry  from  Tex., 
July,  1912,  Jl.) 

Rule  of  due  care  in  West  Virginia 

1704.  A  savings  bank  depositor's  book 
was  stolen,  presented  to  the  bank  and  pay- 
ment made  on  forged  indorsement;  the  bank 
not  receiving  notice  of  forgery  until  after 
perpetration  of  the  fraud.  The  by-laws  of 
the  bank  provide:  "If  any  person  shall 
present  a  book  and  falsely  allege  himself 
to  be  the  depositor  named  therein,  and  there- 
by obtain  the  amount  deposited,  or  any  part 
thereof,  this  institution  will  not  be  liable  to 
make  good  any  loss  the  actual  depositor  may 
sustain  thereby,  unless  previous  notice  of 
his  or  her  book  having  been  lost  or  taken 
shall  have  been  given  at  the  office  of  the 
bank."  Is  the  bank  liable  to  its  depositor? 
Opinion:  The  courts  quite  generally  hold, 
notwithstanding  by-laws  of  the  above 
character  absolutely  exempting  the  bank 
from  liability,  the  bank  must  show  that  it 
exercised  reasonable  care  in  making  pay- 
ment, otherwise  it  will  be  liable.  The  de- 
termining question  in  every  case  of  this 
kind  is  whether  the  bank  exercised  reasonable 
care.  In  Zuplkoff  v.  Charleston  Nat.  Bank, 
[W.  Va.]  88  S.  E.  116,  there  was  a  by-law  of 
the  bank  similar  to  the  one  quoted  supra, 
and  under  a  quite  similar  state  of  facts  the 
jury  rendered  a  verdict  for  plaintiff,  the 
depositor,  for  the  full  amount  of  the  deposit, 
which  was  affirmed  on  appeal  by  the  Su- 
preme Court  of  Appeals.  In  that  case  the 
tacts  indicated  a  discrepancy  in  the  signa- 
tures which  aroused  the  suspicion  of  the 
bank  officers,  and  they  made  certain  efforts 
to  discover  whether  the  person  presenting 
the  book  was  the  owner;  but,  according  to 
the  jury,  they  did  not  do  enough  in  this 
direction,  and  failed  to  exercise  reasonable 
care.  In  a  case  where  the  signature  to  the 
forged  order  is  so  like  the  signature  on  file  as 
not  to  arouse  suspicion  there  might  not  be 
the  same  duty  of  inquiry.  (See  McKenna 
V.  Bowery  Sav.  Bank,  15  N.  Y.  Suppl.  16.) 
{Inquiry  from  W.  Va.,  June,  1917.) 

Note:  See  a  recent  decision  of  the  Su- 
preme Court  of  Pennsylvania,  Bulakowski 
V.  Philadelphia  Sav.  Fund  Soc,  113  Atl. 
(Pa.)  653,  for  an  exhaustive  presentation  of 
the  law  as  to  the  degree  of  care  required  by 
a  savings  bank.  In  this  case  a  judgment  for 
a  depositor  whose  money  had  been  paid  upon 


a  forged  order  accompanied  by  pass  book 
was  reversed  because  the  bank  had  been 
held  to  a  too  exacting  degree  of  care.  The 
court  said:  "If  want  of  care  may  be  es- 
tablished by  showing,  in  the  comparison  of 
signatures,  that,  after  a  most  searching 
examination  and  investigation  under  a  high- 
power  magnifying  glass,  certain  dissimilari- 
ties appear  which  have  a  tendency  to  dis- 
cover a  forgery,  then  the  careful  scrutiny  of 
signatures  by  the  bank  officer,  acting  in 
good  faith,  goes  for  naught;  the  bank  be- 
comes an  insurer  against  loss  in  all  cases, 
and  care  of  the  highest  degree  is  substituted 
for  ordinary  diligence." 

Forged  telegrams 

Forged  telegram  of  hank  ordering  payment  and 
waiving  identification 

1705.  A  bank  received  a  telegraph  mes- 
sage purporting  to  be  signed  by  another  bank, 
"Pay  John  Jones  $75,  waive  identification, 
we  remit."  The  message  was  not  sent  by 
any  bank  but  by  a  person  unknown  to  the 
telegraph  company,  which  cannot  find  out 
the  identity  of  the  sender.  The  bank  paid 
the  money  on  faith  of  the  telegram.  Opin- 
ion. Where  a  telegraph  company  receives 
and  transmits  a  forged  telegram  purporting 
to  be  sent  by  one  bank  to  another,  ordering 
the  payment  of  money,  the  company  is  not 
liable  as  an  insurer  of  the  genuineness  of  the 
message,  but  is  bound  to  exercise  reasonable 
care  to  receive  and  transmit  only  genuine 
messages  and  is  responsible  for  negligence  in 
that  regard.  Where  a  telegraph  company 
receives  from  a  person  a  message  signed  in 
the  name  of  a  bank,  without  making  inquiry 
of  the  bank  or  ascertaining  the  authority  of 
the  sender  to  sign  the  bank's  name,  it  does 
not  use  due  care  and  is  responsible.  West. 
Union  Tel.  Co.  v.  Totten,  141  Fed.  (Iowa) 
533.  Bk.  of  Havelock  v.  West.  Union  Tel., 
141  Fed.  (Iowa)  522.  West.  Union  Tel. 
Co.  V.  Uvalde  Nat.  Bk.,  97  Tex.  219.  Pac. 
Postal  Tel.  Cable  Co.  v.  Bk.  of  Palo  Alto, 
109  Fed.  (Cal.)  369.  Wells  v.  West.  Union 
Tel.  Co.,  123  N.  W.  (Iowa)  371.  {Inquiry 
from  Ark.,  May,  1912,  Jl.) 

1706.  A  telegraph  company  wiring  a 
forged  message,  purporting  to  be  from  one 
bank  to  another,  requesting  the  payment 
of  money  to  a  person  named,  without  identi- 
fication, is  not  an  insurer  of  the  genuineness 
of  the  message,  but  is  bound  to  exercise  rea- 
sonable care  and  is  responsible  for  negligence. 
The  use  of  the  American  Bankers  Associa- 
tion cipher  code  affords  increased  protec- 


398 


i 


FORGED  PAPER 


[1707-1711 


tion.  Citizens  Nat.  Bk.  of  Des  Moines  v. 
West.  Union  Tel.  Co.,  139  N.  W.  (Iowa)  552. 
{Inquiry  from  Cal.,  Sept.,  1914,  JI-) 

1707.  Bank  A  received  a  telegram  from 
the  local  telegraph  office  signed  by  bank  B 
in  another  town,  and  sent  from  there,  read- 
ing, "We  waive  identification  and  guarantee 
payment  of"  a  described  check,  on  the 
strength  of  which  A  paid  the  amount  men- 
tioned in  telegram  which  later  was  found  to 
be  forged.  The  inquiry  is  as  to  whether  the 
telegraph  company  would  be  liable.  Opinion: 
The  courts  hold  that  a  telegraph  company  is 
not  an  insurer  of  the  genuineness  of  messages, 
but  is  bound  to  use  reasonable  care  to  see 
that  telegrams  forwarded  the  addressee  are 
genuine  and  not  forged.  There  are  a  few 
cases  where  the  courts  have  held  the  tele- 
graph company  liable  to  the  addressee  which 
paid  money  on  the  faith  of  the  forged  tele- 
gram, because  the  telegraph  clerk  sending 
the  message  had  not  taken  the  proper  pre- 
cautions to  ascertain  that  the  person  sending 
it  in  the  name  of  a  bank  had  the  proper  au- 
thority. Whether  reasonable  care  has  been 
exercised  in  any  particular  case  is  a  question 
of  fact  for  a  jury.  {Inquiry  from  Fla.,  May, 
1918.) 

1708.  A  telegram  was  received  by  bank 
A,  after  banking  hours,  purporting  to  be 
from  B,  an  out-of-town  bank,  reading, 
"Waive  identification  and  pay  John  Doe 
fifty  dollars,  we  remit."  The  A.  B.  A.  code 
was  not  used.  The  next  morning  a  person, 
representing  himself  to  be  John  Doe,  called 
at  bank  A,  and  producing  a  telegram  pur- 
porting to  be  signed  by  bank  B,  instructing 
him  to  call  and  get  the  money,  was  paid  the 
amount.  It  was  soon  afterwards  learned 
that  bank  B  did  not  send  the  telegram,  and 
that  the  order  was  forged.  The  inquiry  is 
whether  or  not  the  telegraph  company 
would  be  Uable.  Opinion:  The  telegraph 
company  is  not  an  insurer  of  the  genuine- 
ness of  messages,  but  the  courts  hold  it  must 
use  reasonable  care,  and  if  the  facts  show 
that  it  receives  and  transmits  a  message 
signed  in  the  name  of  a  bank,  requesting 
another  bank  to  pay  money,  without  proper 
inquiry  as  to  the  authority  of  the  person 
sending  the  message,  it  will  be  held  responsi- 
ble. See  A.  B.  A.  Journals  for  May,  1912,686, 
and  September,  1914,  163.  {Inquiry  from 
Miss.,  March,  1917.) 

Forged  telegram  from  hank  ordering  payment 

1709.  A  bank  received  from  the  delivery 
boy  of  a  telegraph  company  a  message  pur- 


porting to  be  signed  by  another  bank  re- 
questing it  to  pay  L.  $600.  The  money  was 
paid  L.  who  disappeared.  Later  in  the  day 
the  telegraph  company  informed  the  bank 
that  the  message  was  forged.  Opinion:  The 
telegraph  company  is  liable  to  the  bank. 
While  the  telegraph  company  is  not  a  war- 
rantor of  the  truth  of  messages,  it  is  bound 
to  exercise  due  care  in  ascertaining  the  au- 
thenticity of  a  received  message,  and  its  act 
of  delivery  is  a  representation  that  the  mes- 
sage was  received  from  the  bank  whose  sig- 
nature is  affixed.  Bank  of  Palo  Alto  v. 
Pacific  Postal  Tel.  Co.  103  Fed.  841.  West- 
ern Union  Tel.  Co.  v.  Uvalde  Nat.  Bk.  97 
Tex.  219.  {Inquiry  from  N.  M.,  June, 
1911,  Jl.) 

Delivery  to  hank  of  forged  telegram  by 
messenger  of  telegraph  company 

1710.  Bank  A  received  a  telegraph  order 
purporting  to  be  from  an  out-of-town  bank 
for  payment  of  money  to  B.  A  half  hour 
later  B  called  at  bank  and  was  paid.  The 
telegram  proved  to  be  bogus,  but  it  was  de- 
livered by  a  regular  messenger  of  the  tele- 
graph company  and  the  message  was  on  one 
of  its  regular  forms.  There  are  circum- 
stances which  tend  to  show  that  the  forgery 
was  done  in  town  where  bank  A  is  situated. 
It  is  asked  if  the  telegraph  company  can  be 
held  liable  for  delivering  the  message. 
Opinion:  Had  the  message  been  filed  in  the 
town  of  the  purported  sending  bank  and 
regularly  transmitted,  the  liability  of  the 
company  would  depend  upon  whether  it  had 
exercised  due  care.  But  it  appears  that  the 
message  never  was  in  the  hands  of  any  of  the 
company's  regular  operators  or  agents,  but 
only  in  the  hands  of  a  messenger.  From 
whom  he  got  it  is  not  shown.  Unless  it  can  be 
proved  that  the  message  was  handled  in  the 
telegraph  office  by  one  of  the  operators,  it 
is  doubtful  if  bank  A  could  hold  the  tele- 
graph company  liable.  It  would  involve  the 
uncertain  question  whether  the  delivery  of  a 
forged  telegram  by  a  regular  messenger 
would  be  an  act  binding  on  the  company. 
{Inquiry  from  Ind.,  June,  1912.) 

Forged  telegram  from  hank  advising  collection 

1711.  Bank  A  received  from  B  a  check 
drawn  to  his  own  order  on  bank  C  located 
in  a  near  by  town,  who  asked  that  it  be 
collected  so  that  he  could  open  an  account. 
A  forwarded  the  check  through  regular  chan- 
nels, but  before  it  reached  bank  C,  B  handed 
to  the  telegraph  operator  at  an  office  near 
that  bank  what  purported  to  be  a  message 


399 


1712-1714] 


DIGEST  OF  LEGAL  OPINIONS 


from  CJadvising'A  that  the  check  was  paid. 
The  message  was  sent  without  inquiry,  and 
a  few  hours  afterwards  B  went  to  bank  A  and 
opened  an  account  on  the  strength  of  the 
telegram,  drawing  out  a  portion  of  the 
money  at  the  same  time  and  leaving  a  small 
balance.  A  received  word  later  on  from  C 
that  B  had  no  account  with  it  and  that  the 
check  was  not  good.  A  claims  that  the  tele- 
graph company  is  responsible.  Opinion: 
A  telegraph  company  is  not  an  insurer  of 
the  genuineness  of  a  message,  but  is  bound 
to  exercise  reasonable  care  and  is  responsible 
for  negligence  in  receiving  and  transmitting 
a  forged  message.  In  this  case,  it  would 
seem,  due  care  would  have  required  the 
operator  to  ascertain  the  authority  of  the 
one  presenting  the  message.  In  a  similar 
case  in  Iowa  (Wells  v.  Western  Union  Tel. 
Co.,  144  la.  605,  123  N.  W.  371)  the  tele- 
graph company  was  held  hable  and  bank  A 
in  this  instance  would  have  good  ground  for 
enforcing  its  claim  against  the  company. 
A.B.  A.  Journal  May,  1912.  {Inquiry  from 
N.  J.,  July,  1912.) 

Bank  receiving  forged  telegram  in  name  of 

depositor   and   wiring   another   hank   to 

make  payment 

_  1712.  Bank  A,  in  response  to  a  telegram 
signed  supposedly  by  H,  a  depositor,  used 
the  A.  B.  A.  code  and  requested  bank  B  to 
pay  H  upon  identification  a  certain  amount. 
B  made  inquiry  at  hotel  where  man  was 
registered  and,  on  the  strength  of  informa- 
tion that  H  was  there  as  a  guest,  made  pay- 
ment. The  sender  of  the  telegram  turned 
out  to  be  an  impostor  and  the  inquiry  is  as 
to  which  bank  should  stand  the  loss.  Opin- 
ioTi :  There  are  quite  a  number  of  cases  in 
thf;  courts  of  various  states  that  hold  that 
when  an  impostor  who  misrepresents  a 
known  person  applies  for  money  to  a  bank 
or  other  drawer  of  a  check  and  the  latter 
sends  a  draft  to  the  applicant  drawn  pay- 
able to  the  person  whose  name  has  been 
used,  the  indorsement  by  the  impostor  of 
the  name  of  such  person  is  not  a  forgery  and 
payment  of  the  draft  on  such  indorsement  is 
valid.  The  theory  is  that  the  precise  person 
received  the  money  whom  the  sender  in- 
tended to  receive  it,  namely,  the  person  who 
made  the  appHcation.  See,  for  example, 
First  Nat.  Bank  v.  American  Nat.  Bank,  170 
N.  Y.  88,  62  N.  E.  1089.  There  are  some 
conflicting  cases,  as,  for  instance,  Tolman  v. 
American  Nat.  Bank,  22  R.  I.  462,  48  Atl. 
480,  52  L.  R.  A.  877,  84  Am.  St.  Rep.  850; 
but,  under  the  weight  of  authority,  bank  B, 


having  paid  the  money  to  the  very  person 
who  sent  the  telegram  to  bank  A,  using  the 
name  of  the  latter  bank's  depositor,  and  to 
whom  A  ordered  B  to  pay  in  the  belief  that 
he  was  its  depositor  of  that  name,  would  not 
be  held  neghgent  nor  liable  to  A.  {Inquiry 
from  Cat.,  Oct.,  1917.) 

1713.  A  Texas  bank  received  a  telegram 
from  a  party  in  Missouri,  signed  "John  Doe," 
the  name  of  a  customer,  requesting  it  to  have 
bank  D,  in  Missouri,  pay  him  $500.  The 
Texas  bank  complied,  wiring  bank  D,  under 
American  Bankers  Association  Code,  to 
make  this  payment  upon  proper  identifica- 
tion. Payment  was  made  by  bank  D  to  a 
party  representing  himself  to  be  "John 
Doe,"  upon  the  identification  of  a  clerk  from 
a  nearby  office.  The  alleged  "John  Doe" 
turned  out  to  be  an  impostor.  Bank  D  re- 
fuses to  reimburse  the  Texas  bank,  claiming 
that  it  took  due  precautions  in  matter  of 
identification,  and  is  not  liable.  Can  the 
Texas  bank  recover  from  the  Missouri  bank? 
Opinion:  According  to  the  facts  stated  it 
is  unlikely  that  the  Missouri  bank  would  be 
held  Uable  for  paying  the  money  to  the 
alleged  "John  Doe,"  but  the  Texas  bank 
would  be  the  loser.  The  courts  in  such  cases 
hold  that  the  money  is  paid  to  the  precise 
person  intended  to  receive  it.  They  apply 
the  principle  that,  where  one  of  two  innocent 
persons  must  suffer  loss  by  the  fraud  or  mis- 
conduct of  a  third  person,  he  who  first  re- 
poses the  confidence  and  commits  the  first 
oversight  must  bear  the  loss.  Maloney 
v.  Clark,  6  Kan.  82,  is  a  case  analogous  to  the 
instant  one,  and  it  was  there  held  that  the 
sender  must  bear  the  loss,  and  not  the 
banker  who  was  misled  in  the  matter  of 
identification  of  an  impostor.  There  are 
numerous  decisions  along  the  same  lines, 
and  where  one  person  impersonates  another 
and  a  third  person  sends  an  order  for  the 
payment  of  money  to  the  impersonator, 
believing  him  to  be  the  person  he  represents 
himself  to  be,  and  in  all  these  cases,  with  the 
exception  of  one  in  Rhode  Island,  where  a 
contrary  conclusion  was  reached,  the  loss 
has  been  placed  upon  the  person  who  first 
reposed  the  confidence  and  committed  the 
first  oversight.  {Inquiry  from  Tex.,  Feb., 
1919.) 

Bank  receiving  forged  customer's  telegram  and 

wiring    telegraph    company   to   pay   on 

identification 

1714.  A  bank  in  a  Pennsylvania  town 
received  a  telegram  from  St.  Louis,  over  the 
name  of  a  customer.  A,  to  forward  funds  by 


i 


400 


FORGED  PAPER 


[1715 


wire.  As  the  customer,  was  known  to  be  in 
St.  Louis  at  the  time,  it  followed  the  in- 
structions and  wired  the  telegraph  company 
to  pay  the  money  to  its  customer,  A,  upon 
identification.  Later  it  was  learned  that  an 
impostor  had  sent  the  telegram  and  secured 
the  funds.  Has  the  bank  a  cause  of  action 
against  the  telegraph  company?  Opinion: 
There  have  been  several  decisions  to  the 
effect  that,  where  an  impersonator  of  A 
writes  B,  in  the  name  of  A,  asking  for  funds, 
and  B,  mails  his  check  paj'-able  to  A,  which 
the  impersonator  in  the  name  of  A  indorses 
and  negotiates,  the  indorsement  of  A's  name 
is  not  a  forgery,  but  by  the  precise  person 
intended  by  B  to  receive  the  money,  al- 
thcfugh  B  was  deceived.  There  are  a  few 
contrary  cases.  There  is  one  decided  case 
in  which  the  facts  are  very  similar  to  this 
one.  Western  Union  Tel.  Co.  v.  Meyer,  61 
Ala.  158.  An  impostor  at  Cincinnati  sent  a 
dispatch  in  name  of  B  to  C  at  Selma,  Ala., 
requesting  C  to  send  a  telegraphic  order 
payable  to  B  at  Cincinnati.  C  complied 
with  the  request,  and  the  telegraph  com- 
pany paid  the  money  to  the  impostor,  who 
was  the  sender  of  the  message.  The  court 
held  that  where  there  is  nothing  to  create 
suspicion  in  the  minds  of  the  agents  of  the 
telegraph  company,  it  is  the  duty  of  the 
party  to  whom  the  request  for  remittance 
is  made  to  himself  ascertain  whether  he 
who  makes  the  request  is  the  person  he  pro- 
fesses to  be.  Held,  further,  that,  in  the  ab- 
sence of  anything  generating  suspicion,  the 
telegraph  company  has  no  right  to  refuse 
payment  of  the  money  to  liim  in  reply  to 
whose  message  it  was  sent;  and  is  not  liable 
for  a  payment  made  bona  fide  to  such  person 
though  it  turns  out  that  he  was  an  impostor. 
In  the  opinion,  however.  Manning,  J.,  said 
that  he  was  strongly  inclined  to  the  other 
conclusion — namely,  that  the  telegraph 
company  was  liable — but  deferred  to  the 
opinion  of  his  brother,  the  case  being  one  of 
first  impression.  {Inquiry  from  Pa.,  Sept., 
1916.) 

Bank  wiring  telegraph  company  to  pay  money 
to  sender  of  message 

1715.  A  person,  pretending  to  be  one 
J.  S.  G.,  wired  a  bank  in  M  from  K  in- 
structing bank  to  wire  him  certain  moneys. 
These  messages  were  repeated  several  times, 
and  sums  of  from  S50  to  SlOO  were  in  each 
instance  wired  to  said  J.  S.  G.  In  sending 
money,  identification  was  not  waived.  All 
moneys  were  paid  to  an  impostor  purporting 
to  be  J.  S.  G.    The  latter  is  well  known  in  K 


as  well  as  in  M.  The  telegraph  company, 
by  proper  investigation,  could  have  properly 
identifi.ed  the  sender  of  said  telegrams.  The 
company  claims  it  used  due  diligence,  and 
that  the  man  who  sent  the  telegrams,  being 
the  same  person  who  received  the  moneys, 
was  identified  to  its  agent  as  being  said  J.  S. 
G.  Bank  desires  opinion  as  to  whether  it  can 
recover  from  telegraph  company.  Opinion: 
See  opinion  in  A.  B.  A.  Jl.  Sept.  1914,  upon 
liability  of  a  telegraph  company  in  the  send- 
ing of  false  messages.  According  to  the  law 
the  telegraph  company  is  not  responsible  as 
insurer  of  the  genuineness  of  messages,  but 
is  bound  to  exercise  reasonable  care.  Where 
a  forged  telegram  ordering  or  requesting  the 
paj^ment  of  money  is  sent  in  name  of  a  bank 
and  the  telegraph  company  does  not  make 
the  proper  inquiry,  it  would  generally  be 
held  liable ;  but  the  proposition  is  a  different 
one,  it  seems,  where  a  telegram  is  forwarded 
in  name  of  an  individual  which  is  a  forged 
telegram.  There  are  no  known  cases  de- 
fining the  precise  duty  of  the  telegraph 
company  in  such  a  case  to  make  inquiry  as  to 
the  identity  of  the  sender.  Burrows  v. 
West.  Union  Tel.  Co.  [Minn.]  90  N.  W.  1111, 
is  a  case  somewhat  similar  to  the  instant 
one.  That  case  simply  goes  to  the  extent  of 
holding  the  telegraph  company  liable  upon 
its  check  to  an  impostor  who  sent  a  false 
telegram  equally  as  if  it  had  paid  cash  to 
such  impostor;  but  it  does  not  go  to  the 
extent  of  holding  who  should  be  the  loser  as 
between  the  sender  of  the  money  in  pur- 
suance of  the  false  wire  and  the  telegraph 
company.  There  are  numerous  cases  hold- 
ing that  where  an  impostor,  representing  him- 
self to  be  A,  applies  to  B  for  money  and  B 
delivers  the  impostor  a  check  drawn  pay- 
able to  A,  the  indorsement  by  the  impostor 
of  A's  name  is  not  a  forgery,  but  by  the  pre- 
cise person  intended,  and  that  payment  of 
such  check  on  the  indorsement  is  valid. 
(See,  for  example.  First  Nat.  Bank  v.  Ameri- 
can Exch.  Nat.  Bank,  170  N.  Y.  88.  Con- 
tra: Tolman  v.  American  Nat.  Bank,  22 
R.  I.  462.  The  weight  of  authority  being 
in  accordance  with  the  first  case  cited.)  In 
the  instant  case  it  would  seem  that,  unless 
it  should  be  held  some  duty  of  inquiry  de- 
volved upon  the  telegraph  company  to 
identify  J.  S.  G.  before  paying  the  money, 
the  line  of  cases  above  cited  might  be  held 
to  apply,  and  that,  in  ordering  the  telegraph 
company  to  pay  J.  S.  G.,  the  bank  was  in 
reality  ordering  them  to  pay  the  man  who 
sent  the  telegram  in  name  of  J.  S.  G.  It 
may  be,  however,  that  the  telegraph  com- 


401 


1716-1720] 


DIGEST  OF  LEGAL  OPINIONS 


pany  will  be  held  negligent  in  the  premises. 
{Inquiry  from  Fla.,  Oct.,  1917.) 


Forged  telegram  of  A  to  hank  asking  to  wire 
remittance 

1716.  A  person  pretending  to  be  A 
telegraphed  to  a  private  banker  B  to  send 
him  by  wire  $200.  B  thereupon  instructed 
bank  C,  in  city  from  which  the  telegram  re- 
ceived originated,  by  wire  in  A.  B.  A.  Code, 
to  make  the  payment  of  $200  to  A  upon 
identification.  C  paid  the  money  to  a  per- 
son representing  himself  to  be  A  and  who 
was  identified  as  such  person,  and  several 
days  later  received  word  by  telegraph  from 
B  that  the  signature  of  A  was  a  forgery.  B 
acted  upon  the  telegram  sent  by  impersona- 
tion without  even  ascertaining  that  the  real 
A  was  not  in  the  country.  C  desires  to  know 
its  status.  Opinion:  The  courts  generally 
hold  that,  where  an  impostor  claiming  to  be 
A  writes  or  wires  in  the  name  of  A  to  B,  re- 
questing that  B  transmit  to  him  a  sum  of 
money,  and  B  directs  a  bank  in  the  place  of 
the  impostor  to  pay  the  money  to  A,  a  pay- 
ment by  the  bank  to  the  party  representing 
himself  to  be  A  is  payment  to  the  precise 
person  intended  by  B  to  receive  the  money. 
{Inquiry  from  Mo.,  March,  1919.) 


Danger    in    practice    of   wiring    money   on 
telegram  from  customer 

1717.  Is  it  a  dangerous  practice  for  a 
bank  to  wire  money  on  receipt  from  a  cus- 
tomer of  a  telegram  requesting  same,  waiv- 
ing identification?  Opinion:  The  danger 
in  such  a  practice  would  lie  in  the  fact  that 
the  person  sending  the  telegram  might  be  an 
impostor  and  send  it  in  the  name  of  a  cus- 
tomer of  the  bank.  In  certain  cases  where 
telegraph  companies  have  received  and  wired 
forged  messages,  purporting  to  be  from  one 
bank  to  another,  requesting  payment  of 
money  to  a  person  named,  without  identifica- 
tion, it  has,  been  held  that  while  the 
telegraph  company  is  not  an  insurer  of  the 
genuineness  of  the  messages,  it  is  bound  to 
exercise  reasonable  care  and  is  responsible  for 
negligence.  In  such  cases  it  is  practicable  for 
the  telegraph  company  to  ascertain  from  the 
bank  whether  the  messages  are  authorized; 
but  in  the  case  of  a  telegram  signed  by  an  in- 
dividual, presumably  a  customer  of  a  distant 
bank,  ascertainment  of  genuineness  and 
authenticity  is  more  difficult,  and  responsi- 
bility for  negligence  more  remote.  {Inquiry 
from  Iowa,  Dec,  1920.) 


Forgery    of   express     company     money 
orders 

Question  of  recovery  of  payment  on  forgery  of 
signature  of  issuing  agent 

1718.  A  customer  deposits  with  bank  A 
an  express  company's  money  order  which 
was  forwarded  to  bank  B  and  credit  prompt- 
ly advised.  About  two  months  later  the 
cancelled  order  was  returned  to  A  with 
notation  that  the  order  was  stolen  and 
fraudulently  issued  on  forgery  of  signature  of 
agent  and  it  was  asked  to  refund  amount. 
A  questions  the  express  company's  right  to 
recover.  Opinion:  By  the  express  order,  in 
this  case,  the  express  company  agrees  to 
pay  to  the  order  of  the  payee  when  counter- 
signed by  the  agent  at  the  point  of  issue  and 
further  agrees  that  the  order  will  be  cashed 
by  the  agents  of  a  number  of  other  express 
companies,  including  any  of  its  own  agents. 
Where  paid  by  the  company  on  forgery  of 
the  signature  of  the  issuing  agent,  it  might 
be  held  that  the  company  was  bound  to 
know  the  signature  of  the  issuing  agent 
and  precluded  from  recovering.  The  point 
has  not  been  decided  in  the  case  of  express 
company  money  orders.  {Inquiry  from  III., 
July,  1916.) 


1719.  A  money  order  for  $40  of  S  Ex- 
press Co.,  blank  of  which  has  been  stolen 
and  forged,  was  cashed  by  a  local  store, 
collected  through  B  bank  from  the  express 
company,  and  shortly  thereafter  repudiated 
by  the  auditing  department  of  the  company, 
and  money  refunded  all  along  the  line. 
Opinion  is  desired  as  to  whether  the  express 
company  could  be  held  liable  by  reason  of 
the  fact  that  the  money  had  been  paid  by 
it  on  the  forged  signature  of  its  agent. 
Opinion:  Under  the  rule  that  the  drawee 
is  bound  to  know  the  signature  of  the  drawer 
and  precluded  from  recovery  of  money  paid 
a  bona  fide  holder  where  it  mistakes  such 
signature,  it  might  be  held  that  the  express 
company  is  bound  by  the  payment  as  would 
be  a  bank  which  paid  a  forged  check.  The 
point  has  not  yet  been  decided,  however, 
as  to  express  money  orders.  {Inquiry  from 
Tenn.,  Jan.,  1913.) 

1720.  A  bank  became  the  innocent 
purchaser  of  an  express  money  order  bearing 
the  forged  countersignature  of  the  issuing 
agent.  The  order  was  paid  by  the  company 
before  the  forgery  was  detected.  Opinion: 
In  the  absence  of  decided  cases  on  the  right 
of  an  express  company  to  recover  money 
paid  on  the  forged  countersignature  of  an 


402 


FORGED  PAPER 


[1721-1723 


agent,  the  question  depends  upon  whether 
the  courts  will  apply  the  rule  (1)  that  money 
paid  under  mistake  of  fact  is  recoverable,  or 
(2)  that  the  payment  is  final  and  irrevocable 
on  the  theory  (a)  that  the  paying  agent  is 
bound  to  know  the  signature  of  the  counter- 
signing agent,  and  (b)  that  between  parties 
equally  innocent  the  law  will  place  the  loss 
where  the  course  of  business  has  placed  it. 
Bolognesi  v.  U.  S.,  189  Fed.  335.  Germania 
Bk.  V.  Boutell,  60  Minn.  192.  {Inquiry 
from  W.  Va.,  April,  1913,  Jl.) 

1721.  A  bank  cashes  an  American  Ex- 
press Co.  money  order  for  a  customer,  and 
same  is  forwarded  through  the  regular 
channels  to  the  New  York  office  of  that 
company,  where  it  is  paid  and  remittance 
made.  Four  months  thereafter  the  express 
company  reported  to  the  collecting  bank 
that  the  money  order  was  fraudulently 
issued,  the  signature  of  its  agent  having 
been  forged,  and  demanded  restitution  of 
the  amount  paid  out  on  such  fraudulent 
order.  Who  should  be  the  loser  in  this 
transaction?  Opinion:  Where  an  express 
company  money  order,  bearing  the  forged 
signature  of  the  issuing  agent,  is  cashed  by 
an  innocent  purchaser,  and  paid  by  the 
home  office  of  the  company,  it  would  seem 
that  the  latter  (although  the  point  has  not 
been  passed  upon  judicially)  should  be  held 
bound,  equally  as  a  bank,  to  know  the  signa- 
ture of  the  drawer  (its  own  agent)  and  de- 
barred from  recovery  under  the  circum- 
stances. (See  Germania  Bank  v.  Boutelle, 
60  Minn.  192.)  {Inquiry  from  Okla.,  Aug., 
1920,  Jl.) 

Recovery  of  money  paid  on  forged  counter- 
signature of  payee — right  of  recovery 

1722.  A  bank  cashed  an  express  money 
order  for  a  person  claiming  to  be  C.  B.  Brown, 
the  payee,  and  it  was  forwarded  to  the  New 
York  office  of  the  express  company  and  was 
paid  and  cancelled  on  May  28th.  On  June 
3rd  the  company  returned  the  item  to  the 
bank's  correspondent,  claiming  that  the 
bank  cashed  it  on  a  forgery  of  the  signature 
of  the  payee.  Opinion:  It  was  held  in  the 
case  of  Sullivan  v.  Knauth,  146  N.  Y.  Supp. 
583,  (affirmed  115  N.  E.  460)  that,  where  a 
money  order  of  this  kind  is  issued  and 
cashed  on  a  forgery  of  the  payee's  signature, 
the  bank  which  cashed  and  collected  the 
money  order  is  liable  to  refund,  the  transac- 
tion being  similar  to  cashing  a  check  upon 
a  forgery  of  the  signature  of  the  payee.  The 
bank's  rights  in  the  present  case  hinge  en- 


tirely upon  whether  the  person  for  whom 
the  bank  cashed  the  money  order  and  who 
indorsed  the  same  was  C.  B.  Brown  to 
whom  it  was  issued.  If  so,  there  would  be 
no  forgery,  and  the  bank  would  be  entitled 
to  retain  the  money.  But  if  it  be  the  fact 
that  same  was  cashed  upon  a  forged 
indorsement,  there  is  a  liability  to  refund, 
and  the  fact  that  the  bank  was  not  notified 
for  a  week  after  payment  would  not  release 
it  from  liabihty.  {Inquiry  from  Kan., 
Sept.,  1920.) 

Recovery  of  money  paid  upon  raised  express 
cotnpany  money  order 

1723.  The  agent  of  an  express  company 
drew  an  order  on  the  company  for  $1.10 
payable  to  a  certain  person  who  raised  the 
amount  to  $40.70.  The  order  was  not  made 
payable  at  any  bank  or  at  any  particular 
place.  A  merchant  cashed  the  order  for  the 
increased  amount  and  deposited  it  in  his 
local  bank  and  the  order  was  paid  by  the 
express  company  without  question.  Some 
weeks  later  upon  discovery  of  the  alteration 
the  express  company  demanded  return  of 
the  money  and  the  bank  desires  to  know  if 
the  merchant  who  cashed  the  order  or  any 
other  indorser  can  be  held  responsible.  It 
is  contended  that,  as  the  express  company 
drew  the  order  on  itself  and  paid  it  without 
discovering  the  alteration,  it  could  not  very 
well  expect  other  persons  to  discover  same. 
Opinion:  While  money  paid  upon  a  forged 
instrument  is  generally  recoverable  as  paid 
under  mistake  of  fact,  the  general  rule  is 
that  where  a  person  pays  his  own  instru- 
ment which  has  been  forged  or  raised  to  a 
bona  fide  holder  for  value,  he  is  bound  by 
the  paj^ment  and  cannot  recover.  Thus, 
where  the  Bank  of  Georgia  paid  certain 
raised  notes  to  the  United  States  Bank,  re- 
covery was  denied  on  the  ground  that  the 
bank  was  bound  to  know  its  own  paper  and 
as  between  parties  equally  innocent,  where 
one  is  bound  to  know  and  act  upon  his 
knowledge  and  the  other  has  no  means  of 
knowledge,  there  is  no  reason  for  burdening 
the  latter  with  the  loss  in  exoneration  of  the 
former.  U.  S.  Bank  v.  Bank  of  Georgia,  10 
Wheat.  (U.  S.)  333.  So,  where  the  Govern- 
ment paid  certain  counterfeit  notes  to  a 
holder  for  value  the  general  rule  was  applied 
against  recovery  that  where  ^  one  accepts 
forged  paper  purporting  to  be  his  own  and 
pays  it  to  a  holder  for  value,  he  cannot  recall 
the  payment.  Cooke  v.  U.  S.,  91  U.  S.  389. 
An  apparent  modification  has  been  made  by 
some  courts  which  allow  recovery  of  money 


403 


1724-1727] 


DIGEST  OF  LEGAL  OPINIONS 


paid  upon  certified  checks  raised  after  certi- 
fication, but  only  to  the  extent  the  bona  fide 
holder  receiving  payment  has  not  been  preju- 
diced. National  Bank  of  Commerce  v. 
National  Mechanics  Bank,  55  N.  Y.  211. 
Where  checks  drawn  by  a  customer  are  paid 
by  a  bank  after  being  raised,  the  bank  has  a 
right  of  recovery  because  it  is  not  paying 
its  own  but  its  customer's  order.  If,  in  the 
case  submitted,  the  express  company  is 
paying  its  own  paper  drawn  through  an 
agent  on  itself  which  has  been  raised,  there 
is  fair  ground  for  contending  that  it  is  bound 
to  know  its  own  paper  and  cannot  recover 
from  a  bona  fide  holder.  The  contrary  view 
would  be  that,  the  order  being  issued  by 
an  agent  in  one  place  upon  the  company  in 
another,  the  latter  is  not  bound  to  know  the 
amount  and  would  have  a  right  of  recovery 
as  for  money  paid  under  mistake  of  fact 
equally  as  where  it  pays  an  order  upon 
forgery  of  the  payee's  countersignature. 
The  question  has  not,  as  yet,  been  decided 
by  the  courts.  {Inquiry  from  Ala.,  May, 
1921.) 

Forgery  of  travelers'  checks 

Recovery  of  money  paid  on  forgery  of  counter- 
signature of  'purchaser 

1724.  A  customer  of  bank  A  deposited 
with  it  an  express  company's  travelers' 
check  which  was  put  through  in  the  regular 
course  of  business  and  paid  by  the  express 
company.  Later  it  developed  that  the 
countersignature  of  the  purchaser  was  a 
forgery,  and  about  two  months  after  pay- 
ment the  company  returned  the  check  to 
bank  A  requesting  reimbursement.  The 
bank  wishes  to  know  whether  or  not  the 
company  can  recover  from  it.  Opinion: 
It  was  held  in  Sullivan  v.  Knauth,  146  N.  Y. 
Supp.  583  (affirmed  115  N.  E.  460),  where 
the  countersignature  of  the  purchaser  of  a 
travelers'  check  was  forged  and  the  check 
was  paid  by  the  issuing  bankers  upon  the 
forgery,  that  the  real  owner  of  the  check 
was  entitled  to  recover  the  amount  from  the 
issuing  bankers.  The  court  said  that  the 
transaction  was  virtually  the  same  as  of  a 
check  payable  to  the  order  of  a  designated 
payee,  unindorsed  by  said  payee.  That 
being  so,  the  countersigned  signature  must 
be  treated  as  the  ordinary  indorsement  of  a 
payee  upon  an  ordinary  check,  and  the  bank 
is  responsible  if  it  pays  on  a  forgery.  Treat- 
ing it  in  this  way,  the  court  said,  the  bankers 
issuing  the  travelers'  check  have  their 
remedy  over  against  prior  indorsers  as  in  an 
ordinary  case  of  forgery  of  payee's  signature 


on  any  other  negotiable  instrument.  Ap- 
plying this  rule  to  this  case,  the  express 
company  which  issued  the  travelers'  check 
would  have  a  right  to  recover  from  the  bank 
to  which  the  money  was  paid,  as  upon  a 
forgery  of  indorsement,  unless  there  was 
some  negligence  or  delay  which  would  work 
an  estoppel.  {Inquiry  from  Minn.,  Sept., 
1919.) 

1725.  An  express  company  travelers' 
check,  upon  which  there  was  a  forged 
countersignature  of  the  purchaser,  was 
cashed  by  a  bank  for  a  stranger  and  paid  by 
the  express  company.  The  signature  of  the 
purchaser  was  placed  upon  the  check  at  the 
time  it  was  issued  by  the  company.  Opin- 
ion: Both  bank  and  express  company  had 
equal  means  of  knowing  genuineness  of 
countersignature,  and  the  express  company 
could  recover  from  the  bank  which  received 
payment  under  the  rule  that  money  paid 
under  a  mutual  mistake  of  fact,  without 
consideration,  is  recoverable.  Nat.  Bk.  of 
Rolla  V.  First  Nat.  Bk.  of  Salem,  125  S.  W. 
(Mo.)  513.  {Inquiry  from  Mo.,  April, 
1910,  Jl.) 

Purchaser  acquires  no  title  where  counter- 
signature forged 

1726.  Inquiry  is  made  as  to  whether  or 
not  a  merchant  who  has  in  good  faith 
cashed  a  travelers'  check  that  has  been 
stolen,  and  the  countersignature  forged, 
could  look  to  the  bank  that  issued  the  check, 
and  from  which  the  check  was  stolen,  for 
payment.  Opinion:  The  courts  quite 
generally  hold,  as  to  travelers'  checks,  that 
the  countersignature  is  the  same  as  the 
ordinary  indorsement  of  a  payee  upon  an 
ordinary  check,  so,  if  such  a  check  was 
stolen  from  a  bank  and  the  countersignature 
forged  and  then  it  was  cashed  by  an  innocent 
purchaser,  such  purchaser  would  be  the 
loser,  and  could  not  look  to  the  bank  that 
issued  the  check  for  payment.  {Inquiry 
from  Mo.,  Oct.,  1916.) 

1727.  Inquiry  is  made  whether  the 
issuing  banks  are  held  liable  where  another 
bank  pays  a  travelers'  check  upon  which  the 
countersignature  has  been  forged.  Opin- 
ion: In  Sullivan  v.  Knauth,  146  N.  Y. 
Supp.  583,  the  defendant  bankers  issued 
travelers'  checks,  agreeing  to  pay  on  the 
countersignature  of  the  person  to  whom  the 
checks  were  issued,  corresponding  to  his 
signature  originally  written  in  another  place 
on  the  checks.  It  was  held  that  the  relation 
between  the  person  to  whom  issued  and  the 


404 


FORGED  PAPER 


[1728-1730 


issuing  bankers  was  similar  to  that  of  bank 
and  depositor  and  where  certain  such  checks, 
not  countersigned,  were  lost  or  stolen,  and 
the  countersignature  forged,  the  bankers, 
having  paid  the  checks  on  the  forged  signa- 
ture, were  liable  to  refund  to  the  owner,  and 
were  entitled  to  reimbursement  from  their 
immediate  indorser.  In  the  present  case  a 
bank  has  cashed  a  travelers'  check  on  forged 
countersignature.  It  is  in  the  same  position 
as  if  it  had  cashed  an  ordinary  check  on  a 
bank  upon  forgery  of  indorsement,  namely, 
it  has  paid  money  upon  an  instrument  to 
which  it  has  no  title  and  no  recourse  upon  the 
issuer;  it  must  look  to  the  person  from  whom 
it  received  the  instrument.  {Inquiry  from 
N.  Y.,  May,  1918.) 

1728.  A  travelers'  check,  sold  by  a  bank 
in  Nebraska,  issued  to  one  H,  and  purchased 
by  a  bank  in  Texas,  was  lost  by  H,  and  his 
countersignature  thereon  was  forged.  Opin- 
ion: That  the  Texas  bank,  having  cashed 
the  check  upon  the  forgery,  took,  no  title  and 
must  look  solely  to  the  person  from  whom  it 
purchased  for  reimbursement.  Sullivan  v. 
Kuauth,  et  al.,  146  N.  Y.  S.  583.  Samberg 
V.  Am.  Exp.  Co.,  136  Mich.  639,  99  N.  W. 
879.    {Inquiry  from  Tex.,  June,  1914,  JI-) 

The  Government  as  a  party  to  forged 
paper 

Recovery  of  money  paid  on  forged  indorse- 
ment of  check  on  U.  S.  Treasurer 

1729.  In  the  case  of  checks  or  drafts 
drawn  on  the  Treasurer  of  the  United 
States,  is  the  Government  bound  by  the 
same  rules  as  applied  to  banks  and  individ- 
uals where  the  signature  or  an  indorsement 
is  forged?  Three  years  ago  our  bank  cashed 
a  check  on  the  Treasurer  of  the  United 
States  which  has  just  been  returned  with  an 
affidavit  that  the  indorsement  is  a  forgery. 
We  are  unable  to  locate  our  indorser  and,  if 
compelled  to  refund,  we  will  be  the  loser. 
Opinion :  It  was  held  by  the  Supreme  Court 
of  the  United  States  in  Cooke  v.  U.  S.,  91 
U.  S.  389,  that  where  the  Government 
"comes  down  from  its  position  of  sovereignty 
and  enters  the  domain  of  commerce,  it  sub- 
jects itself  to  the  same  laws  which  govern 
individuals  there."  In  that  case  the 
United  States  sued  to  recover  back  money 
paid  for  the  redemption  of  certain  Treasury 
notes  before  maturity,  alleged  to  be  counter- 
feit, and  the  court  held  it  was  subject  to  the 
general  rule  of  commercial  law  that  where 
one  accepts  forged  paper  purporting  to  be 
his  own,  and  pays  it  to  a  holder  for  value. 


he  cannot  recall  the  payment.  In  the  recent 
case  of  U.  S.  v.  Chase  National  Bank,  252 
U.  S.  485,  where  the  United  States  paid  a 
forged  draft,  purporting  to  have  been  drawn 
on  the  United  States  Treasurer  by  an  Acting 
Quartermaster  in  the  Army  to  his  own  or- 
der, to  a  bank  to  which  it  had  been  indorsed, 
it  was  held  it  could  not  recover  the  amount 
as  money  paid  under  mistake  of  fact,  as  the 
drawee  is  bound  to  know  the  drawer's  signa- 
ture, and  the  fact  that  the  Acting-Quarter- 
master's indorsement  of  the  draft  was  also 
forged  did  not  change  the  rule.  Concerning 
the  right  of  the  Government  as  drawee  to 
recover  money  paid  upon  forged  indorse- 
ments, it  was  held  by  the  Supreme  Court,  in 
United  States  v.  National  Exchange  Bank, 
29  Sup.  Ct.  Rep.  665,  where  the  Govern- 
ment sued  to  recover  money  paid  upon 
forged  indorsements  of  pension  checks,  re- 
versing the  United  States  Circuit  Court  of 
Appeals  which  denied  recovery  because  of 
unreasonable  delay  in  giving  notice  to  the 
bank  after  discovery  of  the  forgeries,  that  as 
the  bank  by  presentation  and  collection  of 
the  checks  impliedly  warranted  the  genuine- 
ness of  the  indorsements,  which  warranty 
was  broken  at  the  time  of  collection,  there 
was  a  right  of  recovery  which  "was  not  con- 
ditioned upon  either  demand  or  giving 
notice  of  the  discovery  of  facts  which,  by 
operation  of  the  legal  warranty,  were  pre- 
sumably within  the  knowledge  of  the  bank." 
This  decision  would  seem  to  estabhsh  the 
Federal  rule,  applicable  not  only  to  the 
Government  but  to  all  banks  and  individ- 
uals, that  the  drawee  may  recover  money 
paid  upon  forged  indorsements  uTespective 
of  delay  in  giving  notice  after  discovery  un- 
less barred  by  the  statute  of  limitations,  and 
under  tliis  rule  it  would  appear  that  the 
Government  has  a  right  of  recovery  in  the 
case  submitted  notwithstanding  the  three 
years'  delay.  This  rule  differs  from  the 
rule  of  some  of  the  State  courts  to  the  effect 
that  while  delay  in  discovering  a  forgery  of 
indorsement  does  not  affect  the  right  of 
recovery,  undue  delay  after  discovery  in 
giving  notice  and  demanding  restitution 
may  estop  the  bank  and  prevent  recovery. 
See  Corn  Exchange  Bank  v.  Nassau  Bank, 
91  N.  Y.  74.  Missouri-Lincoln  Trust  Co., 
V.  Third  Nat.  Bank,  133  S.  W.  (Mo.)  357, 
361.    {Inquiry  from  Okla.,  May,  1921.) 

Recovery  of  money  paid  on  forged  indorsement 
of  treasury  check 

1730.     The  treasury  department  of  the 
United  States  paid  a  check  issued  by  the 


405 


1731-1733] 


DIGEST  OF  LEGAL  OPINIONS 


treasurer  of  the  United  States  to  an  honor- 
ably discharged  soldier  on  a  forged  indorse- 
ment, and  seeks  to  recover  from  the  bank 
from  which  it  received  the  check  over  a  year 
after  payment.    This  bank  claims  that  the 
treasury  department  had  in  its  files  the  sig- 
nature of  the  payee,  and  that  for  this  reason 
the   loss   should  fall   on   such   department 
rather  than  on  the  bank.     Opinion:     The 
general  rule  is  that  money  paid  upon   a 
forged  indorsement  is  recoverable  from  the 
person  or  bank  receiving  payment  unless  the 
drawee's  delay,  after  discovering  the  forgery, 
in  giving  notice  thereof  prejudices  the  person 
receiving  payment,  in  which  event  recovery 
is    generally    denied.      Houseman-Spitzley 
Corp.  V.  Am.  St.  Bank,  171  N.  W.  (Mich.) 
543.    However,  the  case  submitted  is  appar- 
ently controlled  by  United  States  v.   Nat. 
Exch.  Bk.,  214  U.  S.  302,  upholding  the 
right  of  the  government  to  recover  money 
paid  upon  forged  indorsements  of  pension 
checks    notwithstanding    failure    to    give 
prompt  notice  of  discovery  of  the  forgery. 
The  ground  of  recovery  was  that  the  bank 
presenting    the     checks     warranted     their 
genuineness  and  its  title.     It  would  seem 
that  the  government  is  not  barred  from  re- 
covery because  it  has  on  file  the  signature 
of  the  true  payee.     In  the  case  cited  the 
court   refused   to    rule    "that    the    United 
States  was  charged  with  knowledge  of  the 
signatures  of  the  vast  multitude  of  persons 
who  are  entitled  under  the  law  to  receive 
pensions.  . .  .To  apply  the  rule  [charging  the 
drawee  with  knowledge  of  the  true  signature 
of  the  payee],  however,  to  the  government 
and  its  duty  in  paying  out  the  millions  of 
pension  claims ....  would  require  it  to  be 
assumed  that  that  was  known,  or  ought  to 
have  been  known,  which,  on  the  face  of  the 
situation,   was   impossible   to   be   known." 
{Inquiry  from  Mich.,  June,  1921,  Jl.) 

Fact  of  forgery  in  dispute 

1731.  Bank  A  cashed  a  Treasury  De- 
partment check  for  a  well-known  customer, 
the  check  being  for  interest  on  certain 
Liberty  Bonds  which  he  owned,  and  it  was 
indorsed  by  him  in  ink  in  the  teller's  pres- 
ence. Sixteen  months  afterwards  A,  through 
its  correspondent  to  whom  the  check  had 
been  sent  for  credit,  received  notice  from  a 
Federal  Reserve  Bank  that  the  indorsement 
was  a  forgery  and  that  check  had  been 
charged  back.  It  was  not  returned.  A  de- 
sires to  know  its  legal  position  in  the  matter. 
Opinion:  The  general  rule  is  that  money 
paid  on  a  forged  indorsement  is  recoverable 


and  the  delay  of  sixteen  months  in  notifying 
of  the  forgery  and  demanding  restitution 
will  not  affect  the  Government's  right  of 
recovery,  U.  S.  v.  Nat.  Exchange  Bk.,  214 
U.  S.  302.  This  is  on  the  assumption  that 
the  indorsement  of  payee  is  a  forgery.  But 
if  A's  customer  owned  the  bonds  and  his 
indorsement  on  the  interest  check  is  genu- 
ine, the  Treasury  Department  has  made  a 
mistake,  and  the  first  step  would  be  to  in- 
vestigate and  learn  from  them  upon  what 
grounds  they  make  the  claim  of  forgery, 
what  person  has  made  claim  of  title  to  the 
check  and  what  are  the  grounds  of  such 
claim.  As  a  result  of  the  investigation  the 
facts  should  be  clearly  established  one  way 
or  the  other.  If  not  a  forgery,  then,  of 
course,  the  amount  charged  back  must  be 
credited  to  A.  If  a  forgery,  then  amount  is 
chargeable  to  A's  customer  and  can  be  re- 
covered from  him.  {Inquiry  from  III.,  May, 
1920.) 

Payment  hy    government  on  forged  indorse- 
ment of  postal  money  order  recoverable 
notwithstanding  delay 

1732.  Opinion  desired  as  to  bank's  lia- 
bility as  indorser  upon  U.  S.  P.  O.  money 
order,  dated  Dec.  17,  1918,  drawn  on  St. 
Paul,  Minn.,  postmaster,  cashed  by  payee 
at  store  of  customer  of  bank,  and  deposited 
by  customer  in  bank  in  December,  1918, 
cleared  in  usual  manner  and  paid  by  post 
office  in  St.  Paul  in  same  month.  Opinion: 
Where  the  United  States  issues  commercial 
paper  it  is  governed  by  the  same  rules  as 
apply  to  individuals  (Cooke  v.  U.  S,,  91 
U,  S.  389),  But  post-office  money  orders 
are  issued  by  the  government  in  its  character 
as  sovereign,  and  are  not  negotiable  instru- 
ments, and  money  paid  upon  forgery  of  the 
payee's  indorsement  is  recoverable  by  the 
government  notwithstanding  delay  in  mak- 
ing claim  of  restitution  through  which  the 
recipient  is  prejudiced.  Bolognesi  v,  U,  S,, 
189  Fed.  335.  U,  S.  v.  Stockgrowers'  Nat. 
Bank,  30  Fed.  912.  See  also  JaselH  v.  Riggs 
Nat.  Bank,  36  App.  D.  C,  159,  and  Moore 
V.  Skyles  [Mont.]  82  Pac.  799.  {Inquiry 
from  Minn.,  Aug.,  1919,  Jl.) 

Forgery    of    municipal    bonds 

Warrantor    liability    of    seller 

1733.  An  Ilhnois  bank,  innocent  holder 
of  certain  forged  negotiable  municipal  se- 
curities, sold  same  to  a  Tennessee  bank 
after  that  bank  had  investigated,  pro- 
nounced them  genuine,  and  offered  to  pur- 
chase same  at  par  and  accrued  interest.  The 


406 


FORGED  PAPER 


[1734-1736 


bank  (Illinois)  asks  what  liability,  under  the 
law,  it  incurs  to  the  Tennessee  bank  in  the 
transaction.  Opinion:  Under  the  stated 
facts,  it  seems  that  the  Illinois  bank  is 
liable  to  the  Tennessee  bank.  In  Otis  v. 
Cullom,  92  U.  S.  447,  the  court  said,  "There 
is  an  implied  warranty,  on  the  part  of  the 
vendor  of  municipal  securities,  that  they 
belong  to  him  and  are  not  forgeries."  See, 
also,  Jones  on  Corp.  Bonds  and  Mtges.,  Sec. 
220-a;  Sec.  65  Negotiable  Instruments  Law. 
In  view  thereof,  the  Illinois  bank  is  liable 
to  the  Tennessee  bank  on  implied  warranty 
of  genuineness  of  the  bonds;  and,  assuming 
that  the  Tennessee  bank  has  sold  the  bonds, 
■  the  Tennessee  bank  would  be  liable  to  the 
fj^  purchaser  upon  implied  warranty  of  gen- 
uineness. The  Illinois  bank  would  not  be 
liable  to  the  purchaser,  but  only  to  the 
Tennessee  bank.  (Inquiry  from  III.,  July, 
1919.) 

Criminal  liability 

I  Check  dated  on  Sunday 

1734.  A  decision  in  Michigan  holds  that 
the  uttering  of  a  forged  check,  dated  on 
Sunday,  is  not  a  crime  because  an  instru- 
ment void  on  its  face  cannot  be  the  subject 
of  forgery.  The  decisions  bearing  on  the 
subject  of  the  forgery  of  checks,  dated  on 
Sunday,  both  in  states  where  the  common 
law  prevails  that  Sunday  contracts  are  valid 
and  in  states  where  such  contracts  are  made 
void  by  statute,  are  collected  and  discussed 
in  4  A.  B.  A.  Jl.,  547.  People  v.  Vrooman 
—tried  Jan.  12,  1912,  in  Cir.  Ct.  Co.  of 
Emmet,  Mich.  Com.  v.  Bond,  188  Mass. 
91.  St.  V.  Sherwood,  90  Iowa  550.  People 
v.  Harrison,  8  Barb.  (N.  Y.)  560.  St.  v. 
Van  Auken,  98  Iowa  674.    Shannon  v.  St., 


109  Ind.  407.    Bell  v.  Mahin,  69  Iowa  408. 
{Inquiry  jrom  Ind.,  March,  1912,  Jl.) 

Check  signed  in  fictitious  name 

1735.  A  person  signs  a  check  in  a  ficti- 
tious name  with  intent  to  defraud.  The 
question  is  raised  as  to  whether  he  can  be 
punished  as  a  forger  or  whether  the  crime 
is  simply  that  of  larceny  or  obtaining  money 
under  false  pretenses  when  he  actually  ob- 
tains money  or  property  thereon,  or  whether 
he  can  be  punished  under  some  of  the  special 
statutes  making  criminal  the  mere  issuing  of 
checks  against  insufficient  funds.  Opinion: 
According  to  the  decisions  in  the  various 
courts,  it  is  well  settled  that  the  signing  of 
a  check  in  a  fictitious  name,  with  intent  to 
defraud,  is  a  forgery.  The  importance  of 
this  question  hes  in  the  fact  that  the  penalty 
for  forgery  is  more  severe  than  in  the  other 
offenses  above  stated  and  it  is  more  desirable 
to  prosecute  under  the  forgery  statutes. 
Randolph  v.  St.,  65  Neb.  520.  Bishop, 
Crim.  Law,  Vol.  1,  Sec.  572,  Vol.  2,  Sec.  543. 
People  V.  Warner,  62  N.  W.  (Mich.)  405. 
St.  V.  Hahn,  38  La.  Ann.  169.  St.  v.  Wheel- 
er, 10  L.  R.  A.  (Ore.)  779.  Logan  v.  U.  S., 
123  Fed.  291.  U.  S.  v.  Turner,  7  Pet.  (U. 
S.)  132.  Harrison  v.  St.,  72  Ark.  117. 
Maloney  v.  St.,  121  S.  W.  (Ark.)  728. 
Williams  v.  St.,  126  Ala.  55.  Cal.  Penal 
Code,  Sec.  476.  People  v.  Jones,  12  Cal. 
App.  129.  People  v.  Nishiyama,  135  Cal. 
299.  State  v.  Chance,  82  Kan.  388.  St. 
V.  Vineyard,  16  Mont.  138.  People  v. 
Brown,  103  N.  Y.  S.  904.  Com.  v.  Bachop, 
Pa.  Sup.  Ct.  294.  Brewer  v.  St.,  32  Tex 
Cr.  Rep.  74.  Scott  v.  St.,  40  Tex.  Cr.  Rep. 
105.  Davis  v.  St.,  34  Tex.  Cr.  Rep.  117. 
{Inquiry  Jrom  N.  Y.,  Dec,  1916,  Jl.) 


FRAUD  AND  CRIMES 


Obtaining    money    or    property    under 
false  pretenses 

Procuring    discount    of   worthless    notes    as 
ostensible  lumber  paper 

1736.  A  firm,  composed  of  two  men,  was 
engaged  in  the  lumber  business  and  pro- 
cured discounts  of  worthless  notes  as  osten- 
sible lumber  paper  when,  in  fact,  most  of 
the  notes  were  borrowed  from  irresponsible 
parties,  without  consideration,  to  be  used 
for  fraudulent  purposes.  A  bank  inquires 
whether  the  procuring  of  a  loan  or  discount 
from  a  bank  by  such  means  would  be  the 
obtaining    of    money    by    false    pretenses. 


Opinion:  The  provisions  of  Section  1920of  the 
N.Y.  Penal  Code, relative  to  obtaining  money 
under  false  pretenses,  do  not  seem  to  reach 
this  case.  It  is  doubtful  whether  the  parties 
could  be  punished  under  this  section,  unless 
it  could  be  proved  that  they  made  a  false 
statement  of  fact  as  to  the  character  of  the 
note  or  notes  with  intent  to  defraud  the 
bank.  Mere  silence  or  suppression  of  the 
truth  or  withholding  of  knowledge  is  not 
false  pretense.  People  v.  Baker,  96  N.  Y. 
340.  It  is  doubtful  if  in  the  case,  as  stated, 
a  conviction  could  be  obtained  unless  it 
could  be  proved  that  the  firm  obtaining  the 
discounts  had  falsely  stated  that  the  notes 


407 


1737-1741] 


DIGEST  OF  LEGAL  OPINIONS 


were  received  in  consideration  of  lumber 
sold.    [Inquiry  from  N.  Y.,  Aug.,  1917.) 

Pretense  relied  upon  must  relate  to  existing 
fact 

1737.  A  customer  drew  two  checks,  for 
$200  and  S300  respectively.  Although 
the  customer's  deposit  was  insufficient  the 
bank  promised  to  pay  the  checks  upon  the 
customer's  false  promise  that  he  would  have 
enough  money  to  cover  the  checks  when  his 
wagons  came  in  the  next  morning.  The 
checks  were  paid,  l^ut  the  customer  closed 
out  his  business  without  reimbursing  the 
bank.  Opinion:  The  customer  could  not  be 
held  criminal^  liable  for  obtaining  money 
under  false  pretenses,  because  the  pretense 
relied  upon  by  the  bank  must  relate  to  a  past 
or  an  existing  fact  and  not  upon  any  repre- 
sentation as  to  the  future,  as  in  this  case. 
Com.  V.  Schmunck.  22  Pa.  Super.  Ct.  348. 
(Inquiry  from  Pa.,  Jan.,  1912,  Jl.) 

Person  receiving  money,  knowing  he  is  not 
entitled  to  it 

1738.  A  bank  in  Wyoming  asked  its 
correspondent  at  L.  to  pay  Mr.  F.  SlOO, 
wh  ch  was  due  him  from  a  bank  in  Mary- 
land. In  the  meantime  and  through  error 
the  Maryland  bank  wired  the  correspondent 
at  L.  to  pay  Mr.  F.  $100.  Mr.  F.  received 
the  $200,  knowing  that  he  was  only  entitled 
to  $100.  Opinion:  A  person  receiving 
money,  knowing  he  is  not  entitled  to  it, from 
one  who  believes  he  is  entitled  to  it,  without 
making  any  other  false  representation  or 
pretense,  is  probably  not  guilty  of  a  crime 
under  the  false  pretense  statute  of  Wyo- 
ming. Wyo.  Rev.  St.  1899,  Sec.  5143.  Mar- 
tin V.  St.,  17  Wyo.  319,  98  Pac.  709.  {In- 
quiry from  Wyo.,  Aug.,  1912,  Jl.) 

Checking  out  money  credited  by  mistake 

1739.  A  presented  a  check  on  bank 
drawn  on  it  by  B,  and  requested  that  same 
be  credited  to  his  account.  Through  in- 
advertence the  check  was  credited  to  the 
account  of  B,  the  drawer,  who,  upon  learn- 
ing of  the  error,  immediately  checked  out 
his  full  balance,  including  the  erroneous 
credit.  Can  the  bank  hold  B  liable  civilly? 
Can  he  be  punished  in  criminal  proceed- 
ings? Opinion:  The  bank  has  a  civil  right 
of  action  against  its  former  customer,  B,  for 
the  amount  of  money  credited  to  his  ac- 
count by  mistake  and  paid  out  on  his  check 
through  mistake  of  fact,  and  the  claim 
should  be  placed  in  the  hands  of  a  lawyer 
for  suit.     Concerning  the  criminal  liability 


of  B,  the  question  is  not  free  from  doubt. 
See  August  1912  A.  B.  A.  Jl.  (Vol.  5,  p. 
98),  where  the  conclusion  was  reached  that 
a  person  receiving  money,  knowing  he  was 
not  entitled  to  it,  without  making  any  other 
false  representation  or  pretense,  is  probably 
not  guilty  of  a  crime  under  the  false  pretense 
statute  of  Wyoming.  This  case  is  somewhat 
similar.  The  bank  virtually  paid  B  this 
sum  of  money  by  crediting  it  to  his  account. 
He  knew  he  was  not  entitled  to  it,  but  the 
bank  did  not.  He  checked  it  out.  It  is 
doubtful  whether  these  facts  would  consti- 
tute the  crime  of  obtaining  money  from  the 
bank  by  false  pretense.  (Inquiry  from 
Miss.,  Dec,  1920.) 

By    means    of    stopped    check 

1740.  After  the  payee  of  a  check  had 
deposited  it  and  had  been  allowed  to  check 
against  it,  the  bank  was  notified  that  pay- 
ment had  been  stopped.  It  tried  to  obtain 
settlement  with  the  drawer  and  later  with  the 
payee  but  was  unsuccessful  in  each  case.  Is 
there  any  ground  for  criminal  prosecution? 
Opinion:  Whether  there  are  grounds  for 
criminal  prosecution  depends  largely  upon 
the  special  facts  in  the  case.  If  the  depos- 
itor in  good  faith  took  the  check,  beheving 
that  it  would  be  paid  and  payment  was 
stopped  by  the  drawer  because  of  some 
honest  dispute,  there  would  be  nothing 
criminal  in  drawing  against  the  credit  prior 
to  collection  where  the  bank  permitted  him 
to  do  so. 

If,  however,  the  check  was  manufactured 
by  the  drawer  in  collusion  with  the  payee 
with  fraudulent  intent  that  it  should  form 
the  basis  of  a  bank  credit  to  the  paj^ee,  and 
it  was  so  used  to  obtain  money  from  the 
bank,  there  would  seem  to  be  ground  for 
criminal  prosecution  of  the  payee,  and 
possibly  of  the  drawer,  for  obtaining  money 
under  false  pretense. 

It  does  not  appear  that  the  drawer  gave 
a  bad  check,  but  rather  that  he  gave  a 
check  upon  which  he  afterwards  stopped 
pajTiient.  It  would  be  difficult  in  such  a 
case  to  prove  that  the  original  check  was 
issued  with  fraudulent  intent.  (Inquiry 
from  Ky.,  Feb.,  1921.) 

Passing  worthless  state  bank  bill 

1741. '  A  person  passing  for  value  a 
genuine  but  worthless  bill  of  a  state  bank 
no  longer  in  existence  is  not  guilty  of  any 
crime  under  the  Federal  law,  but  might  in  a 
proper  case  be  held  under  a  state  statute 
punishing  the  obtaining  of  money  under 


I 


408 


i 


FRAUD  AND  CRIMES 


[1742-1745 


false  pretense.  U.  S.  v.  Beebe,  149  Fed.  618. 
{Inquiry  from  Tenn.,  Jan.,  1912,  Jl.) 

Cashing    check    by    false    pretenses 

1742.  A  daughter  signed  her  father's 
name  to  a  check  per  her  own  and  cashed  it 
at  a  bank.  Payment  of  the  check  was  re- 
fused because  the  father,  upon  being  notified 
of  the  check  by  the  drawee,  refused  to  pay 
any  attention  to  it.  Twice  before  the 
daughter  had  signed  such  checks,  the  first 
one  being  paid  but  the  second  refused,  the 
daughter  afterwards  inducing  her  father  to 
settle.  The  forwarding  bank  delayed  two 
months,  expecting  either  the  father  or 
daughter  to  settle.  Opinion:  If  the  check 
was  unauthorized,  the  daughter  can  be 
prosecuted  criminally  for  obtaining  money 
under  false  pretenses,  but  not  for  forgery. 
The  bank  has  no  recourse  against  the  father 
but  only  against  the.  daughter,  and  its  delay 
would  not  affect  its  rights.  19  Cyc.  1374. 
People  V.  Bendit,  111  Cal.  274.  St.  v, 
Taylor,  46  La.  Ann.  1332.  (Inquiry  from 
Tenn.,  Aug.,  1913,  Jl.) 

1743.  A   bank    cashed    a   check   for   a 

person   named    0 whose   home   is   at 

Sayre,  Pa.  He  represented  himself  as  being 
connected  with  a  life  insurance  company. 
The  check  which  was  drawn  on  a  bank  in 
Sayre,  came  back  marked  "N.  S.,"  the 
person  not  being  connected  with  said  com- 
pany.    The  bank  asks  whether  O can 

be    punished    criminally.      Opinion:      The 

bank  does  not  state  whether  O was  the 

drawer  or  payee  of  the  check  which  it 
cashed.  He,  however,  according  to  the 
bank?s  statement,  obtained  money  thereon 
by  false  representations  and  could  be 
criminally  punished  under  the  act  of  March 
31,  1860.  (Purdon's  Digest,  13  Ed.,  Vol.  1, 
p.  949)  providing  that  if  any  person  shall 
by  any  false  pretense  obtain  from  another 
person  any  money  or  valuable  security  with 
intent  to  cheat  and  defraud  any  person  of 
the  same,  every  such  offender  shall  be  guilty 
of  misdemeanor,  etc.  (Inquiry  from  Pa., 
Sept.,  1919.) 

Obtaining    bill    of    lading    under  false 
pretenses 

1744.  A  bank  received  for  collection  a 
draft  with  a  bill  of  lading  attached.  The 
consignee  obtained  the  bill  of  lading  upon 
tender  of  a  check  to  the  bank  and  received 
the  goods.  The  consignee,  asserting  that 
the  freight  on  the  goods  was  not  prepaid, 
stopped  payment  on  the  check,  but  at  the 


same  time  retained  the  goods  and  refused  to 
pay  the  bank.  Opinion:  The  consignee  can 
be  convicted  of  obtaining  goods  under  false 
pretenses  if  it  can  be  proved  that,  at  the 
time  he  gave  his  check  in  order  to  get  the 
bill  of  lading  and  the  goods,  he  intended  to 
stop  payment.  The  action  must  be  brought 
within  three  years  if  a  felony,  and  within 
one  3^ear  if  a  misdemeanor.  Ala.  Crim.  Code 
(1907),  Chap.  222,  Art.  I,  Sec.  6920.  Mack 
V.  St.,  63  Ala.  138.  Carlisle  v.  St.,  76  Ala. 
75.  O'Connor  v.  St.,  30  Ala.  9.  Ala.  Crim. 
Code  (1907),  Chap.  247,  Sees.  7345,  7346. 
(Inquiry  from  Ala.,  Aug.,  1913,  Jl.) 

Larceny  and  embezzlement 

Abstraction    of    overpayment    when    money 
handed  bank  for  recount 

1745.  A's  share  in  a  fund  collected  by  a 
bank  is  one-third  and  in  paying  him  $69, 
bank  officer  by  mistake  pays  him  .$79,  SIO 
too  much.  Two  days  later  A  came  into 
bank  and  the  officer  asked  for  the  $10.  »A 
drew  roll  of  bills  from  his  pocket,  said  he  had 
not  touched  same  but  roll  is  just  as  received 
from  bank.  Officer  counts  and  finds  only 
$69.  The  officer  states  he  is  sure  that  he 
can  prove  that  he  gave  A  $79.  The  officer 
then  abstracted  $10  before  returning  roll. 
Did  the  bank  officer  act  within  his  legal 
rights  or  was  he  guilty  of  larceny?  Opinion: 
The  money  was  taken  without  legal  right. 
If  one  hands  money  to  another  to  count  in 
his  presence  and  then  to  hand  back,  the 
possession  remains  in  the  owner  and  if  the 
other,  being  a  mere  custodian,  wrongfully 
appropriates  the  money,  he  is  guilty  of 
larceny.  Hecox  v.  State,  105  Ga.  625.  Corn 
V.  O'Malley,  97  Mass.  584.  But  most  of  the 
cases  hold  that  where  the  taking  is  bona  fide 
under  a  claim  of  right,  there  is  an  absence  of 
criminal  intent  which  is  an  element  of  the 
offense  and  that,  therefore,  the  taking  is  not 
larceny  but  a  bare  trespass  or  civil  injur3\ 
VaUey  Mercantile  Co.  v.  St.  Paul  F.  &  M. 
Ins.  Co.,  143  Pac.  (Mont.)  559.  In  this  case 
the  taking  would  probably  not  be  held 
larceny,  but  it  would  be  held  there  was  no 
legal  right  to  seize  the  money  in  question 
claimed  to  be  due  the  bank,  for  this  would 
be  attempting  to  assume  the  functions  of  a 
court  of  proper  jurisdiction  and  to  arbi- 
trarily pass  upon  the  very  point  at  issue. 
It  might  be  urged  that  where  there  was  an 
overpa3Tnent,  followed  by  a  return  of  the 
identical  money  for  recount  two  days  later, 
the  abstraction  was  part  of  the  original  or 
same  transaction  and  within  the  rights  of 
the  bank  officer.    It  is  very  doubtful  that  it 


409 


1746-1750] 


DIGEST  OF  LEGAL  OPINIONS 


would  be  so  held  in  this  case.     {Inquiry 
from  Tenn.,  Oct.,  1916.) 

Overpayment  of  check  by  mistake 

1746.  A  bank  erroneously  made  an 
overpayment  to  an  agent  of  the  holder  of  a 
check.  The  agent  claims  that  he  turned 
over  the  money  without  counting  it  while  the 
principal  claims  that  he  received  only  the 
correct  amount  of  the  check.  Is  the  agent 
guilty  of  larceny  for  retaining  the  excess? 
Opinion:  If  it  could  be  proved  the  agent 
knowingly  retained  the  excess,  he  would 
probably  be  guilty  of  embezzlement.  But 
the  crime  would  be  difficult  to  prove.  The 
burden  of  proof  is  on  the  commonwealth  to 
establish  the  guilt  of  the  accused,  who  is 
presumed  to  be  innocent.  To  establish 
criminal  liability  it  would  be  necessary  to 
prove  both  the  overpayment  by  the  bank 
and  the  abstraction  of  the  excess  by  the 
agent  before  turning  the  money  over  to  the 
principal.  The  agent's  word  would  be  as 
good  as  the  principal's,  and  unless  it  could 
be  shown  that  the  agent  knowingly  received 
and  retained  the  excess,  it  is  very  doubtful 
if  he  could  be  held  criminally  liable.  The 
question  is  solely  one  of  proof.  (Inquiry 
from  Iowa,  Jan.,  1919.) 

Conversion 

Conversion  or  embezzlement  of  stock  certificates 

1747.  A  bank  inadvertently  remitted 
two  sight  drafts,  to  which  were  attached 
stock  certificates,  direct  to  the  party  on 
whom  the  drafts  were  drawn.  The  drawee 
received  the  items,  but  failed  to  remit  for 
same,  or  to  return  the  certificates.  Bank 
desires  to  know  whether  it  would  have  a 
criminal  action  against  the  drawee,  or  a 
civil  action  for  the  value  of  the  stock.  Opin- 
ion :  Where  the  drawee  of  a  draft  to  which  are 
attached  stock  certificates  retains  the  stock 
certificates  for  an  unreasonable  time  after 
demand,  without  remitting  the  amount  of 
the  draft,  he  is  liable  in  a  civil  action  of 
trover  for  conversion  of  the  drawer's  proper- 
ty. He  might  also  be  held  criminally  liable 
for  embezzlement,  if  it  can  be  proved  that 
such  retention  was  with  fraudulent  intent 
to  deprive  the  owner  of  his  property,  pro- 
vided he  held  such  certificates  in  some  trust 
or  agency  capacity,  and  was  not  a  mere 
debtor  for  the  value  of  the  stock.  (See 
Moore  v.  U.  S.,  160  U.  S.  268.  Lyon,  45 
N.  J.  L.  272.  Siegel  v.  Levine,  147  N.  Y.  S. 
78.  McCann  v.  U.  S.,  2  Wyo.  274.  De 
Leon  V.  Terr.,  9  Ariz.  161.  In  re  Huston, 
27  Ida.  231.     State  v.  Stoller,  38  Iowa  321. 


Com.  V.  Williams,  3  Gray  [Mass.]  461.  In 
re  Grin,  112  Fed.  790.  Peo.  v.  Dougherty, 
143  Cal.  593.  Com.  v.  Weddle,  176  Ky. 
780.  Peo.  V.  Scharf,  217  N.  Y.  204.  State 
V.  Covert,  14  Wash.  652.  U.  S.  v.  Breese, 
131  Fed.  915.  Peo.  v.  Meadows,  199  N.  Y. 
1.  State  V.  Hatupin,  99  Wash.  468).  (In- 
quiry from  Wyo.,  Feb.,  1921,  Jl.) 

Conversion    of    stock    obtained    under    trust 
receipt — Lack  of  criminal  intent 

1748.  A  bank  inquires  as  to  criminal 
liability  of  A  who  obtained  stock  upon  a  If 
trust  receipt  for  the  specific  purpose  of 
selling  to  John  Doe  and  paying  the  proceeds 
to  the  bank.  A  sold  part  of  the  stock  to 
John  Doe  and  obtained  a  loan  on  the  other 
part,  and  the  proceeds  he  deposited  in  his 
bank  and  gave  a  check  therefor  to  the  lender 
bank.  Opinion:  The  facts  would  probably 
indicate  a  lack  of  criminal  intent,  although 
the  check  was  not  paid  because  the  bank 
set  off  the  deposit  against  an  indebtedness 
of  A.  Concerning  the  right  of  the  bank  to 
make  the  set-off  although  the  deposited 
proceeds  were  trust  funds  still,  the  bank  was 
unaware  of  this  and  it  seems  would  have  the 
right  of  set-off.  (Inquiry  from  Iowa,  Oct., 
1919.) 

Conversion  of  notes  by  innkeeper 

1749.  W.  S.  S.,  a  lodger  at  a  boarding 
house,  died,  and  among  his  effects  were  two 
notes  for  S200  and  $180  respectively,  which 
were  not  indorsed  by  him.  W.  W.  S.,  the 
boarding-house  keeper,  indorsed  the  notes 
in  his  own  name,  cashed  them  at  a  bank,  and 
appropriated  the  money  thus  collected  in 
satisfaction  of  an  alleged  board  bill.  The 
makers  who  through  a  Nebraska  bank  paid 
the  notes  are  sued  by  the  estate  of  W.  W.  S. 
Opinion:  The  inn  keeper  in  collecting  the 
notes  in  the  method  used  was  guilty  of  con- 
version, and  the  makers  are  still  liable  to  the 
estate,  although  the  makers  in  turn  can  re- 
cover the  money  from  the  Nebraska  bank 
as  having  been  paid  under  a  mistake  of  fact 
without  consideration;  and  the  Nebraska 
bank  can  recover  from  W.  W.  S.  on  the 
same  grounds.  W.  W.  S.  would  not  be  crim- 
inally liable  for  larceny  or  embezzlement  if  it 
could  be  shown  he  collected  the  notes  in 
good  faith  under  a  supposed  claim  of  title. 
Long  V.  St.,  44  Fla.  134.  Higginbotham  v. 
St.,  42  Fla.  573.  Eastman  v.  St.,  48  Fla.  2L 
(Inquiry  from  Fla.,  April,  1912,  Jl.) 

False  statements  for  credit 

1750.  The  following  Act  to  punish  the 


410 


FRAUD  AND  CRIMES 


[1751-1752 


making  or  use  of  false  statements  to  obtain 
property  or  credit,  recommended  by  the 
American  Bankers  Association,  has  been 
enacted,  with  more  or  less  modification,  in 
the  following  states:  Arkansas,  California, 
Colorado,  Connecticut,  Delaware,  Florida, 
Idaho,  Ilhnois,  Indiana,  Kentucky,  Louisi- 
ana, Maine,  Maryland,  Michigan,  Minne- 
sota, Missouri,  Montana,  Nebraska,  New 
Hampshire,  New  Jersey,  New  Mexico,  New 
York,  Ohio,  Oklahoma,  Oregon,  Pennsyl- 
vania, Rhode  Island,  Tennessee,  Utah,  Ver- 
mont, Virginia,  West  Virginia,  Wisconsin 
Wyoming. 

Be  it  enacted,  etc. 
Section  1.    Any  person, 

(1)  Who  shall  knowingly  make  or  cause 
to  be  made,  either  directly  or  indirectl}'^,  or 
through  any  agency  whatsoever,  any  false 
statement  in  writing,  with  intent  that  it 
shall  be  relied  upon,  respecting  the  financial 
condition,  or  means  or  ability  to  pay,  of 
himself,  or  any  other  person,  firm  or  cor- 
poration, in  whom  he  is  interested,  or  for 
whom  he  is  acting,  for  the  purpose  of  pro- 
curing in  any  form  whatsoever,  either  the 
delivery  of  personal  property,  the  payment 
of  cash,  the  making  of  a  loan  or  credit,  the 
extension  of  a  credit,  the  discount  of  an 
account  receivable,  or  the  making,  accept- 
ance, discount,  sale  or  endorsement  of  a  bill 
of  exchange,  or  promissory  note,  for  the 
benefit  of  either  himseK  or  of  such  person, 
firm  or  corporation;  or 

(2)  Who,  knowing  that  a  false  statement 
in  writing  has  been  made,  respecting  the 
financial  condition  or  means  or  ability  to 
pay,  of  himself,  or  such  person,  firm  or  cor- 
poration in  which  he  is  interested,  or  for 
whom  he  is  acting,  procures,  upon  the  faith 
thereof,  for  the  benefit  either  of  himself,  or 
of  such  person,  firm  or  corporation,  either  or 
any  of  the  things  of  benefit  mentioned  in  the 
first  subdivision  of  this  section;  or 

(3)  Who,  knowing  that  a  statement  in 
writing  has  been  made,  respecting  the 
financial  condition  or  means  or  ability  to 
pay,  of  himself  or  such  person,  firm  or  corpor- 
ation, in  which  he  is  interested,  or  for  whom 
he  is  acting,  represents  on  a  later  day,  either 
orally  or  in  writing,  that  such  statement 
theretofore  made,  if  then  again  made  on 
said  day,  would  be  then  true,  when  in  fact, 
said  statement  if  then  made  would  be  false, 
and  procures  upon  the  faith  thereof,  for  the 
benefit  either  of  himself  or  of  such  person, 
firm  or  corporation,  either  or  any  of  the 
things  of  benefit  mentioned  in  the  first 
subdivision  of  this  section: 


Shall  be  guilty  of  a  felony,  punishable  by 
(insert  amount  of  fine,  term  of  imprison- 
ment or  both). 

Borrower    omitting    indebtedness    of   $2,000 
from    statement    of    liabilities 

1751.  A  borrower  submitted  to  a  bank 
a  written  statement  of  his  assets  and  Ua- 
bilities,onthe  strength  of  which  he  procured 
from  the  bank  a  loan  of  $1,000,  upon  which 
he  paid  $600.  Thereafter  he  went  into 
voluntary  bankruptcy,  and  the  bank  then 
learned  that  at  the  time  said  statement  was 
submitted  to  the  bank  the  borrower  owed 
another  bank  about  $2,000  not  set  forth  in 
said  statement.  The  bank  inquires  whether 
a  criminal  charge  would  lie  against  the  bor- 
rower for  making  a  false  statement  for  the 
purpose  of  procuring  a  loan.  Opinion:  The 
borrower  referred  to  would  be  guilty  of  a 
violation  of  law.  He  knowingly  made  a 
false  statement  in  writing  to  the  bank  with 
intent  that  it  should  be  relied  upon  respect- 
ing his  financial  condition  for  the  purpose  of 
procuring  a  loan.  Under  the  Act  passed  by 
the  Pennsylvania  Legislature  in  1913,  it  is 
made  a  misdemeanor  to  make  a  false  state- 
ment in  writing  for  the  purpose  of  obtaining 
property,  money,  credit  or  the  extension  of 
credit,  and  any  person  found  guilty  of  a 
violation  thereof  may  be  sentenced  to  pay 
a  fine  not  exceeding  $1,000  or  to  undergo 
imprisonment  not  exceeding  one  year,  or 
both,  at  the  discretion  of  the  court.  {In- 
quiry from  Pa.,  Feb.,  1918.) 

False  oral  statement  by  accommodation  in- 
dorser  to  procure  credit  for  maker 

1752.  A  person  came  to  the  bank  and 
represented  that  he  was  the  owner  of  a 
house  and  lot  free  from  all  incumbrances, 
and  on  the  statement  thus  given  the  bank 
accepted  him  as  an  indorser  on  a  note. 
When  the  note  fell  due,  it  was  protested,  and 
judgment  was  obtained  for  the  amount 
thereof.  The  indorser  transferred  the  house 
and  lot  to  his  wife  after  the  note  ])ecame  due, 
and  now  claims  the  property  was  hers,  hav- 
ing been  deeded  to  him  bj^  mistake.  Is  he 
criminally  lial)le  for  obtaining  money  under 
false  pretenses?  Opinion:  There  appear  to 
be  no  decided  cases  which  would  serve  as  a 
precedent  upon  the  criminal  liability  of  an 
accommodation  indorser  who  makes  a  false 
oral  statement  for  the  purpose  of  procuring 
creditfor  themaker  of  anote,  but,  analyzing 
the  statute  (Penal  Code  N.  Y.,  Sec.  1290), 
a  person  who  with  intent  to  appropriate  the 
property  of  the  true  owner  to  the  use  of  any 


411 


1753-1755] 


DIGEST  OF  LEGAL  OPINIONS 


other  person  obtains  from  the  possession  of 
such  true  owner  by  color  or  aid  of  fraudulent 
or  false  representations  or  pretense  any 
money  or  personal  property  is  guilty  of 
larceny  and  this,  it  seems,  would  make 
criminal  the  act  of  the  person  in  the  present 
case,  assuming  he  did  not  own  the  house  and 
lot.  He  might  contend  that  he  did  not 
personally  obtain  the  loan,  and  this  would 
raise  the  question  whether  the  words 
"obtains  from  such  possession"  (Penal  Law, 
Sec.  1290)  would  cover  the  case  of  one  who 
makes  a  false  representation  for  the  benefit 
of  another  who  obtains  possession.  But 
this  with  the  words  "with  the  intent  *  *  *  to 
appropriate  the  same  to  the  use  of  *  *  * 
any  other  person"  might  be  construed  as 
covering  the  case.  There  is  a  further  crim- 
inal statute  (Penal  Code,  Sec.  544)  as 
follows:  "A  purchase  of  property  by 
means  of  a  false  pretense  is  not  criminal, 
where  the  false  pretense  relates  to  the  pur- 
chaser's means  or  ability  to  pay,  unless  the 
pretense  is  made  in  writing  and  signed  by 
the  party  to  be  charged."  The  false  pre- 
tense in  this  case  that  the  person  was  the 
owner  of  a  house  and  lot,  related  to  his 
means  or  abihty  to  pay,  and  if  it  was  a  case 
of  a  purchase  of  goods,  not  being  in  writing 
etc.,  it  would  not  be  criminal.  But  it  seems 
a  loan  of  money  could  hardly  come  under 
the  description  of  a  purchase  of  property  so 
that  this  provision  would,  probably,  not  be 
applicable.  {Inquiry  from  N.  Y.,  July, 
1915.) 

Civil    liability   for    deceit 

1753.  A  bank  asks  what  recourse  it 
would  have  in  case  of  any  misrepresenta- 
tion in  a  statement  submitted  for  the  pur- 
pose of  procuring  credit.  Opinion:  An 
action  for  deceit  may  be  founded  on  a 
person's  false  and  fraudulent  representations 
concerning  his  own  solvency  and  financial 
responsibihty  whereby  another  is  induced 
to  extend  credit  to  him  in  a  sale  or  other 
commercial  transaction  and  suffers  loss 
thereby;  provided  such  representations  con- 
sist of  definite  statements  of  fact  as  distin- 
guished from  mere  expression  of  opinion  or 
statements  of  a  promissory  character  relat- 
ing to  the  future.  (Inquiry  from  Miss., 
Sept.,  1912.) 

Loan  to  depositor — Rescission  on  ground  of 
fraud 

1754.  John  Doe  procured  a  loan  of 
S3,000  from  A  bank  on  collateral  deposited 
and    a    "property    statement"    submitted. 


The  "statement"  proved  to  be  materially 
false,  in  that  Doe  did  not  have  clear  title  to 
the  property  which  he  claimed  to  have  in 
said  "statement."  Can  the  bank  rescind 
the  loan  (the  note  has  not  yet  matured), 
charge  Doe's  account  with  same,  and  hold 
the  collateral  until  the  balance  is  paid? 
Opinion:  The  depositor  having  obtained  a 
loan  upon  a  false  statement,  this,  it  would 
seem,  would  entitle  the  bank  to  rescind  the 
credit,  and  hold  the  collateral  for  reimburse- 
ment of  the  portion  of  the  loan  already  with- 
drawn. (See  Bank  v.  Union  Trust  Co.,  50 
111.  App.  434.  Khng  v.  Irving  Nat.  Bank, 
21  N.  Y.  App.  Div.  373.  A.  B.  A.  Jl.  Dec. 
1916,  p.  502.)  In  the  Ilhnois  case  it  was  held 
that  where  a  depositor  procured  a  discount 
upon  false  representations  as  to  solvency, 
the  bank,  upon  discovering  his  insolvency, 
may  rescind  the  discount  and  charge  back 
the  amount  of  the  note  with  which  the  de- 
positor has  been  credited.  This  case,  it 
would  seem,  would  support  the  bank's 
right  to  charge  back  the  amount  of  the 
credit  to  the  depositor's  account,  because 
of  his  fraud  in  obtaining  such  loan  upon  a 
false  property  statement.  He  would  then 
be  indebted  to  the  bank  for  the  amount 
drawn  against  the  credit,  and  the  bank 
could  resort  to  the  collateral  for  this  amount. 
{Inquiry  from  III.,  Dec,  1916.) 

Statement  signed  by  husband  and  wife  showing 
''Real  Estate"  as  assets  where  same  be- 
longs solely  to  wife 

1755.  John  Jones  borrows  money  and 
gives  his  individual  note,  the  loan  being  on 
the  faith  of  a  statement  addressed  to  the 
bank  "for  the  purpose  of  establishing  cred- 
it," signed  by  John  Jones  and  Minnie  Jones, 
in  which  is  hsted  as  assets  the  item  "real 
estate  S40,000."  The  proceeds  of  the  note 
are  placed  to  the  credit  of  a  joint  account 
carried  by  John  and  Minnie  and  are  checked 
out  by  both.  The  real  estate  belongs  to 
Minnie  Jones.  Judgment  is  obtained 
against  John.  Is  there  any  recourse  against 
Minnie?  Opinion:  If,  as  stated,  the  real 
estate  belongs  to  Minnie  Jones,  and  the 
title  is  in  her  name,  it  cannot  be  seen  how  it 
could  be  subjected  to  payment  of  a  judg- 
ment owed  solely  by  John.  Had  Minnie 
Jones  signed  the  notes  jointly  with  her 
husband,  her  separate  estate  would  have 
been  liable  therefor  under  the  Colorado 
Married  Woman's  Act,  in  view  of  the  fact 
that  part  of  the  proceeds  inured  to  the  bene- 
fit of  her  separate  estate,  but,  as  the  bank 
loaned  the  money  on  the  note  to  the  hus- 


412 


FRAUD  AND  CRIMES 


[1756-1761 


band  alone,  it  is  hard  to  see  how  her  realty 
can  be  subjected  to  the  satisfaction  of  a 
judgment  on  such  a  note.  It  is  more  than 
doubtful  that  the  doctrine  of  estoppel  could 
be  invoked  against  Minnie  Jones  to  prevent 
her  from  asserting  her  title  to  the  property 
in  a  case  where  she  did  not  sign  or  indorse 
the  note  and  the  loan  was  not  made  to  her 
but  to  her  husband  solely.  The  mere  fact 
that  she  enjoyed  the  proceeds  of  a  part 
thereof  would  not  seem  to  affect  the  case, 
since  John  Jones  could  make  whatever  dis- 
position he  so  felt  of  the  funds  after  the 
notes  were  discounted.  Further  it  is  doubt- 
ful if  Minnie  Jones  can  be  held  liable  in  an 
action  for  deceit  for  the  loss  occasioned  the 
bank  by  reason  of  signing  with  her  husband 
the  statement  listing  as  assets  "real  estate 
$40,000."  This  might  be  held  to  be  a  mis- 
representation that  the  real  estate  belonged 
partly  or  wholly  to  her  husband,  when  in 
fact  she  owned  all,  on  the  faith  of  which  the 
bank  loaned  money  to  its  injury,  upon  which 
she  could  be  held  liable,  but  the  question  is 
doubtful.     {Inquiry  from  Colo.,  July,  1914-) 

Verification  under  oath  of  financial  statement 

1756.  The  question  is  raised  as  to 
whether  the  requirement  of  verification 
under  oath  by  the  maker  of  a  statement  of 
his  financial  condition  for  the  purpose  of  pro- 
curing credit  would  result  in  the  imposition 
of  a  heavier  penalty  in  case  of  falsity  than 
where  the  statement  is  unsworn.  Opinion: 
The  taking  of  a  false  oath  by  the  maker  of  a 
false  financial  statement  would  not  be  per- 
jury, the  statement  not  being  required  by 
law  or  made  in  a  judicial  proceeding.  It 
would  be  "false  swearing,"  but  as  such  is 
not  a  crime.  The  only  effect  of  requiring  a 
sworn  statement  would  seem  to  be  the  moral 
effect  upon  the  judge  in  whose  discretion 
rests  the  severity  of  the  penalty.  Conn. 
Pub.  Acts,  1911,  Ch.  202.  Gen.  St.  Conn., 
Sec.  1254.  (Inquiry  from  Conn.,  May, 
1919,  Jl.) 

Fraud  in  negotiation  of  check 

Liability  of  person  identifying  payee 

1757.  Where  A  orally  identified  the 
payee  of  a  check  to  the  purchasing  bank, 
A  is  not  liable  to  make  the  check  good  in  the 
event  of  non-payment,  provided  no  false 
representations  were  made  by  A  which  were 
acted  upon  by  the  bank  to  its  injury.  To 
hold  the  person  identifying  the  paj^ee  liable 
in  the  event  of  dishonor,  such  person  should 
he  required  to  indorse  the  check.  See  opin- 
ions 1662-1665.  (Inquiry  from  Ariz.,  March, 
1911,  Jl.) 


Introducing    swindler    to    bank 

1758.  A  bank  cashed  a  check  in  the  sum 
of  $105  for  a  stranger  who  was  correctly 
introduced  by  a  customer  using  these  words: 
"This  man  is  all  right,  please  wait  on  him." 
The  stranger  was  a  swindler,  and  his  check 
was  no  good.  Opinion:  The  customer  was 
not  liable  for  the  swindler's  fraud  because 
his  statement  was  a  matter  of  opinion  and 
not  of  fact.  See  opinions  1662-1665.  Ewart 
on  Estoppel,  p.  72.  Bk.  v.  Hammond,  (Colo. 
1898)  55  Pac.  1090.  Homer  v.  Perkins,  124 
Mass.  431.  Belcher  v.  Costello,  122  Mass. 
189.  Lahay  v.  City  Nat.  Bk.,  15  Colo.  339. 
(Inquiry  from  Tenn.,  July,  1909,  Jl.) 

Various  frauds  and  crimes 

Photographing  United  States  notes 

1759.  The  United  States  Criminal  Code 
prohibits  the  making  of  photographs  of 
any  obligation  or  other  security  of  the 
United  States,  except  under  authority  of  the 
Secretary  of  the  Treasury.  U.  S.  Crim.  Code 
Sec.  150.    (Inquiry  fr 0771  Pa.,  May,  1917,  Jl.) 

Conspiracy  to  commit  robbery 

1760.  A  person,  learning  that  a  ship- 
ment of  currency  is  to  be  made  by  one  bank 
to  another,  proposed  to  another  person  to 
commit  robbery,  pointing  out  the  subject  of 
the  robbery  and  outHning  a  plan;  but  the 
second  person  refused  and  the  first  person 
went  no  further.  Opinion:  The  first  person 
was  guilty  of  a  misdemeanor  in  soliciting  a 
person  to  commit  robbery.  St.  v.  Hathhorn, 
166  Mo.  229.  Rex  v.  Crocker,  2  B.  &  P.  N. 
R.  97.  Gabe  v.  St.,  6  Ark.  519.  Dig.  Ark. 
Stat.,  1904,  Chap.  48,  Sec.  1617.  Evans  v. 
People,  90  111.  384.  Gaunce  v.  Backhouse, 
37  Pa.  St.  350.  St.  v.  Jackson,  7  S.  C.  283. 
U.  S.  V.  Hirsch,  100  U.  S.  33.  Com.  v. 
Flagg,  135  Mass.  545.  Com.  v.  McGill,  Add. 
(Pa.)  21.  Reg.  v.  Gregory,  L.  R.  1  C.  C. 
77.  Begley  v.  Com.,  22  Ky.  L.  Rep.  1546. 
Com.  V.  Randolph,  146  Pa.  St.  83.  (In- 
quiry from  Ark.,  July,  1915,  Jl.) 

Delivery  of  goods  without  taking  up  warehouse 
receipt 

1761.  The  Uniform  Warehouse  Receipts 
Act  passed  in  Louisiana  in  1908  among 
other  provisions  contains  one  punishing  an 
officer  or  agent  of  a  warehouse  who  delivers 
goods  represented  by  a  negotiable  receipt 
without  taking  up  the  receipt.  La.  Laws 
1908,  Sees.  14,  36,  54.  (Inquiry  from  N.  Y., 
Dec,  1908,  J  I.) 


413 


1762-1766] 


DIGEST  OF  LEGAL  OPINIONS 


Possession  of  forged  instruments  with  intent 
to  defraud 

1762.  A  person  of  criminal  tendencies 
has  in  his  possession  and  exhibits  a  forged 
certified  check  in  the  sum  of  $5,000  upon  a 
bank  in  another  state,  but  so  far  as  known 
has  made  no  attempt  to  reahze  anything  on 
the  instrument.  Opinion:  A  person  may 
be  convicted  of  forgery  by  having  possession 
of  a  forged  instrument  with  intent  to  defraud 
although  never  uttered  by  him,  but,  unless 
something  was  said  or  done  by  the  possessor 
to  indicate  an  intent  to  defraud,  the  mere 
possession  of  the  forged  instrument  would 
not  constitute  a  crime.  See  citations  in 
opinion  No.  1760.  (Inquiry  from  Ark.,  July, 
1915,  Jl.) 

Shipping  negotiable  securities  as  merchandise 

1763.  It  seems  to  have  been  the  custom 
of  banks  throughout  the  country  to  forward 
notes  and  other  negotiable  instruments  by 
express  as  "valuable  papers,"  placing  a 
nominal  valuation  on  same.  Is  not  this 
practice  in  violation  of  the  Interstate  Com- 
merce Act,  for  the  reason  that  valuable  pa- 
pers, under  the  express  companies'  classifi- 
cation, are  rated  as  merchandise,  while 
notes,  bonds  and  other  negotiable  instru- 
ments, whether  payable  to  bearer  or  order, 
bear  a  higher  rate?  Opinion:  It  would 
seem  that  the  transaction  mentioned  would 
very  likely  be  held  a  violation  of  the  Inter- 
state Commerce  Act.  It  is  not  known 
that  the  specific  transaction  has  come  before 
the  courts,  but  Sec.  10  of  the  Act  expressly 
provides  that  any  person  who  obtains  trans- 
portation for  property  at  less  than  the  regu- 
lar rates  by  false  biUing,  false  classification, 
or  false  representation  of  the  contents  of  the 
package  or  the  substance  of  the  property  is 
guilty  of  fraud,  which  is  declared  to  be  a 
misdemeanor.  Concerning  the  sending  of 
negotiable  paper,  this  comes  under  the 
published  "money  classification,"  and  not 
under  "freight  classification."  There  have 
been  several  convictions  under  Sec.  10,  but 
none  involving  the  shipment  of  negotiable, 
paper  at  a  merchandise  rate.  (See  Nichols, 
etc.,  Co.,  V.  U.  S.,  212  Fed.  588,  and  O'Con- 


ner  v.  Great  Northern  Ry.,  136  N.  W.  743, 
construing  certain  phases  of  this  section.) 
{Inquiry  from  Wash.,  April,  1917.) 

Note:  See  also  Ellison  v.  Adams  Express 
Co.  (1910).  245  111.  410,  Nonotauk  Silk 
Co.  V.  Adams  Express  Co.  1912.  256  111.  66. 

Renunciation   of  interest   by   heir   procured 
by  fraud 

1764.  A  died  without  a  will,  leaving  a 
widow  and  no  children.  His  estate  con- 
sisted of  320  acres  of  land  and  other  prop- 
erty worth  $10,000.  The  widow  falsely  rep- 
resented to  A's  sister  that  it  was  necessary 
to  obtain! herjafiidavit  renouncing  her  in- 
terest in  her  brother's  estate  in  order  to  pro- 
bate the  estate.  On  these  representations 
the  sister  gave  her  affidavit.  Opinion:  A 
court  of  equity  would  revoke  the  sister's 
renunciation  and  enable  her  to  claim  her 
share  as  heir  of  the  estate.  Hymal's  Succ, 
49  La.  Ann.  461.  Clauss  v.  Burgess,  12  La. 
Ann.  142.  Rev.  Codes  Mont.,  Vol.  I.,  Tit. 
VII,  Sec.  4820,  Sec.  2.  Kern  v.  Raunser, 
20  Ky.  L.  Rep.  1954.  Farmer  v.  Bryant,  34 
N.  H.  9.  Carter  V.  Fowler,  33  La.  Ann.  100 
Baptiste  v.  Peters,  51  Ala.  158.  Barrington 
V.  Ryan,  88  Mo.  App.  85.  {Inquiry  from 
Kan.,  June,  1914,  JI-) 

Extradition  from  one  state  to  another — Duty 
of    diligence    of    public    official 

1765.  A  bank  asks  whether  anything 
can  be  done  to  compel  the  state's  attorney 
to  act  within  a  reasonable  time  to  get  out 
extradition  papers  to  bring  back  a  fugitive 
who  obtained  from  the  bank  $30  by  means 
of  a  worthless  check  on  a  Texas  bank. 
Opinion:  Where  a  man  criminally  defrauds 
a  bank  in  Illinois  and  escapes  across  the 
state  fine  and  there  is  danger  in  delay,  it 
should,  of  course,  be  the  duty  of  the  public 
oflScials  to  immediately  take  steps  to  bring 
the  fugitive  back;  but  the  forcing  of  dilatory 
officials  to  do  their  duty  rests,  it  seems,  with 
the  people  who  elect  them  and  any 
outside  interference  would  only  make 
matters  worse.  {Inquiry  from  III.,  Aug., 
1919.) 


GUARANTY 


Form  of  guaranty  to  bank 

1766.  A  bank  submits  the  following  form 
of  guaranty,  and  requests  information  as  to 
its  legal  effect. 


"To  The  First  National  Bank: 

For  value  received,  and  for  the  purpose 

of  enabling to  obtain  credit  from 

you,  the  undersigned  hereby  guarantees 


414 


GUARANTY 


1767-1769 


prompt  payment,  at  maturity,  or  at  any 
time  thereafter,  of  any  and  all  indebted- 
ness, upon  which  said now  is, 

or  may  hereafter  from  time  to  time  be- 
come, obligated  or  bounden  to  you,  either 
as  principal  or  as  guarantor  or  indorser, 
and  agrees  to  pay  all  costs  and  expenses 
incurred  by  you  in  enforcing  this  guaranty, 
together  with  interest  at  7%  per  annum. 
Notice  of  acceptance  of  this  guaranty, 
and  of  any  and  all  indebtedness  or  liability 
accepted  by  you  during  its  existence,  is 
hereby  waived.  This  instrument  shall 
continue  and  apply  to  all  indebtedness 
and  liabilities  accepted  or  received  by  you, 
until  written  notice  is  received  by  you 
from  the  undersigned,  not  to  make  any 
further  advances  upon  the  faith  hereof. 


Opinion:  The  form  of  guaranty  submitted 
appears  to  be  what  is  designated  an  un- 
limited guaranty — i.  e.,  one  that  is  un- 
limited as  to  both  time  and  amount — and  to 
be  terminated  only  upon  the  written  notice 
of  the  guarantor  revoking  same.  It  seems 
intended  to  be,  and  is,  a  continuing  guaran- 
ty; that  is,  one  of  those  unrestricted  guaran- 
ties which  continue  in  force  until  revoked. 
It  has  been  said  that  the  true  rule  for  con- 
struing guaranties  is  to  give  effect  to  the 
intention  of  the  parties  as  expressed  in  the 
instrument,  read  in  the  light  of  the  sur- 
rounding circumstances.  (Home  Sav.  Bank 
V.  Hosie,  119  Mich.  116.)  The  intention  of 
the  parties  to  this  instrument  would  seem  to 
be  that  the  party  of  the  first  part  shall 
guarantee  to  the  bank  all  present  and  future 
indebtedness  of  a  named  third  party  to  an 
unlimited  amount,  until  due  notice  of  revo- 
cation of  the  guaranty;  the  instrument  in  its 
present  form  would  be  so  interpreted,  and 
would  well  subserve  the  intention  and  pur- 
pose of  the  parties  thereto.  There  can  be 
raised  no  objection  to  the  waiver  of  notice 
of  acceptance  of  the  guaranty,  since  the  rule 
is  well  recognized  that  the  parties  to  the 
contract  may  expressly  or  by  implication 
waive  the  necessity  of  notice  of  acceptance. 
(Reynolds  v.  Douglass,  12  Pet.  [U.  S.]  497. 
Farwell  v.  Sully,  38  Iowa  387.  Peoples  Bank 
V.  Lemaire,  106  La.  429,  31  So.  138.)  (In- 
quiry from  Afich.,  Nov.,  1919.) 

Continuing    guaranty — Assignment    of 
notes 

1767.  A  bank  submits  a  form  of  guaran- 
ty containing  this  provision :  "In  considera- 
tion of  $1.00  *  *  *  and  for  further  consider- 
ation of  certain  lines  of  credit  extended  to 


me  from  time  to  time  by  the Bank, 

I  *  *  *  hereby  sell,  assign  *  *  *  unto  the 
said  Bank  any  and  all  notes  de- 
posited with  the  said  Bank  for  collection 
*  *  *  giving  said  bank  a  first  lien  on  any  and 
all  said  notes  deposited"  *  *  *  The  Bank 
asks — How  often  should  this  guarantee  be 
renewed?  Whether  one  dated  1915  would 
still  be  effective?  Opinion:  The  Hability 
under  a  guaranty  will  be  regarded  as  con- 
tinuing when  by  the  terms  of  the  contract 
it  is  evident  that  the  object  is  to  give  a 
standing  credit  to  the  principal  debtor  to  be 
used  from  time  to  time  either  indefinitely  or 
until  a  certain  period.  Scovill  Mfg.  Co.  v. 
Cassidy,  195  111.  App.  448;  Woelfel  v.  Rotan 
Grocery  Co.,  (Tex.  1916)  184  S.  W.  803. 
Glasser,  Kohn  &  Co.  v.  U.  S.  224  Fed.  84, 
citing  numerous  cases.  Where  the  guaranty 
is  a  continuing  one,  on  which  loans  are  made 
from  time  to  time,  the  statute  of  limitations 
does  not  begin  to  run  in  favor  of  the  guaran- 
tor until  default  in  payment  is  made.  State 
Bank  V.  Knotts,  10  Rich.  L.  (S.  C.)  543.  The 
guaranty  submitted,  therefore,  would  still 
be  effective.  {Inquiry  from  Wis.,  Jan., 
1919.) 

1768.  A  is  a  corporation  and  B  and  C  its 
guarantors.  During  the  first  six  months  a 
bank  advanced  to  A  until  it  reached  the 
limit,  i.  e.,ten  per  cent  of  capital  and  surplus. 
Around  the  latter  part  of  October  A  paid  all 
its  indebtedness  to  the  bank.  In  January  it 
was  necessary  to  go  through  the  same  financ- 
ing. Is  the  guarantee  binding  for  advances 
made  the  following  January  in  view  of  the 
fact  that  A's  liabilities  to  the  bank  were 
fully  hquidated  in  October?  Opinion:  Un- 
der the  cases  hereinafter  cited,  hability 
under  a  guarantee  will  be  regarded  as  con- 
tinuing when  by  the  terms  of  the  contract 
it  is  evident  that  the  object  is  to  give  a 
standing  credit  to  the  principal  debtor  to  be 
used  from  time  to  time  either  indefinitely  or 
until  a  certain  period  (Sco.  Mfg.  Co.  v.  Cassi- 
dy, 195  111.  App.  448.  Woelfel  v.  Rotan 
Grocery  Co.[Tex.  1916]  184  S.  W.  803).  It 
being  evident  that  standing  credit  is  de- 
sired and  contemplated  to  be  given  to  the 
corporation,  "A",  and  advances  made  to  it 
up  to  the  agreed  limit  whenever  needful,  the 
existing  guaranty  would  "be  binding  for  the 
advances  made  the  following  January." 
(Glasser, Kohn  and  Co.  v.  U.S.  224  Fed.  84.) 
(Inquiry  from  Wis.,  Feb.,  1919.) 

Guaranty  by  bond  salesman 

1 769.  To  what  extent  can  a  bond  or  loan 
salesman  be  held  liable  on  iiis  individual 


415 


1770-1774] 


DIGEST  OF  LEGAL  OPINIONS 


guarantee  on  securities  sold  where  there  is  no 
other  interest  involved  than  the  profit  in  the 
sale?  Opinion:  There  is  an  absence  of  de- 
cisions involving  this  class  of  guarantees. 
Such  a  guarantee  would  be  based  on  suffi- 
cient consideration  and  the  liability  of  the 
guarantor  would  extend  or  be  limited  ac- 
cording to  the  terms  of  his  agreement 
strictly  construed.  In  Edwards  v.  Noel,  72 
Mo.  App.,  1-31,  a  bond  broker  wrote  plaintiff 
concerning  certain  bonds  then  on  the  mar- 
ket, stating  all  the  facts  regarding  the  se- 
curity and  adding  that  he  considered  them 


in  every  way  desirable.  Plaintiff  by  letter 
ordered  $1,500  worth  of  the  bonds,  adding: 
"If  they  are  sold  before  you  receive  this 
letter,  send  me  next  best  you  have  to  this 
amount.  Only  send  me  bonds  you  can 
guarantee."  The  bonds  being  in  denomina- 
tions of  $1,000,  one  of  these  bonds  and  a 
$500  bond  on  different  security  were  sent 
him.  Subsequently  plaintiff  paid  for  both 
bonds.  It  was  held  that  plaintiff's  demand 
for  guaranty  related  only  to  bonds  other 
than  those  described  in  the  broker's  first 
letter.    {Inquiry  from  III.,  Nov.,  1911,  Jl.) 


HOLIDAYS,  SATURDAY  AND  SUNDAY 


Holidays 

Payment  of  a  check  on  Saturday  half  holiday 

1770.  In  view  of  the  uncertainty  of  the 
law,  the  following  statute,  drafted  by  the 
American  Bankers  Association,  gives  a  bank 
the  right  to  pay,  certify  or  accept  a  check  or 
other  negotiable  instrument  on  Saturday 
afternoon : 

"Nothing  in  any  law  of  this  state  shall 
in  any  manner  whatsoever  affect  the  validity 
of,  or  render  void  or  voidable,  the  payment, 
certification  or  acceptance  of  a  check  or 
other  negotiable  instrument  or  any  other 
transaction  by  a  bank  in  this  state,  because 
done  or  performed  on  any  Saturday  between 
twelve  o'clock  noon  and  midnight,  provided 
such  payment,  certification,  acceptance  or 
other  transaction  would  be  valid  if  done  or 
performed  before  twelve  o'clock  noon  on 
such  Saturday." 

The  above  law  or  a  law  similar  thereto 
has  been  passed  in  the  following  fourteen 
states:  Alabama,  Illinois,  Kansas, 
Michigan,  Minnesota,  Missouri,  New 
Jersey,  New  Mexico,  North  Carolina,  Penn- 
sylvania, South  Dakota,  Tennessee,  Virginia 
and  West  Virginia. 

Instrument  executed  on  holiday 

Validity  of  document  signed  on  holiday 

1771.  A  document  signed  on  a  legal 
holiday  is  valid  unless  the  act  is  expressly 
prohibited  by  the  statute  creating  the  holi- 
day. Griffith  V.  Mayor  (Miss.)  58  So.  781. 
Miss.  Code  1906,  Sec.  4011.  (Inquiry  from 
Miss.,  Aug.,  1916,  Jl.) 

Note  and  mortgage  executed  and  delivered  on 
holiday 

1772.  In  Washington  a  note  and  mort- 
gage executed,  acknowledged  and  delivered 
on  a  legal  hoHday  is  not  prohibited  by  stat- 


ute and  is  vahd.  Hooks  v.  St.,  58  Fla.  57. 
Ryan  v.  Schutt,  135  111.  App.  554.  Steere  v. 
Trebilcock,  108  Mich.  464.  Rem.  &  Ball. 
Code  Anno.,  1910,  Chap.  5,  Sec.  61.  Neg. 
Inst.  L.  Rem.  &  Ball.  Code  Anno.,  1910, 
Ch.  Ill,  Sec.  3475H-  Glenn  v.  Eddy,  51 
N.  J.  L.  255.  St.  V.  Super.  Court,  49  Wash. 
1.    {Inquiry  from  Wash.,  April,  1913,  Jl.) 

Notes  executed  and  delivered  on  Sunday 

Validity  in  New  York 

1773.  At  common  law  a  note  executed 
and  delivered  on  Sunday  is  valid,  but  in 
many  states  the  courts  have  held  such 
notes  void  by  reason  of  Sunday  statutes.  In 
New  York  the  execution  and  delivery  of 
such  notes,  not  being  acts  characterized  as 
"serious  interruptions  of  the  repose  and  re- 
ligious liberty  of  the  community,"  would 
probably  be  held  valid.  Greenbury  v. 
Wilkins,  9  Abb.  Pr.  (N.  Y.)  206.  N.  Y. 
Penal  Code,  Sec.  2140.  {Inquiry  from  N. 
Y.,  Nov.,  1911,  Jl.) 

Note  executed  hut  not  delivered  on  Sunday 

1774.  A  bank  requests  advice  as  to  | 
whether  a  note  or  an  acceptance  dated  on 
Sunday  and  accepted  on  Sunday,  is  valid. 
Opinion:  In  many  states  Sunday  contracts 
are  made  void  by  statute;  but,  as  delivery, 
completes  the  contract,  the  courts  hold  that, 
although  a  note  is  dated  on  Sunday,  if  it  is 
delivered  on  a  week  day,  it  is  valid.  It 
seems  there  is  not  the  same  restriction  on 
Sunday  contracts  in  New  York  as  in  some 
other  states.  The  laws  in  the  different 
states  are  not  uniform  but,  as  a  general 
proposition,  even  in  a  state  where  a  con- 
tract executed  on  Sunday  is  invahd,  the 
mere  dating  on  Sunday  will  not  invalidate 
it  if  delivered  on  a  week  day.  {Inquiry 
from  N.  Y.,  March,  1919.) 


410 


HOLIDAYS,  SATURDAY  AND  SUNDAY 


[1775-1781 


Dating  on  Sunday  or  holiday 

Validity  of  renewal  note  dated  on  Sunday  in 
Missouri 

1775.     A  bank  asks  an  opinion  regarding 
the  following:     A  note,  payable  sixty  days 
after   date,    falls   due   on   Sunday,    and   a 
renewal  note  given  to  extend  the  same  is 
dated  on  Sunday.     Is  this  a  valid  instru- 
ment, and  would  the  fact  that  this  is  a  re- 
newal note  have  any  effect  on  its  being  dated 
on  Sunday?  Opinion:  At  common  law  a  note 
made  on  Sunday  was  as  valid  as  if  done  on 
any  other  day.  By  statutes  in  many  of  the 
states,  however,  no  contract  can  be  entered  in- 
to or  secular  business  legally  conducted,  on 
Sunday  and  a  note  executed  and  delivered  on 
Sunday  has  been  held,  in  many  cases,  to  fall 
within  the  interdiction  of  suchgeneral  laws.  In 
other  states,  however,  the  Sunday  statutes 
which  prohibit  labor,  or  the  performance  of 
work,  have  been  held  not  to  extend  to  the  mak- 
ing of  contracts.  Whether  or  not  the  Missouri 
law  would  prohibit  a  Sunday  contract,  and 
even  assuming  that  it  would,  the  transac- 
tion, as  stated,  would  not  be  invalidated.    It 
is  a  case  of  a  note  which  falls  due  on  Sunday 
with  renewal  given  which  is  dated  on  Sun- 
day.    The  dating   on   Sunday  would   not 
invalidate  the  renewal,  provided  it  was  de- 
Uvered  on  another  day,  and  it  will  be  pre- 
sumed such  delivery  on  a  business  day  to  be 
a  fact.    (Inquiry  from  Mo.,  Oct.,  1915.) 

Check  dated  on  Sunday  or  holiday  in  South 
Carolina 

1776.  In  view  of  the  authorities  and  in  the 
absence  of  a  prohibitory  statute,  it  would 
seem  that  a  bank  in  South  Carolina  could 
safely  pay  a  check  dated  on  Sunday  or  on  a 
hohday.  Hellams  v.  Abercrombie,  15  S.  C. 
110.  Mitchell  v.  Bates,  57  S.  C.  44.  Mills 
V.  WiUiams,  16  S.  C.  593.  Farnum  v. 
Fowle,  12  Mass.  89.  Green  v.  Walker,  73 
Wis.  548.  Richardson  v.  Goddard,  23 
How.  (U.  S.)  28.  (Inquiry  from  S.  C,  March, 
1913,  Jl.) 

Check  or  note  dated  on  Sunday  in  South 
Dakota 

1777.  In  South  Dakota  a  check  or  note 
dated  on  Sunday  or  on  a  holiday  would  in 
all  probability  be  held  valid,  although  there 
is  no  decision  on  the  point.  Comp.  L.  S. 
Dak.,  Ch.  234,  p.  564.  Comp.  L.  S.  Dak., 
Title  3,  Part  5,  p.  314.  Johnson  v.  Brown, 
13  Kan.  529.  Merritt  v.  Earle,  29  N.  Y.  1 15. 
Raines  v.  Watson,  2  W.  Va.  371.  (Inquiry 
from  S.  D.,  May,  1914,  Jl) 


Validity  of  note  dated  on  Sunday  in  Texas 

1778.  At  common  law,  Sunday  con- 
tracts are  lawful  and  except  in  those  states 
where,  by  statute,  the  execution  and  delivery 
of  a  note  on  Sunday  is  prohibited,  a  note 
dated  on  Sunday  is  valid.  Texas  has  no 
such  prohibitory  statute.  Behan  v.  Ghio, 
75  Tex.  87.  Schneider  v.  Sansom,  62  Tex. 
201.  Terry  v.  French,  5  Tex.  Civ.  App.  120. 
Markle  v.  Scott,  2  Tex.  Ct.  App.,  Civ.  Cas., 
Sec.  674.  Tex.  Pen.  Code,  Arts.  183,  185, 
186.  Tex.  Rev.  St.,  Art.  3712.  Tex.  Rev. 
St.,  Art.  191.  7  Wait's  Act.  &  Def.  114.  2 
Parsons  on  Con.  892,  n.  2.  (hiquiry  from 
Tex.,  Aug.,  1913,  Jl.) 

Instrument  maturing  on  Saturday 

Presentment  of  time  instrument  maturing  on 
Saturday  in  Missouri 

1779.  Under  the  Negotiable  Instruments 
Law  of  Missouri  a  negotiable  instrument 
falHng  due  on  Saturday,  other  than  one 
payable  on  demand,  cannot  be  presented 
for  payment  and  protested  until  the  next  suc- 
ceeding business  day.  (Inquiry  from  Mo., 
April,  1912,  Jl.) 

Note:    See  1770  supra. 

Presentment  on  Saturday  afternoon  in  North 
Carolina 

1780.  Saturday  afternoon  in  North  Car- 
ohna  is  not  a  half  hohday  and  presentment 
and  protest  can  be  made  on  Saturday  after- 
noon the  same  as  on  the  afternoon  of  any 
other  business  day.  (Inquiry  from  N.  C, 
Dec,  1908,  Jl.) 

Note:  In  1919  a  statute  recommended 
by  the  American  Bankers  Association  was 
passed  providing  that  the  payment,  certifi- 
cation or  acceptance  of  a  check  or  other 
negotialile  instrument,  if  done  or  performed 
on  a  Saturday  afternoon  or  on  a  legal  hoh- 
day, is  valid.  In  1907  the  Saturday  half 
hohday  recognized  by  the  Negotiable  In- 
struments Law  was  abolished  by  statute. 

Presentment  on  Saturday  afternoon  in  South 
Carolina 

1781.  The  Negotiable  Instruments  Act 
provides  that  "instruments  falling  due  on 
Saturday  are  to  be  presented  for  payment 
on  the  next  succeeding  business  day,  except 
that  instruments  payable  on  demand  may, 
at  the  option  of  the  holder,  be  presented  for 
payment  before  twelve  o'clock  noon  on 
Saturday  when  that  entire  day  is  not  a 
hohday."  Is  the  provision  limited  to  those 
cities  of  South  Carohna  where,  by  special 


417 


1782-1785] 


DIGEST  OF  LEGAL  OPINIONS 


statute,  Saturday  afternoon  is  a  half  holiday? 
Opinion:  This  provision  plainly  makes  all 
paper  the  maturity  of  which  falls  on  Satur- 
day due  and  presentable  on  the  next  succeed- 
ing business  day — whether  Saturday  is  a 
holiday  or  half  holiday  at  the  place  of 
payment  or  not — the  only  exception  made 
being  in  the  case  of  demand  paper,  and  in 
that  case  an  option  is  given  to  the  holder  to 
make  presentment  and  demand  before 
twelve  o'clock  noon  on  Saturday  where  such 
paper  is  paj^able  at  a  place  in  which  Satur- 
day afternoon  is  by  statute  made  a  haK 
holiday.    {Inquiry  from  S.  C,  Feb.,  1919.) 

Time  instrument  falling  due  on  Saturday — 
When  payable 

1782.  A  draws  on  B  at  one  day's  sight 
with  documents  attached,  to  be  delivered  on 
acceptance.  B,  who  does  business  in  New 
York  City,  accepts  draft  on  Friday  and  re- 
ceives dociunents.  The  bank  asks  whether 
the  item  became  due  on  Saturday,  or  must 
holder  wait  until  Monday  for  payment? 
Opinion:  The  Negotiable  Instruments  Law 
provides:  "Instruments  falling  due  or  be- 
coming payable  on  Saturday  are  to  be  pre- 
sented for  pajaiient  on  the  next  succeeding 
business  day,  except  that  instruments  pay- 
able on  demand  may,  at  the  option  of  the 
holder,  be  presented  for  payment  before 
twelve  o'clock  noon  on  Saturday  when  that 
entire  day  is  not  a  holiday."  But  the  ques- 
tion arises.  Should  the  acceptor  desire  to  pay 
the  acceptance  on  Saturday,  could  he  force 
the  holder  to  accept  payment  on  that  day? 
The  section  has  not  as  yet,  so  far  as  dis- 
coverable, been  judicially  construed,  but  it 
seems  the  common-sense  interpretation  of  a 
requirement  that  an  instrument  falling  due 
on  Saturday  must  be  presented  for  payment 
on  the  next  succeeding  business  day  is  to 
postpone  the  maturity  of  the  instrument  to 
the  next  succeeding  business  day.  If  this 
interpretation  should  be  made  by  the  courts, 
then,  in  the  case  stated  by  the  bank,  acceptor 
B  could  not  pay  the  acceptance  on  Saturday 
unless  the  holder  was  willing  to  accept  pay- 
ment on  that  day  but  would  have  to  wait 
until  Monday  and  then  pay  the  amount, 
and  it  is  clear  that  the  holder  cannot  present 
for  payment  until  Monday.  {Inquiry  from 
N.  Y.,  March,  1919.) 

Note:  See  article  by  General  Counsel  on 
"Maturity  of  Time  Paper  Falling  due  on 
Saturday"  (published  in  Journal  A.  B.  A. 
Dec,  1920,  Vol.  XIII,  No.  6,  p. 431)  in  which, 
after  full  consideration,  the  following  con- 
clusion is  maintained : 


"We  are  inclined  to  take  the  view,  until 
the  question  is  decided  differently  by  some 
court,  if  it  ever  is,  that  under  a  reasonable 
interpretation  of  the  Negotiable  Instru- 
ments Act  where  an  interest-bearing  time- 
note  made  payable  at  a  bank  falls  due  by  its 
terms  on  Saturday,  the  instrument  matures 
on  Monday,  not  only  for  the  purpose  of  pre- 
sentment for  payment  to  hold  indorsers  but 
for  all  purposes  and  that  the  fact  that  there 
is  sufficient  money  in  bank  on  Saturday, 
when  by  its  terms  it  falls  due,  is  not  a  legal- 
tender  that  stops  the  running  of  interest,  as 
the  instrument,  by  force  of  law,  is  not  legally 
due  until  Monday." 

1783.  By  statute  in  Pennsylvania  a 
note  otherwise  presentable  for  payment  on 
Saturday  is  "payable"  on  the  next  business 
day,  hence  a  bank  owning  a  note  so  payable 
would  be  entitled  to  interest  for  two  added 
days  and  a  renewal  note  should  be  dated 
Monday,  2  Purd.  Dig.  (13th. Ed.),  p.  1839, 
Sec.  3.     {Inquiry  from  Pa.,  July,  1914,  JI-) 

Note:  In  1917  a  statute  recommended 
by  the  American  Bankers  Association  was 
passed,  making  the  payment  of  a  negotiable 
instrument  on  a  Saturday  afternoon  valid. 

Payment  of  check  on  holiday 

Payment  of  check  on  holiday  of  uncertain 
validity 

1784.  In  the  absence  of  judicial  decision 
upon  the  precise  point,  payment  of  a  check 
on  a  holiday  would  be  of  uncertain  validity 
and  at  the  risk  of  the  bank,  should  the 
drawer  stop  payment  at  the  opening  of 
business  on  the  next  business  day.  (Inquiry 
from  Ala.,  June,  1913,  Jl.) 

Note:    See  1770  supra.  ' 

Payment  of  check  on  Saturday  in  Illinois 

1785.  In  Ilhnois  (1)  Saturday  is  a  legal 
half  holiday  in  cities  of  200,000  or  more, 
and  in  such  cities  paper  maturing  on  Satur- 
days matures  and  is  presentable  and  pro- 
testable  the  following  business  day,  except 
that  checks  and  other  demand  paper  are  at 
the  holder's  option  presentable  on  Saturday 
forenoon  and  protestable  the  same  day;  (2) 
in  cities  of  under  200,000  Saturday  is  not  a 
legal  half  holiday  except  that  the  Negotiable 
Instruments  Act  postpones  presentment  of 
all  Saturday  maturing  paper  to  the  following 
business  day,  with  like  option  to  the  holder 
of  checks  and  other  demand  paper  to  pre- 
sent Saturday  forenoon  and  protest  the  same 
day.  111.  St.  Anno.,  Sees.  7638,  7725,  7741, 
7794.  {Inquiry  from  III,  March,  1917,  Jl.) 
See  1770  supra. 


418 


HOLIDAYS,  SATURDAY  AND  SUNDAY 


[1786-1791 


Payment   of  check   on   holiday   valid   under 
Kansas  statute 

1786.  It  is  unsafe  in  the  present  condi- 
tion of  the  law  for  a  bank  to  pay  a  check 
upon  a  hohday.  Saturday  afternoon  is  not 
a  half  holiday  in  Kansas,  but  in  view  of  the 
Negotiable  Instruments  Law  relating  to 
presentment  for  payment  on  Saturday,  pay- 
ment of  a  check  on  Saturday  afternoon  ex- 
cept to  the  drawer  would  be  at  the  risk  of  the 
bank.     {Inquiry  from  Kan.,  Feb.,  1915,  Jl.) 

Note:  In  May,  1915,  a  statute  was 
passed,  making  the  payment  of  a  negotiable 
instrument  on  a  Saturday  afternoon  or  upon 
any  legal  holiday  vahd. 

Payment  of  check  on  holiday  in  Missouri 

1787.  Is  the  payment  of  a  check  on  a 
legal  holiday  valid  in  Missouri?  Opinion: 
This  question  does  not  appear  to  have  been 
passed  upon  by  the  Missouri  courts,  and, 
in  the  absence  of  statute,  it  would  be  hardly 
safe  for  a  bank  to  pay  one  on  such  a  day,  as 
the  drawer  might  stop  payment  before  the 
opening  for  business  on  the  following  busi- 
ness day  because  of  some  fraud  of  the  payee 
and  might  contend  that  payment  on  the 
holiday  was  invalid.  (Inquiry  from  Mo., 
Oct.,  1917.)    Note:  See  1770  supra. 

1788.  A  bank  inquires  if  it  would  be 
safe  to  pay  a  check  on  a  legal  holiday.  Opin- 
ion. The  point  does  not  appear  to  have  ever 
been  decided,  but  it  would  seem  hardly  safe 
for  a  bank  to  pay  a  check  on  a  legal  holiday, 
as  the  drawer  might  stop  payment  before 
the  opening  for  business  on  the  following 
business  day  because  of  some  fraud  of  the 
payee  and  might  contend  that  payment  on 
the  holiday  was  invalid.  {Inquiry  from  Mo., 
Oct.,  1917.) 

Note:    See  1770  supra. 

1789.  A  Missouri  bank  states  that  it 
pays  over  the  counter  more  checks  on  Satur- 
day afternoon,  as  a  rule,  than  any  other  two 
full  days  in  the  week;  that  these  checks  are 
mostly  of  farmers  for  hired  labor,  and  those 
of  local  coal  mine,  who  pay  by  check  every 
two  weeks.  It  sees  no  remedy  for  the  situa- 
tion except  to  have  every  customer  sign  a 
waiver  of  the  right  to  stop  payment  on  any 
checks  which  might  be  paid  or  certified  on 
Saturday  afternoons,  or  an  act  of  the  legis- 
lature authorizing  the  practice;  and  asks  an 
opinion  on  the  question.  Opinion:  In 
Missouri  there  is  no  Saturday  half  holiday 
statute,  and  by  custom  some  banks  keep 
open  until  3  or  4  P.  M.,  while  those  in  the 
large  cities  theoretically  close  at  12,  but  pay 


checks  up  to  1  P.  M.  The  Negotiable 
Instruments  Law  of  Missouri  requires  in- 
struments becoming  payable  on  Saturday 
to  be  presented  on  the  next  succeeding  busi- 
ness day,  except  that  the  holder  of  a  demand 
instrument  may  present  same  before  12 
o'clock.  This  provision  creates  a  doubt  as 
to  the  validity  of  pajonent  of  a  check  after 
12  o'clock  on  Saturday  where  the  depositor 
objects  and  stops  payment  before  the  open- 
ing of  business  on  Monday,  and  to  remove 
the  doubt,  a  statute  is  recommended  vali- 
dating Saturday  afternoon  payments.  (See 
Ohio  Gen.  Code  Sec.  5978.  Minn.  Stat.  Sec. 
5897.  Tenn.  Code,  Sec.  3515.  Va.  Laws 
1918,  Ch.  66.  See  also  "half-hoiday" 
statutes  of  N.  J.,  Pa.,  and  S.  D.)  {Inquiry 
from  Mo.,  Dec,  1920,  Jl.) 

Note:  Missouri  now  has  the  A.  B,  A. 
statute  making  the  payment  of  a  negotiable 
instrument  on  a  Saturday  afternoon  or  upon 
any  legal  holiday  valid.    See  1770  supra. 

Payment  of  check  on  Saturday  afternoon  valid 
under  Ohio  statute 

1790.  In  the  present  condition  of  the 
law  and  in  the  absence  of  direct  judicial 
precedent,  payment  of  a  check  on  a  holiday 
or  half  holiday  would  be  of  uncertain  validity 
and  at  the  risk  of  the  bank,  should  the 
drawer  stop  payment  at  the  opening  of  busi- 
ness on  the  next  business  day.  Farnum  v. 
Fowle,  12  Mass.  89.  Green  v.  Walker,  73 
Wis.  548.  Stewart  v.  Brown,  112  Mo.  171. 
Slater  v.  Shack,  41  Minn.  269.  Nat.  Mut. 
Ben.  Ass'n  v.  Miller,  85  Ky.  88.  Page  v. 
Shainwald,  169  N.  Y.  246.  Richardson  v. 
Goddard,  23  How.  (U.  S.)  28.  Ohio  Gen. 
Code,  Sees.  13044-9.  Sellers  v.  Dugan,  18 
Ohio  St.  489.  Ohio  Gen.  Code,  Sees.  5976, 
5977,  5978.  Morel  v.  Stearns,  37  Misc. 
(N.  Y.)  486.  Handy  v.  Maddox,  85  Md. 
547.  Ohio  Gen.  Code,  Title  VII,  Div.  2, 
Sec.  8301.  Sec.  8190.  {Inquiry  from  Ohio, 
April,  1913,  Jl.) 

Note:  In  May,  1913,  a  statute  was 
passed,  maldng  the  payment  of  a  nego- 
tiable instrument  on  a  Saturday  afternoon, 
which  is  by  law  a  half  holiday,  valid. 

Payment  of  check  on  Saturday  half  holiday  in 
Pennsylvania 

1791.  An  opinion  is  asked  as  to  the 
legality  of  cashing  checks  after  12  o'clock 
noon,  Saturday,  by  banks  in  the  State  of 
Pennsylvania  which  remain  open  until  3 
o'clock  P.  M.  and  re-open  for  a  certain 
period  in  the  evening.  Opinion:  The  Act 
of  February   16,    1911,   amending  and  re- 


419 


1792-1793] 


DIGEST  OF  LEGAL  OPINIONS 


enacting  the  Holiday  Law,  contains  the  fol- 
lowing provisions:  It  enumerates  certain 
days  as  holidays  and  Saturday  from  12 
o'clock  noon  to  12  midnight,  which  it  desig- 
nates a  half  holiday,  and  provides  that  these 
days  and  half  days  "shall  for  all  purposes 
whatever  as  regards  the  presenting  for  pay- 
ment or  acceptance,  and  as  regards  the  pro- 
testing and  giving  notice  of  dishonor,  of  bills 
of  exchange,  checks,  drafts,  and  promissory 
notes,  made  after  the  passage  of  this  act,  be 
treated  and  considered  as  the  first  day  of  the 
week,  commonly  called  Sunday,  and  as 
public  hoUdays  and  half  holidays;  and  aU 
such  bills,  checks,  drafts,  and  notes,  other- 
wise presentable  for  acceptance  or  payment 
on  any  of  the  said  days,  shall  be  deemed  to 
be  payable  and  be  presentable  for  acceptance 
or  payment  on  the  secular  or  business  day 
next  succeeding  such  holiday  or  half  holiday; 
except  checks,  drafts,  bills  of  exchange,  and 
promissory  notes,  payable  at  sight  or  on 
demand,  which  would  otherwise  be  payable 
on  any  half-holiday  Saturday,  shall  be 
deemed  to  be  payable  at  or  before  twelve 
o'clock  noon  of  such  half  holiday;  provided, 
however,  that  for  the  purpose  of  protesting 
or  otherwise  holding  liable  any  party  to  any 
bill  of  exchange,  check,  draft,  or  promissory 
note,  and  which  shall  not  have  been  paid 
before  twelve  o'clock  noon  of  any  Saturday 
designated  a  half  holiday,  as  aforesaid,  a 
demand  for  acceptance  or  payment  thereof 
shall  not  be  made,  and  notice  of  protest  or 
dishonor  thereof  shall  not  be  given,  until  the 
next  succeeding  secular  or  business  day." 
Under  this,  it  is  seen,  paper  payable  on 
Saturday  is  made  presentable  and  payable 
on  the  following  business  day,  except  checks 
and  demand  paper,  otherwise  payable  on 
Saturday,  is  payable  before  twelve  o'clock 
noon,  with  a  proviso  that  if  not  paid  before 
twelve  o'clock  noon,  demand  and  notice,  for 
the  purpose  of  holding  parties  Hable,  shall 
not  be  made  or  given  until  the  next  succeed- 
ing business  day.  Were  this  the  entire  law, 
it  would  seem  to  be  unsafe  to  pay  checks 
after  twelve  o'clock  noon  on  Saturdays.  But 
the  act  further  provides:  "And  provided, 
further,  that  nothing  herein  contained  shall 
be  construed  *  *  *  to  prevent  any  bank 
from  keeping  its  doors  open,  or  transacting 
its  business,  on  any  of  the  said  Saturday 
afternoons,  if  by  a  vote  of  its  directors  it 
shall  elect  to  do  so."  Part  of  the  business 
transacted  by  a  bank  is  the  payment  of 
checks  and  it  might  seem  reasonable  to  con- 
clude that  the  last  stated  proviso  was  in- 
tended to  allow  a  bank  to  legally  pay  checks 


on  Saturday  afternoon  or  evening  where  it 
voted  to  keep  open,  as  well  as  to  legalize  the 
presentment  of  paper  payable  at  a  bank 
which  kept  open  on  Saturday  afternoon. 
The  Supreme  Court  of  Pennsylvania  in 
Robesen  v.  Pels,  decided  in  1902,  construed 
this  last  stated  provision  as  follows:  "This 
last  clause  is  clearly  indicative  of  the  pur- 
pose of  the  whole  Act  to  relieve  banks  and 
others  from  the  strict  requirements  of  the 
commercial  law  as  to  demand  payment,  etc., 
of  negotiable  paper  if  they  choose  to  avail 
themselves  of  the  permission;  but  not  to 
make  it  obligatory  on  them  to  do  so;  at 
least  as  to  Saturday  afternoons."  It  would 
seem  that,  in  view  of  the  above,  payment  of 
a  check  on  Saturday  afternoon  by  a  bank, 
which  kept  open  by  directors'  vote,  would 
probably  be  held  valid.  (Inquiry  from 
Pa.,  March,  1917.) 
See  1770  supra. 

Protest  on  holiday 

Payment  and  protest  of  check  on  holiday  in 
North  Carolina 

1792.  Clearing  House  Association  de- 
sires to  know  if  a  check  can  be  legally  pro- 
tested for  non-payment,  and  if  a  check  can 
be  legally  paid  on  a  legal  holiday,  where  it  is 
the  custom  of  local  banks  to  remain  open 
for  business,  or  would  it  be  safer  for  them  to 
close  on  all  legal  holidays?  Opinion :  Under 
a  law  enacted  in  North  Carolina  in  1919, 
banks  may  keep  open  and  do  business  on 
legal  holidays,  at  their  election,  and  pay- 
ment and  protest  on  legal  hoHdays  of  checks 
on  banks  which  keep  open  on  such  days  are 
legal.  N.  C.  Laws  1919,  Ch.  253.  (Inquiry 
from  N.  C,  July,  1920,  Jl.) 

Note:    See  1770  supra. 

Protest  of  check  dishonored  on 
Saturday  in  Pennsylvania 

1793.  With  reference  to  the  Pennsyl- 
vania Saturday  half-holiday  statute  (Pa. 
Act.  Feb.  16,  1911,  Pamphlet  Laws,  p.  3) 
a  bank  submits  this  query:  Where  a  check 
is  presented  for  payment  on  a  Saturday 
before  twelve  o'clock  noon  and  payment 
thereof  is  refused,  should  the  check  be  pro- 
tested on  Saturday  or  on  the  next  succeeding 
secular  or  business  day?  Opinion:  Under 
the  Negotiable  Instruments  Act  (Neg.  Inst. 
Laws,  Sees.  92,  94,  172)  a  check  may  be 
presented  Saturday  forenoon,  and,  if  dis- 
honored, protest  must  be  made  on  the  day 
of  dishonor.  But  under  the  Pennsylvania 
statute  passed  in  1911,  while  a  check  may  be 
presented  Saturday  forenoon,  for  the  pur- 


420 


HOLIDAYS,  SATURDAY  AND  SUNDAY 


[1794-1799 


pose  of  protesting  any  check  which  shall  not 
have  been  paid  before  twelve  o'clock  noon, 
demand  for  payment  and  notice  of  protest 
shall  not  be  made  and  given  until  the  next 
succeeding  business  day.  Under  Pa.  Laws 
1917,  No.  351,  bank  transactions  on  Satur- 
day afternoon  are  made  valid  and  banks  are 


given  option  to  do  business  on  Saturday 
afternoon.  But  this  Act  is  not  deemed  to 
change  the  legal  effect  of  the  Act  of  1911  that, 
for  the  purpose  of  protesting  checks  not 
paid  before  12  o'clock,  demand  shall  not  be 
made  until  the  next  succeeding  business  day. 
{Inquiry  from  Pa.,  Oct.,  1920,  Jl.) 


INDORSER  AND  INDORSEMENT 


Contract  and  liability  of  indorser 

Liability  conditioned  on  due  demand  and  notice 

1794.  What  is  the  liability  of  an  indorser 
on  a  demand  note  who  has  not  waived  de- 
mand, notice  and  protest?  Opinion:  Lia- 
bility of  an  indorser  on  a  demand  note  is 
conditional  upon  presentment  for  payment 
within  a  reasonable  time  and  notice  of  dis- 
honor. Unless  he  waives  demand  and  notice 
he  is  reUeved  from  liability  if  these  requisites 
are  not  complied  with.  {Inquiry  from  Ark., 
Feb.,  1907.) 

1795.  A  woman  (not  the  payee)  ob- 
tained money  from  a  bank  upon  a  check 
payable  by  A  to  B,  the  check  being  indorsed 
by  B,  by  the  woman  and  by  a  merchant 
known  to  the  bank.  She  represented  that 
the  check  had  been  delivered  to  B,  a  store- 
keeper, for  goods,  and  that  the  goods  not 
being  up  to  standard,  B  returned  the  check 
to  her  therefor.  The  check  was  not  paid 
by  the  bank  on  which  drawn.  Who  stands 
the  loss?  Opinion:  The  cashing  bank  has 
recourse  upon  the  drawer  of  the  check 
andalso  upon  the  indorsers  if  their  liabiUty 
has  been  preserved  by  demand  and  notice; 
otherwise  the  indorsers  are  discharged.  {In- 
quiry from  Md.,  Jan.,  1917.) 

Indorser's  liability  on  check    purchased  at 
drawee^ s  request 

1796.  A  bank  cashed  a  check  for  the 
indorser  by  telephone  request  of  the  drawee. 
Presentment  was  duly  made  and  before  pay- 
ment the  drawee  failed.  Indorser  claimed 
freedom  from  liability  because  check  was 
cashed  for  the  benefit  of  the  drawee  and  not 
for  his  benefit.  Is  this  a  valid  contention? 
Opinion:  The  indorser  is  liable  on  his  in- 
dorsement upon  due  notice  of  dishonor 
whether  or  not  the  transaction  benefited 
him  or  was  for  the  sole  benefit  of  the  drawee 
bank.  The  liabihty  provided  by  the  written 
contract  of  indorsement  is  not  changed  or 
affected  by  parol  considerations  of  this 
nature.  {Inquiry  from  Tenn.,  Aug.,  1914,  Jl.) 


Indorser's   liability   on   collateral  note 

1797.  Is  the  indorsement  of  an  individ- 
ual on  a  collateral  note  as  binding  as  on  an 
unsecured  note?  Opinion:  Assuming  the 
collateral  note  is  negotiable,  the  liability  of 
the  indorser  on  the  note  secured  by  collateral 
would  be  just  as  binding  as  upon  a  negotiable 
note  that  was  unsecured.  It  was  held,  for 
example,  in  Buck  v.  Freehold  Bank,  37  N. 
J.  Law  307,  that,  although  the  holder  has 
received  collateral  from  the  maker,  the  law 
imphes  no  contract  to  proceed  on  the  collat- 
eral before  suing  the  indorser.  {Inquiry 
from  Ohio,  Feb.,  1918.) 

Liability  of  indorser  on  non-negotiable  check 

1798.  A  check  is  drawn  payable  to  Dan 
Fisher  without  the  words  "order"  or  "bear- 
er." Dan  Fisher  indorses  the  check  payable 
to  "H  &  M"  who  indorse  it  to  bank.  Pay- 
ment is  refused.  What  are  the  rights  of  the 
bank?  Opinion:  The  check  as  drawn  is 
payable  to  Dan  Fisher  only.  Such  an  in- 
strument is  not  negotiable.  The  authorities 
are  not  in  accord  respecting  the  liability  of 
the  indorser  of  a  non-negotiable  instrument, 
but  it  seems  to  be  the  rule  in  Missouri  that 
such  indorsements  simply  transfer  the  title 
and  do  not  make  the  indorser  liable  in  case 
the  instrument  is  not  paid.  (See  Nat.  Bk. 
v.  Gay,  71  Mo.  627)  and,  this  being  the  case, 
no  hability  attaches  to  Fisher  or  H  &  M. 
The  drawer  is  liable  unless  he  has  a  defense 
against  the  payee.  {Inquiry  from  Mo.,  Nov., 
1916.) 

Liability  of  indorser  "for  identification  only" 

1799.  The  payee's  indorsement  of  a 
check  was  forged  and  a  sul)sequent  holder 
indorsed  the  same  and  procured  cash  from 
the  purchasing  bank  upon  faith  of  an  in- 
dorsement by  a  customer  of  the  bank  "for 
identification  only."  Opinion:  The  in- 
dorser for  identification  warranted  not  only 
that  the  indorser  was  the  person  he  repre- 
sented himself  to  be,  but  also  that  he  was  a 
bona  fide  indorsee  with  good  title.  Mass, 
Nat.  Bk.  V.  Snow,  187  Mass.  159.    Greeser 


421 


1800-1804] 


DIGEST  OF  LEGAL  OPINIONS 


V.  Ingarman,  76  N.  Y.  S,  922.  Poess  v. 
Twelfth  Ward  Bk.,  86  N.  Y.  S.  857.  Ala. 
Nat.  Bk.  V.  Rivers,  116  Ala.  1.  Lahay 
V.  City  Nat.  Bk.,  15  Colo.  339  {Inquiry 
jrom  Ark.,  Jan.,  1914,  JI-) 

Indorsement  "value  in  account" 

1800.  A  draft  on  A  payable  to  B  is  in- 
dorsed by  B  to  C  ''Value  in  Account."  The 
draft  is  returned  unpaid.  Question  is  raised 
whether  action  can  be  taken  by  C  upon  the 
draft,  where  the  indorsement  is  not  "Value 
received"  but  ''Value  in  account."  Opinion: 
Such  form  of  indorsement  appears  not  to 
have  been  judicially  interpreted.  It  is  quite 
safe  to  assume,  however,  if  the  question 
came  before  the  courts  it  would  not  be  held 
a  mere  restrictive  or  agent-creating  indorse- 
ment, but  rather  a  title-conveying  form. 
There  is  no  necessity  to  couple  the  words 
"value  received"  with  an  indorsement.  The 
simple  form,"  Pay  to  the  order  of  Tom 
Jones",  is  an  indorsement  w^hich  conveys 
title  and  makes  the  indorser  liable  in  event 
of  non-payment.  If,  however,  "value  re- 
ceived" is  added,  the  effect  is  the  same.  In 
Citizens  Nat.  Bk.  v.  Walton,  96  Va.  435, 
a  writing  on  the  back  of  a  negotiable  note, 
signed  by  one  of  two  payees,  "For  value 
received,  I  hereby  assign  and  transfer  unto 
W.  M.  M.  Fielding  all  right,  title,  and  in- 
terest that  I  may  have  in  the  within  note", 
was  held  to  render  him  liable  to  an  innocent 
holder  as  an  indorser,  and  not  as  an  assignor. 
A  fortiori,  an  indorsement  "value  re- 
ceived," without  more,  would  render  the 
indorser  hable  to  an  innocent  holder  as 
indorser;  and  an  indorsement  for  "value 
in  account"  would  confer  title  and  enforce- 
able rights  on  the  indorsee.  (Inquiry  from 
Cat.,  Nov.,  1920.) 

Indorsement  of  payee  (a)  where  check  payable 

to  him  in  care  of  hank;  (6)  where  payee's 

address  follows  his  name 

1801.  Does  a  check  payable  to  the 
order  of  "John  Doe, care  of  Blank  Trust  Co., 
Philadelphia,"  require  the  indorsement  of 
the  bank  as  well  as  the  payee?  Where  a 
payee's  address  is  written  directly  under  his 
name,  need  he  incorporate  this  in  his  in- 
dorsement? Opinion:  (a)  The  indorsement 
of  John  Doe  is  legally  sufficient  without 
that  of  the  trust  company.  This  precise 
point  has  never  been  passed  upon  by  the 
courts,  but  it  would  seem  that  the  addition 
of  the  name  of  the  bank  is  simply  a  state- 
ment of  the  address  of  the  payee  and  does 
not  make  the  bank  a  co-payee,     (b)     The 


indorsement  is  complete  without  adding 
the  payee's  address.  (Inquiry  from  Pa., 
April,  1917.) 

Proper  place  for  indorsement  on  check 

1802.  Must  the  indorsement  of  the 
payee  be  upon  the  back  of  a  check?  Opin- 
ion: The  word  indorsement  comes  from  the 
Latin  word  "dorsum"  which  literally  means 
back  of  man  or  beast,  and,  as  indicated  by 
this  derivation,  it  is  generally  made  by 
writing  the  indorser's  name  on  the  back  of 
the  instrument.  But  it  has  been  many 
times  held  by  the  courts  that,  although  un- 
usual, an  indorsement  is  legal  and  valid  if 
made  on  any  portion  of  the  instrument,  for 
example,  on  the  face  and  even  under  the 
maker's  name.  See  First  Nat.  Bk.  of  Messer, 
71  S.  E.  (Ga.)  148.  See  also  Neg.  Inst.  Act 
providing  that  "the  indorsement  must 
be  on  the  instrument  itself  or  upon  a 
paper  attached  thereto,"  without  limitation 
to  the  back  of  the  paper.  Further,  the 
courts  have  held  that  an  indorsement  on  an 
attached  paper  called  an  "allonge"  is  valid; 
the  "allonge"  being  used  where  there  have 
been  so  many  indorsements  on  the  back 
that  there  is  no  room  for  more;  in  such  case 
the  holder  may  attach  a  piece  of  paper 
sufficient  to  bear  his  own  and  subsequent 
indorsements.  (Inquiry  from  Ohio,  March, 
1914.) 

Indorsement  of  check,"pay  yourselves  or  order" 

1803.  What  is  the  effect  of  the  indorse- 
ment of  a  check,"Pay  yourselves  or  order"? 
Opinion:  This  would  be  construed  as  an 
indorsement  to  the  drawee  and  not  to  an- 
other holder  to  whom  the  check  was  for- 
warded. (Inquiry  from  Wis.,  Nov.,  1912, 
Jl.) 

Indorsement  to  hank  for  credit  to  account  of 
third  person 

1804.  A  check  on  another  bank  is  de- 
posited with  an  indorsement  that  it  be 
credited  to  the  account  of  a  third  person, 
which  is  done.  If  the  check  is  dishonored,  is 
there  a  right  of  recourse  against  the  third 
person  as  an  indorser?  Opinion:  The  third 
person  cannot  be  held  liable  as  indorser,  for 
the  assumption  is  that  he  never  signed  as 
such.  However,  the  bank,  in  which  the 
deposit  has  been  made,  has  the  right  to 
charge  his  account  therewith.  With  few 
exceptions  all  checks  which  are  credited  to 
depositors  are  done  so  conditionally,  with 
the  express  or  implied  understanding  that 
the  bank  has  the  right  to  charge  such  checks 


422 


INDORSEE  AND  INDORSEMENT 


[1805-1808 


!•       back  if  they  are  not  paid.    See  Dymock  v. 
I       Midland  Nat.  Bank,  67  Mo.  App.  97. 
;  If,  however,  which  is  unhkely,  tlie  credit 

f  to  the  account  of  the  tliird  person  is  absohite 
I  and  the  bank  has  taken  title  to  the  check 
,"  prior  to  collection,  then,  upon  non-payment, 
the  bank  cannot  charge  back  the  amount  to 
the  third  person,  whether  or  not  he  has  with- 
drawn the  funds  and  its  only  recourse  is 
against  the  payee  as  indorser,  and  against 
the  drawer  of  the  check.  (Inquiry  from 
Wash.,  April,  1917.) 

Indorsement  declaring  note  free  from  offsets 
and  consenting  to  negotiation 

1805.  A  form  of  note  is  submitted  pay- 
able by  John  Doe  to  his  own  order  and  is 
indorsed  by  John  Doe  as  follows:  "There 
are  no  conditions  offsetting  this  note,  and 
any  bank,  banker,  corporation  or  individual 
has  my  permission  to  purchase  the  same. 
John  Doe."  Opinion:  The  indorsee  of  this 
note  would  take  full  enforceable  rights  as  a 
holder  in  due  course.  The  coupling  with  the 
indorsement  of  a  statement  that  the  note 
is  free  from  offsets  does  not  detract  from  its 
negotiability  nor  does  the  consent  of  the 
indorser  to  its  negotiation.  A  note,  in  form 
negotiable,  made  payable  by  the  maker  to 
his  own  order  and  indorsed  in  blank,  is 
negotiable  free  from  offsets  and  the  indors- 
er's  statement  to  that  effect,  while  superflu- 
ous, does  not  affect  negotiability  of  the 
instrument.  (Inquiry  from  Kan.,  Dec, 
1920.) 

Indorsement  by  payee  to  whom  check  delivered 
though  drawer  intended  another 

1806.  The  drawer  of  a  check  payable 
to  the  order  of  C.  E.  Spencer  mailed  the 
same  to  the  payee  named,  but  intended  to 
pay  J.  W.  Spencer.  The  check  was  indorsed 
by  C.  E.  Spencer,  and  negotiated  to  Jones, 
who  also  indorsed  it.  Later  the  check  was 
paid.  Jones  has  disappeared.  The  bank 
questions  its  liability.  Opinion:  Payment 
by  the  drawee  on  the  indorsement  of  C.  E. 
Spencer  was  good  and  chargeable,  as  it  was 
the  drawer's  own  fault  that  the  person  in- 
tended did  not  receive  the  money.  Good- 
fellow  V.  First  Nat.  Bk.,  (Wash.)  129  Pac. 
90.  Weisberger  Co.  v.  Barberton  Sav.  Bk., 
(Ohio)  95  N.  E.  379.  (Inquiry  from  Ark., 
Nov.,  1915,  Jl.) 

Indorsement  by  assignee  of  payee  of  checks 
given  by  receiver 

1807.  A  national  bank  bought  from 
depositors  of  a  bank  a  number  of  its  re- 


ceiver's certificates.  The  receiver  will  give 
the  national  bank  the  checks  drawn  by  him 
and  made  payable  to  the  original  holders  of 
the  certificates,  before  notice  of  the  transfer. 
Is  it  necessary  for  the  bank  to  procure  the  in- 
dorsements of  the  payees,  or  is  an  indorse- 
ment as  assignee  sufficient?  Opinion:  It 
seems  that  before  delivering  the  checks 
made  out  to  the  original  depositors  the  re- 
ceiver might  insert  under  the  name  of  the 
payee  that  of  the  national  bank  as  assignee; 
but  even  if  he  does  not  do  this,  the  checks 
having  been  delivered  by  the  receiver  to  the 
national  bank  with  knowledge  that  that 
bank  is  the  assignee  of  the  respective  pay- 
ees, pajonent  by  the  drawee  bank  to  the 
national  bank  upon  its  indorsement  as 
assignee  of  the  original  depositor  would  be 
justified,  provided  the  drawee  bank  obtains 
the  authority  of  the  receiver  to  make  pay- 
ment upon  such  indorsement,  without  the 
indorsement  of  the  original  payees.  (In- 
quiry fro77i  III.,  Dec,  1913.) 

Indorsement    by    payee    to    drawee 

1808.     A  bank  submits  an  indorsement 

stamp  as  follows:    "Pay  to  the  order  of 

National  Bank.  John  Doe,"  and  asks 
whether  it  is  permissi])le  for  the  bank  to  pay 
out  cash  to  clerk  of  customer  on  checks 
stamped  as  above,  or  if  such  stamps  are  to  be 
used  only  for  depositing  checks.  This 
question  was  raised  b}^  a  customer  who  be- 
lieves his  clerk  has  made  use  of  same  in 
getting  money  on  checks  made  payable  to 
his  order.  The  bank  asks  if  it  is  liable  for 
allowing  this  practice  when  the  head  of  a 
firm  has  been  sending  his  clerk  to  the  bank 
with  checks  to  be  cashed  and  the  bank 
knew  at  the  time  of  cashing  that  the  clerk 
was  emploj'ed  by  the  customer.  Opinion: 
Where  a  check  drawn  payable  to  one  of  its 
customers  is  indorsed  by  him  payable  to  the 
order  of  the  bank  and  intrusted  to  his  clerk, 
it  would  seem  the  form  of  indorsement  would 
be  notice  to  the  bank  that  it  was  the  custom- 
er's intention  to  have  the  money  deposited 
to  his  credit.  If  the  bank  pays  the  cash  on 
such  an  indorsement  to  the  clerk,  the  bank 
would  take  the  risk  of  his  having  authority 
to  collect  the  money.  But  knowledge  and 
acquiescence  of  the  customer  in  such  pay- 
ments to  the  clerk  would  constitute  implied 
authority.  It  is  stated  that  it  is  the  practice 
of  the  customer  to  send  his  clerk  to  the  bank 
with  checks  to  be  cashed.  Presumably  it  is 
meant  checks  drawn  by  the  customer  pay- 
able to  bearer  and  intrusted  to  the  clerk. 
But  if  the  customer  desires  checks  payable 


423 


1809-1812] 


DIGEST  OF  LEGAL  OPINIONS 


to  his  order  to  be  cashed  by  the  bank  for 
the  clerk,  he  should  make  a  different  form 
of  indorsement,  namely,  a  blank  indorse- 
ment or  else  write  the  bank  a  letter  giving 
specific  authority  to  the  clerk  to  receive 
cash  on  checks  indorsed  to  the  bank.  Where, 
however,  the  customer  safeguards  his  check 
by  indorsing  it  to  the  bank  and  then  in- 
trusts it  to  his  clerk,  the  limit  of  the  prima 
facie  authority  of  the  clerk  is  to  deposit  the 
check  to  the  credit  of  the  customer  and  there 
is  no  authority  to  be  implied  from  its  mere 
possession  by  the  clerk  for  his  receiving  the 
amount  thereon;  unless  the  customer  knows 
and  acquiesces  in  such  payments  to  the 
clerk,  the  bank  makes  such  unauthorized 
payment  at  its  peril.  {Inquiry  from  Ariz., 
June,  1919.) 

Indorsement  with  waiver  of  protest 

Operates  to  transfer  title  as  well  as  waive 
protest 

1809.  The  payee  of  a  note  indorsed  it  as 
follows:  "We  hereby  waive  demand,  pro- 
test and  notice  of  non-payment  of  the  within 
note.  John  Doe  Co.,  John  Doe,  President, 
William  Doe,  Secretary."  Is  this  both  a 
waiver  of  protest  and  an  indorsement,  or  a 
waiver  of  protest  only?  Opinion:  Where 
the  payee  of  a  note  indorses  the  same  by 
signing  his  name  under  a  waiver  of  protest, 
such  indorsement  operates  both  as  a  waiver 
of  protest  and  as  an  indorsement  transfer- 
ring title.  Voss  V.  Chamberlain,  (Iowa)  117 
N.  W.  269.  Mullen  v.  Jones,  (Minn.)  112 
N.  W.  148.  Elgin  City  Bk.  v.  Zelch,  57 
Minn.  487.  German  Sav.  Bk.  v.  Hanna,  124 
Iowa  374.  St.  Nat.  Bk.  v.  Haylen,  14  Neb. 
480.  Baskin  v.  Crews,  66  Mo.  App.  22. 
Robinson  v.  Lair,  31  Iowa  9.  Weitz  v. 
Wolf,  28  Neb.  500.  (Inquiry  from  Pa., 
Oct.,  1917,  Jl.) 

How  long  indorser  liable 

1810.  Where  a  demand  note  payable  to 
the  order  of  Richard  Roe  is  indorsed,  "De- 
mand, notice  and  protest  waived.  Richard 
Roe,"  how  long  can  Richard  Roe  be  held  as 
an  indorser?  Opinion:  As  demand,  notice 
and  protest  are  waived,  the  indorser  could 
be  sued  at  any  time  until  the  statute  of 
limitations  comes  to  his  relief,  namely,  six 
years.  The  Negotiable  Instruments  Act 
provides  that  presentment  of  demand  paper 
must  be  made  within  a  reasonable  time  to 
hold  the  indorser,  but  it  is  left  to  the  courts 
to  determine  what  is  and  what  is  not  a 
reasonable  time.  As  short  a  period  as  three 
months  and  as  long  a  one  as  twenty-one 


months  has  been  held  to  be  within  reason- 
able time.  The  combined  provisions  of 
statute  and  authority  seem  to  leave  the 
question  as  one  of  fact  to  be  determined  by 
the  circumstances  of  each  particular  case. 
See  Merrit  v.  Todd,  23  N.  Y.  28.  Schles- 
singer  v.  Schultz,  110  N.  Y.  App.  Div.  356. 
Commercial  National  Bank  v.  Zimmerman, 
185  N.  Y.  210.  Herrick  v.  Wolverton,  31 
N.  Y.  581,  1  Am.  Rep.  461.  German- 
American  National  Bank  v.  Atwater,  165 
N.  Y.  36.  State  of  N.  Y.  Nat.  Bank  v. 
Kennedy,  130  N.  Y.  Suppl.  412.  German- 
American  Bank  v.  Mills,  99  N.  Y.  App.  Div. 
312,  91  N.  Y.  Suppl.  142.  (Inquiry  from 
N.  Y.,  Jan.,  1916.) 

Indorsement     guaranteeing     payment 
and  waiving  protest 

Indorsee  takes  title  and  full  enforceable  rights 

1811.  A  bank  bought  a  series  of  notes, 
executed  in  Oklahoma,  bearing  indorse- 
ments of  waiver  of  protest  and  guaranteeing 
payment  by  all  indorsers.  Has  the  bank 
full  enforceable  rights,  free  from  defenses? 
Opinion:  Under  the  Oklahoma  law  the 
bank  has  a  clear  right  of  recovery  on  the 
notes  free  from  defenses.  Mangold  and 
Glandt  Bk.  v.  Ulterbach,  160  Pac.  (Okla.) 
713.  In  this  case  it  was  held  that  when  the 
payee  of  a  negotiable  promissory  note  trans- 
fers it  by  indorsing  thereon,  "Payment 
guaranteed;  protest  waived"  the  purchaser 
is  an  indorsee  within  the  rule  protecting  an 
innocent  purchaser  of  such  paper  for  value 
and  before  maturity  against  defenses  good 
between  the  original  parties.  (It  was  for- 
merly held  in  Oklahoma,  before  the  N.  I. 
Act,  that  such  form  of  indorsement  was  only 
a  special  contract  and  did  not  transfer  title. 
Ireland  v.  Floyd,  42  Okla.  609.  But  this 
is  no  longer  law.)  (Inquiry  from  Kan.,  Nov., 
1917.) 

Holder  not  required  to  exhaust  security  of 
maker  before  suing  indorser 

1812.  A  bank  has  in  its  files  certain 
notes  indorsed  by  its  customer,  "Payment 
guaranteed,  protest  waived."  In  case  of 
default  in  payment,  the  bank  seeks  to  know 
whether  it  must  exhaust  the  security  of  the 
maker  before  recovering  from  the  indorser. 
Opinion :  Where  the  payee  of  a  note  trans- 
fers it  by  indorsing,  "Payment  guaranteed, 
protest  waived"  this,  according  to  the  weight 
of  authority,  is  an  indorsement  in  the  com- 
mercial sense,  under  which  an  innocent 
purchaser  for  value  before  maturity  be- 
comes a  holder  in  due  course  with  right  to 


I 


424 


INDORSER  AND  INDORSEMENT 


[1813-1817 


enforce  against  the  maker  free  from  defense 
and  with  immediate  recourse  upon  the 
indorser  upon  dishonor  at  maturity.  Tr. 
Co.  V.  Nat.  Bk.,  101  U.  S.  70.  Kellogg 
V.  Douglas  County  Bk.,  58  Kan.  43.  2 
Daniel  Neg.  Inst.  Sec.  1781.  Robinson  v. 
Lair,  31  Iowa  9.  Heard  v.  Dubuque  County 
Bk.,  8  Neb.  10.  Sav.  Ass'n  v.  Hunt,  17  Kan. 
532.  Mangold,  etc.,  Bk.  v.  Utterback, 
(Okla.  1916)  160  Pac.  713.  {Inquiry  from 
Kan.,  Feb.,  1918,  Jl) 

Liability  of  indorser  guaranteeing  payment 

1813.  A  bank  submits  a  demand  note  on 
which  appears  an  indorsement  by  Richard 
Roe  guaranteeing  payment.  The  bank 
wishes  to  be  advised  whether  the  indorser 
can  be  held  in  the  absence  of  demand  and 
notice.  Opinion:  Richard  Roe  who  guar- 
anteed payment  on  the  back  of  the  note  is 
liable  without  demand  or  notice  of  dishonor 
on  the  due  note.  If  the  note  had  been  in- 
dorsed in  blank,  demand  and  notice  would 
have  been  necessary.  (Inquiry  from  Pa., 
Sept.,  1915.) 

Indorsement     guaranteeing     payment 
and    consenting    to    extension 

Validity  of  clause 

1814.  Are  the  provisions  in  the  following 
form  of  extension  clause  on  the  back  of  a 
note  valid?  "For  value  received,  we  and 
each  of  us  jointly  and  severally  guarantee 
payment  of  principal  and  interest  of  the 
within  note,  as  and  when  the  same  shall  be- 
come due  and  of  any  extension  thereof  in  whole 
or  in  part,  accepting  all  its  provisions,  au- 
thorizing the  maker,  without  notice  to  us  or 
either  of  us,  to  obtain  an  extension  or  ex- 
tensions in  whole  or  in  part,  and  waiving 
protest,  demand  and  notice  of  protest",  etc. 
Opinion:  The  indorser's  consent  that  the 
time  of  payment  may  be  extended  without 
notice  thereof  authorizes  the  payee  and  the 
maker  to  extend  the  time  of  payment  from 
time  to  time,  without  notice  to  the  indorser, 
and  without  thereby  releasing  him  from  lia- 
bility until  and  unless  the  indorser  sees  fit 
to  pay  the  note  at  any  time  after  maturity, 
and  become  immediately  subrogated  to  a 
right  of  action  against  the  maker.  Bonart 
V.  Rabits,  14  La.  970,  76  So.  166.  The 
waiver  submitted  seems  to  be  valid  and 
binding  upon  all  indorsers  of  the  note  who 
sign  same  and  does  not  affect  its  negotia- 
bility.    {Inquiry  from  Ohio,  March,  1920.) 

Form  of  clause  on  notes  of  South  Carolina  bank 

1815.  A    bank    submits    the    following 


indorsement  which  is  printed  on  the  back  of 
its  notes,  and  inquires  whether  it  is  proper 
in  form:  "For  value  received  the  under- 
signed jointly  and  severally  hereby  guaran- 
tee the  payment  of  the  within  note  at  ma- 
turity, and  waive  demand,  protest,  notice  of 
protest  and  non-payment  thereof,  and  con- 
sent that  the  holder  may  grant  any  extension 
of  the  within  note  that  he  deems  proper. 
This  guaranty  shall  be  directly  enforceable 
against  us  without  first  resorting  to  the 
principal  debtors  or  exhausting  any  and  all 
remedies  against  them."  Opinion:  The 
foregoing  form  of  guaranty  and  indorsement 
would  effect  its  transfer,  according  to  the 
weight  of  authority,  and  would  be  binding 
on  the  indorser  according  to  its  terms.  Un- 
der the  Negotiable  Instruments  Act  there 
is  an  immediate  right  of  action  against  the 
indorser,  upon  dishonor  of  the  instrument, 
and  the  clause  relieving  of  necessity  of  first 
suing  maker,  would  seem  unnecessary. 
{Inquiry  from  S.  C,  May,  1920.) 

Trade  names 

Indorser's  liability  on  note  signed  in  trade 
name 

1816.  The  F.  N.  bank  holds  a  note 
signed  "Smith  Mfg.  Co.,  John  Jones,  pro- 
prietor, payable  to  the  F.  N.  Bank,"  and 
having  several  indorsers.  Assuming  that 
the  company  is  merely  a  trade  name,  is 
the  bank  justified  in  taking  a  note  so  drawn? 
Can  it  hold  the  indorsers?  Opinion:  A 
person  has  a  right  to  do  business  and  make 
a  contract  under  an  assumed  name  upon 
compliance  with  the  statutory  requirements, 
Sec.  440  N.  Y.  Penal  Law,  non-compHance 
therewith  being  a  misdemeanor.  Even  if  the 
statute  had  not  been  complied  with,  the  note 
would  be  binding  on  the  maker,  and  the 
indorsers  would  also  be  hable  in  that  they 
warrant  its  genuineness  and  validity  in  all 
respects.     {Inquiry  from  N.  Y.,  Dec,  1917.) 

Indorsement  in  name  of  extinct  corporation 

1817.  A  bank  had  two  corporation  de- 
positors. Corporation  A,  owning  all  the 
stock  of  corporation  B,  surrendered  the 
charter  of  B  but  continued  l)usincss  under 
the  trade  name  of  B  as  well  as  under  the 
name  of  A.  Can  the  bank  safely  receive  on 
deposit,  to  the  credit  of  corporation  A, 
checks  payable  to  corporation  B  and  in- 
dorsed in  the  name  of  B  without  bearing  the 
indorsement  of  corporation  A  also,  the 
omission  of  the  latter  indorsement  being 
presumably  for  the  purpose  of  withholding 
knowledge  from  the  drawer  of  the  check  that 


425 


1818-1822] 


DIGEST  OF  LEGAL  OPINIONS 


the  business  interests  of  the  two  corporations 
are  identical?  Opinion:  In  the  absence  of 
some  prohibitive  statute,  there  is  nothing 
to  prevent  a  person  or  corporation  from 
doing  business  under  a  trade  or  assumed 
name,  and  there  appears  to  be  no  reason  why 
the  bank  could  not  safely  receive  on  deposit 
from  A  checks  payable  to  and  indorsed  in  the 
name  of  B,  but  not  bearing  also  the  indorse- 
ment of  A.  In  Jones  v.  Home  Furnishing 
Co.,  41  N.  Y.  Suppl.  71,  it  was  held  that  the 
maker  of  a  note  given  for  a  valuable  con- 
sideration cannot  escape  liability  on  the 
ground  that  the  note  was  made  payable  to 
a  company  which  had  no  existence,  and  that, 
therefore,  the  indorsement  to  plaintiff  was 
fictitious,  and  passed  no  title,  where  it 
appears  that  the  name  of  the  payee  was  the 
name  under  which  plaintiff  did  business,  and 
that  the  consideration  for  the  note  was 
received  by  the  maker  from  plaintiff.  If 
two  corporations  had  different  stockholders, 
some  question  might  arise  as  to  whether  one 
corporation  was  appropriating  funds  be- 
longing to  the  other,  with  knowledge  of  the 
bank;  but  in  this  case  corporation  A  owns 
corporation  B,  which  goes  out  of  existence, 
and  simply  does  business  under  the  name  of 
B  as  well  as  of  A.  Under  the  circumstances 
checks  pa3^able  to  and  indorsed  in  the  name 
of  B,  which  are  in  reality  payable  to  and 
owned  by  A,  can  be  safely  credited  to  A's 
account  without  specific  indorsement  of  A. 
(Inquiry  from  Pa.,  May,  1920.) 


Indorsement  by  proprietor  in  name    of 
unincorporated  company 

1818.  A  note  is  made  payable  to  J.  C. 
Smith  Tanning  Company  which  is  not  in- 
corporated, J.  C.  Smith  being  sole  owner. 
J.  C.  Smith  indorses  the  note  simply,  "J.  C. 
Smith  Tanning  Co."  Is  the  indorsement 
valid?  Opinion:  J.  C.  Smith  can  beheld  Hable 
on  the  note  by  the  bank  which  discounts  it. 
The  Negotiable  Instruments  Act  provides 
that  "one  who  signs  in  a  trade  or  assumed 
name  will  be  liable  to  the  same  extent  as  if  he 
had  signed  in  his  own  name. ' '  And  concerning 
indorsements  it  is  the  rule  of  the  law  mer- 
chant that  no  particular  form  of  signature 
is  necessary,  but  the  indorser  will  bind  him- 
self by  any  form  adopted.  The  indorsement 
"J.  C.  Smith  Tanning  Co."  proved  to  have 
been  made  by  J.  C.  Smith  and  is,  therefore, 
binding  on  the  latter  in  the  same  way  as  if 
the  note  was  payable  to  and  indorsed  by 
J.  C.  Smith.  (Inquiry  from  Ky.,  April, 
1915.) 


Indorsement  by  corporation 

Indorsement    of   note    by    single    officer    of 
corporation 

1819.  The  by-laws  of  a  corporation 
provide  that  its  commercial  paper  shall  be 
executed  by  two  officers,  but  are  silent  as  to 
who  shall  indorse,  and  it  is  the  long  settled 
custom  of  the  corporation  to  have  but  one 
officer  indorse  such  paper  for  discount  and 
sale.  Is  such  an  indorsement  proper? 
Opinion:  The  questioned  authority  of  one 
officer  to  indorse,  though  not  expressly  con- 
ferred, is  established  by  custom  and  ac- 
quiescence of  the  directors  in  a  long-con- 
tinued course  of  dealing  so  as  to  be  binding 
on  the  corporation,  and  it  is  not  legally 
necessary  to  amend  the  by-laws  to  expressly 
invest  such  authority  in  the  indorsing  ofl&cer, 
though  such  an  amendment  would  provide 
an  express  and  more  specific  delegation  of 
authority.  First  Nat.  Bank  v.  American 
Bangor  State  Co.,  [Pa.  1910]  77  Atl.  1100. 
2  Thompson  on  Corporations,  Sec.  1564. 
{Inquiry  from  Mo.,  Dec,  1920,  Jl.) 

Renewal  indorsement  by  corporation 

1820.  A  corporation  indorses  over  to  a 
bank  notes  payable  to  it,  and,  because  of 
non-payment  by  the  makers,  they  are  re- 
newed.  The  bank  asks  whether  the  re-  I 
newal  indorsements  by  the  corporation  ■ 
would  be  held  to  be  accommodation  in- 
dorsements. Opinion:  The  renewal  in- 
dorsements would  not  be  held  to  be  accom- 
modation indorsements.  The  (Corporation 
is  an  indorser  for  value  at  the  time  the  paper 
is  discounted  and  liability  on  the  original 
note  would  be  sufficient  consideration  to 
support  the  renewal.  (Inquiry  from  W.  Va., 
Feb.,  1917.) 

Joint  or  alternative  payees 

Indorsement  by  alternative  payee 

1821.  Does  a  certificate  of  deposit  pay- 
able to  the  order  of  John  Smith  or  Mary 
Smith  require  the  indorsement  of  both 
parties?  Opinion:  The  order  to  pay  is 
complete  and  sufficient  upon  the  indorse- 
ment of  either  payee.  Voris  v.  Schoonover, 
(Kan.)  138  Pac.  607.  Gen.  St.  Kan.,  1909, 
Sec.  5294.  Union  Bk.  v.  Spies,  151  Iowa 
178,  130  N.  W.  928.  (Inquiry  from  Kan., 
Feb.,  1917,  Jl.) 

Indorsement  by  one  of  two  payees 

1822.  May  a  drawee  bank  refuse  pay- 
ment of  a  check  payable  to  "John  and 
James    Doe,"    when   indorsed    "John   and 


426 


i 


INDORSEE  AND  INDORSEMENT 


1823-1827 


James  Doe,  James  Doe,"  when  by  a  rubber- 
stamp  indorsement  the  presenting  bank  guar- 
antees the  payee's  indorsement?  Opinion: 
It  appears  that  the  indorsement  of  one  of 
the  payees  is  lacking  and  it  does  not  appear 
that  James  Doe  who  indorsed  the  names  of 
both  payees  had  authority  to  indorse  for 
John  Doe.  Therefore  the  bank  was  justi- 
fied in  refusing  payment  as  it  was  not  pre- 
sented with  any  evidence  of  authority  of  one 
payee  to  indorse  for  the  other.  See  Sec.  41 
of  the  Negotiable  Instruments  Act.  The 
drawee  is  not  obliged  to  accept  the  guaranty 
of  the  presenting  bank.  {Inquiry  from  Pa., 
May,  1920.) 

1823.  A  note  payable  to  John  Jones  and 
Sam  Jones  was  indorsed  by  Sam  Jones  to  a 
bank  as  collateral  for  a  loan  to  him.  Is  the 
indorsement  effective?  Opinion:  Unless 
Sam  Jones  had  authority  from  John  Jones 
to  indorse  and  transfer  the  note,  the  bank 
would  hold  the  note  subject  to  the  rights  of 
John  Jones  and  would  have  no  authority, 
without  his  consent,  to  apply  any  payments 
by  the  maker  in  reduction  of  the  loan  to 
Sam  Jones.  The  Negotiable  Instruments 
Act.  Sec.  41,  provides  that  where  an  instru- 
ment is  payable  to  the  order  of  two  or  more 
payees  or  indorsees  who  are  not  partners,  all 
must  indorse,  unless  the  one  indorsing  has 
authority  to  indorse  for  the  others.  {In- 
quiry from  Mont.,  May,  1920.) 

1824.  A  note  was  indorsed :  "Pay  to  the 
order  of  George  Hanson  and  William 
Smith."  Smith  asked  a  bank  to  discount  his 
one-half  interest  in  the  note.  Would  the 
indorsement  of  Smith  alone  make  the  bank 
a  holder  in  due  course?  Opinion:  Smith 
must  obtain  Hanson's  authority  to  indorse 
the  note.  Negotiable  Instruments  Act,  Sec. 
41,  reads:  "W^here  an  instrument  is  payable 
to  the  order  of  two  or  more  payees  or  in- 
dorsees who  are  not  partners,  all  must  in- 
dorse, unless  the  one  indorsing  has  authority 
to  indorse  for  the  others."  {Inquiry  from 
Colo.,  Dec,  1920.) 

Indorsement  of  certificate  of  deposit 
by  alternative  payee 

1825.  Does  a  certificate  of  deposit 
"payable  to  the  order  of  self  or  Mary  Smith" 
require  the  indorsement  of  both  parties? 
Opinion:  The  Negotiable  Instruments  Act 
provides  that:  "Where  an  instrument  is 
payable  to  the  order  of  two  or  more  payees 
or  indorsees  who  are  not  partners,  all  must 
indorse  unless  the  one  indorsing  has  au- 
thority to  indorse  for  the  others,"  and  that 
"the  instrument  *  *  *  may  be  drawn  to  the 


order  of  *  *  *  (4)  two  or  more  payees  jointly 
or  (5)  one  or  some  of  several  payees."  Under 
these  provisions,  it  has  been  held  in  Voris  v. 
Schoonover,  138  Pac.  (Kan.)  609,  that 
where  a  promissory  note  payable  to  the 
order  of  "A  or  B,"  not  "A  and  B,"  is  in- 
dorsed by  A  only,  to  one  who  takes  it  in 
good  faith  for  value  and  without  any  notice 
of  the  infirmity  in  the  instrument  or  defect 
in  the  title,  the  indorsee  is  a  holder  in  due 
course,  under  the  Negotiable  Instruments 
Law.  See,  also,  Union  Bank  v.  Spies,  151 
Iowa  178.    {Inquiry  from  Kan.,  Jan.,  1917.) 

Accommodation  indorsement 

Form  of  indorsement  for  accommodation  of 
maker 

1826.  A  person  borrowing  money  from 
a  bank  is  asked  to  give  his  note  with  the 
indorsement  of  a  third  party.  If  the  note  is 
first  made  payable  to  the  order  of  himself, 
should  his  indorsement  be  preceded  or  fol- 
lowed by  that  of  the  accommodation  in- 
dorser,  and  if  the  latter  is  the  correct  meth- 
od, should  the  maker  again  indorse?  Opin- 
ion: It  is  a  common  practice  when  a  man 
borrows  money  from  a  bank  and  gives  his 
note  with  an  accommodation  indorser  to 
make  the  note  payable  directly  to  the  bank 
and  the  latter,  signing  before  the  payee,  is 
liable  as  indorser  to  the  payee  bank.  Where 
the  note  is  made  payable  by  the  maker  to 
the  order  of  himself,  if  the  maker  indorses 
first,  followed  by  the  accommodation  in- 
dorser, it  is  not  necessary  for  the  maker 
to  indorse  again.  Whether  the  accomoda- 
tion indorser  signs  above  or  below  indorse- 
ment of  the  maker,  in  either  event  he  would 
be  held  liable  to  the  bank  as  indorser.  {In- 
quiry from  N.  J.,  Feb.,  1915.) 

1827.  What  is  the  legal  difference  be- 
tween a  note  drawn  by  A  payable  to  the 
order  of  "Myself,"  indorsed  by  A  and  B, 
and  a  note  drawn  bj^  A  payable  to  the  order 
of  a  bank  and  indorsed  by  B?  Opinion: 
A  note  by  A  to  his  own  order,  indorsed  by  A 
and  then  by  B,  and  discounted  by  the  bank 
for  B,  indicates  that  B  has  given  value  to  A 
for  the  note,  and  the  bank  can  look  to  B  as 
indorser  and  to  A  as  maker.  If,  however, 
B  has  indorsed  for  accommodation  of  A  and 
the  proceeds  go  from  the  bank  to  A,  then, 
equally,  B  can  be  held  as  indorser.  So  in 
either  case  B  is  an  indorser  and  is  liable  as 
such  to  the  bank  provided  there  is  due  de- 
mand and  notice.  Where  the  note  is  made 
payable  to  order  of  the  bank  and  is  indorsed 
by  B  before  deUvery,  B  is  likewise  liable  as 
indorser.    {Inquiry  from  N.  Y.,  Nov.,  1915.) 


427 


1828-1831] 


DIGEST  OF  LEGAL  OPINIONS 


Accommodation  indorsers  on  corporation  note 

1828.  A  demand  note  payable  to  the 
order  of  bank  A  at  bank  B,  and  signed  "The 
John  Doe  Co.,  John  Doe,  President,  Frank 
Doe,  Secretary,"  is  indorsed  "John  Doe," 
"Frank  Doe,"  "Richard  Roe."  May  the 
indorsers  be  sued?  Would  habihty  be 
changed  by  having  note  made  "pay  to  order 
of  ourselves?"  Opinion:  The  parties  sign- 
ing on  the  back  will  be  Hable  as  indorsers 
provided  their  liability  has  been  preserved 
by  due  demand  and  notice.  Should  the  note 
have  been  made  "payable  to  the  order  of 
ourselves"  instead  of  to  bank  A,  the  makers 
would  first  have  to  indorse  to  complete  the 
note  and  then  the  indorsers  would  be  Hable 
to  the  bank  to  whom  it  was  delivered. 
(Inquiry  from  Pa.,  March,  1915.) 

Indorsement  in  representative  capacity 

Check  to  "A  for  a/c  ofB,  trustee"  indorsed  by 
AtoC 

1829.     A   check   made   payable   to   the 
order  of  "John  Doe  for  account  of  John 
Smith,  trustee,"  is  indorsed  by  John  Doe  to 
Mary  Jones.    May  a  bank  in  which  neither 
John  Doe  nor  John  Smith  has  an  account 
allow  Mary  Jones  to  deposit  the  check  to 
her  account?     Is  the  form  of  the  check 
notice  to  such  bank?    Opinion:    The  ma- 
jority of  courts  hold  that  where  a  check  is 
made   payable   to   a  person  as  trustee,  it 
IS   negotiable   on    the   indorsement   of  the 
trustee  and  the  indorsee  is  not  put  on  notice. 
Safe  Deposit  &  Trust  Co.  v.  Diamond  Nat, 
Bk.,  194  Pa.  334.     Batchelder  v.  Central 
Nat.   Bank,    188   Mass.   25.     Decisions  in 
Mississippi    and  Tennessee  are  to  the  con- 
trary.   In  Maryland  the  courts  have  drawn 
a  distinction  between  such  a  case  and  one 
where  a  check  was  made  payable  to  a  bank 
to  deposit  to  the  credit  of  a  trustee's  account 
and,  there  being  no  trustee's  account,  the 
bank  deposited  it  to  the  credit  of  the  per- 
sonal   account    of   the    trustee,    who   mis- 
appropriated the  money.     In  this  case  the 
bank  was  put  on  notice  and  held  hable  for 
participating  in  the  breach  of  trust.    Duck- 
ett  V.  Mechanics  Bank,  86  Md.  400.    In  the 
case  submitted  the  check  is  not  made  pay- 
able to  Doe,  trustee,  but  is  made  payable  to 
Doe  for  the  account  of  Smith,  trustee.    Doe 
negotiates   the   check   by   indorsement   to 
Mary  Jones.     He  may  place  the  proceeds 
to  account  of  Smith,  trustee,  and  he  may  not. 
If  he  does  not,  the  question  is  whether  the 
indorsee  is  put  on  notice.     In  view  of  the 
uncertain  rule  upon  this  question,  the  safest 


course  for  the  bank  is  to  refuse  to  credit  the 
check  to  the  account  of  Mary  Jones  until 
satisfied  the  consideration  given  by  her  for 
the  check  went  to  the  account  of  John 
Smith,  trustee.  {Inquiry  from  N.  Y.,  Dec, 
1912.) 

Indorsement    by    "A,    Tax   Collector,"  after 
retirement  from  office 

1830.  Where  a  check  is  made  payable  to 
"John  Smith,  Tax  Collector,"  after  Smith 
has  ceased  to  hold  that  office,  and  is  ne- 
gotiated by  indorsement  of  the  payee  to 
a  bank  which  guarantees  prior  indorsements 
and  receives  payment,  is  it  required  to 
refund?  Opinion:  The  bank  receiving 
payment  is  a  holder  in  due  course  and  not 
liable  to  refund,  for  the  indorsement  is  by 
the  precise  payee  intended;  there  is  no 
breach  of  the  guaranty  of  genuineness,  and 
the  suffix  "tax  collector"  is  descriptio  per- 
sonae  and  does  not  put  the  indorsee  upon 
inquiry.  McKinnon  v.  Boardman,  170  Fed. 
920.  Central  St.  Bk.  v.  Spurhn,  (Iowa)  82 
N.  W.  493.  Fox  V.  Citizens'  Bk.,  (Tenn.) 
37  S.  W.  1102.  Gunn  v.  Hodge,  32  Miss.  319 
{Inquiry  from  Miss.,  June,  1917,  Jl.) 

Note:  In  Gunn  v.  Hodge,  32  Miss.  319, 
it  was  held  that  a  note  made  payable  to  a 
person  in  a  representative  capacity  was 
payable  to  the  payee  personally,  the  word 
"executor,"  etc.,  being  merely  descriptive. 
But  in  the  later  case  of  Bank  of  Hickory  v. 
McPherson,  59  So.  (Miss)  934,  a  purchaser 
from  H  of  a  check  to  "H,  Commissioner" 
was  held  to  be  put  on  inquiry.  While  this  is 
contrary  to  the  prevailing  rule,  it  may  hold 
good  in  Mississippi;  if  so,  the  above  opinion 
would  be  modified  accordingly. 

Indorsement  of  check  to  'A,  general  agent'* 

1831.  A  check  in  payment  of  a  Hfe  in- 
surance premium  was  drawn  payable  to  and 
indorsed  by  "A,  general  agent."  He  had 
the  check  cashed  by  a  bank  in  which  neither 
he  nor  the  company  had  an  account.  Un- 
known to  the  cashing  bank,  the  company 
had  given  the  bank  in  which  it  had  an  ac- 
count in  the  city  specific  instructions  re- 
garding the  manner  in  which  all  such  items 
were  to  be  handled.  Is  the  bank  hable  to  the 
insurance  company?  Opinion:  The  ques- 
tion is  whether  the  form  of  the  name  of  the 
payee  and  of  the  indorsement  put  the  pur- 
chaser on  inquiry  and  charged  it  with  the 
knowledge  that  the  inquiry  would  have 
disclosed.  The  law  on  this  point  is  conflict- 
ing and  the  question  has  not  been  decided 
in  South  Carohna.    The  following  cases  are 


I 


428 


INDORSEE  AND  INDORSEMENT 


[1832-1837 


to  the  effect  that  the  purchaser  of  the  check 
would  be  charged  with  notice.  Ford  v. 
Brown,  114  Tenn.  467,  88  S.  W.  1036. 
Hazeltine  v.  Keenan,  54  W.  Va.  600.  46 
S.  E.  609.  Bank  of  Hickory  v.  McPherson, 
59  So.  (Miss.)  934.  There  are  numerous 
cases  the  other  way.  See  Batchelder  v. 
Central  National  Bank  of  Boston,  188  Mass. 
25.  Safe  Deposit  &  Trust  Co.  v.  Diamond 
Nat.  Bank,  194  Pa.  St.  334.  Denton  Nat. 
Bank  v.  Kenney,  81  Atl.  (Md.)  227.  U.  S. 
Fidelity  &  Guaranty  Co.  v.  First  Nat. 
Bank,  123  Pac.  (Cal.)  352.  It  would  seem 
that  when  a  check  is  made  payable  to  John 
Smith,  agent  or  trustee,  in  the  absence  of 
actual  notice  of  anything  wrong,  it  carries 
the  presumption  that  Smith  has  the  right 
to  receive  payment  of  the  check  from  the 
drawee  direct,  or  to  deposit  it  to  his  personal 
account,  or  to  obtain  the  cash  thereon  from 
a  bank  of  which  he  is  not  a  customer.  This 
is  in  accordance  with  the  apparent  weight 
of  authority.  There  is  probably  a  duty  of 
inquiry  when  the  payee  seeks  to  transfer  the 
check  in  payment  of  his  personal  debt. 
{Inquiry  from  S.  C,  July,  1914.) 

Indorsement  "Treasurer,  Congregational 
Church" 

1832.  Is  it  proper  to  indorse  a  check 
"Treasurer,  Congregational  Church,"  where 
the  payee  is  thus  designated?  Opinion: 
Such  indorsement,  while  not  satisfactory  to 
bankers,  assuming  the  indorsement  is  by  the 
authorized  official,  is  legally  sufficient. 
Mass.  Neg.  Inst.  Act.,  Sees.  25  &  57.  Mc- 
Brown  v.  Corporation,  31  Ind.  268.  Vater 
V.  Lewis,  36  Ind.  289.  (Inquiry  from  Vt., 
June,  1916,  Jl.) 

Indorsement  "A  and  B  per  A" 

1833.  Should  a  bank  accept  for  deposit 
in  the  personal  account  of  A  a  check  payable 
to  "A  and  B,"  and  indorsed  "AandB,perA?' 
Opinion:  Where  a  check  payable  to  A  and 
B,  who  are  not  partners,  is  indorsed  "A  and 
B  per  A"  and  is  offered  for  deposit  to  the 
credit  of  A's  personal  account,  the  bank 
before  accepting  the  deposit  should  be  satis- 
fied that  B  has  authorized  A  to  make  such 
indorsement.  Where  A  and  B  are  partners 
the  general  rule  is  that  in  the  case  of  a  trad- 
ing or  commercial  firm  any  member  has 
implied  authority  to  indorse  and  transfer 
paper  by  indorsement  in  the  firm  name,  and 
such  transfer  may  be  made  to  himself.  Such 
authority  is  not  implied  in  the  case  of  a  non- 
trading  firm.  Allen  v.  Corn  Exch.  Bk.,  87 
N.  Y.  App.  Div.  335  (Inquiry  from  N.  Y., 
Nov.,  1912,  Jl.) 


Indorsement  by  mark 

Where  payee  can  write 

1834.  The  payee  of  a  cashier's  check 
indorsed  it  by  his  mark,  witnessed  by  two 
reputable  persons.  The  bank  refused  to  pay 
it  on  the  ground  that  the  payee  could  write. 
Opinion:  The  bank  should  pay.  An  in- 
dorsement by  mark  of  a  negotiable  instru- 
ment is  vahd  and  title  is  transferred  thereby, 
even  though  the  marksman  can  write. 
Brown  v.  McClanahan,  9  Baxt.  (Tenn.) 
347.  Palmer  v.  Stephens,  1  Denio  (N.  Y.) 
471.  Jackson  v.  Tribble,  156  Ala.  480. 
Baker  v.  Dening,  8  Adol.  &  El.  94.  Brown 
V.  Butchers',  etc.,  Bk.,  6  Hill  (N.  Y.)  443. 
(Inquiry  from  N.  M.,  Sept.,  1916,  Jl.) 

Witness'  signature  warrants  genuineness 

1835.  What  is  the  liability  of  a  person 
witnessing  an  indorsement  of  the  payee  of  a 
check  by  a  mark?  Opinion:  Where  the 
payee  of  a  check  indorses  by  mark  and  his 
signature  is  witnessed,  the  witness'  signature 
can  be  looked  upon  as  a  warranty  of  the 
genuineness  of  the  payee's  indorsement,  the 
same  as  a  subsequent  indorser  warrants  the 
genuineness  of  the  signature  of  each  prior 
indorser.  Second  Nat.  Bk.  v.  Curtis,  153 
N.  Y.  681.  Clark  v.  Saugerties  Sav.  Bk.,  62 
Hun  (N.  Y.)  346.  (Inquiry  from  Tenn. 
May,  1909,  Jl.) 

Payment  to  responsible  owner  although  mark 
unwitnessed 

1836.  Should  a  drawee  bank  pay  a 
check  containing  as  the  payee's  indorsement 
an  unwitnessed  mark?  Opinion:  In  the 
absence  of  an  express  guaranty  of  the  in- 
dorsement the  drawee  bank  may  safely  pay 
to  a  responsible  owner  who  would  be  liable 
to  refund  if  the  indorsement  was  forged  or 
unauthorized.  (Inquiry  from  Wyo.,  Nov. 
1913.  Jl.) 

Competency  of  witness  to  indorsement  hy  mark 

1837.  (1)  Is  the  signature  of  an  accom- 
modation indorser  made  by  mark,  with  at- 
testing witness,  valid  and  enforceable  where 
the  witness  is  the  wife  of  the  borrower,  who 
signs  the  note  as  maker?  (2)  Could  the  cashier 
of  the  bank  taking  the  note  act  as  witness  to 
the  mark  and  signature?  Opinion:  1.  It  is 
reasonably  safe  to  say  that  the  wife  of  the 
accommodated  party  would  be  a  competent 
witness.  If  the  wife  of  the  payee  witnessed 
the  signature  of  the  maker  by  mark,  there 
might  be  a  question  as  to  her  competency. 
2.  If  the  cashier  were  an  officer  and  not  a 


429 


1838-1842] 


DIGEST  OF  LEGAL  OPINIONS 


stockholder,  there  might  be  a  question  as  to 
his  competency,  assuming  that  the  statute 
of  Michigan  required  that  a  mark  be  wit- 
nessed in  order  to  be  vahd.  If  the  statute 
does  not  so  require,  it  would  seem  to  follow 
that  the  witness  would  be  competent  in  any 
event,  as  the  common-law  disqualification  of 
a  person  testifying  as  a  witness  by  reason  of 
his  interest  has  been  quite  generally  re- 
moved by  statute.  {Inquiry  from  Mich., 
April,  1915.) 

Indorsement  by  rubber  stamp 

For  deposit 

1838.  A  check  payable  to  John  Doe  is 
indorsed  by  a  rubber  stamp  as  follows: 
"For  deposit  with  the  Blank  National  Bank 
of  Blank  to  the  credit  of  John  Doe."  Opin- 
ion: The  rubber-stamp  indorsement  is  valid 
except  in  localities  where  Clearing  House 
rules  forbid  the  form  of  indorsement,  "For 
deposit."  For  all  practical  purposes  the  in- 
dorsement, "For  deposit,"  by  a  rubberstamp 
is  as  good  a  receipt  to  the  drawer  as  a  hand 
written  indorsement.  {Inquiry  from  Col., 
Aug.,  1910,  Jl.) 

Deposit  of  check  indorsed  in  blank  by  payee 

1839.  A  check  drawn  on  a  national 
bank  was  indorsed  by  rubber  stamp  in 
blank  by  the  payee  and  deposited  in  his 
bank,  which  forwarded  it  to  the  national 
bank  with  the  usual  stamp  guaranteeing 
prior  indorsements.  The  national  bank 
returned  the  check  with  the  following 
printed  slip  attached:  "This  check  is  re- 
turned for  indorsement  of  the  payee.  A 
plain  stamp  indorsement  without  'For  de- 
posit,' or  Tor  Credit,'  is  no  indorsement 
whatever.  This  bank  will  refuse  payment 
on  all  checks  bearing  this  kind  of  indorse- 
ment whether  'guaranteed'  or  not."  Opin- 
ion: A  rubber-stamp  indorsement  in  blank 
of  the  payee's  name  to  a  check  is  legal  and 
where  the  check  is  deposited  in  the  payee's 
bank,  the  drawee  bank  is  protected  by  such 
guaranty  in  making  payment  equally  as 
in  a  case  in  which  the  words  "for  deposit"  or 
"for  credit"  are  prefixed  to  the  indorsement. 
Of  course  a  drawee  bank  is  not  under  obliga- 
tion to  honor  a  check  presented  by  an  indorsee 
unless  properly  indorsed  by  the  payee,  but 
if  the  payee  imprints  or  authorizes  the  im- 
print of  his  indorsement  by  rubber  stamp, 
the  courts  have  held  such  indorsement  to  be 
legal.  Mayers  v.  McRimmon  (N.  C.)  53 
S.  E.  640.  Horner  v.  Mo.  Pac.  Ry.,  70  Mo. 
App.  283.  {Inquiry  from  N.  Y.,  Dec, 
1918,  Jl.) 


Discount  of  note  having  payee's  rubber-stamp 

indorsement 

1840.  A  note  bearing  the  rubber-stamp 
indorsement  of  the  payee's  name  was  dis- 
counted at  a  bank  and  the  proceeds  placed 
to  the  credit  of  the  payee's  account.  The 
proceeds  were  afterwards  embezzled  by  a 
party  holding  a  power  to  sign  checks  against 
such  account.  The  payee  claimed  that  the  in- 
dorsement was  unauthorized  and  unratified. 
Opinion:  Indorsement  of  name  of  payee  of 
note  with  rubber  stamp  conveys  good  title 
if  placed  on  note  by  one  having  authority 
and  with  intent  to  indorse,  but  if  indorse- 
ment is  unauthorized  and  not  ratified  no 
title  passes.  4  Am.  &  Eng.  Encyc.  L.  258. 
Horner  v.  Mo.  Pac.  Ry.,  70  Mo.  App.  291. 
Mayers  v.  McRimmon,  140  N.  C.  640.  {In- 
quiry from  N.  Y.,  June,  1912,  Jl.) 

Legality  of  rubber-stamp  indorsement 

1841.  Is  an  indorsement  by  a  rubber 
stamp  legal?  Opinion:  Such  an  indorse- 
ment is  legal  but  in  some  cases  it  would  be 
more  difficult  to  prove  its  authenticity  than 
if  hand  written.  Mayers  v.  McRimmon, 
140  N.  C.  640.  4  Am.  &  Eng.  Encyc.  L. 
258.  Horner  v.  Mo.  Pac.  Ry.,  70  Mo.  App. 
291.     {Inquiry  from  Pa.,  Dec,  1912,  Jl.) 

Unsafe  practice  to  cash,  instead  of  credit  to 
customer,  checks  indorsed  by  rubber  stamp 

1842.  A  bank  has  several  customers 
who  cash  pay-roll  checks  and  indorse  them 
by  rubber  stamp.  The  bank  receiving  such 
checks  asks  if  it  could  hold  the  customer 
liable  if  checks  were  not  good,  and  what 
its  status  would  be  if  the  customer  received 
cash  but  later  claimed  that  he  did  not  get 
the  money  on  the  ground  that  the  checks  had 
been  stolen  and  the  stamp  placed  thereon 
without  his  authority.  Opinion:  An  in- 
dorsement by  a  rubber  stamp  is  valid  when 
made  by  the  payee  or  indorsee  or  by  one 
having  authority  from  him,  and  may  be 
relied  upon  by  a  bank  when  the  amount  of 
the  instrument  is  credited  to  the  account 
of  the  indorser.  But  where  cash,  instead  of 
credit  to  account,  is  requested  upon  an  in- 
strument so  indorsed  by  a  customer,  the 
bank,  if  afterwards  confronted  with  the 
claim  that  the  instrument  was  stolen  from 
the  indorser,  the  stamp  placed  thereon  with- 
out his  authority  and  that  he  had  not  re- 
ceived the  amount,  would  be  at  a  disadvan- 
tage in  disproving  such  claim.  The  safer 
practice,  whether  the  indorsement  of  a 
customer  is  hand  written  or  by  rubber  stamp, 
is  to  place  the  amount  to  his  credit  and  re- 


430 


INDORSEE  AND  INDORSEMENT 


[1843-1849 


quire  his  own  check  in  withdrawal.  Rosen- 
berg  V.  Germania  Bk.,  44  Misc.  (N.  Y.) 
233.  Mayers  v.  McRimmon,  (N.  C.)  53 
S.  E.  447.  Lynn  First  Nat.  Bk.  v.  Smith, 
132  Mass.  227.  {Inquiry  from  Wis.,  March, 
1918.  Jl.) 

Indorsement  in  blank  by  payee  cor-poration 
without    official's  written   signature 

1843.  A  corporation  discounted  a  trade 
note,  indorsing  the  same  with  its  rubber 
stamp  without  the  written  signature  of  an 
authorized  official.  Opinion:  The  in- 
dorsement is  vahd  and  effectual  to  transfer 
title,  but  good  banking  practice  requires  in 
addition  the  written  signature  of  an  author- 
ized official,  as  better  evidence  of  authen- 
ticity.   {Inquiry  from  Wis.,  Feb.,  1911,  Jl.) 

1844.  Does  a  rubber-stamp  indorsement 
of  a  corporation  on  a  note  require  the 
signature  in  ink  of  an  officer?  Opinion: 
While  the  rubber-stamp  indorsement  of  a 
corporation  placed  on  a  note  by  one  having 
authority  would  convey  good  title  to  the 
discounting  bank,  it  is  desirable  to  have  the 
subscription  of  the  officer  with  pen  and  ink, 
to  indicate  to  the  bank  the  person  who  put 
on  the  stamp  and  that  it  was  affixed  by  one 
having  authority  to  do  so.  {Inquiry  from 
N.  Y.,  April,  1912.) 

Indorsement  of  voucher  check  by  payee 
corporation 

1845.  Is  a  rubber-stamp  indorsement  to 
a  voucher  draft  acknowledging  receipt  in 
full  sufficient  or  should  an  officer  of  the 
company  or  corporation  sign  the  receipt  in 
ink?  Opinion:  The  indorsement  by  the 
payee  with  rubber  stamp  is  legally  sufficient 
but  as  anyone  can  so  stamp  a  signature  it 
would  not,  of  itself,  carry  evidence  that  it 
was  made  by  the  authority  of  the  payee. 
Such  authority  would  have  to  be  proved  in 
case  of  dispute.  Signature  of  an  officer,  in 
ink,  would  be  more  desirable  as  all  it  would 
be  necessary  to  prove  in  such  case  would  be 
the  authority  of  the  officer  to  receipt  for  the 
company.  Where,  however,  the  voucher 
check  was  deposited  in  the  payee's  bank  to 
its  credit,  it  would  seem  that  the  mere  rubber 
stamp,  without  more,  might  be  sufficient, 
for  the  fact  of  deposit  would  show  that  the 
company  had  received  and  deposited  the 
proceeds.     {Inquiry  from  Ariz.,  Jan.,  1919.) 

Bank  indorsement  by  rubber  stamp  without 
officer^s  signature  in  ink 

1846.     A  check  payable  to  John  Smith 


is  indorsed,  "John  Smith  by  James  Brown;" 
it  is  also  indorsed  by  rubber  stamp,  "Pay 
to  the  order  of  Bank  A.  All  previous  in- 
dorsements guaranteed.  B  National  Bank." 
Is  Bank  A  protected  bj^  the  rubber  stamp 
guaranty  of  B  National  Bank  without  the 
signature,  in  ink,  of  an  officer  of  that  bank? 
Opinion:  The  courts  have  held  that  the 
name  of  an  indorser  stamped  with  a  rubber 
stamp  placed  on  the  instrument  by  one 
having  authority  is  a  valid  indorsement. 
Ordinarily,  therefore,  bank  A  would  be  pro- 
tected, and  could  hold  B  National  Bank  on 
its  guaranty  of  previous  indorsement  which 
would  cover  not  only  genuineness  but  the 
authority  of  James  Brown  to  indorse  for 
John  Smith.  The  only  trouble  would  be  in 
case  B  National  Bank's  indorsement  was 
disputed.  If  it  contained  the  signature  in 
blank  of  an  authorized  officer  of  the  bank, 
it  would  be  easier  to  prove  that  the  guaranty 
was  genuine.  As  a  general  proposition  the 
payor  bank  is  better  protected  where  the 
rubber-stamp  indorsement  is  subscribed  by 
the  signature,  in  ink,  of  an  officer  of  the  in- 
dorser. See  Mayers  v.  McRimmon,  140  N. 
C.  640,  52  S.  E.  227.  {Inquiry  from  Cal, 
Oct.,  1914.) 

1847.  Does  a  bank  indorsement  stamp 
require  the  name  of  the  cashier  or  other 
officer  in  order  to  make  it  binding?  Opinion: 
The  stamp  \\dthout  the  signature  of  the 
official  is  legal,  but  it  should  bear  the  name 
of  the  cashier  or  other  officer  in  order  to 
indicate  that  such  stamp  is  put  on  by  the 
proper  authority.  {Inquiry  from  III,  May, 
1915.) 

Indorsement  without  recourse 

Indorsement    "without    recourse"    does    not 
relieve  indorser  as  warrantor  of  fraudu- 
lent note 

1848.  A  gave  his  note  to  a  cattle  com- 
pany, secured  by  a  chattel  mortgage  on 
certain  cattle.  The  cattle  company  indorsed 
the  note  "without  recourse"  and  sold  the 
note  and  mortgage  to  a  bank.  The  note  and 
the  mortgage  proved  fraudulent,  there  being 
no  such  cattle  as  described  in  the  mortgage. 
Opinion:  The  cattle  company  is  liable  to 
the  bank,  as  there  was  a  breach  of  implied 
warranty  of  the  validity  of  the  thing  sold. 
Cross  V.  Hollister,  47  Kan.  652.  Challis  v. 
McCoum,  22  Kan.  157.  Meyer  v.  Richards, 
163  U.  S.  385.  Drennan  v.  Bunn,  124  111. 
175.     {Inquiry  from  Kan.,  July,  1916,  Jl.) 

Indorser  liable  where  note  a  forgery 

1849.  Does    an    indorsement    "without 


431 


1850-1856] 


DIGEST  OF  LEGAL  OPINIONS 


recourse"  relieve  the  indorser  from  re- 
sponsibility in  case  the  note  is  a  forgery? 
Opinion:  The  indorser  is  not  relieved  from 
liability.  By  this  indorsement  the  indorser 
warrants  that  the  instrument  is  genuine  and 
in  all  respects  what  it  purports  to  be.  {In- 
quiry from  Mich.,  Jan.,  1912,  J  I.) 

Holder  in  due  course  can  recover  from  maker 

1850.  B  gave  his  note  to  A,  which  A 
indorsed  to  a  bank  "without  recourse," 
receiving  credit  in  his  account.  B  refused 
to  pay  the  note  at  maturity,  claiming  that 
A  obtained  the  note  through  fraud.  Opin- 
ion: The  bank  can  enforce  payment  from 
B,  provided  the  proceeds  of  the  note  have 
been  checked  out  before  the  notice  of  fraud. 
The  indorsement  "without  recourse"  does 
not  affect  the  bank's  status  as  a  holder  in  due 
course.  Morrison  v.  Farmers,  etc.,  Bk.,  9 
Okla.  967.  Upham  v.  Prince,  12  Mass.  14. 
Epler  V.  Funk,  8  Pa.  468.  Consterdine  v. 
Moore,  (Neb.  1902)  91  N.  W.  399.  Lomax 
V.  Picot,  2  Rand.  (Va.)  247.  Hamilton  v. 
Fowler,  99  Fed.  18.  Stevenson  v.  O'Neal,  71 
111.  314.  Beach  v.  Bennett,  (Colo.  1901)  66 
Pac.  567.  {Inquiry  from  Okla.,  June,  1913, 
Jl) 

1851.  Is  the  maker  of  a  note  given  with- 
out value  liable  to  one  who  takes  under  an 
indorsement  "without  recourse"  Opinion: 
The  maker  is  liable  provided  the  indorsee  is 
a  holder  in  due  course;  the  mere  form  of  the 
indorsement  does  not  constitute  notice  of 
the  payee's  defective  title.  {Inquiry  from 
Pa.,  Dec,  1909.) 

Indorsement  '^without  recourse"  not  applicable 
to  subsequent  indorser 

1852.  Where  a  note  is  indorsed  in  blank 
by  the  payee  with  the  words  "without 
recourse"  written  over  his  signature,  and  is 
later  indorsed  by  a  second  indorser,  do  the 
words  quahfy  the  payee's  indorsement  only, 
without  applying  to  the  second  indorser, 
who  failed  to  insert  them?  Opinion:  The 
phrase  has  no  application  to  the  second 
indorser  and  does  not  qualify  his  Habihty. 
Ogden  Neg.  Inst.,  Sec.  106.  {Inquiry 
from  Wis.,  April,  1912,  Jl.) 

Indorser  relieved  from  obligation  to  pay  but 
liable  for  genuineness 

1853.  A  bank  sold  a  note  after  indorsing 
the  same  "without  recourse  on  us."  In 
case  of  default  in  payment,  can  the  pur- 
chaser recover  from  the  bank?  Opinion: 
The  bank  is  relieved  from  any  obhgation  to 


pay  in  case  of  dishonor  by  the  principal 
debtor,  but  is  not  absolved  from  Hability 
in  case  the  instrument  is  not  genuine. 
The  usual  form  is  to  write  the  words  "with- 
out recourse"  above  the  signature  of  the 
indorser.    {Inquiry  from  Mo.,  Feb.,  1918.) 

Indorsement  "without  recourse'^  relieves  from 
responsibility  for  non-payment 

1854.  A  bank  wishes  to  devise  a  form  of 
indorsement  which  would  restrict  its  re- 
sponsibihty  to  guaranteeing  the  genuineness 
of  notes  on  which  such  indorsement  is 
placed.  The  bank  does  not  wish  to  shoulder 
any  responsibility  for  payment  of  the  paper. 
It  submits  for  criticism  and  suggestion,  the 
following  form:  "Genuineness  of  signatures 
and  of  prior  indorsements  guaranteed." 
Opinion:  A  transfer  of  title  to  paper, 
guaranteeing  genuineness  of  the  signature, 
but  without  shouldering  responsibihty  for 
payment  in  case  of  dishonor,  could  be 
effected  by  delivering  the  instrument  with- 
out any  indorsement,  if  payable  to  bearer  or 
if  payable  to  order  by  indorsing  it  "without 
recourse."  {Inquiry  from  N.  Y.,  April, 
1919.) 

Indorsement  of  check  "without  recourse^' 

1855.  Is  the  indorsement  of  a  check 
"without  recourse"  legal  and  in  accordance 
with  business  methods?  Opinion:  Most  of 
the  decided  cases  concerning  an  indorse- 
ment "without  recourse"  involve  promissory 
notes;  but  such  an  indorsement  made  upon 
a  check  is  perfectly  legal  and  there  may  be 
cases  where  such  an  indorsement  may  be 
necessary  to  protect  the  payee  where  he 
has  no  interest  in  the  check,  as,  for  example, 
where  A  owes  C  and  makes  his  check  pay- 
able to  B  to  deHver  to  C,  A  not  knowing 
C's  whereabouts  while  B  is  in  a  position  to 
locate  him.  In  such  a  case  B,  finding  C  and 
indorsing  the  check  over  to  him,  would 
naturally  indorse  "without  recourse"  so  as 
to  reheve  himself  from  any  liabihty  as 
indorser  in  case  the  check  was  not  paid. 
{Inquiry  from  N.  Y.,Jan.,  1919.) 

Indorsement  as  warranty 

Warranty  of  genuineness  to  indorsee 

1856.  A  bank  cashed  a  check  indorsed 
to  it  as  follows:  "Pay  to  the  order  of  the 
Commercial  National  Bank,"  and  asks 
whether  this  indorsement  would  warrant 
the  genuineness  and  sufficiency  of  the  prior 
indorsement,  "John  Smith  by  Will  Brown." 
Brown  had  no  authority  to  indorse  and  the 


432 


INDORSEE  AND  INDORSEMENT 


[1857-1859 


Commercial  National  Bank,  if  compelled 
to  refund  to  the  payor,  wants  to  know  if 
it  has  recourse  upon  the  indorsing  bank. 
Opinion:  An  ordinary  indorsement,  "Pay 
to  the  order  of  Commercial  National  Bank," 
would  warrant  to  the  indorsee  the  genuine- 
ness and  sufficiency  of  the  prior  indorsement, 
and  if  Brown  had  no  authority,  the  bank 
compelled  to  refund  to  the  payor  bank 
would  have  recourse  upon  the  indorsing 
bank,    {Inquiry  from  Kan.,  Aug.,  1917.) 

Question    whether    indorsee's    warranty    of 
genuineness  runs  to  drawee 

1857.  A  check  made  payable  to  J.  C. 
Doe  drawn  on  bank  A  is  indorsed  "R.  A. 
Doe."  It  is  presented  by  and  paid  to  bank 
B,  and  that  bank  makes  inquiry  as  to  its 
liability  in  case  of  forgery  of  payee's  in- 
dorsement. Opinion:  Bank  B  which  in- 
dorses the  check  and  receives  payment 
would  be  liable  to  the  payor  bank  if  the 
indorsement  should  be  unauthorized  or  a 
forgery.  Assuming  that  there  is  no  express 
guaranty  of  indorsement,  some  courts  hold 
the  indorsement  of  bank  B  is  itself  a  guaran- 
ty of  genuineness  and  sufficiency  of  prior 
indorsement  to  the  drawee  but  others  hold, 
under  the  N.  I.  Act,  the  indorser's  warranty 
of  genuineness  does  not  run  to  the  drawee, 
but  only  to  a  holder  in  due  course,  and  these 
courts  place  the  liability  on  a  different 
ground,  namely,  that  the  bank  has  received 
money  without  consideration  to  which  it  is 
not  entitled  and,  therefore,  must  refund. 
Whatever  the  theory,  there  is  a  clear  lia- 
bility of  bank  B,  in  the  case  stated,  if  the 
indorsement  of  the  payee's  name  is  unau- 
thorized.    (Inquiry  from  S.  C,  June,  1915.. 

Indorser  warrants  to  indorsee  authority  of 
salesman  to  indorse  for  payee 

1858.  A  check  on  bank  A  to  the  order 
of  Factories  Mdse.  Co.  is  indorsed,  "Factories 
Mdse.  Co.,  Jack  Smith,"  Smith  being  a 
salesman  of  payee.  What  is  the  liability 
of  a  person  (Jones)  who  later  indorses  the 
check  and  deposits  it  in  B  bank  in  event 
payee's  indorsement  is  unauthorized?  Opin- 
ion: It  has  been  held  in  a  number  of  cases 
that  a  salesman  authorized  to  sell  goods  and 
even  to  collect  accounts  has  no  implied  au- 
thority to  indorse  the  name  of  the  concern 
which  he  represents  to  a  check  payable  to 
its  order  taken  by  him  in  collection.  Unless 
there  was  some  express  authority,  therefore, 
to  Smith  to  indorse,  or  a  course  of  dealing 
whereby  he  indorsed  similar  checks  and  such 
indorsement  was  known  to  and  acquiesced 
in  by  his  principal,  the  indorsement  of  the 


payee's  name  would  be  without  authority, 
and  bank  A  could  not  charge  it  to  the  ac- 
count of  the  drawer.  Bank  A,  however, 
would  have  the  right  to  recover  from  bank 
B  and  also  from  Jones  who  by  indorsing  the 
instrument  warranted  the  genuineness  and 
sufficiency  of  the  payee's  indorsement. 
Bank  B  would  have  right  of  recourse  upon 
Jones  in  case  bank  A  looked  to  it.  The 
Negotiable  Instruments  Act  expressly  pro- 
vides that  "every  indorser  who  indorses 
without  qualification  warrants  to  all  subse- 
quent holders  in  due  course  *  *  *  that  the 
instrument  is  genuine  and  in  all  respects 
what  it  purports  to  be;  that  he  has  a  good 
title  to  it;  that  all  prior  parties  had  capacity 
to  contract  *  *  *  ."  Under  this  provision 
Jones  warrants  the  genuineness  and  suffi- 
ciency of  the  indorsement.  {Inquiry  from 
Minn.,  June,  1915.) 

Indorsement  does  not  warrant  genuineness  of 
signature  to  drawee 

1859.  A  bank  is  the  drawee  of  a  draft 
drawn  by  the  executor  of  the  estate  of  its 
deceased  depositor  for  the  balance  to  the 
credit  of  his  account.  The  draft  is  accom- 
panied by  a  certified  copy  of  letters  testa- 
mentary showing  right  of  the  executor  to 
withdraw,  as  well  as  the  necessary  waiver, 
but  the  executor  himself  has  never  filed  his 
signature,  so  that  the  bank  has  no  means  of 
determining  whether  his  signature  is  genuine 
or  not.  The  drawee  asks  for  a  guaranty  of 
genuineness  of  this  signature  before  making 
payment,  but  the  bank  to  whom  the  draft 
is  made  payable  contends  that  such  guaran- 
ty is  unnecessary,  as  its  indorsement  guaran- 
tees the  genuineness  of  the  instrument  in 
every  respect,  including  the  maker's  signa- 
ture. Opinion:  An  indorsement  of  a  check 
signed  by  an  executor  is  not  a  warranty  to 
the  drawee  of  the  genuineness  of  the  drawer's 
signature,  but  where  the  indorsing  bank  is 
the  payee  of  the  check,  and  receives  pay- 
ment thereof  from  the  drawee,  it  would  be 
hable  to  refund,  should  the  drawer's  signa- 
ture be  non-genuine,  because  of  having 
received  money  to  which  it  was  not  entitled, 
although  it  made  no  express  warranty  of 
genuineness,  and  in  such  case  the  rule  hold- 
ing the  drawee  bound  to  know  the  drawer's 
signature  and  precluding  recovery  from  a 
bona  fide  holder  would  not  apply.  Nat.  Bk. 
of  Commerce  v.  Farmers,  etc.,  Bk.,  (Neb.) 
128  N.  W.  522.  Cherokee  Nat.  Bk.  v.  Union 
Tr.  Co.,  (Okla.)  125  Pac.  464.  Farmers,  etc., 
Bk.  V.  Bk.  of  Rutherford,  115  Tenn.  64. 
{Inquiry  from  N.  Y.,June,  1919,  Jl.) 


433 


1860-1865] 


DIGEST  OF  LEGAL  OPINIONS 


Liability  of  third  persons  indorsing  guarantee 
of  payment 

1860.  What  is  the  Habihty  of  persons 
other  than  the  payee  who  indorse  on  a  note, 
"For  value  received  we  hereby  guarantee 
payment  of  the  within ^note"?  Opinion: 
They  are  hable  as  guarantors  and  not  as 
indorsers.  It  would  be  preferable  to  have 
such  persons  indorse  "for  value  received  we 
hereby  guarantee  prompt  payment  of  the 
within  note  at  maturity"  in  order  to  hold 
them  liable  as  sureties.  Zahn  v.  First  Nat. 
Bk.,  103  Pa.  576  (and  cases  cited  therein). 
North  St.  Bk.  v.  Bellamy,  (N.  Dak.)  125 
N.  W.  888.  Iron  City  Nat.  Bk.  v.  Rafferty, 
207  Pa.  258.  {Inquiry  from  Pa.,  Sept., 
1912,  Jl.) 

Authority  to  indorse 

Attorney  indorsing  client's  name  to  check 

1861.  An  attorney  employed  to  collect 
a  note  received  from  the  maker  a  check 
covering  the  amount,  which  was  drawn  in 
favor  of  the  client.  The  attorney  indorsed 
the  check  as  attorney  for  such  client  and 
then  by  himself  personally  and  deposited  it 
to  his  personal  account  in  his  bank.  He 
later  used  all  the  money  from  his  own  ac- 
count and  moved  away.  May  the  client 
recover  from  the  bank?  Opinion:  An  attor- 
ney employed  to  collect  a  note  has  no  au- 
thorit}^  solely  by  reason  of  such  employ- 
ment, to  indorse  his  client's  name  to  a  check, 
payable  to  such  client,  received  in  collection, 
and  the  drawee  which  pays  such  check  upon 
such  indorsement  is  responsible  if  the  money 
is  misappropriated,  unless  it  can  prove  that 
the  client  authorized  the  attorney  to  so 
indorse.  Graham  v.  U.  S.  Sav.  Inst.,  46  Mo. 
186.  Jackson  v.  Nat.  Bk.,  (Tenn.)  20  S.  W. 
802,  Jackson  Paper  Mfg.  Co.  v.  Com.  Nat. 
Bk.  (111.)  65  N.  E.  136.  Deering  &  Co.  v. 
Kelso,  (Minn.)  76  N.  W.  792.  Brown  v. 
People's  Nat.  Bk.,  (Mich.)  136  N.  W.  506. 
{Inquiry  from  Ala.,  Sept.,  1917,  Jl.) 

1862.  A  check  payable  to  a  client  was 
indorsed  by  "John  Doe  by  John  Jones, 
Attorney."  John  Jones  deposited  the 
check  in  •  his  personal  account,  and  mis- 
appropriated the  proceeds.  Who  stands  the 
loss?  Opinion:  If  the  indorsement  by  John 
Jones,  Attorney,  of  the  name  of  the  payee 
was  unauthorized,  it  would  be  just  the  same 
as  if  the  indorsement  were  a  forgery.  In 
other  words,  the  bank  could  charge  back  the 
amount  of  its  customer's  account  but  would 
have  a  right  of  recovery  from  the  bank  in 
which  Jones  deposited  the  check  to  his  per- 


sonal credit.    That  bank  would  be  the  ulti- 
mate loser.    {Inquiry  from  Ind.,  Jan.,  1918.) 

Clerk  indorsing  employer's  name  with  rubber 
stamp 

1863.  Where  the  clerk  of  a  depositor, 
entrusted  with  a  rubber  stamp  containing 
an  indorsement  by  the  depositor  to  his  bank, 
uses  the  stamp  upon  checks  of  which  the 
depositor  is  payee  and  receives  the  cash 
thereon  from  the  bank,  which  he  misappro- 
priates, concealing  his  crime  for  a  consider- 
able period  because  of  his  function  to  receive 
the  monthly  statements,  what  is  the  lia- 
bility of  the  bank?  Opinion:  The  liability 
of  the  bank  to  the  depositor  depends  upon 
whether  (1)  the  clerk  had  authority  to 
collect  as  well  as  to  indorse  to  the  bank;  (2) 
if  without  original  authority,  depositor  has 
ratified  his  acts,  or  (3)  depositor  has  been 
negligent;  and  if  none  of  above  conditions 
exist,  the  bank  is  liable.  Standard  Steam 
Specialty  Co.  v.  Corn  Exch.  Bk. 
(N.  Y.)  116  N.  E.  386.  First  Nat.  Bk.  v. 
Allen,  100  Ala.  476.  Dana  v.  Nat.  Bk.,  132 
Mass.  156,  Critten  v.  Chemical  Nat.  Bk., 
171  N.  Y.  219.  Myers  v.  Southwestern  Nat. 
Bk.,  193  Pa.  1.  First  Nat.  Bk.  v.  Richmond 
Electric  Co.,  106  Va.  347.  Kenneth  Inv. 
Co.  V.  Nat.  Bk.,  103  Mo.  App.  613.  {In- 
quiry from  Sept.,  1917,  Jl.) 

Unauthorized  indorsement  by  traveling  agent 

1864.  A  check  given  to  a  travehng  agent 
in  payment  of  his  firm's  bill  was  cashed  by 
him.  In  indorsing  he  signed  his  firm's  name 
per  his  own.  Is  the  check  chargeable  to  the 
account  of  the  drawer?  Opinion:  An  authority 
to  an  agent  to  sell  goods  and  collect  accounts 
does  not  include  an  authority  to  indorse 
checks  payable  to  the  principal,  taken  in 
collection.  The  drawer  could  rightfully 
object  to  having  the  check  charged  to  his 
account,  unless  the  agent  had  express  au- 
thority from  his  firm,  or  authority  which 
could  be  implied  from  a  course  of  similar 
dealings,  to  indorse  his  firm's  name  and 
negotiate  checks.  {Inquiry  from  Pa.,  Dec, 
1916.) 

1865.  A  employed  B  as  his  agent  to 
collect  his  accounts,  A  check  was  drawn 
paj^able  to  A,  on  which  B  without  authority 
indorsed  his  principal's  name,  as  well  as  his 
own.  The  drawee,  knowing  that  B  was  the 
agent  of  A,  paid  the  check.  Opinion:  The 
drawee  is  liable  to  the  drawer  for  having  paid 
the  check  upon  the  unauthorized  forged  in- 
dorsement of  the  payee,     B's  authority  to 


I 


434 


INDORSER  AND  INDORSEMENT 


1866-1874 


collect  accounts  does  not  include  authority 
to  indorse  his  principal's  name  to  checl^ 
payable  to  the  principal.  {Inquiry  from  Me., 
July,  1911,  Jl.) 

1866.  An  agent  indorsed  a  check  payable 
to  the  firm  with  the  firm  name  per  his  own 
initials,  and  received  the  cash.  It  was  after- 
wards claimed  that  he  had  no  authority  to 
collect  the  money.  Is  the  drawee  bank 
liable  for  the  amount  of  the  check?  Opin- 
ion: The  authority  of  an  agent  to  collect 
does  not  include  authority  to  indorse  checks 
payable  to  the  principal  which  have  been 
received  in  payment.  Graham  v.  U.  S.  Sav. 
Inst.,  46  N.  W.  186.  Thomson  v.  Bank,  82 
N.  Y.  1 .    But  where  an  agent  is  permitted  to 

|:  indorse  checks  payable  to  his  principal, 
^  authority  to  indorse  will  be  implied.  Best 
V.  Krey,  83  Minn.  32.  Proof  that  the  agent 
had  previously  indorsed  checks  in  that  man- 
ner, and  paid  over  the  proceeds  to  his  prin- 
cipal, who  received  with  knowledge  would 
make  out  a  case  of  implied  authority.  In 
the  absence  of  authority  the  drawee  bank 
paying  the  check  is  hable  to  the  principal. 
{Inquiry  from  S.  D.,  April,  1918.) 

Indorsement  hy  agent  of  payee  unthout 
authority 

1867.  A  check  payable  to  John  Doe  & 
Co.  is  indorsed  to  B  by  an  unauthorized 
agent.  B  indorsed  to  C  and  guaranteed  all 
prior  indorsements  and  C  collected  from  the 
drawee.  Opinion:  The  drawee  bank  can 
recover  from  C  as  the  apparent  owner  of  the 
check.    {Inquiry  from  Minn.,  Dec,  1911,  Jl.) 

1868.  A  check  payable  to  a  firm  is  given 
to  its  agent  and  cashed  by  a  bank  upon  the 
indorsement  of  the  firm  by  the  agent.  The 
check  is  collected.  Thirty  days  later  it  turns 
out  the  agent  had  no  authority  to  indorse 
and  the  firm  did  not  receive  the  money. 
Opinion:  The  bank  which  cashed  the  check 
is  liable  to  refund  to  the  drawee,  and  the 
elapsing  of  thirty  days  before  the  discovery 
does  not  relieve  it  from  liability.  White  v. 
Cont.  Nat.  Bk.,  64  N.  Y.  316.  {Inquiry 
from  Neb.,  Nov.,  1911,  Jl.) 

1869.  A  check  payable  to  a  firm  was 
indorsed  by  the  agent  of  the  firm  without 
authority.  It  was  cashed  by  a  bank  antl  paid 
by  the  drawee.  Opinion:  The  cashing  bank 
was  liable  to  the  drawee  for  a  return  of  the 
money,  irrespective  of  whether  the  indorse- 
ment was  guaranteed.  The  rule  stated  is 
that  money  paid  under  a  mistake  of  fact 
without  consideration  is  recoverable.  {In- 
quiry from  Wis.,  Dec,  1909,  Jl.) 


Unauthorized  indorsement  hy  wife  of  husband's 
check 

1870.  Is  a  drawee  bank  liable  to  the 
payee  of  a  check  where  it  cashed  it  on  the 
indorsement  of  his  wife  in  her  own  name? 
Opinion:  As  the  check  was  not  indorsed  by 
the  payee  the  bank  would  be  responsible  for 
the  amount,  in  the  absence  of  proof  that  the 
husband  authorized  the  wife  to  receive 
payment.     {Inquiry  from  Neb.,  Oct.,  1919.) 

Unauthorized  indorsement  of  payee's  name 
by  another 

1871.  A  check  drawn  to  Bill  Miller  and 
indorsed  "Bill  Miller  by  A.  F.  Miller"  was 
placed  to  the  credit  of  Jack  McRoberts  in 

the    M Bank.      It   was    afterwards 

claimed  that  such  indorsement  was  unau- 
thorized. Is  McRoberts  liable  to  the  bank? 
Opinion:  The  indorsement  being  unau- 
thorized, the  depositor  of  the  check  stood 
in  the  position  of  a  guarantor,  and,  therefore, 
bound  to  make  up  the  loss.  Marcuson  v. 
Yorkville  Bank,  147  N.  Y.  Suppl.  472.  {In- 
quiry from  Mont.,  May,  1918.) 

Bookkeeper  authorized  to  indorse  for  deposit 
cannot  indorse  for  discount 

1872.  Has  a  bookkeeper  authorized  to 
indorse  checks  for  deposit  to  the  credit  of 
a  firm  authority  to  indorse  notes  payable  to 
his  firm  for  the  purpose  of  discount  and 
credit?  Opinion:  There  is  no  such  au- 
thorit}^  implied.  The  bank  should  require  an 
express  power  of  attorney.  {Inquiry  from 
Md.,  Jan.,  1912.) 

Authority   of  railroad  agent   to   indorse  for 
principal 

1873.  An  agent  of  a  railroad  company  in- 
dorsed a  check  payable  to  it,  "N.  &  E.  Rail- 
way, Amos  Owen,  "and  deposited  it  in  his  per- 
sonal account.  Is  the  bank  liable  to  the 
railroad?  Opinion:  The  entire  question 
hinges  upon  the  fact  as  to  whether  Owen  had 
authority  to  indorse  checks  in  the  name  of 
the  railroad  company.  If  he  had  express 
authority  to  collect  funds,  and  indorse 
checks  payable  to  the  railroad,  mingling  the 
proceeds  with  his  personal  funds,  or  if  such 
authority  could  be  implied  from  a  course  of 
dealing,  then  the  railroad  might  be  bound. 
{Inquiry  from  Term.,  May,  1920.) 

1874.  For  several  years  a  railroad  com- 
pan}^  had  permitted  its  local  agent  to  in- 
dorse checks  payable  to  the  company  and 
receive  payment  of  same,  the  agent  in- 
dorsing on  back  "John  Doe,  Agent."  Such 


435 


1875-1879] 


DIGEST  OF  LEGAL  OPINIONS 


a  check  was  paid  to  the  agent  by  a  bank  that 
had  been  accustomed  to  so  paying.  The 
agent  absconded,  and  the  railroad  company 
claimed  that,  as  it  had  some  years  previous- 
ly issued  a  general  order  to  its  local  agents 
not  to  cash  checks  given  to  them  in  the 
course  of  the  company's  business,  but  to 
transmit  checks  directly  to  the  treasurer, 
the  bank  was  liable.  No  notice  had  ever 
been  given  to  the  bank  of  any  revocation  of 
agent's  implied  authority.  Is  the  bank 
Hable?  Opinion:  It  is  a  general  rule  that 
an  authority  to  an  agent  to  collect  accounts 
does  not  of  itself  include  authority  to  in- 
dorse checks  paj^able  to  the  principal.  But 
if  an  agent  is  permitted  to  indorse  checks 
payable  to  his  principal,  authority  to  in- 
dorse will  be  impHed,  and  the  principal  can- 
not recover  from  one  who  cashes  a  check  for 
the  agent  where  the  agent  appropriates  the 
proceeds.  The  fact  that  the  railroad  com- 
pany express^  instructed  its  agents  not  to 
cash  checks,  but  to  transmit  them  directly  to 
the  treasurer,  would  not  affect  the  rights  of 
the  bank  in  the  absence  of  notice  to  them  of 
such  revocation  of  implied  authority.  The 
implied  authority  being  established,  the 
form  of  indorsement  would  be  sufficient. 
See  Thomson  v.  Bank,  82  N.  Y.  1.  Gra- 
ham, v.  U.  S.  Savings  Inst.,  46  Mo.  186. 
Hamilton  Nat.  Bank  v.  Nye,  37  Ind.  App. 
464.  Best  v.  Krey,  83  Minn.  32.  {Inquiry 
from  Ind.,  Sept.,  1915.) 

Unauthorized  indorsement  by  railroad  agent 

1875.  The  agent  of  a  railroad  company 
deposited  to  his  personal  account  two 
checks  payable  to  the  company  and  indorsed 
"U,  Agent  C  Railway  Co."  Opinion:  In 
the  absence  of  express  or  implied  authority, 
a  railroad  agent  cannot  indorse  checks 
payable  to  his  company  and  deposit  them  to 
his  personal  credit,  and  the  depository  bank 
would  be  liable  if  the  agent  misapplied  the 
funds.  Knoxville  Water  Co.  v.  East  Tenn. 
Nat.Bk.(Tenn.)  131  S.W.U7.  {Inquiry  from 
Mont.,  Oct.,  1913,  Jl.) 

Authority  of  joint  depositor  to  indorse  co- 
depositor's  name  as  payee 

1876.  Jones  and  Smith  are  joint  de- 
positors, and  either  has  the  privilege  of 
withdrawing  the  entire  balance  to  the  credit 
of  the  two.  Smith  offers  for  credit  to  the 
account  a  check  payable  to  Jones,  the 
check,  however,  not  bearing  the  indorse- 
ment of  the  payee  (Jones).  Would  the  de- 
pository bank  be  justified  in  receiving  for 
credit  such  a  check  if  indorsed,  "Jones  by 


Smith?"  Opinion:  The  fact  that  A  and  B 
are  joint  depositors,  each  having  the  priv- 
ilege of  withdrawing  the  entire  balance, 
does  not  authorize  B  to  indorse  the  name  of 
A  to  a  check  payable  to  the  latter  and  de- 
posit it  to  the  credit  of  the  joint  account 
where  it  would  be  subject  to  withdrawal  by 
B.  The  bank  would  not  be  justified  in 
receiving  for  credit  check  so  indorsed,  in  the 
absence  of  evidence  of  B's  authority  to 
indorse  A's  name.  {Inquiry  from  Ore.,  Sept., 
1919,  Jl.) 

Unauthorized    indorsement   of  corporation's 
name    hy    president 

1877.  In  the  case  of  a  check  payable  to  a 
corporation,  indorsed  in  the  corporation's 
name  by  the  president,  who  had  no  authority 
to  so  indorse,  and  collected  from  the  drawee 
upon  a  guaranty  of  prior  indorsements,  what 
are  the  rights  of  the  drawee  bank?  Opinion: 
The  indorsement  of  the  payee  being  proved 
to  be  unauthorized,  the  check,  of  course,  was 
not  chargeable  to  the  depositor,  and  the 
recourse  of  the  drawee  bank  is  upon  the 
bank  that  received  payment  and  guaranteed 
the  indorsement,  (inquiry  from  Pa.,  March, 
1916.) 

Check  to  corporation  indorsed  hy  secretary  to 
third  person 

1878.  The  Blank  Mfg.  Co.  had  an  ac- 
count with  a  bank  which  used  a  stamp  to 
indorse  their  checks  for  deposit  as  follows: 
"Pay  to  the  order  of  the Nat.  Bank, 

0.,  or  order.  The  Blank  Mfg.  Co., 


I 


per  John  Doe,  Sec'y."  The  secretary  pre- 
sented a  check  so  indorsed  and  deposited  it 
to  the  credit  of  Mr.  Smith,  a  travehng  repre- 
sentative of  the  company  who  keeps  a 
personal  account  with  the  bank.  Would  the 
bank  be  liable  if  it  was  later  discovered  that 
the  check  should  have  gone  to  the  credit  of 
the  company?  Opinion:  In  the  case 
stated  the  probabihty  is  that  the  bank 
would  be  held  liable  should  it  be  proved 
that  the  secretary  was  without  authority  to 
place  the  check  to  the  credit  of  the  travehng 
representative.  The  safer  course  would  be 
to  refuse  to  receive  the  check  except  for 
deposit  to  the  credit  of  the  corporation. 
{Inquiry  from  Ohio,  Feb.,  1917.) 

Authority  of  insurance  agent  to  indorse  name 
of  company 

1879.  An  insurance  agent  deposits  in  his 
account  checks  payable  to  the  order  of  cer- 
tain insurance  companies.  He  indorses  these 
checks  in  the  name  of  the  company,  and  by 


436 


INDORSEE  AND  INDORSEMENT 


[1880-1884 


his  own  name  as  agent.  Is  the  agent  acting 
within  his  authority  in  so  doing?  Opinion: 
A  check  payable  to  an  insurance  company 
indorsed  in  its  name  by  an  agent  of  the  com- 
pany should  not  be  cashed  for  the  agent 
individually  or  placed  to  the  credit  of  his 
individual  account  in  the  absence  of  evidence 
of  authority  by  the  corporation  to  the  agent 
to  indorse  checks  in  its  name  and  receive  the 
money  thereon  personally.  Such  authority 
does  not  exist  from  the  mere  fact  of  agency, 
but  must  be  expressly  conferred  or  implied 
from  a  course  of  dealing.  (Inquiry  from 
N.  J.,  July,  1919.) 

Ratification  of  unauthorized  indorsement 

1880.  A  customer  deposits  with  a  bank 
a  check  payable  to  a  corporation,  and 
guarantees  prior  indorsements.  The  cor- 
poration indorsement  was  made  by  A  who 
represented  a  collection  agency  having 
claim  of  corporation  in  its  hands,  and  was 
unauthorized.  The  check  was  paid.  The 
collection  agency  paid  its  client  for  the 
check  and  demanded  repayment.  The 
drawee  bank  charges  back  to  the  receiving 
bank  which  now  asks  if  it  has  a  right  to 
charge  back  to  customer.  Opinion:  If  the 
drawee  bank  had  the  right  to  charge  back  to 
the  receiving  bank,  that  bank  had  the  cor- 
responding right  to  charge  back  to  the  custo- 
mer on  his  guaranty,  but  in  view  of  the  fact 
that  payee  corporation  received  the  money 
for  the  check  from  the  collection  agency,  it 
might  be  held  that  the  indorsement  by  the 
latter  of  the  corporation's  name  was  ratified, 
and  if  so,  the  check  was  not  chargeable 
back  to  the  receiving  bank  by  drawee  bank. 
{Inquiry  from  Ore. y  April,  1916.) 

Ratification  by  corporation  of  indorsement  of 
payee's  name  by  officer 

1881.  A  bank  received  from  G.  &  Com- 
pany, a  corporation,  a  letter  reading  as 
follows:  "We  are  sending  you  herewith,  as 
per  your  request,  the  necessary  resolution  in 
this  matter,"  etc.  "The  following  resolu- 
tion was  passed:  Resolution  stating  that 
all  checks  made  payable  to  G.  &  Company, 
indorsed  and  deposited  by  A  to  the  credit  of 
A.  &  Company,  prior  to  August  26th,  were 
handled  in  accordance  with  authority  of  the 
company,  and  such  action  is  hereby  ratified 
and  confirmed.  Approved — President — Sec- 
retary." Is  this  sufficient?  Opinion:  It 
is  quite  evident  that  the  corporation,  "G.  & 
Company,"  ratified  the  action  of  "A",  one 
of  its  officers,  in  indorsing  and  depositing 
checks,  made  payable  to  said  corporation, 


to  the  credit  of  "A.  &  Company."  Since 
G.  &  Company,  through  its  Secretary  and 
Treasurer,  duly  notified  the  bank  that  such 
action  was  taken  through  its  board  of  di- 
rectors, the  bank  was  justified  in  relying 
and  acting  upon  the  same.  The  bank  was 
not  required  to  inquire  into  the  facts  leading 
up  to  its  passage,  but  was  justified  in  placing 
full  reliance  upon  the  information  thus 
furnished  by  the  properly  accredited  officers 
of  the  corporation.  It  has  been  held  that 
where  an  authorization  of  a  board  of  di- 
rectors is  necessary  to  the  execution  or 
ratification  of  a  given  contract,  their  failure 
to  enter  the  resolution  in  the  corporation 
records  does  not  affect  its  validity,  but  the 
fact  mav  be  proved  by  parol.  Yolo  Bank  v. 
Weave/fCal.  1892]  31  Pac.  160.  Oalvford  v. 
Fisher,  75  111.  App.  544  (holding  that  the 
fact  that  the  board  of  directors  of  a  corpora- 
tion made  no  record  of  their  action  does  not 
affect  the  validity  of  a  sale  of  personal 
property  duly  authorized  by  them.)  War- 
ren V.  Ocean  Ind.  Co.,  16  Me.  439.  Mc- 
Michael  v.  Brennan,  31  N.  J.  Eq.  396.  Mc- 
Cartney V.  Glover  Valley  Co.,  232  Fed. 
497.    {Inquiry  from  Ohio,  Oct.,  1919.) 

Sufficiency  of  indorsement 

Prefix  "Miss''  or  "Mrs."   unnecessary 

1882.  A  check  was  drawn  to  the  order 
of  "Miss  E.  M.  Taylor"  and  bore  the  in- 
dorsement of  "E.  M.  Taylor."  Opinion: 
The  indorsement  is  in  the  proper  form,  as 
the  prefix  "Miss"  is  not  recognized  in  law  as 
a  part  of  the  payee's  name.  {Inquiry  from 
Pa.,  Dec,  1909,  Jl.) 

1883.  A  check  payable  to  the  order  of 
"Miss  R.  A.  Penny"  was  indorsed  "R.  A. 
Penny,"  presented  for  payment  in  due 
course,  and  refused  for  the  reason  that 
"Miss"  was  not  included  in  indorsement. 
Opinion:  The  title  "Miss"  is  no  part  of  the 
name  and  not  legally  necessary  in  the  in- 
dorsement. The  check,  therefore,  should 
have  been  paid.  A  refusal  to  pay  because 
of  an  incorrect  indorsement  would  not,  it 
seems,  justifj'  protest  as  there  is  no  due  pre- 
sentment and  dishonor  thereof.  This  check 
was  not  defectively  indorsed  and  although 
the  bank  believed  it  was,  and  refused  pay- 
ment for  that  reason,  nevertheless  such  re- 
fusal of  a  check  dul}^  presented  with  proper 
indorsement  would  constitute  a  dishonor 
and  justify  protest.  {Inquiry  from  Wash., 
March,  1916.) 

1884.  Is  a  check  payable  to  "Miss  Wilda 
Reimbaugh"    properly    indorsed,     "Wilda 


437 


1885-1891] 


DIGEST  OF  LEGAL  OPINIONS 


Reimbaugh?"  Opinion:  The  prefixes 
"Mr.",  "Mrs."  and  "Miss"  are  not  them- 
selves names  or  parts  of  names  and  a  check 
payable  to  Miss  Wilda  Reimbaugh  is  correct- 
ly indorsed  "Wilda  Reimbaugh."  {Inquiry 
from  Ind.,  Dec,  1913.) 

1885.  A  check  payable  to  "Mrs.  M.  E. 
Smith"  was  indorsed  "M.  E.  Smith"  and 
cashed  at  a  bank  which  forwarded  the  same 
with  the  indorsement.  "All  prior  indorse- 
ments guaranteed."  The  drawee  refused 
payment.  Opinion:  The  indorsement  with- 
out the  prefix  "Mrs."  was  regular  and  valid 
and  the  drawee  should  have  honored  the 
check.  In  a  case  where  an  indorsement  is 
insufficient  or  irregular  the  drawee  is  not 
compelled  to  pay  the  check  even  upon  a 
guaranty,  although  payment  upon  such 
guaranty  is  customary,  but  is  entitled  to  a 
reasonable  opportunity  of  verifying  the 
endorsement  before  making  payment.  Mer- 
chants' Bk.  V.  Spicer,  6  Wend.  (N.  Y.)  443. 
Hudson  V.  Goodwin,  5  Har.  &  J.  (Md.)  115. 
Cooper  V.  Bailey,  52  Me.  230.  Brown  v. 
Butchers'  Bk.,  6  Hill  (N.  Y.)  443.  George  v. 
Surry,  32  E.  C.  L.  576.  {Inquiry  from  Ark., 
May,  1913,  Jl.) 

1886.  A  check  was  made  payable  to 
"Mrs.  Mary  Osage"  and  indorsed  "Mary 
Osage."  When  presented  to  the  bank,  pay- 
ment was  refused  upon  the  claim  that  the 
indorsement  was  incorrect.  Opinion:  The 
indorsement,  "Mary  Osage"  was  proper  and 
legal,  and  the  drawee  bank  is  not  justified  in 
refusing  payment  because  of  the  omission  of 
prefix  "Mrs.,"  said  prefix  not  being  part  of 
the  name  of  the  payee,  but  only  a  title. 
Calvin  v.  Free,  66  Kan.  466.  Bickford  v. 
Mattocks  (Me.)  50  Atl.  894.  Grant  Tr., 
etc.,  Co.  V.  Tucker,  (Ind.)  96  N.  E.  487. 
{Inquiry  from  Kan.,  July,  1918,  Jl.) 

Check  to  J.  W.  Smith  and  wife  indorsed  J.  W. 
Smith  and  Mrs.  B.  Smith 

1887.  A  check  which  was  drawn  payable 
to  J.  W.  Smith  and  wife  was  indorsed  "J. 
W.  Smith  and  Mrs.  B.  Smith."  Is  the  in- 
dorsement correct?  Opinion:  If  Mrs.  B. 
Smith  is  the  wife  of  J.  W.  Smith,  her  in- 
dorsement in  this  form  is  valid  and  would 
pass  title.  The  prefix  Mrs.  is  no  part  of  the 
name.    {Inquiry  from  Ore.,  Aug.,  1915.) 

Check  "G.  T.  Jones"  indorsed  "Geo.  T.  Jones'' 

1888.  Should  a  drawee  bank  pay  a 
check  to  "G.  T.  Jones"  indorsed  by  "Geo.  T. 
Jones?"  Opinion:  If  Geo.  T.  Jones  and  G.  T. 
Jones  are  the  same  person,  the  indorsement  is 


vahd  and  would  pass  title.  But,  assuming 
the  bank  does  not  know  this  and  cannot 
ascertain  the  same  by  reasonable  inquiry, 
the  question  arises  as  to  whether  it  has  a 
right  to  refuse  payment  because  the  check 
is  payable  to  "G.  T."  and  indorsed  "Geo.  T." 
If  a  bank  pays  a  check  indorsed  in  a  name 
other  than  that  given  as  payee,  it  is  negligent 
and  payment  is  made  at  its  peril.  In  the 
case  of  a  check  payable  as  above  stated,  the 
difference  is  so  slight  as  to  create  doubt  that 
refusal  to  pay  on  that  ground  alone  would  be 
justified.     {Inquiry  from  Iowa,  Aug.,  1915.) 

Faulty  indorsements 

Obliteration  of  indorsement  by  stamping  one 
over  another 

1889.  Is  a  bank  justified  in  returning  a 
check  for  proper  indorsement  where,  be- 
cause of  several  machine  and  rubber- 
stamp  indorsements  stamped  over  each 
other,  it  is  impossible  to  read  them?  Opin- 
ion :  When  an  indorsement  is  obliterated  or 
made  illegible  so  that  the  name  of  the  indors- 
er  cannot  be  read,  it  would  seem  reason- 
able to  construe  the  instrument  as  if  it  bore 
no  indorsement,  and  a  bank  would  apparent- 
ly be  justified  in  returning  the  same  to  the 
sender  to  have  it  properly  indorsed.  {In- 
quiry from  Fla.,  Dec,  1917.) 

Technical  defect  in  indorsement 

1890.  A  check  drawn  by  D.  Smith, 
payable  to  himself,  was  certified  and  paid  by 
the  drawee,  after  the  same  had  been  pre- 
sented by  the  Blank  National  Bank,  bearing 
the  following  indorsement:  "Pay  to  the  order 
of  J.  Hinds,  Attorney,  D.  Smith.  Deposit 
to  the  credit  of  J.  Jones,  Trustee,  J.  Hinds, 
Attorney.  Pay  any  bank  or  banker,  Blank 
National  Bank."  Opinion:  There  is  a 
technical  defect  in  Hinds'  indorsement, 
which  does  not  show  that  the  deposit  is  to 
be  credited  in  the  Blank  National  Bank. 
The  drawee  would  probably  be  safer  in  pay- 
ing if  the  check  was  indorsed  for  deposit  in 
the  Blank  National  Bank  to  the  credit  of 
Jones,  Trustee.  It  would  not  be  necessary 
for  the  Blank  National  Bank  to  show  by  its 
indorsement  that  the  deposit  was  properly 
credited  as  a  condition  precedent  to  receiv- 
ing payment  of  the  check.  {Inquiry  from 
Pa.,  July,  1911,  Jl.) 

Individual    signing    for    company    without 
official  designation 

1891.  May  a  drawee  bank  return  a  check 
indorsed,  "John  Doe  Produce  Company  by 


438 


INDORSER  AND  INDORSEMENT 


1892-1896 


John  Brown"  without  the  official  designa- 
tion of  the  person  signing  the  indorsement 
where  the  check  is  further  indorsed,  "Prior 
indorsement  guaranteed?"  Opinion:  It  is 
within  the  right  of  the  drawee  bank  to  refuse 
payment  and  return  the  check  where  the 
indorsement  of  a  payee  corporation  is  made 
by  an  individual  without  official  designation 
and  there  is  no  proof  that  the  individual  has 
authority  to  indorse  for  the  company.  But 
the  words,  "Prior  indorsement  guaranteed", 
by  the  collecting  bank  correct  this,  it  being 
a  guaranty  that  the  indorsement  of  the 
payee  is  sufficient  and  made  by  one  in 
authority  and  upon  that  guaranty.  The 
efficacy  of  such  a  guaranty  of  indorsement 
is  to  facilitate  the  payment  and  ol)viate 
the  delay  in  sending  the  check  back.  The 
drawee,  however,  is  not  o'oligcd  to  pay  on 
the  guaranty.  (Inquiry  from  Ala.,  March, 
1920.) 

Check  to  "A  &  Co.,''  indorsed  "A  &  Co.,  Inc.'' 

1892.  (1)  Would  it  be  safe  to  pay  a  check 
made  payable  to  John  Brown  &  Company 
and  indorsed  John  Brown  &  Company,  Inc., 
or  made  payable  to  John  Brown  &  Company 
Inc.,  and  indorsed  John  Brown  &  Company? 
(2)  Has  the  word  "Limited"  the  same  effect 
as  "Inc?"  Opinion:  (1)  The  Negotiable 
Instruments  Act  (Sec.  73  N.  Y.  Act)  pro- 
vides that  "where  the  payee  or  indorsee  is 
wrongly  designated  or  misspelled,  he  may 
indorse  the  instrument  as  therein  described, 
adding,  if  he  think  fit,  his  proper  signature." 
It  seems  that  it  would  be  safe  to  pay  a  check 
made  payable  to  John  Brown  &  Co.  and 
indorsed  John  Brown  &  Co.,  Inc.,  if  the 
bank  knows  John  Brown  &  Co.,  Inc.,  is 
identical  with  John  Brown  &  Co.,  but  it 
would  be  better  to  send  the  check  back  for 
correction.  John  Brown  &  Co.,  Inc. 
indicates  a  corporation.  It  appears  on  the 
face,  therefore,  they  are  not  the  same 
parties,  and  it  would  require  outside  (evi- 
dence to  show  that  they  were.  The  same 
also  applies  where  the  check  is  made  payable 
to  John  Brown  <^  Co.,  Inc.  and  indorsed 
John  Brown  &  Co.  The  paj'^ee  indicates 
a  corporation,  and  the  indorsement  a  part- 
nership. (2)  The  word  "Limited"  denotes  a 
limited  partnership.  {Inquiry  from  N.  Y., 
Oct.,  1914.) 

Drawee  not  obliged  to  pay  on  guaranty  of 
defective  indorsement 

1893.  A  check  payable  to  J.  E.  Doe  was 

indorsed  Elmer  Doe  by  mistake;  the  in- 
dorsement was  guaranteed,  and,  when  pre- 


sented, payment  of  the  check  was  refused- 
Opinion:  Where  the  indorsement  of  the 
payee  is  defective,  the  drawee  is  not  obliged 
to  pay  upon  the  guaranty  of  the  indorsement. 
If  the  drawer  withdrew  his  account  before 
the  check  was  properly  presented,  the  loss, 
if  any,  would  fall  upon  the  owner  of  the 
check,  who  could  recover  against  the  drawer. 
Harden  v.  Birmingham  Tr.,  etc.,  Co.  (Ala.) 
55  So.  943.  {Inquiry  from  III.,  Dec,  1913, 
Jl.) 

Check  returned  for  defective  indorsement  not  a 
lien  on  funds 

1894.  A  drawee  returned  a  check  be- 
cause of  improper  indorsement.  Did  it 
have  a  right  to  pay  other  checks  between 
the  time  of  the  first  and  the  second  present- 
ment? Opinion:  The  bank  had  such  right. 
It  had  not  accepted  the  check,  and,  unless 
properly  and  satisfactorily  indorsed,  there 
was  no  obligation  on  its  part  to  pay  it.  The 
presentment  of  the  check  in  the  first  instance 
did  not  constitute  any  lien  on  the  funds  of 
the  drawee  or  place  it  under  any  obligation 
to  hold  these  funds  for  that  particular  check. 
{Inquiry  from  III.,  March,  1913.) 

Drawee  not  liable  to  holder  for  refusal  to  pay 
or  certify 

1895.  A  bank  inquires  if  it  would  be 
liable  for  loss  sustained  by  the  holder  of  a 
check,  which  had  been  refused  by  the  bank 
on  account  of  faulty  indorsement,  and  the 
account  withdrawn  before  the  indorsement 
could  be  corrected  and  the  check  again 
presented,  provided  the  holder  of  the  check 
had  requested  same  to  be  certified,  and  cer- 
tification refused  for  the  reason  this  was  not 
requested  by  the  drawer  of  the  check.  Opin- 
ion: The  drawee  of  a  check  is  not  obliged 
to  pay  same  on  faulty  indorsement  nor  is  it 
obliged  to  certify  such  a  check  at  request 
of  the  holder  as  the  bank's  only  obligation  is 
to  pay.  Of  course,  it  may  certify,  but  this 
is  optional.  It  would  follow  that,  if  the 
drawer  withdrew  his  account  before  the 
indorsement  was  corrected  and  the  check 
again  presented,  the  holder  would  have  no 
recourse  on  the  bank  but  would  have  to 
look  to  the  drawer  and  any  prior  indorser 
solely  for  redress.  {Inquiry  from  Cat., 
Jan.,  1915.) 

Certification  of  defectively  indorsed  check  or 
payment  on  guaranty 

1896.  Is  it  proper  for  a  drawee  bank  to 
certify  a  check  and  return  it  for  proper 
indorsement,  when  it  is  payable  to  "E.  C. 


439 


1897-1900] 


DIGEST  OF  LEGAL  OPINIONS 


Jones,"  indorsed,  "E.  C.  Jones  Sign  Com- 
pany," and  further  indorsed,  "Pay  to  the 
order  of  any  bank  or  bankers.  Prior  indorse- 
ments guaranteed?"  Opinion:  Legally, 
the  drawee  bank  is  entitled  to  proper  in- 
dorsement before  paying  a  check,  and  may 
rightfully  refuse  to  pay  where  the  indorse- 
ment is  defective  or  missing.  (Harden  v. 
Birmingham  Trust  &  Sav.  Bank  [Ala.]  55 
So.  943.)  But  with  some  banks  it  is  cus- 
tomary for  drawee  to  certify  before  returning 
check  for  proper  indorsement,  so  as  to  save 
the  fund  to  the  holder,  and  some  banks  will 
pay  upon  a  guaranty  of  prior  defective  in- 
dorsements. {Inquiry  from  N.  Y.,  July, 
1919,  Jl.) 

Drawee's  right  to  require  guaranty 

1897.  A  check  is  drawn  by  a  customer 
on  his  bank  in  Oregon,  payable  to  a  Brick 
and  Tile  Company  of  Newark,  New  Jersey, 
and  by  them  indorsed  to  the  Blank  National 
Bank  of  Newark,  who  in  turn  indorse  with 
the  usual  form,  "Pay  to  any  bank  or  banker 
or  trust  company.  All  prior  indorsements 
guaranteed.  Blank  National  Bank."  Other 
indorsements  by  a  national  bank  and  the 
Federal  Reserve  bank,  both  of  New  York, 
and  by  the  Federal  Reserve  bank  of  San 
Francisco,  follow,  all  making  their  indorse- 
ments read  substantially  the  same  as  the 
first  indorsement  with  the  exception  that  the 
last  named  indorsement  makes  the  check 
payable  direct  to  the  Wells  Fargo  Express 
Company,  guaranteeing  all  previous  in- 
dorsements. The  local  agents  of  the  ex- 
press company  indorse  without  guarantee- 
ing prior  indorsements  and  present  the 
check  to  the  Oregon  bank  for  payment.  The 
bank  as  a  condition  of  payment,  requires  the 
express  company  to  guarantee  prior  in- 
dorsements. Opinion:  The  express  com- 
pany, appearing  from  the  indorsements  to  be 
only  an  agent  for  collection,  the  bank  is 
entitled  to  a  guaranty  of  prior  indorsements 
as  a  prerequisite  to  making  payment  and,  in 
the  absence  of  such  guaranty,  the  bank  is 
justified  in  refusing  payment  without  in- 
curring responsibility  to  the  drawer  of  the 
check.  Bk.  of  Ind.  Ter.  v.  First  Nat.  Bk. 
(Mo.)  83  S.  W.  537,  First  Nat.  Bk.  v.  Sa- 
vannah Bk.,  etc.,  Co.,  (Ga.)  68  S.  E.  872. 
First  Nat.  Bk.  v.  City  Nat.  Bk.,  182  Mass. 
130.  Nat.  Park  Bk.  v.  Seaboard  Nat.  Bk., 
114  N.  Y.  28.  Nat.  Park  Bk.  v.  Eldred  Bk., 
90  Hun  (N.  Y.)  285.  {Inquiry  from  Ore., 
March,  1917,  Jl.) 

Liability  of  collecting  hank 

1898.  Is  a  presenting  bank  liable  to  the 


drawee  bank  for  loss  from  improper  in- 
dorsements? Opinion:  If  the  presenting 
bank  appeared  on  the  check  only  as  agent 
for  collection  it  would  not  be  liable  for  a 
prior  forged,  unauthorized  or  defective  in- 
dorsement after  payment  of  the  proceeds  to 
its  principal  unless  it  expressly  guaranteed 
prior  indorsements;  but  if  the  check  was 
indorsed  over  to  the  presenting  bank  in 
unrestricted  form  so  that  the  presenting 
bank  was  the  apparent  owner,  such  bank 
would  be  liable  to  the  bank  of  payment. 
{Inquiry  from  Ark.,  March,  1915.) 

Recovery   by   drawee   of  money   paid   upon 
irregular  indorsement 

1899.  Is  a  bank  cashing  a  check  payable 
to  W.  Jones  on  the  indorsement  of  H.  Jones 
liable  to  refund  the  amount  of  the  check  to 
the  drawee  bank  who  paid  it?  Opinion: 
The  fact  that  the  drawee  bank  paid  the 
check,  charged  it  up  to  the  drawer  and  re- 
turned it  to  him  with  cancelled  vouchers 
does  not  estop  it  from  its  right  of  recovery 
of  the  money  paid,  where  the  drawer  refuses 
to  be  charged  with  the  check  because  it  is 
not  indorsed  by  the  payee  but  by  another 
man,  named  Jones,  with  different  initials. 
There  are  two  theories  upon  which  the  bank 
receiving  the  money^is  liable  to  refund  it: 
(1)  that  by  its  indorsement  it  guarantees  the 
genuineness  and  sufficiency  of  prior  in- 
dorsements, which  warranty,  where  the 
payee's  indorsement  is  missing,  would  in- 
clude a  warranty  of  title ;  (2)  that,  irrespective 
of  warranty  of  indorsement  and  of  title,  the 
bank  or  person  receiving  the  money  on  a 
check  to  which  it  had  no  title  is  liable  to 
refund  as  for  money  had  and  received  with- 
out consideration.  {Inquiry  from  Okla., 
Aug.,  1919.) 

Guaranty  of  prior  indorsement 

Necessity  for  special  guaranty  of  prior 
indorsements 

1900.  What  is  the  necessity  of  a  special 
guaranty  such  as,  "Prior  indorsements  guar- 
anteed?" Opinion:  The  Negotiable  In- 
struments Law  codifies  the  rule  of  the 
law  merchant  by  a  provision  that  "every 
indorser  who  indorses  without  qualification 
warrants  to  subsequent  holders  in  due 
course  .  .  .  (1)  that  the  instrument  is 
genuine  and  in  all  respects  what  it  purports 
to  be ;  (2)  that  he  has  a  good  title  to  it ;  (3)  that 
all  prior  parties  -had  capacity  to  contract; 
and  (4)  that  he  has  no  knowledge  of  any  fact 
which  would  impair  the  validity  of  the  in- 
strument or  render    it    valueless    .    .     ." 


440 


INDORSEE  AND  INDORSEMENT 


[1901-1903 


The  above  provision,  in  a  case  where  an 
owner  indorses  an  instrument  to  an  indorsee 
for  value,  would  fully  protect  the  latter  in 
case  of  forgery  or  insufficiency  of  prior  in- 
dorsements, but  the  necessity  in  many  cases 
of  a  special  guaranty  such  as,  "Prior  indorse- 
ments guaranteed,"  is  because  of  two  rea- 
sons: (1)  where  the  paper  is  held  by  a  bank 
under  an  indorsement  showing  it  to  be  an 
agent  for  collection,  the  bank's  own  indorse- 
ment is  not  a  warranty  of  genuineness,  it 
being  merely  agent  and  not  owner  of  the 
paper; (2)  the  indorser's  warranty  provided 
by  the  Negotiable  Instruments  Law  runs 
only  to  subsequent  holders  in  due  course 
and  the  definition  of  a  holder  in  due  course 
as  given  by  that  law  does  not  include  the 
drawee.  For  these  reasons,  special  guaran- 
tees, such  as  "Prior  indorsements  guaran- 
teed," are  put  upon  instruments  by  collecting 
banks  in-order  to  induce  payment  by  the 
drawee  and  provide  it  with  a  right  of  re- 
course upon  the  bank  making  the  guaranty 
in  case  such  prior  indorsements  are  forged, 
unauthorized  or  otherwise  insufficient.  {In- 
quiry frovi  Kan.,  Jan.,  1921.) 

Guaranty  of  indorsement  of  payee  manifestly 
not  genuine 

1901.  Must  a  drawee  bank  pay  a  check 
on  which  the  payee's  indorsement  is  mani- 
festly not  genuine,  where  the  presenting 
bank  guarantees  prior  indorsements?  Opin- 
ion: The  drawee  bank  is  not  obhged 
to  pay  such  check.  Of  course,  it  may  do  so, 
but  it  is  not  compulsory,  as  the  bank  is 
entitled  to  a  proper  and  genuine  indorse- 
ment before  making  payment.  (Inquiry 
from  III,  May,  1915.) 

Collecting  bank  not  negligent  for  failure  to 
guarantee  prior  indorsements 

1902.  A  check  indorsed  by  payee,"John 
Doe  per  J.  B."  was  deposited  in  bank  A  for 
collection.  The  check  was  indorsed  by  that 
bank,  "Pay  to  the  order  of  bank  B,"  and 
forwarded  to  the  drawee  bank,  where  pay- 
ment was  refused  because  of  the  improper 
indorsement  of  payee.  The  drawee  then 
had  sufficient  funds  in  bank  to  meet  the 
check.  Bank  A  reindorsed  the  check,  "First 
indorsement  guaranteed,"  and,  upon  pres- 
entation, drawee  bank  again  refused  pay- 
ment upon  the  ground  that  in  the  mean- 
while the  drawer's  funds  had  l)oen  attached 
by  creditors.  Should  bank  A  in  the  first 
instance  have  expressly  guaranteed  the 
payee's  indorsement?  Opinion:  Bank  A, 
being  the  agent  for  collection,  was  under 


the  duty  of  using  reasonable  care  and  dili- 
gence in  effecting  it.  It  did  indorse  the 
check  by  a  straight  or  special  indorsement 
but  the  provision  of  the  Negotiable  In- 
struments Act  (Sec. 66)  that  every  indorser 
who  indorses  without  quaUfication  war- 
rants to  all  subsequent  holders  "in  due 
course"  genuineness,  etc.,  does  not  include 
a  drawee.  It  is  customary  in  many  cases  for 
collecting  banks  to  expressly  guarantee 
prior  indorsements  but  it  is  not  part  of 
their  duty  to  do  so  and  the  only  case  where 
such  express  guaranty  is  necessary  for  the 
protection  of  the  drawee  is  where  the  in- 
dorsing bank  receives  the  paper  under  an 
indorsement  for  collection  which  shows 
it  to  be  an  agent  and  not  owner.  As 
bank  A  received  the  check  under  indorse- 
ment of  payee  in  blank,  it  is  apparent 
owner  of  the  check,  there  was  no  ne- 
cessity for  an  express  guaranty,  and  in  any 
event,  not  being  bound  to  guarantee  ex- 
pressly the  prior  indorsement  of  payee,  the 
latter  could  not  hold  it  negligent  for  not 
doing  so.  See  Rossi  v.  Nat.  Bank  of  Com- 
merce, 71  Mo.  App.  150,  Muller V.Nat. 
Bank  of  Cortland,  96  N.  Y.  App.  Div.  71; 
First  Nat.  Bank  v.  City  Nat.  Bank,  182 
Mass.  130,  65  N.  E.  24.  {Inquiry  from  III, 
March,  1913.) 

If  collecting  hank  owner,  real  or  apparent, 
special  guaranty  not  necessary 

1903.  In  case  of  the  indorsement  of  a 
check  by  the  payee,  "John  Jones  by  E.  C. 
C,"  or  the  indorsement  of  the  payee,  "Jones 
Motor  Company,"  without  any  officer's 
name  below,  can  the  drawee  bank  safely  pay 
where  the  check  bears  the  regular  indorse- 
ment of  a  reputable  bank?  If  the  bank 
added,  "All  prior  indorsements  guaranteed," 
would  this  increase  its  responsibility?  Opin- 
ion: The  Negotiable  Instruments  Act  pro- 
vides that  every  indorser  warrants  "to  all 
subsequent  holders  in  due  course"  the 
genuineness  of  the  indorsement,  that  he  has 
good  title,  and  that  prior  parties  had 
capacity  to  contract.  The  indorsing  bank, 
therefore,  assuming  it  to  be  owner  of  the 
check,  real  or  apparent,  would  be  responsible 
if  there  was  anything  wrong  in  the  payee's 
indorsement  to  any  subsequent  holder  in  due 
course,  but  technically  the  drawee  bank  is 
not  a  holder  in  duo  course  as  defined  by  the 
Act  and  it  is  doul)tful  whether  these  war- 
ranties provided  by  the  Act  would  extend 
to  the  drawee  which  pays  the  check.  How- 
ever this  may  be,  should  the  payee's  in- 
dorsement be  forged  or  unauthorized,  the 


441 


1904-1906] 


DIGEST  OF  LEGAL  OPINIONS 


drawee  would  have  a  right  of  recovery  from 
the  owner  receiving  payment  on  the  ground 
of  money  paid  without  consideration  under 
mistake  of  fact.  The  habihty  of  a  reputable 
bank  owner,  collecting  the  check,  would 
doubtless  be  sufficient  protection  for  drawee 
bank  without  any  special  guaranty.  If, 
however,  a  check  is  indorsed  to  a  bank  for 
collection,  it  would  not  be  so  liable,  being 
only  an  agent  of  the  owner,  and  in  that  case 
it  would  be  desirable  to  require  that  the 
prior  indorsements  be  guaranteed.  Such 
a  guarant}^,  it  has  been  held,  would  make  the 
bank  responsible  to  the  drawee  for  the 
genuineness  and  sufficiency  of  the  indorse- 
ments.   (Inquiry  from  Neb.,  July,  1913.) 

Special  guarantee  by  collecting  bank  where 
prior  bank  makes  no  guaranty  to  it 

1904.  A  bank  acting  as  collecting  agent 
received  a  check  indorsed  by  Payee,  "Pay  to 
the  order  of  bank  A,"  then  by  banks,  "Pay 
to  bank  B  or  order,"  and,  "Pay  to  the  order 
of  any  bank  or  banker."  Can  it  safely 
specifically  guarantee  indorsement  to  the 
drawee  bank?  Opinion:  As  the  collecting 
bank  is  a  mere  agent  and  not  a  holder  in  due 
course,  the  imphed  warranty  of  genuineness 
to  subsequent  holders  in  due  course  given 
by  the  second  indorsement  does  not  extend 
to  it,  nor  is  there  any  implied  guarantee  of 
prior  indorsement  running  to  it,  because  of 
third  indorsement,  which  is  not  in  title-con- 
veying form.  Having  no  title,  therefore, 
should  the  drawee  request  it  to  guarantee 
prior  indorsement  as  a  prerequisite  of  pay- 
ment, the  bank  would  be  justified  in  requir- 
ing its  correspondent  to  guarantee  to  it  the 
prior  indorsement  before  doing  so  itself.  As  a 
rule,  whether  the  check  should  be  sent  back 
for  that  purpose  or  protested  depends  upon 
circumstances.  If  the  payee's  indorsement 
is  so  defective  as  to  justify  the  drawee  bank 
in  refusing  to  pay  on  that  ground,  it  might 
be  the  correct  procedure  to  send  it  back. 
But  if  the  indorsement  is  sufficiently  regular 
to  authorize  payment,  and  the  drawee  bank 
insists  upon  a  special  guaranty  from  the 
collecting  bank,  it  would  be  the  safer  course 
to  protest  the  check.  See  Rossi  v.  Nat. 
Bank  of  Commerce,  51  Mo.  App.  150. 
First  Nat.  Bank  v.  City  Nat.  Bank,  182 
Mass.  130,  65  N.  E.  24.  (Inquiry  from  Ohio, 
March,  1911.) 

Legal  effect  of  indorsement,  ''Pay  any  bank, 

banker  or  trust  company,  all  prior 

indorsements    guaranteed" 

1905.  What  is  the  effect  of  the  indorse- 


ment, "Pay  to  any  bank,  banker  or 
trust  company,"  without  "All  prior  indorse- 
ments guaranteed?"  Opinion:  The  majori- 
ty of  courts  (some  contra)  hold  an  indorse- 
ment "Pay  any  bank  or  banker,"  creates  an 
agency  in  the  indorsee  and  is  not  a  title- 
conveying  form  of  indorsement.  Where  a 
bank  holds  a  check  for  collection  as  agent 
and  the  payee's  or  other  prior  indorsements 
have  been  forged  or  unauthorized  and  the 
payor  bank,  which  cannot  charge  the  amount 
against  the  drawer's  account,  seeks  to  re- 
cover the  money  back,  the  agent  bank 
would  not  be  liable  to  the  payor,  after  it  had 
remitted  the  proceeds  to  its  principal  unless 
it  had  specially  guaranteed  the  prior  in- 
dorsement. When  a  bank  is  the  owner  of 
the  instrument,  or  apparently  so,  by  reason 
of  an  unrestricted  title-conveying  form  of 
indorsement  to  it,  it  would  not  make  much 
difference  whether  or  not  it  did  so.  But 
where  a  bank  holding  a  check  for  collection 
as  agent  sends  the  same  to  another  bank 
without  express  guaranty  of  indorsements, 
the  payor  will  sometimes  refuse  to  pay 
unless  prior  indorsements  are  guaranteed, 
and  the  bank  to  whom  the  check  is  sent  will 
be  unwilling  to  make  such  a  guaranty  unless 
the  bank  from  which  it  received  the  item 
will  also  guarantee,  and  the  check  will  con- 
sequently be  sent  back  for  special  guaranty. 
Where  a  check  is  payable  at  a  bank  and  after 
payment  the  bank  discovers  the  payee's  in- 
dorsement is  a  forgery,  its  recourse,  where 
special  guaranty  of  indorsements  is  omitted, 
would  be  against  the  owner  of  the  instru- 
ment.   (Inquiry  from  III.,  May,  1911.) 

Collecting  bank  not  liable  to  drawee  for  money 

collected  on  forged  indorsement,  unless 

guaranteed 

1906.  Is  a  bank  liable  to  the  drawee 
where  it  collects  money  on  a  check  bearing  a 
prior  forged  indorsement,  unless  it  expressly 
guarantees  the  prior  indorsement?  Opinion: 
Where  a  bank  is  real  or  apparent  owner  of  a 
check  upon  which  a  prior  indorsement  is 
forged,  such  bank  would  be  liable  to  the 
drawee  not  by  reason  of  any  express  guaran- 
ty of  the  prior  indorsement,  but  because  of 
having  received  the  drawee's  money  without 
consideration,  as  to  which  the  law  raises  an 
implied  promise  to  refund.  But  where  the 
bank  holding  the  check  bearing  a  prior 
forged  indorsement  is  not  the  owner  but  ^, 
agent  for  collection  only,  as  is  indicated  by  wm\ 
a  restrictive  indorsement  to  it,  such  bank  ^1 
would  not  be  liable  to  the  drawee  to  refund 
the  money  after  it  had  paid  the  same  over 


442 


INDORSEE  AND  INDORSEMENT 


[1907-1912 


to  its  principal  unless  it  expressly  guaranteed 
the  prior  indorsement.  {Inquiry  from  N. 
Y.,  Aug.,  1916.) 

Owner  hank  liable  to  drawee  for  money  col- 
lected   on   forged    indorsement    without 
guaranty 

1907.  Does  the  plain  indorsement  of  a 
bank  guarantee  prior  indorsements  where 
words  of  guaranty  do  not  appear?  Opinion: 
The  payor  bank  looks  to  the  bank  receiving 
payment  in  case  there  is  anything  wrong 
with  the  prior  indorsements  on  the  check. 
If  the  bank  receiving  payment  appears  from 
the  indorsements  to  be  the  owner  of  the 
check,  that  is,  if  the  prior  indorsements  in- 
cluding the  indorsement  to  it  are  unrestrict- 
ive  or  title-conveying,  then,  such  bank,  as 
owner,  is  responsible  to  the  drawee  bank  for 
money  received,  in  case  where  forgery  of 
indorsement  or  other  defect  makes  the  pay- 
ment invalid  or  not  chargeable  to  the  de- 
positor. In  such  case  there  is  no  necessity 
for  special  guaranty  of  previous  indorse- 
ments, as  the  responsibility  of  the  receiving 
bank  is  sufficient.  But  in  any  case  where 
the  bank  receiving  payment  has  taken  the 
check  under  restrictive  indorsement,  such 
as,  "Pay  any  bank  or  banker,"  or,  "For  col- 
lection," etc.,  so  that  such  bank  appears  as 
agent  for  collection,  and  not  owner  of  the 
check,  then  it  is  necessary  that  the  collecting 
bank  expressly  guarantee  the  previous  in- 
dorsements, as,  without  such  guaranty,  it 
would  not  be  liable  for  the  money  received 
on  a  check  bearing  a  prior  forged  indorse- 
ment, after  payment  over  of  the  proceeds  to 
its  principal.  (Inquiry fromTenn.,Sept  .,1914-) 

Guaranty  of  prior  indorsements  covers  rubber- 
stamp  indorsement 

1908.  Does  the  guaranty  of  "All  prior 
indorsements"  of  a  draft  include  a  rubber- 
stamp  indorsement  by  the  payee,  without 
the  hand-written  suffix  of  an  officer's  signa- 
ture to  indicate  by  whom  the  rubber  stamp 
was  affixed.  Opinion:  An  indorsement 
by  rubber-stamp  is  legal  and  valid.  When 
proved  to  be  stamped  by  one  with 
authority  it  will  pass  title.  The  guaranty 
will  cover  the  rubber-stamp  indorsement. 
{Inquiry  from  Ohio,  Oct.,  1918.) 

Liability  of  collecting  bank  on  guaranty 

1909.  A  certified  check  payable  to  the 
"Borough  of  X"  was  presented  bearing  the 
indorsement  of  the  "Borough  of  X,  by  its 
attorney,  John  Smith,"  and  payment  was 
refused  because  of  the  improper  indorse- 


ment. The  presenting  bank  then  stamped 
the  check, "Indorsement  guaranteed, "  stating 
that  it  was  satisfied  that  the  attorney  was 
duly  authorized  to  indorse.  The  Borough 
of  X  claimed  that  John  Smith's  indorse- 
ment was  unauthorized  and  that  he  mis- 
appropriated the  funds.  Opinion:  The 
presenting  bank  is  liable  on  its  guaranty 
to  the  drawee  who  paid  on  faith  of  such 
guaranty,  which  covers  the  capacity  of 
John  Smith  to  indorse.  Second  Nat.  Bk. 
V.  Guarantee  Tr.,  etc.,  Co.,  206  Pa.  616. 
{Inquiry  from  Pa.,  Oct.,  1910,  Jl.) 

1910.  A  check  payable  to  John  Doe  & 
Co.  was  indorsed,  "John  Doe  &  Co.,  James 
Roe,  Treasurer,  per  G.,"  and  it  was  stamped, 
"Pay  to  the  order  of  any  bank,  etc.;  prior 
indorsements  guaranteed,"  by  the  City 
Trust  Company.  Opinion:  The  indorse- 
ment by  the  City  Trust  Company,  which  is 
the  customary  bank  indorsement,  was  a 
sufficient  guaranty  of  the  genuineness  and 
validity  of  the  prior  indorsement,  and 
would  protect  the  paying  bank  in  event  the 
payee's  indorsement  was  unauthorized.  Sec. 
Nat.  Bk.  V.  Guarantee  Tr.,  etc.,  Co.,  206 
Pa.  616.     {Inquiry  from  Pa.,  Feb.,  1911,  Jl.) 

1911.  A  drawee  bank  paid  a  check  upon 
which  an  indorsement  was  forged.  Two 
banks  had  subsequently  indorsed  with 
the  words  "Previous  indorsements  guar- 
anteed." Opinion:  The  words  "previous 
indorsements  guaranteed,"  are  an  express 
guaranty  of  the  validity  of  prior  indorse- 
ments and  the  bank  which  pays  a  check 
bearing    a    prior  forged    indorsement  may 

ecover  of  the  guarantor.      {Inquiry  from 
Okla.,  March,  1911,  Jl.) 

Guaranty  of  prior  indorsement — clearing-house 
stamp 

1912.  Section  8  of  the  constitution  of 
the  New  York  Clearing  House  Association 
reads  as  follows:  "Members  shall  not  send 
thi-ough  the  exchanges  any  checks,  drafts, 
notes,  bills  of  exchange,  or  other  items  hav- 
ing thereon  any  qualified  or  restricted  in- 
dorsement, such  as.  Tor  collection,'  or  'For 
account  of,'  or  'Pay  any  bank  or  banker  or 
order,'  or  other  similar  indorsements,  unless 
all  indorsements  thereon  are  guaranteed  by 
the  member  of  the  association  sending  such 
items  through  the  exchanges."  A  committee, 
preparing  a  new  constitution  for  the  Seattle 
Clearing  House,  asks  whether  there  is  any 
legal  advantage  in  having  such  indorse- 
ments specifically  guaranteed,  rather  than 
having  a  clearing-house  stamp  carrying 
full   guarantee   of   all   prior   indorsements. 


443 


1913-1918] 


DIGEST  OF  LEGAL  OPINIONS 


Opinion:  The  quoted  provision  of  the 
Constitution  of  the  New  York  Clearing 
House  followed  decisions  by  the  New  York 
courts  to  the  effect  that  where  a  check  was 
raised  or  the  indorsement  forged  and  the 
item  was  indorsed  to  a  bank  for  collection, 
the  indorsee,  appearing  as  agent  only,  was 
not  responsible  to  the  payor  bank  after  it 
had  paid  over  the  proceeds  to  its  principal. 
It  appears  that  the  Seattle  committee  has 
under  consideration  a  provision  to  the  effect 
that  the  clearing  stamp  placed  on  all  items 
presented  through  the  Clearing  House  by 
a  member  bank  shall  embrace  a  guaranty  of 
prior  indorsements.  In  such  case  there 
appears  to  be  no  necessity  for  adopting  the 
provision  quoted,  for  the  stamp  would  em- 
brace not  only  a  guaranty  of  prior  indorse- 
ments where  the  member  using  the  stamp 
was  an  agent  only — which  is  the  whole 
situation  covered  by  the  New  York  rule — 
but  it  would  also  cover  cases  where  the 
member  bank  received  the  item  under 
restricted  indorsement,  by  which  it  became 
the  real  or  apparent  owner  of  the  paper, 
{Inquiry  from  Wash.,  Feb.,  1917.) 

Right   of  drawee   to   require   guaranty  from 
collecting  agent 

1913.  A  check  was  presented  to  the 
drawee  bank  by  an  express  company,  an 
agent  for  collection,  which  refused  to  guar- 
antee the  indorsements  on  the  check.  The 
drawee  bank  refused  to  pay  the  check  until 
such  guaranty  was  given.  Opinion:  The 
drawee  bank  has  a  right  to  require  such 
guaranty  as  a  prerequisite  of  payment,  and 
its  refusal  will  not  subject  it  to  liabiUty  to 
the  drawer  for  dishonoring  his  check.  Pratt 
v.  Union  Nat.  Bk.  (N.  J.)  75  Atl.  313. 
Goodfellow  V.  First  Nat.  Bk.  (Wash.)  129 
Pac.  90.  Mechanics  Nat.  Bk.  v.  Harter 
(N.  J.)  44  Atl.  715.  Murphy  v.  Met.  Nat. 
Bk.(  Mass.)  77  N.  E.  693.  Shipman  v.  Bk. 
State  of  N.  Y.,  126  N.  Y.  328.  Russell  v. 
First  Nat.  Bk.  (Ala.)  56  So.  871.  Lieber  v. 
Fourth  Nat.  Bk.  (Mo.)  117  S.  W.  672. 
{Inquiry  from  Tenn.,  Nov.,  1915,  Jl.) 

Payment   by   drawee   on   guaranty 

1914.  A  check  drawn  payable  to  "John 
Jones"  is  indorsed  "John  Jones  Milling 
Company,"  and  is  indorsed  by  a  bank, 
"Prior  indorsements  guaranteed,"  and 
mailed  to  the  drawee.  Opinion:  The  draw- 
ee can  pay  if  it  chooses,  relying  upon  the 
guaranty.  Due  diligence  or  courtesy  to  the 
sending  bank  does  not  require  paying  bank  to 
return  the  item  for  proper  indorsement,  as 


presumably  the  item  has  been  forwarded 
with  knowledge  of  the  irregularity,  and  in 
the  hope  that  it  will  be  paid  upon  the  guar- 
anty. Ehas  V.  Whitney,  50  Misc.  (N.  Y.) 
326.    {Inquiry  from  N.  J.,  Oct.,  1912,  Jl.) 

Collecting  agent  not  liable  unless  prior 
indorsements  guaranteed 

1915.  What  hold  would  a  paying  bank 
have  on  a  bank  which  merely  stamped  its 
checks,  and  did  not  guarantee  prior  indorse- 
ments? The  stamp  carries  simply  the  name 
of  the  bank  and  the  date.  Opinion:  A  bank 
collecting  money  upon  a  check  bearing  a 
forged  indorsement,  without  guaranteeing 
prior  indorsements,  would  be  liable  to  the 
payor,  provided  it  appeared  as  owner  of  the 
instrument.  If  the  indorsement  to  it  was 
merely  as  agent  for  collection,  it  might  not 
be  liable  after  turning  over  the  proceeds  to 
its  principal,  and  in  such  case  the  payor 
should  require  guaranty  of  prior  indorse- 
ments.   {Inquiry  from  Mass.,  Jan.,  1919.) 

Guaranty  of  prior  indorsements  does  not  cover 
fraud  of  payee 

1916.  The  bank  guaranteed  the  prior 
indorsements  and  collected  from  the  drawee. 
The  payee  obtained  the  check  from  the 
maker  by  fraud.  Opinion:  The  guaranty 
of  prior  indorsements  would  not  make  the 
collecting  bank  liable.  The  indorsement 
does  not  warrant  that  the  payee  is  free  from 
fraud.    {Inquiry  from  Ala.,  March,  1912.) 

Guaranty  covers  unauthorized  as  well  as  forged 
indorsements 

1917.  A  check  payable  to  Mrs.  John  Doe 
is  indorsed  without  authority,  "Mrs.  John 
Doe  by  John  Doe,"  and  the  bank  which 
cashed  the  item  indorsed,  "All  prior  indorse- 
ments guaranteed."  The  drawee  bank  paid 
the  check  and  Mrs.  Doe  did  not  receive  the 
money.  Opinion:  "All  prior  indorsements 
guaranteed"  warrants  genuineness  of  the 
payee's  indorsement,  not  only  where  the 
name  of  the  payee  is  forged,  but  also  where 
the  payee's  name  is  signed  without  authority 
by  another.  WelHngton  Nat.  Bk.  v.  Rob- 
bins,  71  Kan.  748.  Sec.  Nat.  Bk.  v.  Guaran- 
tee Tr.,  etc.,  Co.,  206  Pa.  616.  {Inquiry 
from  Kan.,  May,  1912,  Jl.) 

1918.  A  check  is  indorsed  by  the  payee, 
"Pay  to  the  order  of  the  treasurer  of  Alpha 
Chapter  No.  134,  J.  A.  Smith."  The  check 
bears  the  further  indorsement,  "John  Doe,"  ' 
who  is  the  treasurer  of  the  chapter,  and  the 
presenting  bank's  indorsement,  "Prior  in- 
indorsements  guaranteed."    Is  the  indorse- 


444 


i 


INDORSEE  AND  INDORSEMENT 


[1919-1926 


ment  "John  Doe"  sufficient?  Opinion: 
There  is  no  absence  of  indorsement,  as 
the  treasurer  of  the  chapter,  to  whom  the 
check  is  by  indorsement  made  payable,  has 
indorsed  the  instrument.  The  most  that 
might  be  urged  against  such  form  of  in- 
dorsement is  that  it  is  incomplete,  in  that 
he  fails  to  designate  the  capacity  in  which 
he  acts  as  indorser.  That  simply  resolves 
itself  into  the  question  of  proof  of  authority 
of  the  treasurer  to  indorse  and  transfer  the 
paper.  A  guaranty  of  prior  indorsements 
covers  not  only  genuineness  of  the  prior 
indorsements,  but  also  the  authority  of  the 
prior  indorser.  The  payee  bank  would  be 
justified  in  paying  this  check,  relying  on  the 
guaranty.  As  a  matter  of  strict  law,  how- 
ever, if  the  payor  bank  chooses  to  stand  on 
it  rights,  it  would  not  be  compelled  to  pay 
if  dissatisfied  with  the  guaranty,  but  could 
send  the  check  back  for  proper  indorsement. 
A  bank  is  obliged  to  pay  only  upon  due 
presentment,  and  the  presenting  of  an  in- 
completely indorsed  check  would  not  be 
held  as  such.  (Inquiry  from  Mass.,  Oct., 
1916.) 

1919.  Does  the  customary  guaranty  of 
prior  indorsements  cover  the  authority  of  a 
person  other  than  the  payee  to  indorse  the 
latter's  name  per  his  own?  Opinion:  The 
authority  of  such  an  agent  is  covered  by  the 
indorsement.  McKinnon  v.  Boardman, 
170  Fed.  920.  {Inquiry  from  Tex.,  Sept., 
1919,  Jl.) 

1920.  A  check  is  presented  payable  to 
A  and  bearing  the  indorsement  of  "A  by 
B."  It  is  also  indorsed  by  the  presenting 
bank,  "All  prior  indorsements  guaranteed." 
Opinion:  The  drawee  is  safe  in  paying  the 
check.  "All  prior  indorsements  guaranteed" 
warrants  the  genuineness  of  payee's  indorse- 
ment, not  only  where  the  name  of  payee  is 
forged  but  also  where  payee's  name  is  signed 
without  authority.  McKinnon  v.  Board- 
man,  170  Fed.  920.  {Inquiry  from  N.  Y., 
Sept.,  1912,  Jl.) 

1921.  A  certificate  of  deposit  payable 
to  John  Jones  bore  the  indorsement  of  "John 
Jones  by  Mary  Jones."  The  collecting 
bank  indorsed  it,  "All  prior  indorsements 
guaranteed."  Opinion:  The  payor  would 
be  protected  in  paying,  as  the  guaranty  by 
the  collecting  bank  is  sufficient  to  cover  the 
authority  of  Mary  Jones  to  indorse.  {In- 
quiry from  Wis.,  Sept.,  1913,  Jl.) 

1922.  Does  the  guaranty  of  "All  prior 
indorsements"  include  the  unauthorized 
indorsement  of  the  payee,  "A.  K.  Co.  by 


W.  M.  G"?  Opinion:  A  guaranty  of  prior 
indorsements  includes  the  authority  of  B  to 
indorse  "A  by  B,"  A  being  the  payee.  Mc- 
Kinnon V.  Boardman,  170  Fed.  910.  {In- 
quiry from  Fla.,  Dec,  1918.) 

Guaranty     covers     imperfections     and 
irregularities 

1923.  What  is  the  effect  of  the  phrase, 
"Prior  indorsements  guaranteed,"  stamped 
on  a  check  by  an  indorser?  Opinion:  The 
stamp  guarantees  the  genuineness  of  prior 
indorsements,  and  covers  imperfections 
and  irregularities  therein.  Jordan-Marsh 
Co.  V.  Nat.  Shawmut  Bk.,  (Mass.)  87  S. 
E.  740.  {Inquiry  from  W.  Va.,  May,  1909, 
Jl.) 

'^Indorsement O.K.,  James  Smith"  is  guaranty 

1924.  A  check  was  indorsed,  "Geo. 
Brown,"  and  then  indorsed  "Indorsement 
O.K.,  Jas.  Smith."  What  is  Smith's 
liability?  Opinion:  Smith's  indorsement 
is  a  warranty  of  the  indorsement  of  payee 
Brown,  which  would  render  Smith  liable  to 
the  bank  that  cashed  the  check  for  Brown 
on  faith  of  Smith's  indorsement.  {Inquiry 
from  N.  Y.,  Jan.,  1915.) 

Successive  guaranties  of  prior  indorsements 

1925.  Is  it  safe  for  a  drawee  bank  to  pay 
a  check  indorsed  as  follows:  (1)  G.  L.  T. 
per  W.  R.  T.,  indorsement  guaranteed;  (2) 
Prior  restrictive  indorsements  guaranteed; 
(3)  Previous  indorsements  guaranteed? 
Opinion:  If  the  payee's  indorsement  was 
forged  or  unauthorized,  the  second  and  third 
indorsers  would  be  liable.  The  second 
guarantees  the  prior  one,  and  the  third 
guarantees  the  second  indorsement.  It 
would  be  safe  to  pay  the  check.  {Inquiry 
from  W.  Va.,  July,  1917.) 

Guaranty  of  previous  indorsement — Does  it 
cover    missing    indorsementf 

1926.  Are  the  stamped  words  by  in- 
dorsing bank,  "All  previous  indorsements 
guaranteed,"  sufficient  to  cover  a  missing 
indorsement  of  the  payee  or  indorsee?  Opin- 
ion: It  seems  there  are  no  decided  cases 
wherein  the  specific  question  has  been  de- 
termined whether  the  words  "Indorsement 
guaranteed"  or  "Previous  indorsements 
guaranteed"  operate  as  a  guaranty  of  an 
absent  or  missing  indorsement.  In  Mc- 
Kinnon V.  Boardman,  170  Fed.  920,  where 
there  was  an  unauthorized  indorsement  of 
the  payee's  name,  "Morgan  J.  O'Brien  per 
Charles  W.  Morse,"  a  guaranty  of  indorse- 


445 


1927-1931] 


DIGEST  OF  LEGAL  OPINIONS 


ment  was  held  to  cover  the  authority  to 
indorse  and  make  the  guarantor  Hable.  But 
in  the  instant  case  there  is  no  indorsement. 
In  the  absence  of  judicial  precedent  it  seems 
safer  to  require  a  guaranty  specifically 
worded,  "Prior  indorsements  including  miss- 
ing indorsements,  guaranteed,"  although  it 
is  possible  that  such  guaranty,  i.  e.,  a  simple 
guaranty  of  indorsement,  would,  if  the 
question  came  up  squarely  for  judicial  de- 
termination, be  construed  as  possessing 
equal  strength.  {Inquiry  from  Mich.,  March 
1919.) 

Guaranty,   where  indorsement  missing,   that 
payee's  account  credited 

1927.  A  check  is  presented  for  payment 
which  does  not  bear  the  indorsement  of  the 
payee.  However,  it  contains  a  guaranty  by 
the  bank  that  the  amount  has  been  credited 
to  the  payee  coupled  with  an  indorsement  of 
the  bank.  Opinion:  It  seems  that  the  bank 
could  safely  pay  the  check  because  of  the 
guaranty  that  the  payee  has  received  the 
money  by  credit  to  his  account.  {Inquiry 
from  Ind.,  April,  1920.) 

Guaranty  of  indorsement  hy  owner  a^  commer- 
cial indorsement 

1928.  A  discount  corporation  purchases 
bankers'  acceptances  outright,  then  resells 
them  to  individuals,  firms  or  corporations 
that  take  them  without  any  guaranty  or 
liabihty  other  than  the  words,  "Indorsements 
guaranteed"  and  the  corporation's  signature. 
Is  this  simply  a  contract  guaranteeing  the 
indorsements,  or  does  the  corporation  be- 
come an  indorser  and,  as  such,  assume 
habihty?  Opinion:  The  United  States 
Supreme  Court  (11  Otto,  68)  once  held  that 
a  bank,  owning  a  note,  which  indorsed 
thereon  a  guaranty  of  payment  and  trans- 
ferred it,  did  not  indorse  the  note  in  the 
commercial  sense,  and  that  the  contract  was 
one  of  guaranty  and  not  an  indorsement. 
But  the  majority  of  courts  hold  the  other 
way.  See  Hendrix  v.  Banhard  Bros.,  75 
S.  E.  (Ga.)  588  (and  cases  cited),  where  the 
payees  of  a  note  wrote  a  warranty  on  the 
back  over  their  names,  and  the  court  held 
that  this  was  not  a  mere  contract  of  guaran- 
ty but  operated  also  as  an  indorsement.  The 
majority  of  jurisdictions  would  hold  that 
the  corporation  placing  its  name  upon 
negotiable  paper  owned  by  it  under  the 
words  "Indorsements  guaranteed,"  not  only 
guarantees  the  indorsements  but  indorses  the 
paper  and  is  Uable  as  indorser.  {Inquiry 
from  N.  Y.,  Feb.,  1919.) 


The  *'paid"  stamp 

"Paid"  stamp  of  collecting  agent  not  a  guaran- 
ty of  prior  indorsements 

1929.  Will  a  "paid"  stamp  on  checks 
and  drafts  protect  a  drawee  bank  as  to  prior 
indorsements,  and  will  it  transfer  title  to  a 
check  indorsed  "Payable  to  the  order  of 
any  bank  or  banker?"  Opinion:  Where  a 
bank  is  the  owner  or  apparent  owner  of  a 
check  or  draft,  its  "paid  stamp,"  or  the  fact 
that  it  received  payment  without  the  "paid 
stamp,"  renders  it  hable  in  the  event  that  a 
prior  indorsement  was  a  forgery,  or  that 
there  was  some  defect  or  irregularity  in  the 
check;  and  this,  on  the  ground  that  it  re- 
ceived money  to  which  it  was  not  entitled 
and  as  to  which  the  law  raises  an  implied 
promise  to  refund.  The  indorsement  "Pay 
any  bank  or  banker"  is  not  title-conveying, 
and  after  the  money  is  paid  over  to  the 
principal  the  bank  agent  is  not  liable  to  the 
payor  bank.  The  "paid"  stamp,  put  on  by 
a  collecting  agent,  does  not  guarantee  prior 
indorsements.  The  payor  bank  should  re- 
quire an  express  guarantee  of  prior  indorse- 
ments.   {Inquiry  from  Neh.,  Feb.,  1919.) 

1930.  Does  a  "paid"  stamp  guarantee  all 
previous  indorsements  and  the  title  of  the 
indorsing  bank  to  the  check  whether  or  not 
any  of  the  previous  indorsements  are  irreg- 
ular? Opinion:  The  bank  receiving  pay- 
ment which  puts  its  "paid"  stamp  upon  a 
check  or  certificate  of  deposit  is  responsible 
to  the  payor  bank  for  a  prior  forgery,  ex- 
cept as  to  the  drawer's  signature,  or  for  an 
irregularity  of  indorsement,  provided  such 
bank  is  the  real  or  apparent  owner  of  the 
instrument,  that  is  to  say,  where  none  of  the 
prior  indorsements  have  been  restrictive. 
The  courts  hold  that  such  owner  impliedly 
warrants  genuineness  in  all  respects  (save 
as  to  drawer's  signature),  including  its  own 
title  and  right  to  receive  payment,  and  if 
this  warranty  is  broken  it  is  hable  to  the 
payor  bank.  If  there  is  a  restrictive  in- 
dorsement so  that  the  bank  collecting  the 
instrument  is  only  an  agent  for  collection 
and  not  the  owner,  no  such  implied  warran- 
ties arise  from  the  indorsement  of  such 
agent,  and  herein  is  the  necessity  for  the 
special  guaranty  of  indorsement  stamp. 
The  "paid"  stamp  of  a  collecting  agent  is 
simply  an  acknowledgment  of  receipt  of 
payment  and  does  not  guarantee  prior  in- 
dorsements. {Inquiry  from  Mont.,  Oct., 
1915.) 

1931.  A  check  is  presented  through  a 
bank  in  regular  course  for  clearance  bearing 


446 


INDORSEE  AND  INDORSEMENT 


[1932-1935 


ts  paid  stamp  on  the  back.  Should  this  be 
considered  a  legal  indorsement  or  should  it 
be  stamped  with  indorsement  stamp  which 
guarantees  all  prior  indorsements?  Opinion: 
Where  the  presenting  bank  receives  the 
money  on  a  check  bearing  a  forged  indorse- 
ment from  the  paying  bank,  the  presenting 
bank  stamping  the  check  with  its  paid 
stamp,  it  would  be  liable  to  refund  to  the 
paying  bank  in  the  event  the  indorsement  to 
it  was  in  title-conve>ang  form  so  that  it 
appeared  as  owner  of  the  instrument.  It 
would  be  so  liable  even  though  it  did  not 
indorse  the  check  at  all,  but  if  the  presenting 
bank  received  the  check  under  a  restrictive 
;  indorsement  so  that  it  did  not  appear  to  be 
\  .  the  owner  but  only  as  agent  for  collection, 
it  would  not  be  liable  after  it  had  paid  over 
the  money  to  its  principal;  and  in  such  case 
to  create  a  liability  it  should  especially 
guarantee  the  prior  indorsements.  It  would 
then  be  liable  upon  its  guaranty.  The 
"paid"  stamp  of  a  collecting  agent  is  not  a 
guaranty  of  prior  indorsements.  See  White 
V.  Continental  Bank,  64  N.  Y.  316.  (In- 
quiry from  Miss.,  Aug.,  1919.) 

"Paid"  stamp  may  constitute  guarantee  by 
clearing-house  agreement 

1932.  Does  the  "paid"  stamp  of  a 
collecting  bank  guarantee  prior  indorse- 
ments? Opinion:  If  the  collecting  bank 
holds  a  check  under  a  restrictive  indorse- 
ment, so  that  it  is  a  mere  agent,  there  is  no 
responsibility  to  the  drawee  for  money 
collected  after  the  proceeds  are  paid  over  to 
its  principal,  where  a  prior  indorsement  is 
forged  or  unauthorized.  In  such  a  case  a 
special  guaranty  to  the  drawee  would  be 
necessary  and  the  word  "paid"  would  not 
constitute  such  a  guaranty  unless  it  was 
made  such  by  clearing-house  rule.  If  the 
bank  which  receives  payment  owns  the 
check,  or  holds  it  as  apparent  owner  under 
an  indorsement  to  it  in  full  (i.e.,  unre- 
stricted), then,  in  case  the  prior  indorse- 
ment was  forged  or  unauthorized,  it  would 
be  responsible  to  the  drawee  for  money 
received  without  consideration,  and  paid 
under  a  mistake  of  fact,  and  this  responsi- 
bility would  exist  without  any  special 
guarantee  of  indorsement,  or,  in  fact,  whether 
it  indorsed  the  check  at  all.  {Inquiry  from 
Ohio,  April,  1911.) 

Liability   of  bank   stampiyig   "Paid  through 

clearing  house"  for  irregularity  of 

indorsement 

1933.  Where    checks    bearing  irregular 


indorsement  are  presented  through  the 
clearing  house,  does  the  bank  using  the 
stamp  "Paid  through  the  clearing  house" 
make  itself  hable  for  all  items  so  stamped  by 
it?  Opinion:  If  the  item  is  indorsed  un- 
restrictedly to  the  member  bank,  so  that  it 
holds  title  to  item  as  apparent  owner,  then, 
in  the  event  of  any  irregularity  in  the  in- 
dorsement amounting  to  lack  of  authority  to 
order  payment,  the  presenting  bank  would 
be  responsible  for  having  received  money  to 
which  it  was  not  entitled ;  but  if  the  item  is 
indorsed  to  the  bank  restrictively,  so  that 
it  holds  the  item  as  agent  and  not  as  owner, 
there  have  been  decisions  to  the  effect  that 
the  agent  bank  is  not  liable  after  it  turns 
over  the  proceeds  to  its  principal.  The 
New  York  Clearing  House  has  a  rule  that 
items  bearing  restrictive  indorsements  shall 
not  be  presented  through  the  clearings  un- 
less all  indorsements  are  guaranteed  by  the 
presenting  bank.  (Inquiry  from  Ohio, 
March,  1920.) 

Restrictive  indorsement 

Restrictive  indorsee  cannot  negotiate 
1934.  John  Smith  drew  a  draft  on  the 
Brown  Manufacturing  Company,  payable 
to  the  X  bank.  The  draft  was  cashed  for 
Smith  by  the  X  bank  but  only  upon  the 
indorsement  of  John  Jones,  to  whom  Smith 
was  known.  Afterwards  Jones,  becoming 
suspicious  of  Smith,  had  him  refund  to  the 
bank.  The  draft  was  returned  to  Smith, 
but  through  error  it  contained  uncancelled 
indorsements  of  the  X  bank,  "Pay  to  the 
order  of  any  bank,  etc.,"  and  of  John  Jones. 
Smith  succeeded  in  cashing  the  check  at  the 
Y  bank,  which  regarded  the  indorsement  of 
the  X  bank  as  a  virtual  certification.  The 
draft  having  been  dishonored  by  the  Brown 
Manufacturing  Company,  the  Y  bank  now 
seeks  to  hold  the  X  bank  and  John  Jones 
Hable.  Opinion:  The  indorsement  placed 
upon  the  draft  by  the  payee,  the  X  bank, 
was  restrictive.  It  did  not  purport  to  pass 
any  title  to  the  draft,  but  was  simply  an 
authority  to  any  bank  to  collect  it.  The 
restrictive  indorsement  being  first  upon  the 
draft,  Jones,  whose  name  appeared  under 
that  of  Smith,  could  at  most  be  regarded 
only  as  a  successive  agent  to  collect  with  no 
authority  to  negotiate.  (Inquiry  from  N. 
C,  June,  1909,  Jl.) 

"Pay  bank  of  X  only" 

1933.  A  four  months'  sight  draft  after 
acceptance  by  the  drawee  is  held  by  the 
collecting  bank  of  Y,  to  whom  it  was  trans- 


447 


1936-1939] 


DIGEST  OF  LEGAL  OPINIONS 


f erred  by  an  unqualified  indorsement.  The 
drawee  desires  to  discount  the  draft  before 
maturity  and  the  collecting  bank  seeks 
advice  as  to  the  proper  form  of  indorsement, 
to  be  made  by  it  to  the  drawee  to  protect  it- 
self against  any  fraudulent  transfer  to  a 
holder  in  due  course.  Opinion:  The  in- 
dorsement "Pay  bank  of  X  only",  is  a  form 
which  would  transfer  title  and  restrict  the 
further  negotiability  of  the  instrument. 
{Inquiry  from  Cat.,  June,  1917,  Jl.) 

"Pay  to  order  of  A  for  collection  on  account 
ofX" 

1936.  A  note  payable  to  the  X  Manu- 
facturing Company  was  indorsed  by  the 
payee  as  follows:  "Pay  to  the  order  of  A  for 
collection  on  account  of  the  X  Mfg.  Co.,  X, 
Treasurer."  B,  the  indorsee  of  A,  presented 
the  note  to  a  bank  for  discount.  Opinion: 
The  bank  should  not  discount  the  note.  The 
indorsement  is  restrictive  and  conveys  no 
right  to  the  holder  to  negotiate  the  instru- 
ment.   (Inquiry  from  N.  Y.,  Sept.,  1914,  JI-) 

"Indorsed  only  for  exchange  of  draft  to  order 
of  A" 

1937.  A  check  payable  to  John  Doe  was 
indorsed  by  the  payee,  "Indorsed  only  for 
exchange  of  draft  to  the  order  of  John  Doe." 
The  check  was  cashed  and  forwarded  for 
collection,  with  the  usual  indorsement 
guaranty.  Opinion:  The  drawee  bank  was 
safe  in  paying  check  so  indorsed,  especially 
where  the  indorsement  was  guaranteed. 
The  indorsement  is  more  likely  a  conditional 
rather  than  a  restrictive  one.  The  signature 
of  the  payee,  John  Doe,  in  the  indorsement 
is  sufficiently  made  without  further  sub- 
scribing his  name.  (Inquiry  from  S.  C, 
June,  1914,  JI-) 

IndorsemeJit,  "Cleared  through  Bank  B" 

1938.  What  is  the  effect  of  the  indorse- 
ment, "Cleared  through  B  National  Bank, 
Feb.  5,  1914"  on  a  check  drawn  on  bank  A? 
Opinion:  The  indorsement  of  the  B  Na- 
tional Bank  would  indicate  that  the  check 
had  been  collected  by  bank  B  from  bank  A 
through  the  clearing  house.  It  would  pro- 
tect bank  A  in  any  case  where  the  bank 
presenting  the  check  appears  to  be  owner  by 
any  title-conveying  form  of  indorsement  to 
it.  In  other  words,  assuming  the  indorse- 
ment of  the  payee  is  in  blank  or  in  the  un- 
restricted form,  "Pay  to  B  National  Bank," 
that  bank  Avould  be  the  apparent  owner  of 
the  check,  and,  as  such,  responsible  to  bank 
A  for  the  genuineness  of  prior  indorsements. 


If  a  prior  indorsement  was  forged,  bank  A 
would  have  recourse  upon  the  B  National 
Bank.  Should  the  payee,  however,  indorse 
the  check  to  the  B  National  Bank,  "For 
collection,"  or  that  should  bank  receive  it 
under  a  form  of  indorsement,  "Pay  to  any 
bank  or  banker,"  or  any  other  form  which 
would  indicate  that  it  was  a  mere  collecting 
agent  for  the  prior  indorser,  the  indorsement, 
"Cleared  through",  etc.,  would  not  be  suffi- 
cient protection  for  bank  A,  and  that  bank 
should  insist  upon  a  special  guaranty  of  the 
genuineness  of  prior  indorsements.  (In- 
quiry from  Ohio,  March,  1914-) 

Forms    of  indorsement — Discussed   and 
construed 

1939.  Three  checks  are  drawn  payable 
to  the  order  of  "John  Jones  &  Co.,"  and 
bear  three  indorsements,  as  follows:  (1) 
"John  Jones  &  Co.,  per  John  Jones;"  (2) 
"Pay  to  the  order  of  2nd  Nat.  Bk.,  St.  Paul, 
Minn.,  John  Jones  &  Co.;"  (3)  "For  credit  of 
John  Jones — John  Jones  &  Co."  All  three 
are  in  rubber  stamps.  Quaere:  Is  No.  1 
a  proper  indorsement?  Are  Nos.  2  and  3 
both  restrictive  indorsements?  Opinion: 
1.  The  courts  have  held  that  an  indorse- 
ment by  rubber  stamp  is  valid;  however, 
where  used  to  pass  title  there  must  be  some 
outside  evidence  of  genuineness.  The  in- 
dorsement, "John  Jones  &  Co.,  per  John 
Jones",  is  a  proper  form  of  indorsement,  but 
before  advancing  value  on  such  a  check  the 
purchaser  should  be  satisfied  that  John 
Jones  had  authority  to  indorse  for  John 
Jones  &  Co.  If  it  was  deposited  in  bank  to 
the  credit  of  John  Jones  &  Co.,  the  use  of 
rubber  stamp  would  be  sufficient.  2.  The 
indorsement,  "Pay  to  the  order  of  Second 
National  Bank  of  St.  Paul,  Minnesota,  John 
Jones  &  Co.,"  is  not  restrictive  but  a  special 
indorsement.  The  Negotiable  Instruments 
Act  provides  that  "a  special  indorsement 
specifies  the  person  to  whom  or  whose  order 
the  instrument  is  to  be  payable."  The 
indorsement  is  a  title-convejdng  form  of 
indorsement.  3.  The  indorsement,  "For 
credit  of  John  Jones.  John  Jones  &  Co.," 
on  a  check  payable  to  John  Jones  &  Co., 
might  or  might  not  be  held  restrictive.  The 
courts  are  not  in  accord  as  to  whether  an 
indorsement,  "For  deposit  to  the  credit  of," 
is  or  is  not  restrictive.  This  indorsement  is 
analogous  to  an  indorsement  "For  deposit, 
John  Jones  &  Co."  It  is  doubtful  whether, 
under  such  form  of  indorsement,  the  bank 
could  negotiate  it  or  do  more  than  collect 
it.    (Inquiry  from  Minn.,  Aug.,  1914.) 


448 


INDORSEE  AND  INDORSEMENT 


1940-1944 


Indorsement  "for  deposit" 

1940.  Is  an  indorsement  "for  deposit 
to  the  credit  of"  the  depositor  restrictive? 
Opinion:  The  majority  of  the  com-ts  so 
hold.  Under  Section  37  of  the  Negotiable 
Instruments  Act  "a  restrictive  indorsement 
confers  upon  the  indorsee  the  right  (1)  to 
receive  payment  of  the  instrument,  (2)  to 
bring  any  action  thereon  that  the  indorser 
could  bring,  (3)  to  transfer  his  rights  as  such 
indorsee,  where  the  form  of  the  instrument 
authorizes  him  to  do  so."  A  bank  of  deposit 
should  have  no  particular  objection  to  an 
indorsement  "for  deposit"  except  that,  under 
the  rules  of  certain  Clearing  Houses,  such 
indorsements  are  declared  to  be  restrictive 
and  the  instrument  not  payable  through  the 
Clearing  House  unless  prior  indorsements 
are  guaranteed.  Neg.  Inst.  L.  (Comsr's. 
dft.),  Sec.  36.  Ditch  v.  Western  Bk.,  79 
Md.  192.  Beal  v.  City  of  Somerville,  50 
Fed.  647.  HaskeU  v.  Avery,  181  Mass.  106. 
(Inquiry  from  Wyo.,  Oct.,  1915,  Jl.) 

1941.  What  is  the  effect  of  the  indorse- 
ment stamp:    "For  deposit  in  the 

Bank  to  the  credit  of  John  Doe  &  Co.?" 
Opinio?!:  There  is  a  conflict  of  decision  in 
the  courts  of  different  states  as  to  whether 
an  indorsement  for  deposit  is  restrictive. 
Some  courts  hold  that  it  is  not  title-convey- 
ing, but  only  an  agent-creating  indorsement ; 
other  courts  hold  that,  under  such  indorse- 
ments, title  passes  to  the  bank.  While  the 
courts  have  differed  respecting  such  in- 
dorsements, none  have  directly  condemned 
its  use.    (Inquiry  from  D.  C,  Sept.,  1919.) 

Indorsement  'for  deposit"  not  a  direction  to 
drawee  but  to  immediate  indorsee 

1942.  A  drawee  bank  refuses  to  pay 
checks  indorsed,  "For  deposit  only  to  the 
credit  of  B.  Co.,"  with  several  subsequent 
indorsements,  in  the  belief  that  this  is  a 
direction  to  such  drawee.  The  bank  writes : 
"We  do  not  believe  we  can  safely  pay  them 
in  any  other  way  than  directed,  that  is,  to 
credit  their  account,  which,  of  course,  is  not 
what  they  want."  Does  this  form  of  in- 
dorsement convey  title?  Is  the  drawee 
liable  for  a  loss  through  the  failure  of  any 
of  the  indorsers?  Opinion:  There  is  a 
conflict  of  authority  as  to  whether  this  form 
of  indorsement  is  a  title-conveying  or  an 
agent-creating  form.  Ditch  v.  Western  Nat. 
Bank,  79  Md.  192,  holds  that  it  is  the  former, 
and  that  a  holder  in  due  course  takes  free 
from  equities  between  the  depositor  and  his 
bank.     Neither  the  majority  nor  the  dis- 


senting judges  construed  the  indorsement 
as  a  direction  to  the  drawee  to  deposit  the 
money  in  its  own  bank  to  the  credit  of  the 
depositor,  but  rather  as  a  direction  to  the 
immediate  indorsee  bank.  This  indicates 
that  the  drawee  bank  is  erroneous  in  its 
construction.  In  Haskell  v,  Avery,  181 
Mass.  105,  the  indorsement,  "For  deposit 
in  the  C  bank  to  the  credit  of  D,"  was  held 
to  authorize  the  transfer  by  the  C  bank  of  the 
legal  title,  subject  to  the  trust,  to  the  bank 
or  person  ultimately  called  upon  to  collect. 
Whether  or  not  the  bank  of  deposit  is  named 
in  the  indorsement,  the  drawee  has  no  trust 
or  accountability  in  connection  with  the 
proceeds;  it  is  under  no  duty  to  deposit  the 
proceeds  to  the  credit  of  the  indorser.  The 
drawee  is  not  hable  for  a  loss  through  the 
failure  of  any  of  the  indorsers.  (Inquiry 
from  Ohio,  Aug.,  1913.) 

Restrictive  indorsement  disclaiming  liability 
for  genuineness 

1943.  A  savings  bank  is  frequently 
called  upon  to  take  checks  and  certificates 
of  deposit  for  collection,  wherein  the  drawer 
or  payee  is  unknown,  and  it  takes  and  in- 
dorses them  as  follows:  "Pay  any  bank  or 
banker,"  etc.,  and  underneath,  "Drawer  of 

this  instrument  unknown  to  the  

Savings  Bank,"  or,  according  to  the  circum- 
stances— "Payee  herein  named  unknown  to 
the Savings  Bank,"  or  "Indorse- 
ment does  not  warrant  the  genuineness  of 
payee's  signature."  What  is  the  legal  effect 
of  such  indorsements?  Opinion:  An  in- 
dorsement that  the  drawer  or  payee  is 
unknown  to  the  bank,  and  that  the  bank 
does  not  warrant  the  genuineness  _  of  his 
signature,  would  probably  be  sufficient  to 
reheve  the  bank  from  liability  in  case  of 
forgery.  It  is  an  express  disclaimer  of  lia- 
bility. It  might  be  well,  however,  to  have 
such  instruments  indorsed  to  the  bank  "for 
collection"  or  drawn  to  the  bank  "for  col- 
lection," as  this  would  clearly  indicate  to  the 
drawee  or  subsequent  holder  that  the  bank 
was  agent  only  and  not  owner  of  the  paper. 
The  New  York  courts  hold  that  an  agent 
bank  is  not  responsible  for  genuineness 
after  the  proceeds  of  the  check  are  paid 
over  to  the  principal.  Inquiry  from  N.  Y., 
June,  1920.) 

Necessity  for  guaranty  of  prior  indorsements 
by  restrictive  indorsee 

1944.  May  a  drawee  of  a  check  require 
restrictive  indorsements  to  be  guaranteed? 
Opinion:    A  restrictive  indorsement  is  one 


449 


1945-1948] 


DIGEST  OF  LEGAL  OPINIONS 


which  makes  the  indorsee  an  agent  to  collect 
the  paper,  and  it  has  been  held  by  the  New 
York  courts  that  one  holding  a  check  as 
agent,  under  restrictive  indorsement,  is  not 
responsible  to  the  payor,  where  the  amount 
has  been  raised  or  a  prior  indorsement 
forged,  after  the  proceeds  are  turned  over  to 
his  principal.  For  this  reason  it  would  seem 
to  be  necessary  where  a  check  is  presented 
for  payment  by  an  agent  under  restrictive 
indorsement,  that  the  latter  guarantee  prior 
indorsements.  If  there  is  no  restrictive 
indorsement  on  the  check  and  the  collecting 
bank  holds  as  apparent  owner,  it  is  respon- 
sible without  any  express  guaranty  for  the 
return  of  the  money  received  without  con- 
sideration where  a  prior  indorsement  turned 
out  to  be  forged.  {Inquiry  from  N.  Y.,Aug., 
1915.) 

1945.  Note:  Many  inquiries  have  been 
made  asking  whether  an  indorsee  after  the  in- 
dorsement, "Pay  any  bank  or  banker  "should 
require  a  guaranty  of  prior  indorsements. 
Because  it  has  been  held  by  a  majority  of 
courts  that  such  indorsement  is  agent- 
creating  and  not  title-conveying,  advice  has 
been  given  that  it  is  necessary  for  such 
indorsee  to  require  a  special  guaranty  of 
prior  indorsements  if  it  desires  to  rely  upon 
the  responsibility  of  the  collecting  bank 
which  holds  the  instrument  under  such  re- 
strictive form  of  indorsement.  However, 
this  advice  can  be  modified  to  this  extent — 
namely,  that,  in  those  jurisdictions,  as,  for 
example,  in  Nebraska,  where  the  indorse- 
ment, 'Tay  any  bank  or  banker,"  has  been 
held  to  be  title-conveying,  the  necessity  of 
such  special  guaranty  can  technically  be 
dispensed  with,  as  it  will  not  give  added 
protection  to  the  indorsee.  Under  such 
circumstances  the  special  guaranty  of  prior 
indorsements  will  do  no  harm.  {May  1921.) 

*'Pay  any  bank  or  banker" 

1946.  Can  a  drawee  bank  look  for  reim- 
bursement to  the  bank  to  which  the  check 
was  paid  bearing  "Any  bank  or  banker," 
indorsement,  unless  the  instrument  bears  a 
SI  ecial  guaranty  of  such  indorsement? 
Oyinion:  A  line  of  decisions  holds  that  a 
bank  which  collects  a  check  bearing  a  forged 
indorsement  or  raised  amount  is  hable  to 
refund  to  the  payor  where  the  form  of  the 
indorsement  indicates  that  the  bank  re- 
ceiving payment  was  real  or  apparent  owner, 
but  that  where  the  collecting  bank  holds 
under  an  indorsement  "for  collection,"  or 
other  non-title-conveying  forms,  it  is  not 
liable  to  the  payor  for  money  so  collected, 


after  payment  over  of  the  proceeds  to  its 
principal.  (See  Nat.  Park  Bank  v.  Seaboard 
Bank,  114  N.  Y.  28,  20  N.  E.  632,  11  Am. 
St.  Rep.  612.  Nat.  Park  Bank  v.  Eldred,  90 
Hun.  285  [aff'd.  154  N.  Y.  769,  49  N.  E. 
1101].  Nat.  City  Bank  v.  Westcott,  118 
N.  Y.  468,  23  N.  E.  900,  16  Am.  St.  Rep. 
771  [Rev.  43  Hun.  637]).  It  has  been  held 
also  that  the  "Pay  any  bank  or  banker" 
form  of  indorsement  is  not  a  title-conveying 
one,  but  creates  merely  an  agency  for  col- 
lection. (See  Gregory  v.  Sturgis  Nat.  Bank, 
[Tex.  Civ.  App.]  71  W.  66.  First  Nat.  Bank 
of  Minneapolis  v.  City  Nat.  Bank  of  Holy- 
oke,  182  Mass.  130,  65  N.  E.  24.  Bank  of 
Indian  Ter.  v.  First  Nat.  Bank,  109  Mo. 
App.  665,  83  S.  W.  537.)  But  there  are  a 
few  cases  contra.  As  a  consequence,  if  the 
payor  desires  to  rely  upon  the  responsibility 
of  the  collecting  bank  which  holds  the 
instrument  under  such  restrictive  form  of 
indorsement,  special  guaranty  by  that  bank 
of  prior  indorsements  is  necessary.  {Inquiry 
from  III.,  March,  1911.) 

1947.  A  drew  a  check  payable  to  him- 
self, which  he  indorsed  and  deposited  for 
collection  in  the  L  bank.  Before  collection 
and  at  A's  request  the  check  was  returned  to 
him  with  the  bank's  uncancelled  indorse- 
ment, "Pay  any  bank  or  banker,  prior  in- 
dorsements guaranteed."  A  merchant,  re- 
lying on  this  indorsement,  cashed  the  check 
for  value  and  deposited  it  for  collection  in 
the  J  bank.  The  check  is  returned  to  J 
bank  unpaid,  and  unprotested.  Opinion: 
The  L  bank  is  not  liable  to  the  merchant  on 
its  indorsement,  under  which  the  merchant 
took  no  title.  The  J  bank  is  not  liable  to 
the  merchant  for  negligence  as  protest  in 
this  case  was  unnecessary  to  charge  the 
indorser.  The  form  of  indorsement  in  this 
case  is  generally  held  to  be  agent-creating 
and  not  title-conveying.  {Inquiry  from  Ga., 
June,  1912,  Jl.) 

May  an  indorsee  for  collection  sell  or 
transfer  the  instrument? 

1948.  Does  the  customary  indorsement 
by  a  bank  holding  a  negotiable  instrument 
transfer  title?  Opinion:  Where  a  note  or 
draft  is  indorsed  for  collection  the  person 
receiving  it  has  no  power  to  sell  or  transfer 
same.  (7  Cyc.  808).  An  indorsement  on  a 
draft  by  a  bank  to  which  it  is  made  payable, 
"Pay  to  any  bank  or  banker,  or  order,"  is  an 
indorsement  for  collection  and  not  a  transfer 
of  title.  See  Bank  v.  First  Nat.  Bank,  109 
Mo.  App.  665.  {Inquiry  from  Colo.,  Feb., 
1914.) 


450 


INDORSEE  AND  INDORSEMENT 


[1949-1953 


1949.  Request  is  made  for  authorities 
holding  an  indorsement  reading,  "Pay  any 
bank,  banker  or  order,"  to  be  restrictive. 
Opinion:  In  Bank  of  Indian  Territory  v. 
First  National  Bank  of  Buchanan  County 
(1904)  109  Mo.  App.  665,  83  S.  W.  Rep.  537, 
the  court  said :  "The  indorsement  of  plaintiff, 
'to  pay  to  any  bank  or  banker,  or  order'  was 
not  such  an  indorsement  as  to  pass  the  title  to 
the  bill.  It  merely  authorized  any  bank  or 
banker  into  whose  hands  it  might  come,  to 
collect  and  remit  the  proceeds.  In  other 
words,  it  was  only  authority  to  collect, 
therefore  a  restrictive  and  not  an  uncondi- 
tional indorsement  passing  the  title."  In 
First  National  Bank  of  Minneapohs  v.  City 
National  Bank  of  Holyoke,  182  Mass.  130, 
65  N.  E.  24,  the  court  said:  The  Holyoke 
Bank  "did  not  indorse  the  check  in  that 
sense  of  the  word,  that  is  to  say,  it  did  not 
enter  into  the  contract  of  an  indorser  of  a 
negotiable  bill  or  note.  It  did  write  on  the 
back  of  the  check,  'Pay  to  any  national  bank 
or  order.  City  National  Bank  of  Holyoke,' 
and  sent  the  check  with  that  indorsement  to 
the  drawee  named  in  the  check  for  payment. 
This  indorsement,  if  it  can  be  properly 
called  an  indorsement,  was  not  a  transfer  of 
the  check,  but  was  put  on  it  when  it  was 
presented  for  payment.  The  indorsement 
of  an  indorser,  using  that  word  in  its  techni- 
cal sense,  imports  a  guaranty  of  previous 
signatures,  because  it  is  a  transfer  and  sale; 
but  an  indorsement  which  is  not  made  for 
the  purpose  of  transfer  is  not  an  indorse- 
ment within  the  law  merchant,  and  does  not 
carry  with  it  a  guaranty  of  previous  in- 
dorsements." {Inquiry  from  Wis.,  May, 
1914.) 

1950.  The  payee  of  an  acceptance  in- 
dorses it:  "Pay  to  the  order  of  any  bank  or 
banker.  All  prior  indorsements  guaranteed" , 
and  sends  it  to  another  bank  for  discount, 
which  latter  bank  asks  if  this  indorsement  is 
sufficient  to  estabhsh  the  negotiability  of 
the  drafts,  and  if  in  discounting  paper,  bear- 
ing such  indorsements  it  has  the  usual  re- 
course against  the  indorser?  Opinion:  The 
courts  have  frequently  held  that  such  form 
of  indorsement  merely  creates  an  agent  for 
collection,  and  does  not  transfer  title; 
therefore,  the  discounting  bank  will  not  ac- 
quire full  negotiable  title.  {Inquiry  from 
Cal,  April  1917.) 

1951.  Where  the  last  indorsement  of  a 
check  provides,  "Pay  to  the  order  of  any 
bank  or  banker,"  must  the  drawee  bank  deal 
directly  with  the  bank  with  which  the  item 
was  deposited  in  the  first  instance?     Opin- 


ion: The  payor  bank  cannot  look  to  the 
agent  but  must  deal  with  the  owner  back  of 
him  and  this  owner  might  be  the  bank  with 
whom  the  check  was  deposited  in  the  first 
instance  or  it  might  be  a  subsequent  bank. 
{Inquiry  from  III.,  Oct.,  1917.) 

1952.  Is  a  bank  using  the  stamp,  "Pay 
any  bank  or  banker,"  required  to  use  the 
words,  "Previous  indorsements  guaranteed," 
also?  Opinion:  The  courts  have  held  in  a 
number  of  cases  that  the  indorsement,  "Pay 
any  bank  or  banker,"  is  not  a  title-conveying, 
but  mere  agent-creating  one,  and  as  such 
does  not  carry  to  an  indorsee  the  warranties 
that  attach  to  an  unrestricted  or  title-con- 
veying one.  There  is  a  conflict  of  authority, 
however,  on  this  point.  Whenever  the  in- 
dorsee bank  is  a  mere  agent  and  collects 
money  upon  a  check  bearing  a  prior  forged 
indorsement,  the  agent,  after  turning  over 
the  proceeds  to  its  principal,  would  not  be 
responsible,  and  the  payor  bank  would  have 
to  look  to  the  principal  further  back;  hence 
the  necessity  or  desirabihty  of  an  express 
guaranty  by  the  agent  of  the  genuineness  of 
prior  indorsements,  upon  which  guaranty 
it  would  be  Uable.  See  note  1945.  {In- 
quiry from  Okla.,  April,  1918). 

1953.  Is  the  indorsement,  "Pay  to  the 
order  of  any  bank  or  banker,"  a  restrictive 
one  under  the  clearing-house  rules?    Opin- 

There  are  numerous  state  court  de- 


lon: 


cisions  holding  that  such  form  of  indorse- 
ment is  restrictive,  the  indorsee  being  a 
mere  agent  to  collect,  clearing  houses  class- 
ing it  with  restrictive  indorsements  and 
many  requiring  the  presenting  bank  to 
guarantee  prior  indorsements  before  pres- 
entation through  the  clearing  house.  See 
Bk.  of  Indian  Territory  v.  First  Nat.  Bk., 
83  S.  W.  (Mo.)  537.  First  Nat.  Bk.  v.  Sa- 
vannah B.  &  T.  Co.,  68  S.  E.  (Ga.)  872. 
First  Nat.  Bk.  v.  City  Nat.  Bk.,  65  N.  E. 
(Mass.)  24.  There  is,  however,  a  Federal 
decision  holding  the  contrary,  i.  e.,  that  such 
form  of  indorsement  is  not  restrictive,  but 
is  a  title-conveying  rather  than  a  mere 
agent-creating  form  of  indorsement.  The 
reason  for  the  adoption  of  the  New  York 
Clearing  House  rule,  to  the  effect  that  all 
checks  sent  through  it  bearing  restrictive 
indorsement  should  be  guaranteed,  grew  out 
of  the  case  of  Nat.  Park  Bk.  v.  Seaboard 
Bk.,  114  N.  Y.  28.  There  a  check  drawn  by 
an  out-of-town  bank  on  the  Park  Bank  had 
been  indorsed  to  the  Seaboard  Bank  for 
collection,  and  paid  through  the  clearings. 
Afterwards  it  was  discovered  that  the  check 
had  been  raised  and  the  Park  Bank  sued  the 


451 


1954-1957] 


DIGEST  OF  LEGAL  OPINIONS 


Seaboard  Bank.  It  was  held  that,  as  the 
Seaboard  Bank  was  merely  an  agent  for 
collection,  it  was  not  liable  after  paying  over 
the  proceeds.  See  note  1945.  {Inquiry 
from  Ohio,  May,  1918.) 

1954.  A  draft  drawn  to  the  order  of  the 
drawer  was  indorsed  by  the  payee,  'Tay  any 
bank  or  banker."  In  due  course  of  collection 
the  bank  at  which  the  draft  was  payable 
paid  it.  It  was  apparently  the  intention  of 
the  parties  that  such  bank  should  take  title 
as  owner.  Is  the  drawer-payee  liable  to  such 
bank  for  any  unpaid  balance  due  on  the 
draft?  Opinion:  It  would  seem  that  the 
bank  at  which  the  draft  was  payable  did  not 
become  a  holder  in  due  course,  but  was 
merely  the  payor,  with  sole  recourse  against 
the  drawee.  The  indorsement,  "Pay  any 
bank  or  banker,"  is  restrictive  and  not  title- 
conveying;  it  creates  a  mere  agency  to 
collect  the  instrument.  Indian  Territory  v. 
First  Nat.  Bank,  83  S.W.  (Mo.)  537.  First 
Nat.  Bank  v.  Savannah  Bank,  68  S.  E.  (Ga.) 
872.  The  indorsee  of  the  paper  in  question 
then  was  merely  a  collection  agent;  it  was 
not  an  indorsee  for  value,  which  could  in- 
dorse over  full  title  to  this  instrument  to  any 
holder  in  due  course.  When  the  draft  was 
paid  through  the  clearing  house,  the  trans- 
action was  not  a  purchase  for  value  under 
unrestricted  indorsement,  but  was  simply 
payment  as  drawee,  or  as  agent  of  the  draw- 
ee to  the  agent  of  the  holder.  It  would 
seem  that  the  paying  bank  has  not  the  en- 
forceable rights  of  a  holder  in  due  course 
against  the  drawer-payee.  {Inquiry  from 
Okla.,  May,  1919.) 

Indorsement  of  cotton  draft,  "Pay  any  bank 
or  hanker" 

1955.  Does  a  bank  which  cashes  a  90-day 
cotton  draft  with  b/1  attached,  and  indorses  it 
to  another  bank,  "Pay  any  bank  or  banker, 
or  order,"  receiving  credit  from  such  other 
bank  for  the  amount,  remain  contingently 
liable  after  acceptance?  Opinion:  Such 
form  of  indorsement  has  been  held,  under 
the  Negotiable  Instruments  Law,  to  be  an 
unrestricted  or  title-conveying  form  of 
indorsement,  under  which  the  indorsing 
bank  would  be  contingently  liable  in  event 
of  dishonor.  (Nat.  Bank  Commerce  v. 
Bossemeyer,  [Neb.  1917]  162  N.  W.  503. 
Sec.  36  Neg.  Inst.  Law),  although  the  con- 
trary has  been  held  in  earlier  cases.  First 
Nat.  Bank  v.  City  Nat.  Bk.,  182  Mass.  130. 
Citizens  Trust  Co.  v.  Ward,  [Mo.]  190  S.  W. 
364.  Nat.  Bk.  of  Com.  v.  Mechanics  Amer. 
Nat.  Bk.,  148  Mo.  App.  1.     Nat.  Bk.  v. 


First  Nat.  Bk.,  140  Mo.  App.  719.  Bk.  of 
Ind.  Ter.  v.  First  Nat.  Bk.,  109  Mo.  App. 
665.  Gregory  v.  Sturgis  Nat.  Bk.,  [Tex.]  71 
S.  W.,  66.  A  modified  form  of  indorse- 
ment, such  as  "This  indorsement  is  without 
warranty  or  recourse  against  this  bank 
when,  as  and  if  the  within  draft  is  accepted 
by  the  drawee  thereof,"  or  "without  re- 
course after  acceptance  by  the  drawee," 
is  suggested.  {Inquiry  from  Ark.,  Jan., 
1920,  Jl.) 

"Pay  any  hanker  with  full  recourse  to" 
indorser 

1956.  What  is  the  effect  of  the  indorse- 
ment of  a  check,  "Pay  to  the  order  of  any 
national  bank,  state  bank,  banking  or  trust 
company  with  full  recourse  to?"  Opinion: 
An  indorser  for  value,  (1),  warrants  genuine- 
ness and  validity,  (2),  engages  to  pay  if  the 
maker  does  not,  and  the  words,  "without 
recourse,"  coupled  to  his  instrument,  re- 
lieve of  the  conditional  engagement  to  pay, 
but  not  of  the  warranty  of  validity.  If  an 
indorser  for  value  coupled  "with  full  re- 
course" to  his  indorsement,  it  would  not 
add  anything  to  his  liability.  But  the  form 
of  indorsement  "pay  any  banker"  is  not  for 
value,  according  to  the  weight  of  authority 
but  appoints  an  agent  for  collection.  No 
subsequent  indorsee,  under  this,  would  give 
value,  and  the  only  one  advancing  value  on 
the  check  is  the  bank  of  payment.  It  is 
doubtful  whether  the  words,  "with  full  re- 
course," put  on  by  the  indorser  would  guar- 
antee the  bank  of  payment  in  case  a  prior 
indorsement  was  forged,  or  a  title  was  de- 
fective. If  the  bank  making  this  indorse- 
ment was  real  or  apparent  owner,  there  would 
be  liability  for  receiving  the  drawee's  money 
without  consideration,  but  if  it  appeared  as 
agent  there  would  be  no  liability  to  the 
drawee  unless  prior  indorsements  were 
guaranteed,  or  unless  the  words,  "with  full 
recourse,"  would  be  held  tantamount  to  a 
guaranty  of  prior  indorsements.  These 
words  in  this  connection  are  of  uncertain 
meaning,  and  it  is  doubtful  if  they 
would  be  so  construed.  Where  the  bank  of 
payment  needs  a  guaranty,  it  had  better 
rely  on  an  express  guaranty  of  prior  indorse- 
ments, and  not  on  the  uncertain  meaning  of 
the  words  "with  full  recourse."  See  Redden 
V.  First  Nat.  Bank,  66  Kan.  747,  71  Pac. 
578.    {Inquiry  from  Conn.,  July,  1916.) 

Indorsement  before  payee 

Person  indorsing  hefore  payee  liable  as 
indorser 

1957.  A  note  payable  to  a  trust  company 


452 


INDORSEE  AND  INDORSEMENT 


[1958-1965 


is  signed  by  a  third  person  on  the  back  be- 
fore dehvery  to  the  payee  trust  company. 
Are  both  the  maker  and  the  indorser  Hable 
where  the  note  is  not  paid  at  maturity,  and 
protested  at  that  time?  Opinion:  In  the 
event  of  non-paj^ment  at  maturity,  the 
maker  would  be  Hable  without  demand, 
protest  or  notice,  but  the  third  person  is  an 
indorser  and  is  discharged  unless  there  were 
due  demand  and  notice  of  dishonor.  Hold- 
ing the  note  in  the  bank  at  maturity  is  a 
sufficient  demand.  {Inquiry  from  Del.,  Dec, 
1917.) 

1958.  Wliat  is  the  habihty  of  a  person 
indorsing  a  note  before  the  payee?  Opin- 
ion:    Under   the   Negotiable   Instruments 

\  Law  in  force  in  Maryland,  the  contract  and 
liability  is  that  of  an  indorser.  {Inquiry 
from  Md.,  Jan.,  1909,  Jl.) 

1959.  Where  a  note  payable  to  a  bank 
was  signed  on  its  face  by  John  Doe  and  on 
its  back  by  Richard  Roe,  is  the  latter  a  joint 
maker?  Opinion:  Under  the  negotiable 
instruments  act,  Richard  Roe  is  liable  as  an 
indorser  and  is  entitled  to  notice  of  dishonor 
unless  the  instrument  contains  a  waiver. 
Vol.  6,  p.  687,  April,  1914.  S.  C.  Neg.  Inst. 
Act.  Sees.  89,  112,  113,  114.  Rouse  v. 
Wooten  140  N.  C.  557.  {Inquiry  from  S. 
C,  April,  1914.  Jl) 

1960.  A  indorsed  in  blank  a  note  payable 
to  a  bank  without  the  words  "protest  waived 
and  payment  guaranteed."  Opinion:  A  is 
liable  to  payee  as  indorser.  Demand  and 
notice  (but  not  formal  protest,  which  is 
necessary  only  in  case  of  a  foreign  bill  of  ex- 
change) are  necessary  to  preserve  the  in- 
dorser's  liability.  Kan.  Neg.  Inst.  Act., 
Sees.  4602,  4603,  4605,  4650.  {Inquiry  from 
Kan.,  Feb.,  1913,  Jl.) 

Not  necessary  to  first  proceed  against  maker 
when  indorser^s  liability  fixed 

1961.  May  an  indorsee  enforce  a  note 
against  an  accommodation  indorser,  who 
sign.s  before  delivery  of  the  note,  before 
exhausting  the  remedy  against  the  maker 
and  the  payee?  Opinion:  Under  the 
Negotiable  Instruments  Law  such  an 
accommodation  indorser  is  liable  as  in- 
dorser. When  his  liability  is  fixed  at 
maturity,  it  is  not  necessary  to  first 
proceed  against  the  maker  and  paj^ee  until 
the  remedy  against  them  is  exhausted;  the 
indorsee  can  enforce  payment  of  the  note 
immediately  from  him.  {Inquiry  from  Md., 
March,  1921.) 


Liability  where  payee  again  indorses 

1962.  A  note  made  by  a  firm  payable  to 
its  own  order,  and  indorsed  by  it,  then  has 
an  individual  indorsement,  and  then  is 
again  indorsed  by  the  firm.  What  is  the  lia- 
bility of  the  individual  indorser  to  a  subse- 
quent purchaser  before  maturity  who  has 
taken  the  note  from  the  firm?  Opinion: 
The  individual  indorser  would  be  liable  as 
such.  The  fact  that  the  firm  again  indorsed 
the  note  under  the  individual  indorsement 
would  not  detract  from  his  liability.  The 
case  would  seem  to  be  covered  by  Section 
1 14  of  the  Negotiable  Instruments  Act,  that 
where  a  person,  not  otherwise  a  party,  places 
his  signature  to  an  instrument  payable  to 
the  order  of  the  maker  before  delivery,  he 
is  hable  as  indorser  to  all  parties  subsequent 
to  the  maker.  See  Randolph  on  Commer- 
cial Paper,  Sec.  667.  West  Boston  Savings 
Bank  v.  Thompson,  124  Mass.,  506.  {In- 
quiry from  N.  Y.,  Aug.,  1913.) 

Indorser  liable  for  full  amount  of  note 

1963.  A  note  drawn  to  the  order  of 
the  payee  bank  for  $500,  with  an  indorser 
and  discounted  as  an  accommodation  to  the 
maker,  was  protested  for  non-payment.  Can 
the  indorser  be  held  for  full  payment,  or 
does  the  payee  become  liable  for  one-half 
the  amount  of  the  note?  Opinion:  The 
indorser  is  liable  to  the  payee  bank  for  the 
full  amount.  The  Negotiable  Instruments 
Act  Sec.  64  provides  as  to  the  liability  of 
such  an  irregular  indorser,  as  follows: 
"Where  a  person,  not  otherwise  a  party  to 
an  instrument,  places  thereon  his  signature 
in  blank  before  delivery,  he  is  liable  as  in- 
dorser in  accordance  with  the  following 
rules:  1.  If  the  instrument  is  payable  to 
the  order  of  a  third  person,  he  is  liable  to  the 
payee  and  all  subsequent  parties."  {Inquiry 
from  Conn.,  Oct.,  1919.) 

Absence  of  payee's  indorsement 

Drawee  not  obliged  to  pay 

1964.  A  check  is  indorsed  by  the  payee 
to  J.  J.  Taylor,  who  cashed  it  without 
indorsement  with  a  merchant.  The  mer- 
chant forwarded  the  item  for  credit  to  his 
account.  The  drawee  refused  to  pay  or  to 
give  credit.  Opinion:  The  drawee  is  not 
obliged  to  pay  or  give  credit  for  a  check 
where  a  necessary  indorsement  is  lacking. 
{Inquiry  from  Miss.,  July,  1912,  Jl.) 

1965.  Is  the  drawee  bank  justified  in 
refusing  to  pay  a  check,  without  the  in- 
dorsement of  the  payee  but  indorsed  "Pay 


453 


1966-1971] 


DIGEST  OF  LEGAL  OPINIONS 


to  the  order  of  any  bank,  banker,  or  trust  com- 
pany, indorsement  guaranteed?"  Opinion: 
Technically  the  bank  acted  within  its  rights 
in  refusing  to  pay  a  check  where  the  in- 
dorsement of  the  payee  was  lacking.  How- 
ever, it  is  customary,  in  order  to  facilitate 
business,  to  make  payment  in  cases  where 
the  indorsement  is  suppUed  in  such  manner. 
(Inquiry  from  VL,  May,  1917.) 

Certifying  hank  justified  in  refusing  payment 

1966.  A  certified  check  is  presented  by  a 
bank  for  payment,  without  the  indorsement 
of  the  payee,  although  it  has  the  indorse- 
ment of  the  maker;  no  other  indorsements 
outside  of  the  bank  indorsements  appear 
thereon.  Is  the  drawee  bank  protected  in 
paying  the  check,  even  though  the  check 
had  been  delivered  to  the  payee?  Opinion: 
The  certifying  bank  is  within  its  rights  and 
justified  in  refusing  payment  of  the  check, 
which  lacks  the  payee's  indorsement,  unless 
the  depositor  should  expressly  authorize 
the  bank  to  pay.  Such  a  check  is  not  within 
the  definition  of  a  bearer  check  under  the 
Negotiable  Instruments  Act.  The  check 
may  have  been  lost,  in  which  case  the  holder 
would  have  no  title.  Of  course,  if  the  holder 
could  prove  that  the  check  was  acquired 
from  the  payee  for  value,  he  might  make  out 
a  case  where  he  would  be  entitled  to  pay- 
ment, for  under  the  Negotiable  Instruments 
Act  an  instrument  can  be  transferred  with- 
out indorsement  and  the  transferee  acquires 
the  title  of  the  transferer  and  the  right  to 
have  the  latter's  indorsement.  But  until 
clear  proof  is  forthcoming  that  the  holder 
has  acquired  good  title  from  the  payee,  the 
bank  may  refuse  to  pay  unless  expressly 
authorized  by  the  drawer.  (Inquiry  from 
Mass.,  Nov.,  1920.) 

Check   with   missing   indorsement   of  payee 
indorsed  in  blank  hy  drawer 

1967.  Should  a  bank  pay  a  check  lacking 
the  indorsement  of  the  payee,  but  indorsed 
in  blank  by  the  drawer?  Opinion:  The 
check  is  not  payable  to  bearer.  It  is  not 
safe  for  a  bank  to  pay  to  the  holder  without 
express  instructions  from  the  drawer.  (In- 
quiry from  Cat.,  Jan.,  1912,  Jl.) 

1968.  A  check  was  drawn  payable  "to 
the  order  of  John  Jones,"  and  signed  "S.  A. 
Smith."  It  was  not  indorsed  by  the  payee, 
but  was  indorsed  in  blank  by  the  drawer 
"S.  A.  Smith."  Opinion:  The  check  is  not 
payable  to  bearer.  Bank  should  refuse 
payment  until  properly  indorsed.  (Inquiry 
from  Pa.,  Jan.,  1909,  Jl.) 


Drawer  indorsing  check  to  credit  of  his  own 
account 

1969.  A  check  is  drawn  by  John  Jones 
payable  to  James  Brown  by  whom  the  same 
was  not  indorsed.  The  check  was  indorsed 
"Credit  to  account  John  Jones,  John  Jones." 
Is  the  drawee  bank  warranted  in  placing  the 
same  to  Jones'  credit?  Opinion:  Such  a 
transaction  would,  if  seems,  be  futile.  The 
amount  was  already  to  the  credit  of  Jones, 
and  the  check  had  never  been  delivered  to 
Brown,  but  remained  in  Jones'  possession. 
Before  delivery  the  check  is  incomplete  and 
is  not  an  effective  contract.  Jones  having 
drawn  his  check  to  Brown  and  after  doing  so 
and  before  delivery  having  decided  to  re- 
tain the  money  and  not  pay  Brown,  all  that 
was  necessary  for  him  to  do  was  to  destroy 
the  check.    (Inquiry  from  Cat.,  June,  1915.) 

Check  indorsed  hy  drawer  hut  not  hy  payee 

1970.  Should  the  drawee  bank  pay  a 
check,  unindorsed  by  the  payee,  but  in- 
dorsed by  the  drawer  "Pay  to  the  order  of 
P.  Bank,"  and  indorsed  and  presented  by 
the  P.  bank?  Opinion:  The  point  has  never 
been  decided,  but  it  seems  such  an  indorse- 
ment is  irregular  and  does  not  convey  good 
title,  free  from  equities.  Where  A  makes  his 
check  payable  to  B,  it  requires  B's  indorse- 
ment and  it  does  not  seem  that  A's  indorse- 
ment, instead  of  B's,  is  the  same  as  an  in- 
dorsement by  the  payee,  even  though  A  is 
the  drawer  and  originally  issued  the  check. 
For  all  that  appears,  after  A  has  issued  and 
received  consideration  for  his  check,  it  may 
have  been  stolen  by  him  from  B ,  and  while 
this  is  a  far-fetched  presumption,  it  illus- 
trates the  point  made  that  it  does  not  nec- 
essarily follow  that  because  A  is  in  possession 
of  the  check  payable  to  B,  he  has  never  de- 
livered same  to  B.  Furthermore,  assuming 
the  most  usual  case  of  a  check  made  payable 
by  A  to  B  but  never  delivered,  still  it  does 
not  appear  how  A  can  make  this  check  nego- 
tiable in  the  hands  of  some  other  person 
than  B,  without  the  latter's  indorsement,  for 
it  is  irregular  on  its  face.  It  appears,  there- 
fore, that  a  check  so  indorsed  is  not  regularly 
or  properly  indorsed  and  that  the  bank  upon 
which  it  is  drawn  is  justified  in  refusing  to 
make  payment  in  the  absence  of  the  payee's 
indorsement.  (Inquiry  from  N.  J.,  June, 
1916.) 

Payment  of  draft  to  only  authorized  repre- 
sentative of  non-indorsing  payee 

1971.  What  is  the  effect  of  the  payment 
by  the  drawee  of  a  draft,  given  to  discharge 


454 


INDORSEE  AND  INDORSEMENT 


1972-1976 


a  debt  from  the  drawer  to  a  third  person, 
which  lacks  the  indorsement  of  the  bank  to 
which  it  is  made  payable  where  such  draft 
is  paid  to  a  duly  authorized  collecting  agent 
of  the  payee?  Opinion:  Under  the  cir- 
cumstances stated,  the  drawee  need  not 
have  paid  the  draft  in  the  absence  of  the 
indorsement,  but  having  waived  the  irregu- 
larity and  made  payment  to  an  authorized 
collecting  agent,  the  indebtedness  of  the 
drawer  to  the  third  person  is  discharged. 
(See  Daly  v.  Butchers  &  Drovers  Bank,  56 
Mo.  94)  (Inquiry  from  Mo.,  April,  1920,  Jl.) 

Payment  by  drawee  on  guaranty 

1972.  A  check  payable  to  two  persons 
was  indorsed  by  one  and  deposited.  The 
bank  stamped  "indorsements  guaranteed" 
and  the  check  was  paid  by  the  drawee. 
Opinion:  The  indorsement  would  probably 
be  held  to  guarantee  the  drawee  against  loss 
or  injury  caused  by  the  absence  of  the  in- 
dorsement. Assuming  the  transfer  was 
without  authority  of  the  non-indorsing 
payee,  the  drawee  could  recover.  Lynch  v. 
First  Nat.  Bk.,  107  N.  Y.  184.  Rowley  v. 
Nat.  Bk.,  18  N.  Y.  S.  545.  (Inquiry  from 
Mass.,  Nov.,  1911,  Jl.) 

Payment  of  unindorsed  check  to  wrong  person 

1973.  When  the  checks  of  a  depositor 
were  returned,  he  did  not  notice  that  one  of 
them  was  not  indorsed  by  the  payee.  Six 
months  later  the  payee  made  the  claim  to 
the  drawer  that  he  had  not  received  the 
check.  Is  the  bank  liable  to  the  depositor? 
Opinion:  A  bank  which  pays  a  check  to  an- 
other than  the  payee  cannot,  ordinarily, 
charge  the  amount  to  the  drawer's  account. 
The  only  question  would  be  whether  the 
laches  of  the  depositor  in  discovering  the 
mistake  would  estop  him  from  questioning 
the  validity  of  the  payment.  The  delay  in 
this  case  was  six  months.  In  Weinstein  v. 
Nat.  Bk.  of  Jefferson,  69  Tex.  38,  an  action 
against  the  bank  by  a  depositor  to  recover 
money  paid  on  forged  checks,  the  court 
charged  that  the  bank  would  be  liable  un- 
less plaintiff  had  neglected  to  examine  his 
account  and  report  the  forgeries  for  such  a 
length  of  time  as  worked  injury  to  the  bank. 
In  the  present  case  the  check  was  not  forged 
but  payment  was  made  without  the  indorse- 
ment of  the  payee,  and  in  such  a  case  it 
seems  that  the  depositor  might  be  entitled 
to  assume  that  the  payment  was  made  to  the 
right  person,  even  without  his  indorsement, 
and  that  the  delay  of  six  months  would  not 
debar  the  depositor  from  recovering.  (In- 
quiry from  Tex.,  June,  1920.) 


Payment    of    unindorsed    check — Right    of 
recovery    where    payee's    title    defective 


1974.     M- 


C- 


—  claimed  to 
have  lost  a  check  payable  to  his  order  and 
received  another  check  for  the  same  amount, 
but  payment  was  not  stopped  on  the  original 

check.      C afterwards  obtained  cash 

on  the  original  check  from  the  customer  of 
another  bank,  without,  however,  indorsing 
same,  and  the  customer  deposited  same  m 
the  bank  which  received  the  amount  from 

the  drawee.     C ,  therefore,  received 

payment  twice.  Who  stands  the  loss? 
Opinion:  Had  C indorsed  the  orig- 
inal check  before  negotiating  it  to  the  bank's 
customer,  the  latter  would  have  been  a 
holder  in  due  course,  entitled  to  receive 
payment,  or  if  not  paid  to  enforce  payment 
against  all  parties  liable  free  from  any  de- 
fense.    Had  the  check  been  indorsed  by 

C ,  there  would  be  no  recourse  upon 

the  bank  or  upon  its  customer  by  the  drawee 
bank  or  by  the  drawer  and  the  latter  would 
be  the  ultimate  loser.  But  unfortunately 
the  check  was  unindorsed  when  negotiated 
to  the  customer.  (See  Sec.  49  Negotiable 
Instruments  Act.)  It  seems,  therefore,  that 
the  money  paid  on  this  check  is  recoverable 
by  the  drawee  from  the  bank  and  by  it 
from  its  customer.  (Inquiry  from  N.  M., 
Feb.,  1919.) 

Liability  of  bank  receiving  payment  of 
unindorsed  check 

1975.  What  is  the  liability  of  a  bank 
receiving  payment  from  the  drawee  of  a 
check,  where  the  payee  has  not  indorsed? 
Opinion:  Title  to  a  check  can  be  transferred 
without  indorsement,  although  the  trans- 
feree takes  no  greater  rights  than  his  trans- 
feror, and  when  bank  B  presents  a  check 
lacking  the  paj'^ee's  indorsement  for  pay- 
ment, it  impliedly  warrants  that  it  has  good 
title  and  right  to  receive  payment  and  if 
this  warranty  is  broken  it  would  be  liable 
to  the  payor  bank  for  breach  of  warranty 
and  also  upon  the  ground  that  it  had  re- 
ceived money  to  which  it  was  not  entitled. 
To  the  drawer  of  the  check,  bank  A  is  liable 
in  case  of  anything  wrong,  but  it  has  right 
of  recovery  from  bank  B.  (Inquiry  from 
S.  C,  June,  1915.) 

Indorsement  by  depositary  bank  ^'credit 
account  of  within  named  payee'' 

1976.  The  payee  of  a  check  deposits  it 
unindorsed  in  his  bank,  which  stamps  on  the 
back  "deposited  to  the  credit  of  the  within- 
named  payee,"  followed  by  the  name  of  the 


455 


1977-1982] 


DIGEST  OF  LEGAL  OPINIONS 


bank.  What  should  the  drawee  do?  Opin- 
ion: The  drawee  is  not  legally  obliged 
to  pay  a  check  unindorsed  by  the  payee, 
even  upon  guaranty  of  the  missing  indorse- 
ment. But  in  general  the  drawee  would  be 
justified  in  paying  upon  guaranty,  as  such 
payments  in  the  large  majority  of  cases 
would  facilitate  business.  In  a  minority  of 
cases  where  the  payee  had  no  title,  or  the 
check  was  raised,  or  other  valid  reason 
existed  why  the  check  would  not  be  charge- 
able to  the  drawer's  account,  the  guaranty 
would  protect  the  drawee  bank.  In  special 
cases  where  the  drawer  might  desire  the 
personal  indorsement  of  the  payee,  payment 
even  upon  guaranty  should  be  refused. 
Payment  without  guaranty  would  be  at  the 
risk  of  the  bank  in  jurisdictions  where  an 
indorsement  for  deposit  is  held  restrictive 
and  to  create  a  mere  agency  to  collect  in, 
and  not  to  confer  title,  upon  the  bank  of 
deposit,  for  a  mere  agent  is  not  responsible 
after  turning  over  the  proceeds.  The  suffi- 
ciency and  effectiveness  of  different  forms 
of  indorsement  and  of  guaranty  are  con- 
sidered in  4  A.  B.  A.  Jl.  300.  Lynch  v. 
First  Nat.  Bk.,  107  N.  Y.  184.  Rowley 
V.  Nat.  Bk.  of  Deposit,  18  N.  Y.  S.  545. 
(Inquiry  from  N.J.,  Nov. , 1911,  Jl.) 

1977.  The  indorsement  of  the  payee  of  a 
check  was  missing  and  the  following  in- 
dorsement was  used:  "Credited  to  the 
account  of  the  within-named  payee  with  the 
Blank  National  Bank."  Opinion:  For  all 
practical  purposes  the  drawee  in  paying  the 
check  would  be  as  safe  as  it  would  where  the 
payee  had  personally  indorsed.  {Inquiry 
from  N.  J.,  Jan.,  1910,  Jl.) 

1978.  The  payee  Of  a  check  deposits  it 
unindorsed  in  his  bank  which  stamps  on  the 
back  of  check,  "Credited  to  the  account  of 
the  within  named"  and  forwards  it  with  its 
guaranty  of  indorsement.  Should  the 
drawee  bank  refuse  payment  because  of 
lack  of  indorsement?  Opinion :  Technically 
the  payor  bank  is  within  its  rights  in  refusing 
to  pay  a  check  where  the  indorsement  of  the 
payee  is  lacking.  But  it  is  customary,  in 
order  to  facilitate  business,  to  make  payment 
in  such  a  case  where  the  indorsement  is 
supplied  in  some  such  form  as  stated  supple- 
mented by  a  guaranty  of  the  prior  indorse- 
ment. While  this  is  customary,  however, 
and  a  check  so  indorsed  would  generally  go 
through,  the  drawee  nevertheless  would 
have  the  right  to  refuse  payment  in  any  par- 
ticular case,  if  it  was  unwilling,  on  such  forms 
of  indorsement.  {Inquiry  from  Vt.,  May, 
1917.) 


1979.  Should  a  drawee  bank  pay  a  check 
indorsed  with  rubber  stamp  on  the  back  as 
follows :    "Credited  account  of  within-named 

payee  or  indorsee  in  First  Nat.  Bank 

Pa.?"  Opinion:  It  is  not  infrequent  for  a 
bank  of  deposit  to  place  such  an  indorsement 
upon  a  check  when  it  has  been  deposited  to 
the  credit  of  the  payee,  with  his  indorsement 
lacking.  Frequently  the  stamp  is  coupled 
with  the  words  "absence  of  indorsement 
guaranteed."  The  payor  bank  is  under  no 
obHgation  to  pay  upon  such  indorsement, 
but  many  banks  do  so.  Others  certify  the 
check  and  send  it  back  for  indorsement. 
The  drawer  who  relies  upon  the  paid  check 
as  a  receipt  from  the  payee  for  money  paid 
will  not,  of  course,  have  the  payee's  in- 
dorsement, but  he  will  have  the  indorsement 
of  the  bank  of  deposit  showing  that  the 
money  went  to  the  credit  of  the  payee's 
account  and  this  should  be  sufficient.  {In- 
quiry from  Pa.,  Feb.,  1912.) 

1980.  A  bank  has  an  indorsement  stamp 
as  follows:  "Credited  to  the  account  of  the 
within-named  indorsee  or  payee.    Absence 

of  indorsement  guaranteed  by  the  

Bank."  Opinion:  The  payor  bank  is  under 
no  obligation  to  pay  upon  such  an  indorse- 
ment, but  many  do  so.  The  drawer  who 
relies  upon  the  paid  check  as  a  receipt  from 
the  payee  for  money  paid  will  not  have  the 
payee's  indorsement,  but  he  will  have  an 
indorsement  showing  that  the  money  went 
to  the  payee's  account,  and,  for  all  practical 
purposes,  this  should  be  sufficient.  {In- 
quiry from  Pa.,  Nov.,  1917.) 

Indorsement   of  depositary   hank   supplying 
missing  indorsement  of  payee 

1981.  Is  the  following  a  good  indorse- 
ment, "Credited  to  the  account  of  the  with- 
in-named payee.    Indorsement  supplied  and 

guaranteed    by  Bank"?     Opinion: 

It  is  not  infrequent  for  the  bank  of  deposit 
to  use  such  indorsement  upon  a  check  when 
it  has  been  deposited  to  the  credit  of  the 
payee.  The  stamp  is  frequently  coupled 
with  the  words  "absence  of  indorsement 
guaranteed."  There  is  no  obligation  upon 
the  payor  bank  to  pay  upon  such  an  in- 
dorsement, but  many  banks  do  so.  Others 
certify  the  check  and  send  it  back  for  in- 
dorsement. {Inquiry  from  Pa.,  March, 
1920.) 

President  of  depositary  hank  supplying 
missing  indorsement  of  payee 

1982.  A  drawee  bank  returned  a  check 
to  the  indorsing  bank  because  of  lack  of 


456 


INDORSER  AND  INDORSEMENT 


[1983-1987 


indorsement  by  the  payee.  The  president 
of  the  latter  bank,  in  the  presence  of  the 
messenger,  indorsed  the  name  of  the  payee. 
Should  the  drawee  pay  the  check?  Opinion: 
The  check  may  be  safely  paid  by  the  drawee, 
provided  the  payee  has  authorized  or  ratified 
the  indorsement.  The  knowledge  of  the 
messenger  that  the  president  indorsed  the 
name  of  the  payee  on  the  check  is  imma- 
terial. If  the  act  of  the  president  was  un- 
authorized, the  collecting  bank  would  be 
responsible  for  receiving  money,  without 
authority  of  the  payee,  to  which  it  was  not 
entitled  and  would  be  obliged  to  refund. 
{Inquiry  from  Iowa,  Nov.,  1915.) 

Transfer  of  note  and  mortgage  security  without 
indorsement 

1983.  Where  A,  the  payee  of  a  note 
secured  by  mortgage,  transfers  the  note  and 
security  to  C,  for  value,  but  without  in- 
dorsing the  note,  A  signing  release  deed  and 
attaching  same  to  mortgage,  is  the  note 
negotiable?  Opinion:  C  would  not  acquire 
any  better  title  than  possessed  by  A.  In 
other  words,  if  the  maker  of  the  note  had 
a  defense  against  A,  such  defense  would  be 
good  against  C.  Further,  if  the  assignment 
of  the  mortgage  is  not  recorded  and  the 
maker  of  the  note  paid  the  same  to  A  at 
maturity,  without  notice  that  it  had  been 
assigned  to  C,  he  would  have  a  good  defense 
against  C.  In  the  transaction  stated,  there- 
fore, C  would  not  take  a  full  negotiable  title, 
but  only  one  subject  to  defenses.  True,  C 
takes  the  same  title  as  A  by  this  mode  of 
transfer,  and  if  A  could  enforce  the  note  and 
security  against  the  maker,  so  could  C;  but 
if  there  is  any  defense  by  the  maker  against 
A,  C  would  take  no  greater  rights.  Webster 
V.  Carter.  (Ark.)  138  S.  W.  1006.  Gumaer 
V.  Sowers,  31  Colo.  164.  Simpson  v.  Hall, 
47  Conn.,  418.  Haskell  v.  Mitchell,  53  Me. 
468.  Fitch  v.  McDowell,  80  Hun.  (N.  Y.) 
207.    (Inquiry  from  III.,  April,  1917.) 

Indorsement    by    payee    when    check 
presented   in  person 

Drawee's  right  to  require  indorsement  by  payee 

1984.  Can  a  drawee  bank  legally  refuse 
payment  of  a  check  solely  because  the 
indorsee  refuses  to  indorse  it?  Opinion: 
The  law  is  not  settled  on  this  question. 
There  are  cases  which  hold  that  a  bank  can- 
not require  the  payee's  indorsement  where 
the  payee  presents  in  person;  but  there  are 
other  cases  which  support  the  view  that  by 
custom  a  bank  may  refuse  payment  if  the 
payee  declines  to  indorse,  and  this  would 


equally  apply  to  the  holder  by  indorsement 
from  the  payee.  It  would  be  better  if  the 
banks  would  take  the  stand  that,  by  reason- 
able custom,  they  are  entitled  to  indorse- 
ment of  the  payee  or  indorsee  before  paying 
the  money.    {Inquiry  from  Ga.,  Sept.,  1913.) 

1985.  May  a  bank  require  the  payee  of 
a  check  drawn  to  "P  or  order"  to  indorse  it 
when  he  personally  presents  it?  Opinion: 
The  majority  of  courts  would  be  likely  to  up- 
hold the  rule  established  by  custom  that  the 
bank  may  refuse  payment  if  the  payee  de- 
chnes  to  indorse.  At  common  law,  however, 
the  debtor  could  not  require  a  receipt  as  a 
condition  of  payment,  and  it  has  been  held  in 
some  cases  that  a  bank  cannot  require  the 
payee's  indorsement  where  the  payee  pre- 
sents the  check  in  person.  The  insertion  in 
the  check  of  "order  of  P,"  instead  of  "P  or 
order,"  would  not  make  any  difference,  as 
there  is  no  legal  distinction  between  the  two 
phrases.  Sanford  v.  Buckley,  30  Conn.  349. 
Durgin  v.  Bartol,  64  Me.  473.  Meuer  v. 
Phoenix  Nat.  Bk.,  94  N.  Y.  App.  Div.  331. 
Osborn  v.  Gheen,  5  Mackey  (D.  C.)  189. 
Pickle  V.  Muse,  88  Tenn.  380.  Frederick  v. 
Cotton,  2  Showers,  8.  Smith  v.  McClure, 
5  East,  476.  Huhng  v.  Hogg,  1  Watts  &  S. 
(Pa.)  418.  Howard  v.  Palmer,  64  Me.  86. 
{Inquiry  from  III.,  Feb.,  1913,  Jl.) 

1986.  Should  the  drawee  of  a  check 
indorsed  in  blank  by  the  drawer  pay  it  to  the 
payee  in  person,  without  his  indorsement? 
Opinion:  Some  courts  hold  the  payee  need 
not  indorse  when  he  presents  the  check  in 
person,  while  others  uphold  the  right  of  the 
bank  to  require,  the  indorsement.  It  is 
customary  to  require  the  paj'ee's  indorse- 
ment as  evidence  that  he  has  received  pay- 
ment, and  this  requirement  is  none  the  less 
necessary  because  the  drawer  has  indorsed 
the  check  in  blank.  The  check  is  not  pay- 
able to  bearer.  Osborn  v.  Gheen,  5  Mackey, 
(D.  C.)  189.  Pickle  v.  Muse,  88  Tenn.  380. 
McCurdy  v.  Society  of  Sav.,  6  Oliio  Dec. 
1169.    {inquiry  from  Ore.,  May,  1915,  Jl.) 

1987.  A  check  payable  to  John  Jones  or 
order  was  presented  by  him  to  the  bank 
where  payable,  and  same  was  paid  without 
his  indorsement.  The  paying  bank  asks 
whether  it  could  be  compelled  to  pay  him 
again  in  the  event  he  should  claim  lie  did  not 
receive  the  money.  Opinion:  Some  courts 
hold  that  when  the  paj-ee  presents  a  check 
in  person,  the  bank  has  no  legal  right  to 
require  an  indorsement;  while  other  courts 
hold  such  requirement  is  customary  and  one 
which  the  bank  can  enforce.     Should  the 


457 


1988-1992] 


DIGEST  OF  LEGAL  OPINIONS 


check  be  paid  to  the  payee  without  an  in- 
dorsement and  some  time  after  he  should 
come  to  the  bank  and  say  he  did  not  get  the 
money,  the  question  is  asked  whether  the 
bank  would  be  compelled  to  pay  him  again. 
Under  the  law,  the  possession  of  the  check 
by  the  bank  would  be  prima  facie  evidence 
that  the  bank  had  paid  it  even  without  the 
payee's  indorsement,  and  it  is  doubtful 
whether  the  payee  could  overcome  this 
evidence  and  affirmatively  prove  that  he  did 
not  get  the  money,  which  he  would  have  to 
do  in  order  to  recover.  It  is  best,  however, 
for  the  bank  to  insist  on  the  payee  indorsing 
the  check.    {Inquiry  from  III.,  April,  1916^ 

1988.  "Should  a  bank  require  the  in- 
dorsement of  a  customer  when  he  makes  a 
check  payable  to  himself  and  cashes  it  over 
the  counter?"  Opinion:  Some  courts  hold 
that  when  the  payee  presents  a  check  in 
person,  the  bank  has  no  legal  right  to  re- 
quire an  indorsement;  while  other  courts 
hold  such  requirement  is  customary  and  one 
which  the  bank  can  enforce.  Should  a  check 
be  paid  to  the  payee  without  an  indorsement 
and  some  time  after  he  should  come  to  the 
bank  and  say  he  did  not  get  the  money, 
the  question  arises  whether  the  bank  could 
be  compelled  to  pay  him  again.  Under  the 
law,  the  possession  of  the  check  by  the  bank 
would  be  prima  facie  evidence  that  the  bank 
had  paid  it,  even  without  the  payee's 
indorsement,  and  it  is  doubtful  whether  the 
payee  could  overcome  this  evidence  and 
affirmatively  prove  that  he  did  not  get  the 
money,  which  he  would  have  to  do  in  order 
to  recover.  It  would,  however,  be  better 
for  the  bank  to  insist  on  the  payee  indorsing 
the  check.    (Inquiry  from  Ore.,  Nov.,  1916^ 

Drawer's  check  to  order  of  "self" 

1989.  Is  it  necessary  for  the  drawer  of  a 
check  payable  to  the  order  of  "self"  to 
indorse  the  same  where  he  gives  it  to  a 
merchant  in  payment  of  a  bill?  Is  it  nec- 
essary for  a  drawer  to  indorse  a  check 
payable  to  the  order  of  "self,"  "cash,"  or 
"bearer"  where  he  presents  it  himself  to  the 
bank  for  payment?  Opinion:  A  check 
payable  to  the  order  of  "self"  is  not  payable 
to  bearer  but  to  the  drawer's  order  and 
requires  the  drawer's  indorsement  to  enable 
the  merchant  to  collect  it.  Where  the 
drawer  himself  presents  his  check  at  the  bank 
payable  to  order  of  "self",  "cash"  or  "bearer", 
it  is  doubtful  if  indorsement  can  be  required 
or  is  necessary.  Where  payable  to  "cash"  or 
"bearer"  no  indorsement  is  necessary.  Where 
payable  to  "self"  or  "myself,"  which  is  the 


same  as  if  drawer's  name  was  inserted  as 
payee,  there  is  more  reason  for  requiring  the 
indorsement  as  it  is  not  presented  by  any 
bearer,  but  by  a  specified  payee  to  whom  the 
check  has  been  made  payable.  On  this 
latter  point  the  courts  differ.  {Inquiry 
from  S.  D.,  Aug.,  1914.) 

Payment    hy    drawee    to   fraudulent    payee 
without  indorsement 

1990.  The  payee  of  a  check  obtained  it 
from  the  drawer  by  fraudulent  means  and 
received  cash  for  it  from  the  drawee  bank 
which  did  not  require  his  indorsement.  Is 
the  bank  protected?  Opinion;  It  has  been 
held  in  some  cases  that  there  is  no  obligation 
on  the  part  of  the  payee  to  indorse  as  a 
prerequisite  of  receiving  payment.  But  in 
the  case  of  Pickle  v.  Muse,  88  Tenn.  380,  7 
L.  R.  A.  93,  17  Am.  St.  Rep.  900,  the  court 
said  it  was  the  custom  for  banks  to  require 
the  payee's  indorsement  so  as  to  constitute 
evidence  as  between  the  drawer  and  payee 
of  such  payment.  In  the  present  case, 
however,  the  bank  would  undoubtedly  be 
protected  without  the  indorsement  of  the 
payee,  even  though  the  payee  did  not  come 
into  the  possession  of  the  check  in  due 
course.  The  efficiency  of  the  indorsement 
would  be  simply  to  prove  that  the  payee 
got  the  money.  If  it  was  shown  that  he 
received  the  money,  whether  or  not  he 
indorsed  the  check,  the  bank  would  be 
protected,  for  the  drawer  has  ordered  the 
bank  to  pay  the  money  to  the  payee  or  to 
his  order  and  cannot  complain  because  the 
bank  has  done  so  even  though  the  payee  has 
defrauded  the  drawer.  {Inquiry  from  Mo., 
Oct.,  1914.) 

Indorsement    of   bearer    paper 

Bearer  checks  do  not  legally  require 
indorsement 

1991.  A  check  was  presented  "pay  to  the 
order  of  bearer,  ten  dollars,"  and  a  bank 
refused  to  cash  it  until  the  bearer  indorsed  it. 
Opinion:  The  indorsement  cannot  legally 
be  required.  A  check  payable  to  "order  of 
bearer"  is  the  equivalent  of  one  payable  to 
bearer.  Frederick  v.  Cotton,  2  Showers  8. 
Smith  V.  McClure,  5  East  476.  Huling  v. 
Hogg,  (Pa.)  1  Watts  &  S.  418.  Howard  v. 
Palmer,  64  Me.  86.  Durgin  v.  Bartol,  64 
Me.  473.    {Inquiry  from  La.,  June,  1911,  Jl.) 

Right  to  require  indorsement  before  payment 
of  hearer  check 

1992.  Is  a  paying  teller  justified  in  re- 
questing the  indorsement  on  a  bearer  check 


i 


4 

i 


458 


INDORSEE  AND  INDORSEMENT 


[1993-1998 


of  the  person  to  whom  he  pays  the  money? 
Opinion:  The  holder  is  under  no  legal 
obhgation  to  indorse  a  bearer  check  when 
presenting  same  for  payment.  It  is  cus- 
tomary for  banks  to  request  indorsement 
by  the  holder  upon  receiving  payment,  and 
the  request  is  generally  complied  with;  but 
if  the  request  was  refused,  the  bank  would  be 
held  without  legal  right  to  require  such  in- 
dorsement and  would  not  be  justified  in 
refusing  payment  for  that  reason.  {Inquiry 
from  Conn.,  Feb.,  1917.) 

1993.  Can  a  bank  legally  demand  an 
indorsement  from  a  person  who  presents  for 
payment  a  bearer  check?  Under  Art.  3, 
Sec.  49  of  Neg.  Inst.  Law,  is  an  instrument 
payable  to  bearer  considered  an  instrument 
payable  to  the  order  of  the  holder?  Opinion: 
A  bank  cannot  legally  require  the  indorse- 
ment of  a  check  payable  to  bearer.  It  is 
customary  to  request  such  indorsement 
before  pajdng  a  bearer  check,  but  it  cannot 
be  legally  required.  Sec.  49  of  Neg.  Inst. 
Law  relates  to  the  transfer  of  an  instrument 
payable  to  order  without  indorsement;  and 
it  is  clear  that  an  instrument  payable  to 
bearer  is  not  to  be  considered  as  an  instru- 
ment payable  to  order.  In  earlier  sections 
of  the  Act  definitions  will  be  found  of  when 
an  instrument  is  payable  to  bearer  and  when 
it  is  payable  to  order,  and  it  will  also  be  seen 
by  Sec.  30  of  the  Act  that  "if  payable  to 
bearer  it  is  negotiated  by  delivery;  if  pay- 
able to  order  it  is  negotiated  by  the  in- 
dorsement of  the  holder  completed  by  de- 
livery." Sec.  49  has  no  application  to  bearer 
instruments.  {Inquiry  from  Mass.,  Dec, 
1920.) 

Check  payable  to  ''cash" 

1994.  A  bank  refused  payment  on  a 
check  payable  to  "cash"  because  it  was  not 
indorsed  by  the  drawer,  and  inquires  as  to 
whether  or  not  the  drawer  could  be  made 
to  indorse  it.  The  bank  insists  that  the 
customer  should  insert  the  word  "myself" 
or  "bearer"  and  also  indorse  the  check. 
Opinion:  Indorsement  by  the  drawer  is  not 
necessary.  So  far  as  the  customer  is  con- 
cerned, if  the  bank  objects  to  the  form  pay- 
able to  "Cash"  and  insists  that  he  insert  the 
word  "Bearer"  or  "Myself"  and  indorse  the 
check,  it  is  within  the  bank's  power  to  close 
the  account  unless  he  complies  with  its 
requirements  in  this  respect.  But  so  far  as 
the  law  is  concerned,  a  check  payable  to 
"Cash"  is  legal  and  vahd,  being  in  law 
payable  to  bearer,  and  does  not  require  in- 
dorsement either  by  the  drawer  or  anybody 


else  as  a  prerequisite  to  payment.    {Inquiry 
from  S.  D.,  April,  1919.) 

1995.  Does  a  check  made  payable  to 
"Cash"  require  the  indorsement  of  the 
party  presenting  it  if  other  than  the  maker? 
Opinion:  A  check  made  payable  to  "Cash" 
is,  in  law,  payable  to  bearer,  and  there  is  no 
legal  requirement  of  indorsement  where 
presented  by  a  holder  other  than  the  maker. 
It  is  customary,  however,  for  banks  to  re- 
quest the  presenter  to  indorse.  {Inquiry 
from  Ohio,  Dec,  1917.) 

1996.  A  bank  followed  the  practice 
of  paying  checks  drawn  on  it  payable  to 
"cash."  Payment  was  made  to  the  hold- 
ers without  indorsement  of  the  drawer  and 
the  bank  questions  the  safety  of  paying  such 
check  when  not  presented  by  the  drawer  in 
person.  Opinion:  A  check  drawn  payable  to 
"cash"  is  payable  to  bearer  and  can  be  safely 
paid  by  the  drawee  bank  to  a  holder  other 
than  the  drawer  without  the  indorsement  of 
the  latter.  The  drawee  is  under  obligation 
to  the  drawer  to  pay  in  the  absence  of  evi- 
dence of  circumstances  indicating  that  the 
holder  may  have  come  by  the  check  wrong- 
fully. Neg.  Inst.  A.,  Sec.  9  (Comsr's.  dft.). 
Cleary  v.  De  Beck  Plate  Glass  Co.,  104  N. 
Y.  S.  831.  {Inquiry  from  Ala.,  Oct.,  1917 
Jl.) 

1997.  A  customer  of  a  bank  drew  a 
check  on  it  "Pay  to  the  order  of  cash,"  and 
gave  it  to  a  stranger  who  presented  it  at  the 
bank  which  refused  payment  on  the  ground 
that  the  bearer  was  a  stranger  who  was 
unable  to  furnish  identification.  It  is  asked 
if  this  is  not  the  proper  course  to  take,  be- 
cause of  the  fact  that  the  check  was  an  order 
check  instead  of  being  made  out  to 
"Bearer?"  Opinion:  A  check  payable  to 
the  order  of  "Cash"  is  none  the  less  payable 
to  bearer  because  it  contains  the  words 
"order  of."  The  bank  was  not  right  in 
refusing  to  pay  the  check.  It  was  not  an 
order  check  which  required  indorsement  or 
identification.  While  it  is  not  infrequent 
for  banks  to  request  the  holder  of  a  bearer 
check  to  indorse  it,  indorsement  or  identifi- 
cation cannot  be  legally  required.  {Inquiry 
from  Pa.,  June,  1917.) 

1998.  May  a  drawee  bank  refuse  to  pay 
a  check  payable  either  to  "Cash"  or  "Bear- 
er" if  the  holder  refuses  to  indorse  same? 
Would  the  same  rule  apply  if  the  check  was 
made  payable  to  "A  or  bearer?"  Opinion: 
In  each  case  stated  the  check  is  payable  to 
bearer,  and  the  courts  have  held  in  a  number 
of  cases  that  a  bank  cannot  compel  the 


459 


1999-2005] 


DIGEST  OF  LEGAL  OPINIONS 


bolder  of  a  bearer  check  to  indorse  same  be- 
fore making  payment.  While  it  is  custom- 
ary to  request  indorsement  and  for  the 
holder  to  comply,  it  is  not  legally  compul- 
sory on  the  holder  to  indorse.  As  a  conse- 
quence, if  the  bank  refused  to  cash  a  check 
in  either  of  the  above  instances  because  the 
holder  refused  to  indorse,  it  would  be  a 
dishonor  of  the  check  and  the  bank  would  be 
hable  in  damage  to  the  drawer  for  dis- 
honoring his  obhgation.  {Inquiry  from 
S.  C,  Jan.,  1919.) 

Check  payable  to  "A  or  hearer'' 

1999.  Is  it  necessary  in  Idaho  for  check 
made  payable  to  "A  or  bearer"  to  be  in- 
dorsed by  A  as  bearer?  Opinion:  The  Ne- 
gotiable Instruments  Act  expressly  provides 
that  a  check  is  payable  to  bearer  "when  it 
is  payable  to  a  person  named  therein  or 
bearer."  An  instrument  payable  to  bearer 
may  be  negotiated  by  delivery  and  does  not 
require  indorsement.  {Inquiry  from  Ida., 
Feb.,  1917.) 

2000.  Richard  Roe  draws  his  check 
payable  to  "John  Doe  or  bearer."  Can  the 
paying  bank  be  compelled  to  pay  the  amount 
to  a  third  party  as  bearer  without  the  in- 
dorsement of  the  payee?  Opinion:  A  check 
payable  to  "John  Doe  or  bearer"  is  payable 
to  bearer  and  does  not  require  the  indorse- 
ment of  John  Doe  to  entitle  the  bearer  to 
receive  payment.  Neg.  Inst.  A.,  Sec.  9 
(Comsr's.  dft.).  Sec.  187  So.  Dak.  Act. 
{Inquiry  from  S.  D.,  Jan.,  1919,  Jl.) 

Check  indorsed  in  blank  presented  by  subse- 
quent holder 

2001.  Does  a  check  indorsed  in  blank 
require  further  indorsements?  May  a 
drawee  bank  require  the  subsequent  holder 
presenting  a  check  in  person  to  indorse  it? 
Opinion:  Where  a  check  is  indorsed  in  blank 
by  the  payee  it  is  payable  to  bearer  and  does 
not  require  indorsement  by  each  successive 
holder.  Where  a  check  is  presented  in 
person  by  a  payee  some  courts  hold  that  he 
cannot  be  compelled  to  indorse  as  a  pre- 
requisite of  payment,  others  hold  the  con- 
trary view,  which  is  preferred.  {Inquiry 
from  S.  D.,  May,  1914,  Jl.) 

Identification  of  holder  of  bearer  check  cannot 
be  required 

2002.  Can  a  bank  insist  upon  identifi- 
cation of  a  party  presenting  a  check  made 
payable  as  follows:  Either  "to  bearer," 
"to  order  of  bearer"  or  "to  bearer  or  order?" 
Opinion:    The  forms  of  checks  mentioned 


are  all  payable  to  bearer  and  although  it  is 
customary  for  some  banks  to  request  iden- 
tification or  that  bearer  indorse  the  check, 
there  is  no  legal  obligation  upon  the  holder 
to  comply.  The  holder  or  bearer  can  de- 
mand payment  and  if  refused  cause  the 
check  to  be  protested.  In  such  case  there 
would  be  a  wrongful  dishonor  which  would 
render  the  bank  liable  to  drawer  in  damages 
for  injuring  his  credit.  {Inquiry  from  N.  Y., 
March,  1917.) 

2003.  A  stranger  presented  at  a  bank 
a  check  drawn  by  a  depositor  which  was 
made  payable  to  cash.  Has  the  bank  a 
right  to  refuse  payment  because  of  lack  of 
identification  of  the  person  presenting  same? 
Because  of  such  refusal  has  the  holder  a 
right  of  action  against  the  bank?  Opinion: 
1.  A  check  payable  to  bearer  is  negotiable 
by  delivery  and  while  it  is  usual  for  the 
holder  to  indorse  at  the  time  of  receiving 
payment,  so  as  to  identify  himself  and  in- 
dicate to  whom  the  money  has  been  paid, 
indorsement  or  identification  is  not  necess- 
ary to  give  validity  to  the  payment.  2.  If 
the  bank  refuses  to  pay  because  of  lack  of 
identification,  the  holder  has  no  right  of 
action  against  the  bank.  3.  If  the  bank 
refuses  to  pay  the  check  because  of  lack 
of  identification  and  the  maker  of  the  check 
withdraws  the  balance  of  his  account,  and 
later  the  bearer  presents  the  check  with 
proper  identification  and  finds  the  funds 
have  been  withdrawn,  no  responsibility 
rests  upon  the  bank  either  to  the  holder  or 
drawer.     {Inquiry  from  Cal.,  April,  1920.) 

Note  to  A  or  bearer  transferred  by  A  without 
indorsement 

2004.  Is  the  payee  of  a  note  payable  to 
him  "or  bearer"  liable  to  the  holder  upon 
non-payment,  when  he  has  transferred  the 
note  by  delivery  without  indorsement? 
Opinion:  The  payee  is  not  liable.  The  Ne- 
gotiable Instruments  Act  provides  that  a 
person  negotiating  an  instrument  by  de- 
livery warrants  its  genuineness  but  it  pro- 
vides no  liability  to  pay  the  amount  if  the 
genuine  instrument  is  dishonored,  which 
liability  is  provided  in  the  case  of  an  in- 
dorser.     {Inquiry  from  Miss.,  May,  1917.) 

Rights  of  purchaser  of  check  received  under 
blank  indorsement 

2005.  The  seller  of  a  horse  received  in 
payment  the  check  of  the  buyer,  indorsed  in 
blank  by  the  payee,  which  without  in- 
dorsement he  cashed  at  a  bank.  Are  the 
maker  and  the  payee  liable  to  the  cashing 


460 


INDORSEE  AND  INDORSEMENT 


[2006-2012 


bank,  where  the  former  has  stopped  pay- 
ment of  the  check?  Opinion:  A  check 
indorsed  in  blank  by  the  payee  is  payable 
to  bearer  and  passes  by  delivery.  The  fact 
that  a  subsequent  holder  is  not  required  to 
indorse  it  in  procuring  the  cash  from  a 
bank  which  purchases  such  check  does  not 
deprive  the  purchasing  bank  of  the  status 
of  a  holder  in  due  course,  and  it  has  a  right 
to  recover  against  the  drawer  of  the  check 
who  has  stopped  payment  and  also  against 
the  indorser  provided  he  is  duly  charged  by 
demand  and  notice  of  dishonor.  {Inquiry 
from  N.  Y.,  July,  1915.) 

Special  indorsement  of   bearer    paper 

Instruments  payable  to  bearer  on  their  face 

2006.  A  check  drawn  payable  to  A  or 
bearer  was  lost  by  A  and  a  bank  paid  the 
amount  to  the  bearer  without  A's  indorse- 
ment, A  not  receiving  any  money.  The 
check  contained  several  special  indorse- 
ments. Opinion:  The  check,  being  payable 
to  bearer,  could  be  negotiated  by  delivery, 
even  if  indorsed  specially,  and  payment  by 
the  bank  to  the  bearer  was  vahd,  and  A  was 
the  loser.  Neg.  Inst.  A.,  Sees.  9, 40  (Comsr's. 
dft.)     (Inquiry  from  III,  Feb.,  1912,  Jl.) 

2007.  A  check  drawn  to  the  order  of 
bearer  is  deposited  in  a  bank,  indorsed  by 
the  depositor,  and  is  indorsed  by  the  bank 
to  its  New  York  correspondent.  The  check 
is  lost  and  later  is  cashed  by  another  bank. 
Opinion :  The  bank  which  cashed  the  check 
is  protected.  Where  an  instrument  is  pay- 
able to  bearer  and  is  indorsed  specially,  it 
may,  nevertheless,  be  further  negotiated  by 
delivery;  but  the  person  indorsing  specially 
is  liable  as  indorser  to  only  such  holders  as 
make  title  through  his  indorsement.  N.  J. 
Neg.  Inst.  Act,  Sec.  40.  {Inquiry  from  N. 
J.,  March,  1915,  Jl.) 

2008.  A  check  payable  to  "John  Doe  or 
bearer,"  is  delivered  by  the  payee,  without 
indorsement,  to  Richard  Roe,  who  supplied 
a  restrictive  indorsement.  Does  this  in- 
dorsement so  change  the  status  of  the  in- 
strument as  to  make  it  the  same  as  if  it  had 
been  made  payable  to  order  in  the  first 
instance?  Opinion:  The  question  is  an- 
swered by  Section  40  of  the  Negotiable 
Instruments  Act,  which  provides:  "Where 
an  instrument,  payable  to  bearer,  is  indorsed 
specially,  it  may  nevertheless  be  further 
negotiated  by  delivery;  but  the  person  in- 
dorsing specially  is  liable  as  indorser  to  only 
such  holders  as  make  title  through  his  in- 
dorsement." {Inquiry  from  Miss.,  Feb., 
1919.) 


Instrument   indorsed   in   blank  followed   by 
special  indorsement 

2009.  A  check  was  indorsed  in  blank  by 
the  payee  A  and  given  to  B,  who  indorsed 
specially  to  C.  The  check  was  lost  and 
cashed  for  the  finder  by  E  without  C's  in- 
dorsement. Opinion:  Under  the  existing 
condition  of  the  law  it  is  very  doubtful 
whether  E  holds  a  check  payable  to  bearer, 
or  takes  a  good  and  enforceable  title  as 
holder  in  due  course  without  C's  indorse- 
ment. Daniel  Neg.  Inst.,  Sec.  696.  {In- 
quiry from  Mont.,  July,  1911,  Jl.) 

2010.  What  is  the  effect  of  a  special 
indorsement  following  a  blank  indorsement? 
Opinion:  Where  an  indorsement  in  blank 
is  followed  by  a  special  indorsement,  the 
instrument  remained  payable  to  bearer 
under  the  common  law  rule,  but  under  the 
Negotiable  Instruments  Act  the  question  is 
in  doubt  whether  Section  9  (5)  which  pro- 
vides that  the  instrument  is  payable  to 
bearer  "when  the  only  or  last  indorsement 
is  an  indorsement  in  blank"  deprives  such 
instrument  of  bearer  character,  or  whether 
Sections  34,  35  and  40  apply,  under  which 
the  instrument  would  still  be  payable  to 
bearer.  Where  the  instrument  is  on  its  face 
payable  to  bearer,  a  special  indorsement  does 
not  change  its  character.  Smith  v.  Clarke, 
Peake,  225.  Walker  v.  McDonald,  2  Exch. 
527.  Habersham  v.  Lehman,  63  Ga.  383. 
Johnson  v.  Mitchell,  50  Tex.  212.  Neg.  Inst. 
L.  (Comsr's.  dft.).  Sees.  9,  34,  35,  40. 
{Inquiry  from  Minn.,  Dec,  1915,  Jl.) 

Special  indorsement  can  be  written  over  blank 
indorsement 

2011.  A  note  on  its  face  payable  to 
bearer  and  note  payable  to  order  indorsed 
in  blank  by  payee  are  both  payable  to  bearer 
and  negotiable  by  delivery,  but  first  cannot 
while  second  can  be  converted  into  order 
instrument  by  special  indorsement  written 
over  blank  indorsement.  Whether  special 
indorsement  written  under  blank  indorse- 
ment converts  paper  into  order  instrument 
is  uncertain.  Neg.  Inst.  Act  (Comsr's.  dft.), 
Sees.  9,  35,  40.  {Inquiry  from  Wash.,  Aug., 
1917,  Jl.) 

Bankruptcy  of  indorser 

Liability  of  insolvent  indorser  upon  note  of 
corporation 

2012.  A  trust  company  purchased  as  an 
investment  the  paper  of  a  corporation  which 
one  of  its  officers  personallj^  indorsed.  If  the 
corporation   should   fail   and   the   indorser 


461 


2013-2017] 


DIGEST  OF  LEGAL  OPINIONS 


should  become  insolvent,  would  his  individ- 
ual creditors  be  able  to  prevent  creditors  of 
the  corporation  from  realizing  on  his  indorse- 
ment? Opinion:  The  holders  of  the  cor- 
poration note,  indorsed  by  an  officer  thereof, 
would  be  entitled  to  prove  their  claim 
against  the  estate  of  the  indorser  and  share 
in  any  dividends  declared  by  the  assignee 
of  the  estate  in  equal  proportion  with  the 
individual  creditors  of  such  indorser.  The 
officer  is  to  be  regarded  as  an  indorser  in  his 
individual  capacity.  {Inquiry  from  N.  J., 
May,  1918.) 

Collection   of  indorsed  hills  receivable  from 
fnaker  where  indorser  bankrupt 

2013.  A  bank  holds  notes  indorsed  by  a 
bank  which  is  in  the  hands  of  a  receiver, 
upon  which  the  makers  are  not  in  position 
to  pay  at  maturity  and  desire  extensions. 
What  is  the  proper  procedure,  having  in 
mind  especially  the  holding  of  the  indorser? 
Opinion:  The  Negotiable  Instruments  Act 
provides  that  "A  person  secondarily  liable 
on  the  instrument  is  discharged ....  6.  By 
any  agreement  binding  upon  the  holder  to 
extend  the  time  of  payment  or  to  postpone 
the  holder's  right  to  enforce  the  instrument, 
unless  made  with  the  assent  of  the  party 
secondarily  liable,  or  unless  the  right  of 
recourse  against  such  party  is  expressly 
reserved."  It  is  questionable  whether  the 
receiver  would  have  power  to  consent  to 
such  an  extension  without  the  authority  of 
the  court.  The  better  way  is  to  fix  the  lia- 
bihty  of  the  indorsers  by  due  demand  and 
notice  of  dishonor  and  hold  the  paper  with- 
out a  formal  renewal  or  extension  as  past  due 
and  use  reasonable  dihgence  in  collecting 
from  the  makers.  Mere  delay  in  enforcing 
collection  does  not  discharge  indorsers.  It 
has  been  held  that  statutes  requiring  the 
holder  of  paper  to  prosecute  the  maker  to 
insolvency  to  hold  the  indorser  were  repealed 
by  the  enactment  of  the  Negotiable  Instru- 
ments Act.  Williams  v.  Paintsville  Nat. 
Bank,  137  S.  W.  (Ky.)  535. 

Concerning  notice  of  dishonor,  the  Nego- 
tiable Instruments  Act  provides  that  "where 
a  party  has  been  adjudged  a  bankrupt  or  an 
insolvent,  or  has  made  an  assignment  for 
the  benefit  of  creditors,  notice  may  be  given 
either  to  the  party  himself  or  to  his  trustee 
of  assignee."  {Inquiry  from  N.  C,  April, 
1921,  Jl.) 

Discharge  of  indorser 

Omission  of  demand  and  notice 

2014.  A  note  was  made  payable  at  and 
held  by  a  bank.    The  indorser  was  not  noti- 


fied of  the  non-payment  of  the  note  at 
maturity.  Opinion:  Demand  and  notice  of 
dishonor  are  necessary  to  preserve  the  in- 
dorser's  liability  unless  waived.  In  the  pres- 
ent case  the  holding  of  the  note  at  maturity 
by  the  bank  was  sufficient  demand,  but  the 
omission  to  notify  the  indorser  discharged 
him  from  liability.  Pa.  Neg.  Inst.  Act,  See. 
89.    {Inquiry  from  Pa.,  Nov.,  1914,  Jl-) 

2015.  A  note  was  transferred  by  the 
payee,  together  with  mortgage  security,  to  a 
third  party  the  original  owner  indorsing  the 
note.  The  note  when  due  was  not  presented 
or  protested.  The  payee  has  since  died,  and 
the  present  owner  is  endeavoring  to  hold  his 
estate.  Should  the  note  have  been  protested 
to  hold  the  indorser,  there  being  no  waiver  of 
protest?  Opinion:  The  indorser's  contract 
is  conditional  upon  due  demand  and  notice 
of  dishonor,  unless  waived.  The  Negotiable 
Instruments  Act  (Sec.  72,  Mich.  Act)  pro- 
vides that,  "except  as  herein  otherwise  pro- 
vided, presentment  for  payment  is  necessary 
in  order  to  charge  the  drawer  and  indorsers." 
Sec.  91  of  the  same  act  provides  that, "except 
as  herein  otherwise  provided,  when  a  nego- 
tiable instrument  has  been  dishonored  by 
non-acceptance  or  non-payment,  notice  of 
dishonor  must  be  given  to  the  drawer  and  to 
each  indorser,  and  any  drawer  or  indorser  to 
whom  such  notice  is  not  given  will  be  dis- 
charged." The  indorser  in  this  case  is  dis- 
charged by  omission  to  make  demand  and 
give  notice  of  dishonor  at  maturity.  {In- 
quiry from  Mich.,  Sept.,  1917.) 

Indorser  of  mortgage  note  discharged  by  failure 
of  presentment 

2016.  A  negotiable  note,  secured  by  a 
real  estate  mortgage,  was  not  presented  for 
payment  at  maturity.  The  note  was  pay- 
able in  Kentucky  and  apparently  all  the 
parties  resided  therein.  Is  the  indorser 
liable?  Opinion:  Under  the  Negotiable 
Instruments  Act  of  Kentucky  the  indorser 
would  be  discharged  by  a  failure  of  demand 
for  payment  and  of  notice  of  dishonor  at 
maturity.  If,  however,  the  indorsement  was 
governed  by  Indiana  law,  in  which  state  the 
Negotiable  Instruments  Act  was  not  passed 
until  after  this  transaction,  the  rule  would 
be  the  same  under  the  law  merchant.  A 
knowledge  of  dishonor  is  not  equivalent  to 
notice,  etc.,  so  that,  in  absence  of  a  waiver  by 
the  indorser,  he  would  be  discharged.  {In- 
quiry from  Ind.,  March,  1914.) 

Indorser  discharged  by  payment 

2017.  An  agent  of  a  grain  company  drew 


< 


462 


INTEREST  AND  USURY 


[2018-2022 


a'draft  on  it  payable  at  a  bank  at  which  the 
company  kept  no  checking  account.  The 
bank  cashed  the  draft  on  the  indorsement 
of  the  payee,  and  attached  its  own  sight 
draft  on  the  company  for  reimbursement. 
Opinion:  The  payment  of  such  draft  by  the 
bank  was  not  a  purchase,  but  was  a  dis- 
charge of  the  draft  and  of  the  indorser 
thereon,  so  that  there  would  be  no  recourse 
upon  such  indorser  in  the  event  the  company 
failed  to  take  up  the  draft.  {Inquiry  jroin 
Imoa,  Oct.,  1914,  Jl.) 

Payment    hy  drawee  to  insolvent  collecting 
hank 
I'  2018.     A  cashes  a  check  for  B  drawn  by 

1 1  C  on  bank  D.  It  is  deposited  in  bank  E  and 
sent  to  bank  F  which  collects  from  C  and 
fails.  B  refuses  to  settle  with  A,  claiming 
check  was  paid.  Opinion:  The  check  hav- 
ing been  paid,  the  liability  of  B  as  an  in- 
dorser is  at  an  end.  His  contract  is  condi- 
|i  tional  that  he  will  pay  the  check  if  upon  due 
P  presentment  it  is  dishonored  and  he  received 
due  notice  thereof.  {Inquiry  from  Tenn., 
April,  1916.) 

Partial  payment  of  note 
2019.  Does  the  holder  of  a  note,  in 
accepting  part  payment  thereof,  release  an 
indorser  from  further  liability  thereon? 
Opinion:  A  partial  payment  of  the  amount 
due  on  a  note  is  not  sufficient  consideration 
for  the  discharge  of  the  entire  amount,  under 
the  general  rules  govering  accord  and  satis- 
faction. (Hart  v.  Strong,  183  111.  349.  Fen- 
wick  v.  Philhps,  3  Mete  (Mass.)  87.    Lathrop 


V.  Page,  129  Mass.  19.  Carraway  v.  Odeneal, 
56  Miss.  223.  Bhss  v.  Shwarts,  65  N.  Y. 
444).  Assuming  the  indorser's  liability  has 
been  preserved  by  due  demand  and  notice, 
he  remains  hable  for  the  unpaid  portion. 
{Inquiry  from  Ala.,  May,  1920.) 

Consent  of  indorser  to  extension 

2020.  A  bank  submits  a  form  of  indorse- 
ment guaranteeing  payment  and  also  future 
payments  of  interest  in  renewal  of  the  note 
and  providing  that  indulgence  to  the  maker 
does  not  release  the  indorser.  Can  the 
indorser  agree  at  the  time  the  instrument  is 
executed  to  an  extension  without  his  knowl- 
edge which  would  not  discharge  him  from 
his  secondary  liabihty?  Opinion:  The  in- 
dorser's liability  can  be  preserved  by  a 
proper  clause  or  agreement  under  which  he 
consents  to  extensions  of  the  note.  The 
Negotiable  Instruments  Act  provides  that 
a  person  secondarily  liable  on  the  instru- 
ment is  discharged  "by  any  agreement 
binding  upon  the  holder  to  extend  the 
time  of  payment  or  to  postpone  the  holder's 
right  to  enforce  the  instrument,  unless 
made  with  the  assent  of  the  party 
secondarily  liable,  or  unless  the  right  of 
recourse  against  such  party  is  expressly 
reserved."  The  indorser,  therefore,  is 
discharged  unless  the  agreement  to  extend 
is  made  with  his  assent.  But  where  the 
extension  is  requested  by  the  indorser  he 
is  not  discharged.  Arlington  Nat.  Bk.  v. 
Bennett,  214  Mass.  352.  {Inquiry  from  R. 
I.,  April,  1917.) 


INTEREST  AND  USURY 


Calculation  of  interest 

Note  due  in  leap  year 

2021.  A  gives  his  note  for  $1000  to  B, 
dated  February  26,  1919,  payable  March  1, 
1920,  with  5%  interest.  What  is  the  amount 
of  interest  due  March  1st,  1920,  and  how 
many  months  and  days  is  interest  charge- 
able? Opinion:  1.  A  note  dated  January 
30th  payable  one  month  after  date,  is  due 
on  the  last  day  of  February,  which  in  a  leap 
year,  would  be  February  29th,  and  in  other 
years,  February  28th.  2.  Where  a  note  is 
dated  February  26,  1919,  and  made  payable 
March  1,  1920,  with  5%  interest  as  stated 
in  the  question,  the  interest  should  be  com- 
puted at  S50  for  the  year  ending  February 
26,  1920,  and  for  the  four  remaining  days 
interest  should  be  computed  for  4/30ths  of 


a  month,  which  would  make  the  total  in- 
terest $50.55.  {Inquiry  from  III.,  March, 
1919.) 

Basis  of  30  days  to  a  month 
2022.  The  custom  of  banks  to  compute 
interest  on  the  basis  of  30  days  to  a  month 
is  generally  held  valid  by  the  courts  and  in 
some  cases  sanctioned  by  statute,  but  in  a 
few  states,  including  Iowa,  such  method  is 
held  illegal.  Talbot  v.  First  Nat.  Bk.,  106 
Iowa  361.  Pool  V.  White,  175  Pa.  459. 
Camp  V.  Bates,  11  Conn.  487.  Patton  v. 
Lafayette  Bk.,  124  Ga.  965.  Planters  Bk. 
V.  Bass,  2  La.  Ann.  430.  Agricultural  Bk. 
V.  Bissell,  12  Pick.  (Mass.)  586.  Planters 
Bk.  V.  Snodgrass,  4  How.  (Miss.)  573; 
Lafayette  Bk.  v.  Findley,  1  Ohio  Dec. 
(Reprint)  49.  Merchants  Bk.  v.  Sarratt,  77 


463 


2023-2027] 


DIGEST  OF  LEGAL  OPINIONS 


S.  C.  14L  Parker  v.  Cousins,  2  Gratt.  (Va.) 
372.  N.  C.  St.  Bk.  V.  Cowan,  8  Lehigh 
(Va.)  238.  Bradley  v.  McKee,  3  Fed.  Cas. 
No.  1784.  (Inquiry  from  Iowa,  Jan.,  1916, 
Jl.) 

Computation  according  to  actual  number  of 
days 

2023.  A  note  in  the  sum  of  $100,000, 
dated  July  10,  1915,  was  executed  payable 
to  B  "four  months"  after  date  with  interest 
at  the  rate  of  eight  per  cent,  per  annum.  B 
insisted  that  the  interest  be  computed  and 
paid  for  the  actual  number  of  days  from  the 
date  of  the  note  to  maturity,  to  wit,  123 
days,  instead  of  on  the  basis  of  4/12  of  a 
year.  Opinion:  The  strict  legal  rule  is  to 
calculate  interest  according  to  the  actual 
number  of  days.  In  some  states  (not  in 
Oklahoma)  the  custom  to  calculate  interest 
on  the  monthly  instead  of  daily  basis  has 
been  legalized  by  statutes.  Pool  v.  White, 
175  Pa.  459.  {Inquiry  from  Okla.,  Aug., 
1916,  Jl.) 

New    York    rule   requires    computation  for 
actual  number  of  days 

2024.  Request  is  made  for  an  illustration 
of  the  proper  method  of  calculating  interest 
on  the  following  note:  "New  York  City, 
Oct.  27,  1919.  Amount,  $833.33.  November 
1st,  1920,  after  date,  we  promise  to  pay  to 
the  order  of  John  Doe  $833.33,  payable  at 

Bank,  New  York  City.  Value  received 

with  interest  *  *  *."  Opinion:  The  rule  in 
New  York,  in  figuring  interest  on  a  note,  is 
that  365  days,  and  not  360  days,  should  be  al- 
lowed to  a  year;  and  in  figuring  interest  for  a 
fraction  of  a  year,  interest  should  be  allowed 
for  the  actual  number  of  days  which  shall 
have  elapsed  at  the  maturity  of  the  note. 
(Utica  Bank  v.  Wager,  8  Cow.  [N.  Y.]  398. 
Utica  Bank  v.  Smalley,  2  Cow.  [N.  Y.]  770. 
Firemen's  Ins.  Co.  v.  Ely,  2  Cow.  [N.  Y.] 
678.  Utica  Ins.  Co.  v.  Tilman,  1  Wend. 
[N.  Y.]  555.)  Applying  this  rule  to  the 
present  form  of  note  submitted,  interest 
should  be  computed  for  a  year  of  366  days 
(this  being  a  leap  year),  plus  5  days,  making 
371  days  from  the  date  of  the  note,  October 
27,  1919,  to  the  date  of  its  maturity,  Novem- 
ber 1,  1920.  (Inquiry  from  N.  Y.,  Oct., 
1920.) 

2025.  WTiat  is  the  method  of  calculating 
interest  in  New  York?  Opinion:  The 
strict  legal  rule  in  regard  to  the  calculation 
of  interest  is  to  compute  it  according  to  the 
actual  time,  365  days  to  the  year.  But  it  is 
the  custom  of  banks  in  some  states  where 


calculations  of  interest  are  required  fre- 
quently to  compute  it  for  the  sake  of  con- 
venience at  30  days  to  the  month  and  12 
months  to  the  year.  In  some  states  this 
custom  to  calculate  interest  on  the  monthly 
instead  of  the  daily  basis  has  been  legaHzed 
by  the  statutes  which  provide  that,  in  cal- 
culating interest,  30  days  should  be  con- 
sidered a  month  and  360  days  a  year. 

In  New  York,  however,  there  is  no  such 
statute  and  where  the  computation  on  the 
monthly  basis  exceeds  6%,  as  calculated 
on  the  daily  basis,  it  has  been  held  in  early 
cases  to  work  usury.  Thus  in  New  York 
Firemen's  Insurance  Company  v.  Ely,  2  Cow. 
(N.  Y.)  678,  the  court  said: 

"The  statute  of  usury  speaks  of  years 
and  not  of  months.  Interest  is  to  be  at  the 
rate  7%  per  annum :  that  is,  at  the  rate  of 
7%  for  365  days;  the  legal  half  of  a  year, 
182  days;  and  the  legal  quarter,  91  days;  the 
law  paying  no  regard  to  the  odd  hours." 
The  rule  in  New  York,  therefore,  is  that, 
in  figuring  interest  on  a  note,  365  and  not  360 
days  should  be  allowed  to  a  year;  and  in 
figuring  interest  for  a  fraction  of  a  year, 
interest  should  be  allowed  for  the  actual 
number  of  days  which  shall  have  elapsed  at 
the  maturit}^  of  the  note. 

(Utica  Bank  v.  W^ager,  8  Cow.  [N.  Y.]  398. 
Utica  Bank  v.  Smalley,  2  Cow.  [N.  Y.]  770. 
Firemen  Ins.  Co.  v.  Ely,  2  Cow.  [N.  Y.]  678. 
Utica  Ins.  Co.  v.  Tilman,  1  Wend.  [N.  Y.] 
555).     (Inquiry  from  N.  Y.,  Oct.,  1920.) 

Blank   space  for  interest  left  in  note 

Promise  to  pay  interest  "at per  cent" 

means  legal  interest 

2026.  A  promissory  note  is  drawn  pay- 
able after  date  "with  interest  at  the  rate  of 
....  per  cent,  per  annum  until  paid." 
Opinion:  The  note  containing  a  blank  space 
for  the  statement  of  the  rate  draws  legal  in- 
terest from  date.  But  if  a  pen  line  is  drawn 
through  the  blank  after  the  words  "at  the 
rate  of,"  this  would  indicate  an  intentional 
erasure  of  the  entire  interest  clause.  Horn- 
stein  V.  Cifuno,  (Neb.)  125  N.  W.  136. 
Holmes  v.  Trumper,  22  Mich.  429.  First 
Nat.  Bk.  V.  Carson,  60  Mich.  437.  Hoopes 
V.  Collingwood,  10  Colo.  107.  (Inquiry 
from  Pa.,  Oct.,  1912,  Jl.) 

Collection    annually   and   at    maturity 

Three  year  note   "with  interest  at  6%  per 
annum" 

2027.  A  three  year  note  conains  a  pro- 
vision "with  interest  from  date  at  the  rate 
of   six   per   cent,    per   annum."     Opinion: 


464 


INTEREST  AND  USURY 


[2028-2033 


The  interest  is  not  collectible  annually,  as  no 
part  of  the  interest  is  due  until  maturity  of 
the  principal.  The  words  "payable  annual- 
ly" should  be  added  to  make  the  interest  col- 
lectible annually.  Ramsdell  v.  Hulett,  50 
Kan.  440.  {Inquiry  from  Kan.,  April, 
1914,  Jl) 

Long  term  notes  with  interest  at  stated  rate 
per  annum 

2028.  A  five  year  note  provides  "with 
interest  at  the  rate  of  seven  per  cent,  per 
annum  from  date  until  paid."  Opinion: 
Interest  is  not  collectible  annually,  as  no  part 
of  the  interest  is  due  until  maturity  of  the 
principal.  See  citation  of  cases  in  following 
opinion.  {Inquiry  from  Kan.,  Sept.,  1909, 
Jl.) 

2029.  A  three  years'  note  contains  a 
provision  "with  interest  at  the  rate  of  eight 
per  cent,  per  annum  from  date  until  paid." 
It  further  provides  "interest  to  become  as 
principal  when  due  and  bear  the  same  rate 
of  interest."  Opinion:  The  provision  does 
not  call  for  interest  payable  annually  but 
only  at  maturity  of  principal  and  therefore 
there  can  be  no  compounding  of  unpaid 
interest.  Ramsdell  v.  Hulett,  50  Kan.  440. 
Koc bring  v.  Muemminghoff,  61  Mo.  406. 
Tanner  v.  Investment  Co.,  12  Fed.  648. 
{Inquiry  from  Okla.,  Feb.,  1912,  Jl.) 

2030.  A  mortgage  note  was  made  paya- 
ble ten  years  after  date  "with  interest  at  the 
rate  of  5  per  cent,  per  annum  until  paid." 
The  mortgage  securing  the  note  contains  a 
copy  of  the  note  and  provides  that  payment 
of  the  note  is  made  in  accordance  with  its 
terms.  The  makers  of  the  note  refused  to 
pay  the  interest  annually.  Opinion:  The 
note  does  not  call  for  interest  payable 
annually  but  only  at  maturity  of  the  princi- 
pal. If  the  mortgage  provided  that  interest 
should  be  payable  annually  this  would  prob- 
ably govern  the  provisions  of  the  note.  See 
cases  in  Opinion  No.  2029  and  also  Johns  v. 
Rice,  (Iowa)  145  N.  W.  290.  {Inquiry  from 
Ore.,  Sept.,  1914,  Jl.) 

Compound  interest 

Unpaid  interest  does  not  draw  interest  in 
absence  of  contract 


2031.  A  note  for  $800  is  dated  August 
15,  1917,  paj'^able  six  months  after  date,  with 
interest  at  8  per  cent,  from  date.  The 
entire  $800  has  been  paid,  but  no  more. 
The  amount  of  interest  due  at  the  date  of 
the  payment  of  the  balance  of  the  $800  was 
about  $95.     This  was  in  February  of  this 


year.  Does  the  $95  draw  interest  from 
then?  Opinion:  In  the  absence  of  contract 
providing  for  compound  interest  a  bank  is 
not  entitled  to  charge  and  collect  interest 
upon  interest  after  the  same  becomes  due, 
thus  making  a  new  principal  upon  which 
interest  is  to  be  allowed.  It  is  competent, 
however,  in  Kansas  to  contract  for  the  pay- 
ment of  compound  interest.  (Gilmore  v. 
Hirst,  567  Kan.  626,  44  Pac.  603.  See  also 
Clark  V.  Skeen,  61  Kan.  526,  and  Parker  v. 
Plymell,  23  Kan.  402.)  In  the  instant  case 
there  is  no  agreement  in  the  note  or  other- 
wise that  the  8  per  cent,  interest  should 
itself  bear  interest  if  not  paid  when  due. 
Therefore,  the  $95,  being  the  amount  of 
interest  due  at  the  date  of  payment  of  the 
principal,  will  not  itself  draw  interest  from 
that  time.  {Inquiry  from  Kan.,  Dec, 
1919,  Jl.) 

South  Dakota  statute  as  affecting  collection  of 
interest  upon  unpaid  interest 

2032.  A  note  running  for  a  number  of 
years  contains  a  provsion  "with  interest 
payable  annually  at  the  rate  of,"  etc.,  but 
contains  no  provision  that  upon  the  default 
in  payment  of  any  installment  of  interest, 
such  interest  shall  itself  bear  interest.  Opin- 
ion: It  has  been  held  in  Missouri,  Wash- 
ington and  West  Virginia  that  without  spe- 
cial agreement  interest  cannot  be  collected 
upon  unpaid  interest.  (Kentucky  and  Texas 
contra.)  The  point  has  not  been  decided  in 
South  Dakota,  but  the  statute  providing 
"that  interest  is  paj^able  on  all  moneys  at 
the  rate  of  seven  per  cent,  per  annum  after 
they  become  due  on  any  instrument  of 
writing"  may  be  construed  to  include 
interest  on  unpaid  interest.  Stover  v. 
Evans,  38  Mo.  461.  Cullen  v.  Wliitham, 
33  Wash.  366.  Boggers  v.  Goff,  47  W.  Va. 
139.  Hall  V.  Scott,  90  Ky.  340.  Robertson 
V.  Parrish,  (Tex.  Civ.  App.)  39  S.  W.  646. 
{Inquiry  from  S.  Dak.,  Jan.,  1910,  Jl.) 

Validity  of  contract  that  unpaid  interest  at 
maximum  rate  shall  bear  maximum  rate 

2033.  A  note  is  payable  three  years 
after  date  with  interest  at  the  highest  legal 
rate  allowed  in  Kansas,  namely,  10  per  cent., 
and  contains  a  provision,  "Interest  payable 
aiuiually  and  if  not  paid  when  due  to  bear 
the  same  rate  of  interest  as  the  principal." 
The  holder  questions  the  validity  of  the 
provision.  Opinion:  (1)  Some  courts,  for 
example,  in  Illinois,  hold  such  a  provision 
usurious;  (2)  the  majority  hold  such  pro- 
vision invalid  and  unenforceable  as  contrary 


465 


2034-2038] 


DIGEST  OF  LEGAL  OPINIONS 


to  public  policy;  (3)  while  a  few  courts 
(Arkansas,  Georgia,  Mississippi,  Oklahoma, 
South  Carolina  and  Washington)  hold  such 
provision  valid  and  enforceable.  The  ques- 
tion has  not  yet  been  decided  in  Kansas. 
An  agreement  made  after  interest  is  due  to 
pay  interest  thereon  is  vaHd.  If  a  note  such 
as  above  provided  in  any  case  for  such  a  rate 
of  interest  that  the  compounding  thereof 
down  to  the  time  of  maturity  of  the  principal 
would  not  exceed  the  simple  interest  at  the 
highest  legal  rate,  the  stipulation  would  in 
any  event  probably  be  valid.  Drury  v. 
Wolfe,  134  111.  294.  Brown  v.  Crow, 
(Tex.)  29  S.  W.  653.  Eslava  v.  Lepretre, 
21  Ala.  504.  Lee  v.  Melby,  93  Minn.  4. 
Hager  v.  Blake,  16  Neb.  12.  Quackenbush 
V.  Leonard,  9  Paige  (N.  Y.)  334.  Jarrett  v. 
Nickell,  9  W.  Va.  345.  Carney  v.  Matthew- 
son,  86  Ark.  25.  Union  Sav.  Bk.  v.  Dotten- 
heim,  107  Ga.  606.  Merchants,  etc.,  Bk.  v. 
Gaston,  (Miss.  1910)  52  So.  633.  Covington 
V.  Fisher,  22  Okla.  207.  Newton  v.  Woodley, 

55  S.  C.  132.  Blake  v.  Yount,  42  Wash.  101. 
Sanford  v.  Lundquist,  (Neb.  1908)  118  N. 
W.  129.  Telford  v.  Garrels,  132  111.  550. 
McGovern  v.  Union  Mut.  L.  Ins.  Co.,  109 
111.  151.  Craig  v.  McCulloch,  20  W.  Va.  148. 
Young  V.  Hill,  67  N.  Y.  162.  Gen.  St. 
Kan.,  1909,  Chap.  56,  Sec.  4345.  Parker 
V.  Plymell,  23  Kan.  402.    Gihnore  v.  Hirst, 

56  Kan.  626.  {Inquiry  from  Kan.,  April, 
1914,  Jl) 

Illegality  of  compound  interest  clause  in 
Minnesota 

2034.  An  opinion  is  asked  as  to  the 
legality  of  the  following  clause  in  a  note: 
"Should  the  interest  not  be  paid  as  it 
becomes  due,  it  shall  be  added  to  the 
principal  and  bear  interest  at  the  same 
rate."  Opinion:  The  courts  in  many 
states  hold  that  interest  cannot  be  com- 
pounded in  this  way,  but  that  an  agreement 
to  pay  interest  is  only  lawful  where  the 
agreement  was  made  after  the  interest 
matured.  The  Minnesota  Statute  provides 
that  "in  the  computation  of  interest  upon 
any  bond,  note  or  other  instrument  or 
agreement,  interest  shall  not  be  com- 
pounded, but  any  contract  to  pay  interest, 
not  usurious,  upon  interest  overdue,  shall 
not  be  construed  to  be  usury.  Gen.  St. 
Minn.,  1913,  Ch.  51,  Sec.  5805.  {Inquiry 
from  Minn.,  Oct.,  1917.) 

2035.  A  note  contains  an  interest  clause 

as  follows:    "With  interest  at per 

cent,  per  annum  after until  paid. 

Interest    payable    annually.      Should    the 


interest  not  be  paid  as  it  becomes  due,  it 
shall  be  added  to  the  principal  and  bear 
interest  at  the  same  rate."  Would  such 
clause  violate  the  law  against  compound 
interest,  and  result  in  usury?  Opinion: 
In  Minnesota  a  contract  in  a  note  providing 
for  compound  interest  is  illegal  and  unen- 
forceable as  against  public  policy,  even 
though  the  amount  contracted  for  would  be 
less  than  simple  interest  at  the  maximum 
contract  rate.  Lee  v.  Melby,  93  Minn.  4; 
Gen.  Stat.  Minn.,  1913,  Sec.  5805.  {In- 
quiry from  Minn.,  Jan.,  1920,  Jl.) 

Validity  of  compound  interest  clause  in 
Mississippi 

2036.  Note  bearing  highest  rate  of 
interest  with  provision  that  unpaid  overdue 
interest  shall  bear  interest  not  usurious  in 
Mississippi.  Palm  v.  Fancher,  93  Miss.  785. 
{Inquiry  from  Miss.,  April,  1914,  Jl-) 

Missouri  rule  as  to  compounding 

2037.  Is  a  provision  in  a  note  that  if 
interest  is  not  paid  annually  it  is  to  com- 
pound annually  valid?  Opinion:  The 
Missouri  statute  permits  parties  to  contract 
in  writing  for  the  payment  of  interest,  but 
prohibits  compounding  more  than  once  in  a 
year.  The  note  conforms  to  the  statute  in 
this  respect.  Rev.  St.  Mo.  C.  62  Sec.  7185. 
{Inquiry  from  Mo.,  Jan.,  1919.) 

Time  certificate  of  deposit  with  compound 
interest 

2038.  A  corporation  desires  to  make  a 
time  deposit  with  a  national  bank,  with 
interest  to  be  compounded  annually  until 
the  amount  of  interest  is  equal  to  the  original 
deposit.  Is  this  permissible?  Can  the  bank 
give  a  letter  to  the  beneficiaries  of  the 
deposit  stating  that  there  has  been  a  time 
deposit  made  for  their  benefit  and  that  the 
bank  guarantees  to  pay  this  money  to  them 
at  the  expiration  of  the  period  described 
above?  Is  there  any  law  or  ruling  limiting 
the  rate  of  interest  to  be  paid  on  a  deposit 
of  this  character?  Opinion:  No  law  or 
ruling  is  known  which  would  limit  the  rate 
of  interest  which  a  national  bank  can  pay 
on  a  time  deposit  other  than  the  general 
interest  law  of  the  state  of  Oklahoma,  which 
provides  a  legal  rate  of  6%  and  a  contract 
rate  of  10%.  No  Oklahoma  statute  has 
been  found  which  prohibits  the  compounding 
of  interest  oftener  than  a  stated  period. 
There  seems  to  be  nothing  in  the  way  of  the 
issuing  of  certificates  of  deposit  providing 
for  payment  of  interest  annually  at  a  certain 


m 


466 


INTEREST  AND  USURY 


[2039-2044a 


rate  within  lawful  limits,  such  annual 
interest  to  be  added  to  the  principal  or 
compounded  and  itself  draw  interest,  com- 
pounding to  continue  annually  until  the 
amount  of  interest  is  equal  to  the  original 
deposit,  and  the  certificate  not  to  be  payable 
until  the  amount  of  compound  interest 
equals  the  original  principal.  {Inquiry 
from  Okla.,  Feb.,  1921.) 

Negotiability  affected  by  interest  clause 

Clause  for  10%  interest  on  unpaid  interest  and 
for  lower  rate  if  principal  paid  when  due 

2039.  A  note  was  drawn  payable  one 
year  from  date  with  ten  per  cent,  interest, 
and  contained  provisions  that  if  the  interest 
was  not  paid  annually  it  was  "to  become  as 
principal  and  draw  the  same  rate  of  interest" 
and  the  note  to  bear  "only  six  per  cent,  in- 
terest if  paid  when  due."  Opinion:  The 
note  is  negotiable  under  the  decisions  in 
Kansas.     Gilmore  v.  Hirst,  56  Kan.  626. 

J      Parker  v.  Plymell,  23  Kan.  402.    Clark  v. 
i>      Skeen,  61  Kan.  526.     (Inquiry  from  Kan., 
Feb.,  1913,  Jl.) 

Provision  in  interest  hearing  note  waiving 
interest  if  paid  when  due 

2040.  A  note,  providing  for  interest 
from  date  until  paid,  contains  the  further 
provision  "if  paid  when  due  no  interest  will 
be  charged."  Opinion:  In  Kansas  a  note 
with  such  provision  is  negotiable.  In  other 
states  some  courts  hold  it  negotiable  and 
some  non-negotiable.  Parker  v.  Plymell, 
23  Kan.  402.  {Inquiry  from  Kan.,  Aug., 
1910,  Jl.) 

Unpaid  interest  added  to  principal  drawing 
same  rate 

2041.  A  note  contains  a  provision  "if 
the  interest  be  not  paid  annually  when  due, 
the  same  to  be  added  to  the  principal  and 
draw  the  same  rate  of  interest."  The 
question  was  raised  as  to  the  negotiability 
of  the  note.  Opinion:  That  such  provision 
does  not  destroy  negotiability.  Brown  v. 
Vossen,  112  Mo.  App.  676.  Randolph  v. 
Hudson,  12  Okla.  516.  Citizens  Bk.  v. 
Booze,  75  Mo.  App.  189.  {Inquiry  from 
Okla.,  Sept.,  1912,  Jl.) 

Interest  at  five  per  cent,  if  paid  in  advance; 
otherwise,  six  per  cent 

2042.  A  bank  encloses  a  form  of  note 
payable  on  demand  "with  interest  payable 
semi-annually  in  advance  at  five  per  cent. 
If  not  paid  in  advance  *  *  *  six  per  cent.," 


and  asks  whether  same  would  be  non-negoti- 
able because  of  the  two  conditions  regarding 
interest.  Opinion:  Such  a  note  is  vahd  and 
enforceable  and  the  fact  that  the  agreement 
is  to  pay  a  higher  but  lawful  rate  of  interest 
on  contingency  that  the  interest  is  not  paid 
in  advance  will  not  affect  its  validit3^ 
Bane  v.  Gridney,  67  111.  388.  The  form  of 
note  submitted,  however,  is  not  negotiable 
because  it  is  not  payable  to  order.  If  made 
payable  to  order  the  question  is  whether  the 
provisions  to  interest  would  make  it  non- 
negotiable.  On  this,  the  authorities  are  not 
in  harmony.  For  example,  in  Crump  v. 
Berdan,  97  Mich.  293,  a  provision  for  7% 
interest,  and  if  not  paid  when  due  to  draw 
interest  at  6%  from  date  until  paid,  was  held 
not  to  make  the  amount  so  uncertain  as  to 
render  the  note  non-negotiable.  On  the 
other  hand,  in  Hegeler  v.  Comstock,  1  So. 
D.  138,  a  provision  "with  interest  from  date 
until  paid  at  10%  per  annum,  8%  if  paid 
when  due"  was  held  to  destroy  negotiability. 
{Inquiry  from  Conn.,  Oct.,  1915.) 

Interest  on  deposits 

Legality   of  agreement   between  banks  as   to 

uniform  rate  of  interest  paid  on 

deposits  or  loans 

2043.  May  the  banks  of  a  city  agree  as 
to  the  maximum  rate  of  interest  to  be  paid 
on  deposits?  Opinion:  The  opinion  No. 
1031,  to  the  effect  that  the  rules  of  the  New 
Orleans  Clearing  House  fixing  minimum 
charges  for  the  collection  of  out-of-town 
items  was  not  a  violation  of  the  Federal 
Anti-Trust  Act,  is  in  point.  It  would  seem 
that  an  agreement  as  to  the  maximum  rate 
of  interest  to  be  paid  on  deposits  would  be 
even  more  of  a  local  matter  than  the 
agreement  in  the  New  Orleans  case,  and 
that  it  might  be  maintained  that  it  did  not 
violate  the  Anti-Trust  Act,  although  the 
contrary  contention  has  also  been  made. 
{Inquiry  from  Mich.,  Dec,  1915.) 

2044.  May  the  banks  of  a  city  agree  as 
to  the  minimum  rate  of  interest  to  be  paid 
on  loans  from  banks?  Opinion:  The  same 
considerations  affect  this  agreement  as  one 
limiting  the  rate  of  interest  on  deposits. 
See  Opinion  No.  2043.  {Inquiry  from  Mich., 
Dec,  1915.) 

Savings  hank  pass-book  rule  stopping  interest 
after  ten  years  on  dormant  accounts 

2044a.  Is  it  legal  to  insert  in  a  savings 
pass  book  in  Missouri  the  following  rule? 
"All  accounts  on  which  no  deposit  or  pay- 


467 


2045-2047] 


DIGEST  OF  LEGAL  OPINIONS 


ment  shall  have  been  made  during  ten 
consecutive  years  shall  cease  to  draw 
interest  thereafter."  Opinion:  Ordinarily 
such  a  rule  would  be  legal  and  binding  as 
a  contract  between  the  bank  and  the 
depositor,  but  in  Missouri  there  is  a  possible 
question  in  view  of  the  statutes.  Chapter 
12,  Article  IV,  Revised  Statutes  Missouri, 
1910,  relating  to  savings  banks  provides, 
as  part  of  section  1152:  "Deposits  shall  be 
paid  to  depositors,  or  their  representatives, 
when  requested,  under  such  regulations  as 
the  board  of  directors  may  prescribe,  not 
inconsistent  with  the  provisions  of  this 
article,  which  regulations  shall  be  printed 
and  conspicuously  posted  in  all  places  where 
deposits  are  received,  accessible  and  visible 
to  all  depositors;  and  it  shall  be  lawful  to 
require  sixty  days'  written  notice  of  the 
withdrawal  of  any  deposit.  Any  account 
may  be  closed  at  any  time  upon  such 
notice  to  the  depositor,  and  after  such 
notice  the  deposit  shall  cease  to  draw 
interest."  Thus  it  appears  that  any  regula- 
tions of  the  directors  must  not  be  incon- 
sistent with  the  provisions  of  the  article, 
which  seem  to  contemplate  that  depositors 
are  entitled  to  interest,  as  a  matter  of  right 
when  earned.  See  Sees.  1156-1161,  Art. 
I  of  Chap.  12,  Sees  21,55.  Considering  all 
these  sections,  they  seem  to  indicte  that  the 
law  contemplates  that  in  case  interest  has 
been  earned,  all  the  depositors  are  entitled 
to  share  therein,  except  that  the  directors 
may  classify  depositors — with  respect  to  the 
interest  to  be  paid.  The  directors  can 
clearly  place  all  the  deposits  in  question  in 
one'class  and  provide  a  small  rate  of  interest, 
but  it  is  questionable  if  they  can  provide 
for  no  interest  at  all.  Section  1152,  quoted 
supra,  indicates  a  method  by  which  a  savings 
bank  may  escape  paying  interest  on  a 
dormant  account,  that  is,  by  posting  a 
written  notice  closing  the  account.  The 
legality  of  the  submitted  rule  is  question- 
able.   (Inquiry  from  Mo.,  Sept.,  1917.) 

Interest  on  savings  accounts  of  national  hanks 

2045.  The  directors  of  a  national  bank 
are  considering  the  advertising  of  4%  on 
deposits  (interest  accounts);  the  bank  hav- 
ing heretofore  paid  3^%  on  its  provident 
accounts.  The  bank  desires  to  be  informed 
whether  it  is  necessary  to  do  more  than 
take  a  vote  at  its  regular  meeting,  entering 
same  in  minutes,  and  advertising  in  local 
papers.  Opinion:  The  payment  of  interest 
by  a  national  bank  upon  its  provident 
account  is  a  matter  of  agreement  between 


bank  and  depositor.  That  is  to  say,  the 
bank  offers  by  public  advertisement,  or 
otherwise,  to  pay  such  and  such  a  rate  until 
changed  and  the  depositor  accepts  the 
offer  and  makes  his  deposit.  It  does  not 
seem  necessary  to  do  more  than  go  through 
the  procedure  suggested.  The  advertise- 
ments should  state  the  date  at  which  the 
new  rate  is  to  take  effect.  (Inquiry  from 
N.  Y.,  Aug.,  1919.) 

Liability  of  hank  for  interest  on  public  deposits 

2046.  The  funds  of  a  village  in  Ohio  were 
kept  in  a  bank  the  same  as  any  other 
account.  The  law  as  to  bidding  for  public 
deposits  was  not  followed  and  there  was  no 
agreement  as  to  interest.  Is  the  bank  liable 
for  interest?  If  so,  to  what  extent?  Opin- 
ion: The  case  is  governed  by  Franklin 
National  Bank  v.  Newark,  118  N.  E 
(Ohio)  117,  holding,  where  the  facts  were 
substantially  the  same  as  in  the  case 
submitted,  that  the  Ohio  statute  (General 
Code  Sec.  4294)  applied  and  "that  any 
bank  receiving  funds  of  a  municipality  under 
the  circumstances  disclosed  by  this  record, 
knowing  the  same  to  be  the  funds  of  the 
municipality,  becomes  a  trustee  and  must 
account  to  the  municipality  for  the  funds 
so  deposited  and  all  profits  arising  from 
.such  deposits."  As  to  the  amount  of  such 
profit  to  be  repaid  the  court  held  that  the 
bank  must  account  "as  a  trustee  of  said  fund 
and  determine  the  amount  of  profit  made 
by  defendant  thereon  by  crediting  the 
average  total  deposit  of  the  city  with  the 
rate  of  net  profit  realized  by  the  bank  upon 
its  entire  assets  during  the  period  said  fund 
was  on  deposit."  It  would  seem  that  the 
provision  of  the  statute  that  "all  profits 
arising  from  such  deposit  or  deposits  shall 
inure  to  the  benefit  of  the  funds"  should  be 
construed  to  mean  that  all  profits  derived  by 
the  depositor  in  the  shape  of  interest  shall 
go  to  the  benefit  of  the  public  funds,  but  the 
supreme  court  has  decided  differently,  and 
its  decision  is  the  law.  (Inquiry  from 
Ohio,  Feb.,  1921.) 

Legal  rate  of  interest  on  deposit  in  closed  bank 

2047.  On  July  2,  1913,  a  bank  had  a 
balance  to  its  credit  with  another  bank 
which  was  allowing  interest  at  the  rate  of 
3%  per  annum,  credited  monthly  upon 
average  daily  balance.  The  account  was  an 
open  account  subject  to  order  in  whole  or 
in  part  at  any  time.  The  debtor  bank 
closed  its  doors  on  July  7,  1913,  and  they 
remained    closed    until    April    27,     1914. 


468 


INTEREST  AND  USURY 


[2048-2049 


When  the  debtor  bank  re-opened  its  doors 
it  refused  to  pay  interest  on  the  balance 
during  suspension.  The  bank  asks  whether 
it  is  legally  entitled  to  the  legal  rate  of  6% 
during  said  period  of  suspension.  Opinion: 
The  bank,  it  seems,  is  entitled  to  interest 
at  the  legal  rate  of  6%  from  the  time  of  the 
closing  to  the  time  of  re-opening.  It  has 
been  held  that  a  depositor  is  entitled  to 
interest  from  the  time  the  bank  suspends 
payment  and  it  is  not  necessary  that  he 
should  have  made  any  demand  on  the  bank. 
Chemical  Nat.  Bk.  v.  Bailey,  12  Blatchf. 
460.  See  also  Richmond  v.  Irons,  121  U.  S. 
27;  Ex  parte  Stockman,  70  S.  C.  31.  \In- 
quiry  from  Ohio,  May,  1916.) 

Creditor's  right  to  interest 

For  two  added  days  when  time  note  payable  at 

hank  where  maker's  account  good  falls  due  on 

Saturday 

2048.  Where  an  interest-bearing  time 
note,  payable  at  a  bank,  by  its  terms  falls 
due  on  Saturday  and  is  presented  for  pay- 
ment on  Monday,  is  interest  collectible  for 
the  two  added  days,  where  the  maker  has 
funds  ready  on  Saturday?  Opinion:  It 
would  seem  that  the  instrument  does 
draw  interest  for  the  two  added  days. 
(1)  Section  71  of  the  Negotiable  Instruments 
Act  provides  that  "where  the  instrument  is 
not  payable  on  demand,  presentment  must 
be  made  on  the  day  it  falls  due."  Section 
85  provides  that  "instruments  falling  due  on 
Saturday  are  to  be  presented  for  payment 
on  the  next  succeeding  business  day." 
Taken  together,  these  sections  plainly 
indicate  that  the  instrument  falls  due  or 
matures  on  Monday.  This  being  so,  a 
tender  of  payment  on  Saturday,  by  having 
the  money  in  bank,  would  be  a  tender 
before  the  note  is  legally  due  and  would  not 
stop  the  running  of  interest.  (2)  It  is  not 
reasonable  to  suppose  that  the  legislature 
intended  two  days  for  payment;  Monday 
for  the  purpose  of  presentment  for  payment 
but  Saturday  for  the  purpose  of  tender  of 
payment  by  the  maker  to  stop  the  running 
of  interest.  (3)  Another  reason  for  the 
opinion  is  the  impracticability  of  two 
separate  days  of  maturity  with  respect  to 
maker  and  indorsers  respectively  and  the 
peculiar  and  serious  consequences  which 
would  follow  therefrom  as  to  the  duty  of 
collecting  agents  to  make  presentment  on 
both  days  and  as  to  the  time  for  bringing 
suit  upon  a  dishonored  instrument  against 
maker  and  indorsers  respectively.  (4)  The 
force  of  the  argument,  that  as  by  the  terms 


of  the  act,  presentment  for  payment  is  not 
necessary  to  charge  the  maker  and  the 
provisions  in  regard  to  presentment  relate 
solely  to  steps  to  charge  the  indorsers, 
therefore  the  provisions  fixing  maturity 
on  Monday  for  purpose  of  presentment 
have  relation  to  the  indorsers  only,  and  the 
instrument,  as  to  the  right  of  the  maker  to 
pay,  falls  due  on  Saturday,  is  not  evident, 
for  the  rules  as  to  non-necessity  of  present- 
ment as  to  the  maker  but  requiring  pre- 
sentment to  hold  the  indorsers  have  no 
special  significance  with  relation  to  hoU- 
days;  they  have  equal  appUcation  to 
instruments  falling  due  on  any  day.  (5) 
There  seems  to  be  nothing  in  the  contrast 
pointed  out  between  the  second  sentence 
of  Section  85  relating  to  Sundays  or  holidays, 
which  reads  that  "when  the  day  of  maturity 
falls  upon  Sunday  or  a  hohday  the  instru- 
ment is  payable  on  the  next  succeeding 
business  day",  and  the  third  sentence, 
which  reads  that  "instruments  falling  due 
on  Saturday  are  to  be  presented  for  payment 
on  the  next  succeeding  business  day." 
Contrary  opinions  in  23  Harvard  Law 
Review  603,  not  followed.  {Inquiry  from 
N.  Y.,  Dec,  1920,  Jl.) 

Right  to  interest  against  corporation  in 
receiver's  hands 

2049.  By  order  of  court,  a  receiver  was 
appointed  for  the  Barney  &  Smith  Car 
Company,  and  the  inquiring  bank  and  the 
other  creditors  refused  to  accept  the  face 
of  their  claims  without  interest  in  full 
settlement.  The  bank  asks  whether  they 
still  have  a  right  to  look  to  and  recover 
from  said  company  the  interest  due  on 
such  claims.  Opinion:  The  order  of  the 
court  in  Josephs  &  Brothers  v.  Barney  & 
Smith  Car  Company  provides:  "2nd,  That 
the  Receiver  shall  pay  to  those  creditors  of 
the  company  who  refused  to  accept  the 
balance  due  on  the  face  of  their  claims  with- 
out interest  in  full  settlement  of  said 
claims,  amounting  to  $45,171.26,  the  balance 
due  on  the  face  of  said  claims  without 
interest."  Even  assuming  the  bank  is 
a  party  to  this  proceeding  and  bound  by 
the  order,  it  should  not  be  construed  as  an 
order  that  the  receiver  shall  pay  the  face 
value  due  without  interest  in  full  settlement, 
but  that  the  receiver  shall  pay  those 
creditors  who  refused  to  accept  the  face 
without  interest  in  full  settlement,  the 
balance  due  without  interest,  leaving  to 
such  creditors  the  right  to  recover  from  the 
corporation  the  interest  still  due.  {Inquiry 
from  N.  J.,  Dec,  1915.) 


469 


2050-2053J 


DIGEST  OF  LEGAL  OPINIONS 


Omission  to  charge  interest-hearing  note  pay- 
able at  hank  to  maker's  account  at  maturity, 
stops  running  of  interest 

2050.  A  bank  asks  whether  it  is  optional 
or  obhgatory  on  the  part  of  the  bank  to 
charge  on  maturity  date  the  amount  of  the 
note  to  the  account  of  the  maker  under 
following  conditions:  The  bank  is  the 
holder  of  the  note  payable  at  its  bank, 
and  at  the  time  of  maturity  had  a  cash 
deposit  in  the  bank  exceeding  the  amount  of 
the  note,  which  amount  was  not  applicable 
to  a  particular  purpose.  The  bank  asks 
whether,  if  the  note  is  not  charged  up, 
interest  will  continue?  Opinion:  The 
bank  should  charge  up  the  note  against  the 
maker's  account  at  the  maturity  date, 
and  upon  failure  thereof  it  would  not  be 
entitled  to  interest  thereafter,  assuming 
the  account  remained  sufficient.  See  Sec. 
70,  87  of  the  Negotiable  Instruments  Law; 
also  Mechanics  &  Traders  Bk.  v.  Seitz, 
150  Pa.  St.  632,  to  the  effect  that  the  bank 
is  bound  to  charge  up  the  note  against  the 
deposit.    {Inquiry  from  La.,  May,  1920.) 

Correction   of  mistake   as   to   interest   after 
account  stated  and  settled 

2051.  A  controversy  has  arisen  between 
a  bank  and  a  trust  company  over  an  interest 
shortage  claimed  by  the  latter  on  an 
acceptance  which  was  sent  to  the  bank  for 
collection.  The  item  dated  March  22, 
1917,  was  accepted  by  J.  M.  C.  to  run  four 
months  bearing  8%  interest  and  covered 
sale  of  five  Overland  cars,  the  arrangement 
being  that  C.  was  to  make  part  payment 
as  he  sold  the  cars,  or  pay  the  full  amount 
when  due  to  G.  Securities  Corpn.  C.  made 
one  payment  of  $650.25  on  May  4th,  and 
$6.20  interest.  When  acceptance  was  about 
due  the  bank  received  word  from  G.  S. 
Corpn.  as  follows:  "J.  M.  C.  acceptance 
falls  due  on  July  22nd,  and  is  payable  at 
the  bank  of  A  with  interest  at  8%.  The 
balance  on  this  acceptance  is  $2,639.25." 
This  balance  was  collected  by  the  bank  and 
remitted  less  exchange  on  July  30th,  1917. 
The  trust  company  then  advised  bank  that 
there  was  a  shortage  of  $70.32,  but  that  they 
had  received  $60.00  of  this  amount,  leaving 
a  balance  of  $10.32  still  due.  The  bank 
took  up  the  matter  with  C.,  who  said  he  did 
not  think  he  owed  any  interest,  but,  upon 
being  shown  the  trust  company's  letter,  paid 
the  bank  $10.32  which  the  bank  remitted 
and  the  matter  was  considered  closed. 
About  four  months  later  the  trust  company 
claimed  there  was  a  balance  of  $58.88  due 


thereon.  Opinion:  In  the  case  submitted 
by  the  bank,  it  seems  there  was  at  fiirst  an 
"account  stated"  as  to  the  transaction 
between  the  trust  company  and  the  bank, 
and  then,  upon  the  payment  of  $10.32  by 
the  bank,  there  was  an  "account  settled." 
It  appears  from  the  facts  of  the  case  that 
there  was  a  clear  mistake  of  fact  on  the 
part  of  the  trust  company  with  respect  to 
the  amount  of  interest  due  their  principal 
by  C.,  the  customer  of  the  bank.  Aiid  while 
there  was  an  "account  settled"  yet  according 
to  the  authorities,  evidence  may  be  adduced 
to  show  error  in  such  account,  and  un- 
doubtedly it  can  be  done  in  this  case  to 
show  that  the  statement  of  the  trust  com- 
pany to  the  effect  that  there  was  only 
$10.32  due  as  interest  was  a  mistake  of 
fact,  and  that  upon  the  correction  of  this 
error  there  would  still  be  due  $58.88  interest 
on  said  item.  If  it  could  be  shown  that  the 
bank,  acting  upon  this  statement  of  account 
rendered  by  the  trust  company,  had  been 
placed  in  a  different  and  worse  position 
thereby,  then  a  different  question  would  be 
presented.  {Inquiry  from  Ariz.,  March, 
1918.) 

Creditor   cannot   exact   greater   rate   without 
consent  of  debtor 

2052.  A  gave  B  in  part  payment  for  real 
estate  two  time  notes  bearing  interest  at 
the  rate  of  six  per  cent.  On  A's  default  at 
maturity  B  wrote  A  that  he  would  charge 
7  per  cent.,  because  the  payments  were  not 
met  when  due.  A  did  not  respond  to  the 
letter.  B  seeks  to  enforce  the  payment  of 
seven  per  cent,  interest,  and  until  such 
pa5anent  refuses  to  give  A  a  deed.  The 
agreement  was  that  deed  should  be  dehvered 
when  notes  were  paid.  Opinion:  B  has  no 
right  to  enforce  payment  of  seven  per  cent, 
interest,  because  there  was  no  binding  agree- 
ment between  A  and  B  changing  the  original 
contract,  and  has  no  right  to  refuse  deed 
when  balance  of  principal  and  six  per  cent, 
interest  are  tendered.  Under  the  laws  of 
Michigan  it  is  lawful  to  contract  for  a  seven 
per  cent.  rate.  {Inquiry  from  Mich.,  Dec, 
1911,  Jl.) 

Partial  payments  of  principal 
and  interest 

Partial  payment  applied  to  reduce  interest 

2053.  A  gave  B  his  note  for  $435.50  for 
two  years,  dated  March  2,  1914,  interest,  at 
5  per  cent.,  payable  semi-annually.  On 
March  8,  1915,  A  made  his  first  payment  of 
$20,  and  B  indorsed  payment  on  the  note  as 


470 


INTEREST  AND  USURY 


[2054-2057 


follows :  "Received  on  the  within  note 
B  left  the  note  with  a  bank  for  collection, 
with  no  explanation  regarding  the  indorse- 
ment. Opinion:  The  partial  payment  of 
$20  should  be  applied  first  to  the  reduction 
of  interest  before  applying  the  surplus,  if  any, 
upon  the  principal.  Compound  interest  can- 
not be  charged  unless  contracted  for. 
Peebles  v.  Gee,  1  Dev.  (N.  C.)  341.  Russian 
V.  Lucas,  Hempst.  (U.  S.)  91.  Hammer  v. 
Nevill,  Wright  (Oliio)  169.  Smith  v.  Luse, 
30  111.  App.  37.  Bowman  v.  Neely,  151 
111.  37.     (Inquiry  from  III.,  June,  1916,  Jl.) 

2054.  A  bank  states  that  it  has  been 
I  •  endeavoring  to  collect  for  a  customer  a  note 
I;  payable  "on  or  before  one  year  after  date" 
''  with  interest  from  date.  The  note  had  been 
running  for  some  time  during  which  there 
had  been  partial  payments  thereby  reducing 
the  principal  to  a  considerable  extent.  The 
payments  were  always  credited  on  the 
principal  of  the  note  which  bears  no  interest 
I;,  indorsements.  The  bank  asks  whether  the 
partial  payment  rule  applies  in  this  case. 
Opinion:  The  general  rule  with  regard  to 
partial  payments  of  an  interest-bearing 
note  is  that  the  payments  must  be  first 
credited  in  reduction  of  interest,  when  the 
interest  is  due  and  any  surplus  in  reduction 
of  principal.  The  note  submitted  is  payable 
one  year  from  date.  It  has  no  provision 
that  the  interest  shall  be  payable  quarterly 
or  semi-annually  and  the  rule  in  such  a 
case  is  that  the  interest  becomes  due  and 
payable  at  the  same  time  that  the  principal 
becomes  due;  in  this  case,  at  the  end  of  the 
year.  In  this  case,  therefore,  the  partial 
payments  should  be  applied  in  reduction  of 
the  principal.  {Inquiry  from  Okla.,  Nov., 
1916.) 

Note  due  "one  day  after  date" 

2055.  An  interest-bearing  note  is  paya- 
ble "one  day  after  date."  At  the  end  of 
nine  months  a  partial  payment  is  made  on 
the  principal.  Should  the  holder  collect 
interest  at  that  time  or  wait  until  the 
expiration  of  a  full  year  from  the  date  of 
the  note?  Opinion:  The  holder  has  a 
right  to  collect  the  interest  at  the  end  of  the 
nine  months.  The  rule  would  be  different 
were  the  instrument  a  long  time  note 
providing  for  interest  payable  annually, 
but  where  the  note  is  payable  "one  day 
after  date"  the  holder  may  demand  payment 
of  the  principal  and  interest  at  any  time  he 
chooses.  The  holder  of  the  past-due 
instrument  has  the  option  to  demand,  when 
a  partial  payment  of  principal  is  made,  that 


the  interest  down  to  that  time  also  be  paid 
or  he  may  wait  a  year  if  he  chooses.  When 
he  accepts  part  payment  he  has  the  right 
to  prescribe  the  conditions  thereof.  (In- 
quiry from  Pa.,  March,  1921.) 

Rate  of  interest  chargeable  on  bond  sold  on 
installment  plan 

2056.     A  bank's  customer  purchased  a 
7%  $1,000  bond  on  the  installmerit  plan, 
and  the  bank  charged  the  accrued  interest 
at  the  rate  of  7%  to  the  date  of  final  pay- 
ment, allowing  interest  at  the  rate  of  7% 
on  the  various  amounts  paid  to  the  date  of 
each  payment,  the  basis  for  figuring  being 
that    the    customer    was    entitled    to    an 
equity  in  the  bond  only  to  amount  paid, 
and  that  the  bank  was  hkewise  entitled  to 
its  equity  in  the  investment.  The  customer's 
claim  is  that,  in  making  his  first  payment, 
title  to  the  bond  passed  to  him  and,  there- 
fore, the  bank  should  charge  him  only  at 
rate  of  6%  on  the  balance  due.    An  opinion 
is  asked.     Opinion:     Whether  title  passed 
to  the  customer  upon  the  first  payment  or 
not  until  final  payment  would  depend  upon 
the  terms  of  the  agreement  between  bank 
and  customer.    Where  a  broker  buys  stock 
for   a   customer   upon   deposit   of   margin, 
himself    advancing    part    of    the    purchase 
price,   the   title  immediately  vests  in   the 
customer  with  lien  for  the  amount  advanced 
and  power  of  sale  in  event  of  depreciation. 
But    the    stated    transaction    is    different. 
The  bank  buys  and  owns  a  7%  bond  and 
agrees  to  sell  it  on  the  installment  plan. 
In  the  case  of  conditional  sales  of  personal 
property    where    the    price    is    payable    in 
installments,  it  is  the  distinguishing  feature 
of  such  sales  that  the  title  of  the  property 
remains  in  the  seller  until  final  payment  of 
the  price,  although  possession  goes  to  the 
buyer  upon  the  initial  payment.    It  would 
seem,  by  analogy,  that,  in  the  case  of  a 
sale  of  a  bond  upon  installments,  unless 
there  was  an  express  agreement  that  title 
should  go  to  the  buyer  upon  first  payment, 
title  would  remain  in  the  seller  until  final 
payment;  and  it  seems  in  this  case  not  only 
title    but    possession    remains    with    the 
bank.    (Inquiry  from  N.  Y.,  Dec,  1920.) 

Payment  of  principal  before  maturity 

Forfeiture  by  creditor  of  unpaid  interest  for 
unexpired  term 
2057.  A  promises  to  pay  B  86,000  one 
year  after  date  with  interest  at  five  per 
cent.;  in  other  words,  a  total  of  S6,300.  Six 
months  before  maturity  A  paid  B  $3,000  by 


471 


2058-2062] 


DIGEST  OF  LEGAL  OPINIONS 


consent  of  both  parties,  nothing  being  said 
as  to  rebate  of  interest,  and  at  maturity  in 
final  settlement  B  demands  the  balance  and 
full  interest,  $3,300,  while  A  claims  that  there 
should  be  deducted  six  months'  unearned  in- 
terest on  $3,000,  or  $75,  and  all  that  he  owes 
is  $3,225.  Opinion:  Although  the  precise 
question  has  never  been  decided  it  is  probable 
that  if  B  accepted  partial  payment  of  the 
principal  in  advance,  he  impliedly  forfeited 
his  right  to  future  interest  upon  such  prepaid 
amount.  N.  J.  Pub.  L.  1902,  Sec.  56,  p. 
530.  Greenville  Bldg.,  etc.,  Assn.  v. 
Wholey  (N.  J.)  59  Atl.  34L  {Inquiry  from 
III,  Aug.,  1914,  JI-) 

Forfeiture  by  debtor  of  paid  interest  for 
unexpired  term 

2058.  A  person  carries  a  note  of  $5,000 
with  a  bank,  payable  in  5  years.  Interest 
at  6  per  cent,  is  payable  in  advance  for  six 
months  at  a  time,  being  due  December  3rd 
and  June  3rd  of  each  year.  The  maker  with 
the  bank's  consent  paid  the  full  amount  of 
the  note  in  the  middle  of  March  after  having 
paid  up  the  interest  to  June  3.  The  bank 
allows  rebate  of  3  per  cent.,  but  the  maker 
demands  the  full  6  per  cent,  for  the  unex- 
pired term.  Opinion:  Where  a  loan, 
upon  which  interest  has  been  paid  in  advance 
is  paid  by  the  debtor  to  the  creditor  before 
maturity,  the  latter  is  not  liable  for  rebate 
of  the  unearned  interest,  in  the  absence  of  an 
agreement  to  make  such  rebate,  and  the  fact 
that  he  voluntarily  rebates  part  does  not 
make  him  liable  for  the  remainder.  A  pre- 
payment of  the  principal  by  the  debtor,  with 
the  consent  of  the  creditor,  would  be  deemed 
a  voluntary  rehnquishment  of  the  interest 
for  the  unexpired  period.  Cooke  v.  Young, 
89  S.  C.  173.  Pub.  St.  N.  C,  Sec.  1951. 
{Inquiry  from  N.  C,  May,  1919,  Jl.) 

Payment  of  interest  in  advance 

Prima  facie  evidence  of  agreement  to  extend 

2059.  Where  a  note  is  executed  to  bank, 
payable  on  demand  with  interest,  and  at  the 
time  of  execution  the  maker  pays  three 
months'  advance  interest,  which  the  bank  in- 
dorses upon  the  note,  such  transaction  is 
prima  facie  evidence  of  an  agreement  to  ex- 
tend the  time  of  payment  during  the  period 
for  which  the  interest  is  paid,  which  will 
prevent  the  bank,  unless  it  can  prove  a  con- 
trary agreement,  from  enforcing  payment 
before  the  end  of  the  extended  period.  Note 
payable  at  bank  can  be  charged  to  maker's 
account  at  maturity  without  notification  or 
his  consent  and  bank  owning  note  has  right 


of  set-off  at  maturity.  Bk.  British  Columbia 
V.  Jeffs,  18  Wash.  135.  Crosby  v.  AVyatt, 
10  N.  H.  318.  Mosely  v.  Robinson,  10 
Barn.  &  Cres.  729.  Skelly  v.  Bristol  Sav. 
Bk.,  63  Conn.  83.  Fla.  Comp.  L.,  1914, 
Sec.  3018.  {Inquiry  from  Fla.,  Dec,  1917,  Jl.) 

2060.  The  maker  of  a  demand  note  pays 
interest  for  three  months  in  advance  to 
the  bank  holding  the  note.  The  bank  wishes 
to  enforce  payment  on  demand  before  the 
date  to  which  the  interest  is  paid.  Opinion: 
Such  payment  does  not  of  itself  constitute 
an  agreement  extending  the  time  of  payment 
of  the  principal  for  three  months.  In  some 
states  such  payment  is,  and  in  others  is  not, 
prima  facie  evidence  of  agreement  to  extend, 
but  it  is  in  no  case  conclusive  evidence. 
Kellam  v.  Brode,  (Cal.  1905)  82  Pac.  213. 
Amberg  v.  Natchway,  92  111.  App.  608. 
Preston  v.  Henning,  69  Ky.  556.  {Inquiry 
from  N.  J.,  Nov.,  1912,  Jl.) 

2061.  Does  the  payment  of  interest  in 
advance  automatically  renew  a  demand 
note?  Opinion:  The  weight  of  authority 
is  to  the  effect  that  payment  of  interest  in 
advance  is  prima  facie  evidence  of  an 
agreement  to  extend  the  time  of  payment  to 
the  end  of  the  period  for  which  interest  has 
been  paid.  Skelly  v.  Briston,  63  Conn.  83. 
{Inquiry  from  N.J.,  Nov.,  1917.) 

Prepayment  of  interest  not  conclusive  evidence 

of  agreement  to  extend  and  real  agreement 

may  be  shown 

2062.  A  bank  made  a  loan  to  its  depositor 
upon  a  judgment  note  payable  one  day  after 
date  under  an  agreement  by  which  he  can 
pay  off  the  loan  at  the  rate  of  $50  per  month 
unless  future  conditions  require  the  bank 
to  call  for  its  immediate  payment.  As  evi- 
dencing this  agreement  the  bank  received 
20  post  dated  checks  of  $50  each  payable  one 
month  apart  and  also  payment  of  the  full 
interest  in  advance.  The  bank's  inquiry  is 
whether  its  receipt  of  interest  in  advance 
and  the  taking  of  the  post  dated  checks  has 
changed  the  time  of  maturity  of  this  debt 
in  accordance  with  the  contention  of  its 
depositor.  Opinion:  So  far  as  the  pre- 
payment of  interest  is  concerned,  the  rule 
is  quite  generally  recognized  that  such 
prepayment  is  not  conclusive  evidence  of 
an  agreement  to  extend  or  postpone  the 
time  of  payment  of  the  instrument.  See, 
for  example,  the  following  cases :  Mechanics- 
burg  Second  Nat.  Bk.  v.  Graham,  246  Pa. 
St.  256;  Brest  v.  Brooks,  38  Pa.  Co.  Rep. 
522.  But  that  such  payment  is  prima  facie 
evidence  of  such  an  agreement:     Bank  of 


472 


INTEREST  AND  USURY 


[2063-2068 


York  V.  Webster,  242  Pa.  St.  128,  holding 
that  payment  of  interest  in  advance  is  a 
strong  circumstance  showing  a  renewal 
credit.  In  the  present  case  the  prima 
facie  evidence  of  agreement  to  extend 
would  be  rebutted  by  the  real  agreement 
that  the  bank  had  the  right  to  call  for 
immediate  payment,  if  needed,  assuming 
such  agreement  can  be  proved.  (Inquiry 
from  Pa.,  May,  1917.) 

Interest  on  demand  notes 

Demand  note  does  not  draw  interest  unless 
provided 

2063.  Does  a  demand  note  draw  interest 
where  it  contains  no  provision  to  that 
effect?  Opinion:  The  rule  in  New  York  is 
that  where  a  demand  note  makes  no  pro- 
vision for  interest  it  does  not  draw  interest 
before  demand  or  commencement  of  an 
action.  Van  Vliet  v.  Katner,  124  N.  Y. 
Supp.  63.  Ledyard  v.  Bull,  119  N.  Y.  62, 
23  N.  E.  444.  Lawrence  v.  Church,  128 
N.  Y.  324.  Bishop  v.  Sniffen,  1  Daly 
(N.  Y.)  155.  Chester  v.  Jumel,  125  N.  Y. 
327;  In  re  Wilhams  Est.,  118  N.  Y.  Supp. 
562.     (Inquiry  from  N.  Y.,  June,  1919,  Jl.) 

2064.  A  bank  inquires  whether  a  note 
drawn  "on  demand  after  date"  would  draw 
interest  from  date,  or  from  the  date  of 
demand.  Opinion:  According  to  the  weight 
of  authority  a  note  payable  merely  "on 
demand"  does  not  bear  interest  until 
demand  is  made,  or  if  no  demand  is  made 
prior  to  suit,  until  such  suit  is  instituted, 
although  in  a  few  states  it  has  been  held 
that  such  a  note  bears  interest  from  its 
date.  In  view  of  the  diversity  of  authority, 
it  would  be  better  to  make  a  demand  note 
read  "on  demand  with  interest  from  date." 
Then  there  would  be  no  question  but  that 
the  note  would  carry  interest  from  the  date 
of  its  execution  and  delivery.  (Inquiry 
from  Okla.,  Oct.,  1917.) 

Interest  from  date  on  demand  note 

2065.  A  note  is  submitted  bearing  the 
words  "on  demand  after  date  *  *  *  with 
interest  at  six  per  cent,  per  annum  after 
date,"  and  the  bank  asks  whether  the  note 
actually  bears  interest  from  its  date.  Opin- 
ion: In  Webber  v.  Webber,  146  Mich.  31, 
a  note  was  made  in  the  following  terms: 
On  demand  after  date  we  promise  to  pay 
*  *  *  with  6%  interest  from  date.  The 
instant  note  provides:  On  demand  after 
date  *  *  *  with  six  per  cent,  per  annum 
after  date."  Under  the  above  decision  which 
appears  to  state  the  prevaiUng  rule,  the  note 


would  draw  interest  from  its  date  and  if  the 
concluding  words  "after  date"  were  omitted, 
the  effect  would  be  the  same.  (Inquiry 
from  Okla.,  Oct.,  1917.) 

Interest  on  demand  notes  secured 
by  collateral 

Matured  time  notes  equivalent  to  demand  notes 

2066.  A  time  note  of  $5,000  duly 
secured  has  become  due  and  remains 
unpaid,  and  thereafter  demand  is  duly 
made  for  payment  thereof  and  payment  is 
not  made,  would  the  bank  be  acting 
within  its  rights  in  treating  the  note  from 
the  time  of  the  demand  as  a  demand  note; 
and  would  the  bank  be  justified  in  raising 
the  rate  from  time  to  time  above  the  6% 
limit?  Would  the  note  then  take  the  form 
of  a  regular  demand  note  with  collateral? 
Opinion:  Under  the  law  merchant  a  time 
note,  after  maturity,  is  equivalent  to  one 
payable  on  demand.  Most  frequently  it 
has  been  so  asserted  with  reference  to  the 
reasonable  time  of  presentment  in  order  to 
charge  an  indorser  after  maturity.  The 
Negotiable  Instruments  Act  expressly  pro- 
vides that  "where  an  instrument  is  issued, 
accepted  or  indorsed  when  overdue,  it  is,  as 
regards  the  person  so  issuing,  accepting  or 
indorsing  it,  payable  on  demand."  The 
New  York  statute  in  any  case  in  which 
"advances  of  money  repayable  on  demand" 
to  an  amount  not  less  than  $5,000  are  made 
upon  specified  collateral  securities,  allows 
interest  at  any  rate  "agreed  upon  in  writing 
by  the  parties  to  such  transaction."  (In- 
quiry from  N.  Y.,  Aug.,  1917.) 

The  Neiv   York  call  loan  statute 

2067.  What  is  the  law  with  respect  to 
interest  upon  advances  of  money  repayable 
on  demand  upon  the  security  of  negotiable 
collateral?  Opinion:  The  New  York  statute 
first  enacted  in  1882  (chapter  237)  and 
now  constituting  section  379  of  the  General 
Business  Law,  which  allows  interest  at  any 
rate  upon  advances  of  monej''  repayable  on 
demand  to  an  amount  not  less  than  five 
thousand  dollars  upon  the  security  of 
negotiable  collateral,  is  still  the  law  and  has 
not  been  repealed.  (Inquiry  from  N.  Y., 
March,  1920.) 

Legal  rate  collectible  after  maturity 

Rate  of  interest  under  extension  clause 

2068.  A  bank  submits  a  note  for  $500, 
dated  November  7,  1914,  payable  April  1, 
1915,  with  semi-annual  interest  at  6%  until 


473 


2069-2074] 


DIGEST  OF  LEGAL  OPINIONS 


maturity  and  thereafter  10%,  and  the  note 
contains  the  agreement:  "The  above  note 
at  the  request  of  makers  may  be  extended 
six  months  from  maturity."  The  note  was 
extended  six  months  and  the  makers  contend 
that  the  debt  only  bore  6%  interest  for  the 
extended  period.  Opinion:  Where  such  a 
note  is  extended  at  request  of  makers, 
in  pursuance  of  the  quoted  agreement,  the 
extension  carries  with  it  all  the  terms  of  the 
note  for  the  extended  period;  and  conse- 
quently the  maturity  of  the  note  was 
extended  for  six  months  and  the  debt  only 
bore  6%  interest  for  the  extended  period. 
(Inquiry  from  Iowa,  Oct.,  1915.) 

One  year  note  at  four  per  cent,  carries  six  per 
cent,  after  maturity 

2069.  A  note  was  issued  in  1906  for 
$1,000  payable  one  year  after  date  and 
bearing  four  per  cent,  interest.  Interest  was 
regularly  paid  at  the  rate  of  four  per  cent, 
until  1910.  Opinion:  The  legal  rate  of  in- 
terest (six  per  cent,  in  Pennsylvania)  governs 
after  maturity,  whether  the  rate  fixed  by 
contract  be  greater  or  less  than  the  legal 
rate.  The  holder  of  the  note  should  claim 
the  extra  two  per  cent,  not  paid  by  the 
maker  after  maturity,  unless  he  has 
waived  his  right  to  collect.  Ludwick  v. 
Huntzinger,  5  Watts  &  S.  (Pa.)  5.  Wright 
V.  Hanna,  210  Pa.  349.  Kauifman  v. 
Kauffman,  239  Pa.  42,  60.  (Inquiry  from 
Pa.,  Jan.,  1916,  Jl.) 

Interpretation  of  interest  clauses 

2070.  Where  a  demand  note  in  Ohio 
provides  for  interest  at  eight  per  cent, 
"payable  semi-annually  after  maturity," 
such  semi-annual  interest  is  collectible  run- 
ning from  date.  Where  the  note  is  drawn  for 
three  months  with  eight  per  cent,  interest 
payable  semi-annually  "after  date,"  it  is 
doubtful  if  more  than  the  legal  rate  (six  per 
cent,  in  Ohio)  is  collectible  after  maturity, 
for  where  the  contract  does  not  fix  the  rate 
after  maturity,  the  law  fixes  the  legal  rate. 
If  the  interest  clause  were  changed  to  read : 
"with  interest  at  the  rate  of  eight  per  cent, 
per  annum,  payable  semi-annually  from  date 
until  paid,"  the  eight  per  cent,  would  be  col- 
lectible throughout.  Page  &  Adams  Ohio 
Gen.  Code,  Sec.  8122,  8303.  Cook  v. 
Courtright,  40  Ohio  St.  248.  Hobbs  v. 
Insurance  Co.,  40  Ohio  St.  543.  Taylor  v. 
Hiestand  &  Co.,  46  Ohio  St.  345.  Hickok 
V.  Rounds,  51  Ohio  St.  564.  Firestone  v. 
Dellenbaugh,  10  Ohio  Cir.  Ct.  (N.  S.)  153. 
Wilson  V.  Neal,  23  Fed.  129.  (Inquiry 
from  Okla.,  May,  1916,  Jl.) 


Rate  on  loans  outside  of  state 

Loan  hy  national  bank  to  borrower  outside  state 

2071.  The  National  Bank  Act  allows 
bank  to  charge  interest  (1)  at  the  rate  al- 
lowed by  the  laws  of  the  state  where  a  bank 
is  located  and  no  more,  (2)  except  where  a 
higher  rate  is  charged  by  state  banks  of  issue 
they  can  charge  such  higher  rate,  and  (3) 
where  no  rate  is  fixed  by  the  state  law,  not 
exceeding  seven  per  cent.  This  state  rate 
applies  even  though  money  is  loaned  to  bor- 
rowers outside  the  state  where  a  higher  rate 
is  allowed.  U.  S.  Rev.  St.,  Sec.  5197.  Fed. 
Res.  Act,  Sees.  24,  25.  Tiffany  v.  Nat. 
Bk.,  18  Wall.  (U.  S.)  409.  (Inquiry  from 
Mo.,  July,  1916,  Jl.) 

2072.  The  state  rate  of  interest  applies, 
even  though  money  is  loaned  to  borrowers 
outside  the  state  where  the  higher  rate  is 
allowed.  A  national  bank  in  North  Carolina 
where  the  rate  is  6  per  cent,  would  be 
subject  to  the  penalties  for  usury  where  it 
loaned  funds  to  South  Carolina  parties  at  8 
per  cent.,  the  legal  rate  in  that  state,  even 
though  the  note  is  made  payable  in  South 
Carolina  and  suit  was  brought  thereon  in  the 
South  Carolina  courts.  Roberts  v.  Mc- 
Neeley,  52  N.  C.  506.  Meroney  v.  Atlanta 
Nat.  Bldg.,  etc.,  Co.,  112  N.  C.  842.  U.  S. 
Rev.  St.,  Sec.  5197.  (Inquiry  from  N.  C, 
June,  1918,  Jl.) 

Loan  by  New  Jersey  bank  on  Canadian  note 

2073.  A  note  drawn  and  payable  in 
Canada  for  $106.84  is  presented  to  a  bank 
in  New  Jersey.  The  note  contains  a  state- 
ment of  the  consideration  for  which  it  was 
given,  as  follows:  (Being  $105.00  plus  7  per 
cent,  per  annum.)  The  New  Jersey  bank 
raises  the  question  of  invalidity  by  reason  of 
usury.  Opinion:  The  note  is  not  invalid  by 
reason  of  the  statement.  In  Canada  the 
legal  rate  of  interest  is  5  per  cent.,  but  banks 
may  stipulate  for  and  take  not  exceeding  7 
per  cent.  (Inquiry  from  N.  J.,  Aug., 
1914,  Jl-) 

Rate  of  interest  on  note  payable  in  another  state 

2074.  A  note  drawn  in  New  York 
payable  in  another  state,  with  interest  but 
without  specifying  the  rate,  carries  interest 
at  the  legal  rate  of  the  state  where  it  is 
payable.  Pomeroy  v.  Ainsworth,  22  Barb. 
(N.  Y.)  118.  Wood  V.  Kelso,  27  Pa.  241. 
Hunt  V.  Hall,  37  Ala.  702.  Bent  v.  Lauve, 
3  La.  Ann.  88.  (Inquiry  from  N.  Y.,  May, 
1917,  Jl.) 


474 


INTEREST  AND  USURY 


[2075-2079 


Purchase  of  commercial  paper  not 
affected  by  usury  law 

Distinction   between   purchase   and   loan   at 
greater  than  legal  rate 

2075.  Where  a  national  bank  buys  a 
note  from  a  broker  acting  directly  for  the 
maker  at  a  discount  of  eight  per  cent.,  the 
excessive  discount  of  the  note  for  the  maker 
is  usurious,  but  if  the  note  has  legal  in- 
ception and  is  acquired  from  an  indorser 
without  recourse,  the  question  of  usury  is 
doubtful.  Where  the  note  is  discounted  at 
an  excessive  rate  with  recourse  on  the  in- 
dorser, the  transaction  is  usurious  as  to  the 
indorser  but  recoverable  in  full  from  the 
maker.  Authorities  on  subject  collected  in 
Nat.  Bk.  of  Gloversville  v.  Johnson,  104  U. 
S.  271.  39  Cyc.  932.  Bramhall  v.  Atlantic 
Nat.  Bk.,  36  N.  J.  L.  243.  Importers,  etc., 
Nat.  Bk.  V.  Littell,  47  N.  J.  L.  233.  Smith 
v.  Exch.  Bk.,  26  Ohio  St.  141.  Rahway  v. 
Carpenter,  52  N.  J.  L.  165.  Stirling  v. 
Gogebic  Lumber  Co.,  (Mich.)  131  N.  W. 
109.  Union  Nat.  Bk.  v.  Union  Ry.  Co., 
145  111.  208.  (Inquiry  from  N.  J.,  Dec, 
1915,  Jl.) 

Purchase  of  acceptance  at  greater  than  legal  rate 

2076.  A  bank  asks  whether  its  purchase 
from  the  payee  at  a  discount  of  six  per 
cent,  of  John  Doe&  Co.'s  90  days'  acceptance 
payable  to  S.  &  Co.  and  indorsed  by  the 
latter  without  recourse  would  be  a  violation 
of  the  usury  law  of  Minnesota.  Opinion: 
Under  the  decisions  and  the  Minnesota 
statute  (Minn.  Laws  1899  Ch.  66  Sec.  3), 
the  transaction  contemplated  would  not  be 
held  usurious,  while  the  bank  would  have 
no  recourse  upon  S.  &  Co.  if  John  Doe  failed 
to  pay  their  acceptance.  It  would  seem  that 
such  a  transaction  would  be  an  out-and-out 
purchase  of  the  acceptance  of  Doe  &  Co. 
from  S.  &  Co.  at  the  figure  which  it  was 
worth  in  the  market,  and  not  a  usurious 
loan.    (Inquiry  from  Minn.,  July,  1916.) 

Purchase  of  commercial  paper  at  greater  than 
legal  rate  for  loans 

2077.  A  bank  asks  in  what  manner 
"commercial  paper  can  be  floated  at  63^2% 
and  7%  as  is  being  done  at  the  present 
time."  Opinion:  The  highest  legal  rate 
of  interest  in  New  York  is  6%,  and  if  a  loan 
is  made  at  a  greater  rate  than  6%,  this 
constitutes  usury.  It  seems  where  com- 
mercial paper  is  floated  at  63^2%  or  7%, 
that  it  is  in  the  form  of  a  purchase  and  sale, 
as  distinguished  from  a  loan  and,  therefore. 


does  not  come  within  the  usury  law;  other- 
wise, the  transaction  would  be  usurious. 
Of  course,  a  man  cannot  make  his  own  note 
to  a  bank  and  sell  it  to  a  bank  at  a  greater 
rate  than  6%  as  this  would  only  be  a  form 
of  borrowing  money;  but  where  commercial 
paper  is  purchased  in  the  market  from 
others  than  the  maker,  the  transaction  is  a 
purchase  and  not  a  loan  and  does  not  come 
under  the  usury  law.  (Inquiry  from  N.  Y., 
March,  1920.) 

Purchase  of  commercial  paper  as  distinguished 

from  loan — Federal  Reserve  hanks 

exempt  from  usury  law 

2078.  1.  A  bank  states  that  it  has  been 
receiving  offerings  of  commercial  paper 
from  time  to  time  at  higher  than  the  legal 
rate,  and  desires  to  know  whether  banks 
are  permitted  to  accept  rates  of  discount 
higher  than  the  limit  allowed  by  law.  2. 
The  bank  also  states  that  the  Federal 
Reserve  Bank  is  collecting  from  the  member 
banks  in  New  York  State  and  other  states 
7%  discount  where  the  usual  rate  is  only 
6%.  Opinion:  1.  Where  commercial  paper 
is  negotiated  at  higher  than  the  legal 
rate,  it  is,  presumably,  in  the  form  of  a 
purchase  and  sale  as  distinguished  from  a 
loan  and,  therefore,  does  not  come  within 
the  usury  law;  otherwise  the  transaction 
would  be  usurious.  2.  The  National  Bank 
Act  limits  the  national  banks  to  the 
rate  allowed  by  the  laws  of  the  state,  "and 
no  more,"  except  that  when  no  rate  is 
fixed  by  the  state  law  they  may  charge 
7%.  It  is  doubtful,  however,  whether  this 
statute  is  applicable  to  the  Federal  Reserve 
Bank,  and  as  there  is  no  limit  in  the  Federal 
Reserve  Act  to  the  amount  of  interest  or 
discount  a  Federal  Reserve  Bank  may 
charge,  it  seems  it  is  lawful  for  such  banks 
to  charge  higher  than  the  legal  rate  allowed 
by  the  law  of  the  state.  (Inquiry  from  Ind., 
June,  1920.) 

Purchase  of  commercial  paper  at  discount  at 
greater  than  legal  rate 

2079.  Is  the  purchase  by  an  Ilhnois 
national  bank  of  commercial  paper  of  a 
broker  in  Illinois  at  8%  discount  usurious? 
Opinion:  If  the  purchase  money  for  the 
commercial  paper,  less  8%  discount,  went 
directly  to  the  maker,  the  transaction  would 
be  usurious,  as  it  would  be  in  effect  a 
loan  to  the  maker  at  a  greater  rate  of 
interest  than  that  allowed  by  state  law. 
If,  however,  the  paper  was  bought  from  a 
third  person  and  not  directly  from  the  maker, 
the  usury  law  would  not  be  violated.    See 


475 


2080-2084] 


DIGEST  OF  LEGAL  OPINIONS 


opinion  No.  2075.  Where  the  note  is 
discounted  at  an  excessive  rate  with  re- 
course on  the  indorser,  the  transaction  is 
usurious  as  to  the  indorser,  but  recovery 
may  be  had  in  full  from  the  maker.  {In- 
quiry from  III.,  Dec,  1920.) 

Minimum  charge  for  small  loans 

Minimum  charge  of  $1  for  interest  and  service 

2080.  A  national  bank  in  Massachusetts 
follows  a  custom  of  making  a  minimum 
charge  of  $1  to  cover  both  interest  and 
service  in  small  loans.  The  bank  seeks  to 
avoid  the  liability  for  usury  because  the 
comptroller  contended  that  the  whole  charge 
should  be  counted  as  interest  and  that  so 
counted  it  would  constitute  a  usurious  charge 
in  the  case  of  small  loans.  Opinion:  Under 
the  Massachusetts  statute,  which  allows 
parties  to  contract  for  any  rate  of  interest  or 
discount,  a  minimum  charge  of  $1  deducted 
by  a  national  bank  as  an  interest  and  service 
charge  upon  a  small  loan  is  lawful,  and  with- 
in the  permission  granted  by  the  National 
Bank  Act  to  charge  and  receive  interest  at 
the  rate  allowed  by  the  laws  of  the  state. 
Where  a  national  bank  in  Massachusetts 
makes  a  small  loan  and  deducts  SI  as  an 
interest  and  service  charge  by  oral  agree- 
ment with  the  borrower,  the  conclusion 
seems  warranted  that  such  rate  of  interest 
and  charge  is  lawful  under  the  law  of 
Massachusetts,  although  the  amount  de- 
ducted exceeds  6  per  cent,  interest  on  the 
amount  of  the  loan,  and  that  such  de- 
duction is  within  the  permission  granted  by 
the  National  Bank  Act  that  a  national  bank 
may  deduct  interest  at  the  rate  allowed  by 
the  laws  of  the  state.  Rev.  L.  Mass.,  1902, 
Ch.  73,  Sec.  3.  Lamprey  v.  Mason,  148 
Mass.  231.  U.  S.  Rev.  St.,  Sec.  5197. 
Winchester  v.  Glazier,  152  Mass.  316. 
{Inquiry  from  Mass.,  March,  1917,  Jl.) 

Minimum  interest  charge  of  50  cents  where 
above  legal  rate 

2081.  A  bank  asks  whether  it  is  usury 
to  make  a  minimum  charge  of  fifty  cents  for 
discounting  small  notes  where  the  interest 
is  less  than  that  amount.  Opinion:  Morally 
the  making  of  a  minimum  charge  of  fifty 
cents  for  discounting  small  notes  where  the 
legal  interest  on  the  amount  of  the  note 
would  not  amount  to  that  sum  is  proper, 
as  otherwise  the  transaction  is  not  worth 
entering  into.  But  from  a  strict  legal 
standpoint  it  might  be  held  usury  as  the 
plain  provision  of  the  New  Jersey  statute  is 
that  "No  person  or  corporation  shall,  upon 
contract,    take    directly  or  indirectly,   for 


loan  of  any  money  *  *  *  above  the  value 
of  six  dollars  for  the  forbearance  of  one 
hundred  dollars  for  a  year,  and  after  that 
rate  for  a  greater  or  less  sum  or  for  longer  or 
shorter  time."  On  the  other  hand,  such  a 
charge  might  be  justified  as  a  service 
charge.  There  seems  to  be  no  case  in 
which  such  a  point  has  been  raised  or  decided 
{Inquiry  from  N.  J.,  Nov.,  1915.) 

50  cents  minimum  charge 

2082.  A  bank  charges  a  straight  rate 
of  10%,  bank  discount,  on  all  notes  with 
minimum  charge  of  fifty  cents.  The  bank 
asks  whether,  under  the  laws  of  Texas  this 
minimum  charge  is  usurious.  Opinion:  It 
has  been  claimed  that  such  charge  on  a 
small  loan  is  not  usury  but  compensation; 
but  the  matter  is  still  in  the  realm  of 
argument.  There  seems  to  be  no  ruling  or 
court  decision  which  holds  that  it  is  not 
usury.  It  seems,  however,  a  good  argument 
could  be  advanced  that  a  trivial  minimum 
charge  does  not  violate  the  spirit  of  the 
usury  statutes  and  is  justifiable  on  con- 
siderations of  custom  and  convenience, 
or  as  compensation  for  service  rendered  in 
connection  with  the  loan.  {Inquiry  from 
Tex.,  Feb.,  1916.) 

Legality  of  minimum  charge  of  50  cents 

2083.  A  bank  asks  whether  the  laws  of 
the  State  of  New  York  permit  banks  to 
make  a  minimum  discount  charge  and 
whether  a  minimum  charge  of  fifty  cents 
can  be  made  for  discounting  a  note  irrespec- 
tive of  what  the  actual  rate  of  discount 
would  be.  Opinion:  The  New  York 
Legislature  has  not  passed  any  law  as  yet 
legalizing  a  fixed  rate  such  as  fifty  cents  or 
one  dollar  for  small  loans  which  rate  would 
otherwise  technically  be  usurious.  {In- 
quiry from  N.  Y.,  June,  1919.) 

Slight  excess  interest 

Slight  excess  interest  taken  for  convenience  of 
calculation 

2084.  A  bank  charged  $7.67  interest  on 
a  note  for  $500,  payable  in  three  months. 
At  this  rate  three  renewals  of  the  note 
would  produce  a  year's  income  from  in- 
terest of  $30.42,  whereas  the  straight  interest 
for  one  year  would  be  $30.  Opinion:  The 
slight  excess  interest  is  not  usurious.  Where, 
for  convenience  of  calculation,  interest  is 
taken  slightly  in  excess  of  the  legal  rate,  the 
transaction  is  not  usurious.  Taking  the  in- 
terest of  a  note  in  advance  by  way  of  dis- 
count is  not  usurious.  Conger  v.  Trades- 
man's Bk.,  Lalor  (N.  Y.)  34.     Keckley  v. 


476 


INTEREST  AND  USURY 


[2085-2089 


Winchester  Union  Bk.,  79  Va.  458.  Parker 
V.  Cousins,  2  Gratt.  (Va.)  372.  Neal  v. 
Brockhan,  87  Ga.  130.  St.  Bk.  v.  Cowan, 
8  Leigh  (Va.)  238.  Crump  v.  Nicholas,  5 
Leigh  (Va.)  25L  Stribbhng  v.  Bk.  of  Valley, 
5  Rand.  (Va.)  132.  Camp  v.  Bates,  11 
Conn.  487.  Patton  v.  Lafayette  Bk.  124 
Ga.  965.  Planters'  Bk.  v.  Bass,  2  La.  Ann. 
430.  Agricultural  Bk.  v.  Bissell,  12  Pick. 
(Mass.)  586.  Planters'  Bk.  v.  Snodgrass, 
4  How.  (Miss.)  573.  Lafayette  Bk.  v. 
Findley,  1  Ohio  Dec.  (Reprint)  49.  Mer- 
chants', etc.,  Bk.  V.  Sarratt,  77  S.  C.  141. 
Bradley  v.  McKee,  3  Fed.  Cas.  No.  1784. 
{Inquiry  from  Va.,  March,  1915,  Jl.) 

Discount  greater  than  legal  rate 

Oral  agreement  for  higher  rate  than  6%  in 
Connecticut 

2085.  A  bank  asks  whether  the  law  of 
Connecticut  would  permit  it  to  loan  its 
customers  at  a  higher  rate  than  six  per  cent., 
taking  the  usual  form  of  discount  at  the 
time  proceeds  of  their  notes  are  credited 
their  account,  without  having  some  agree- 
ment in  writing.  Opinion:  Section  No. 
4795  of  the  General  Statutes  of  Connecticut 
fixes  six  per  cent,  as  the  legal  rate  "in  the 
absence  of  any  agreement  to  the  contrary," 
and  it  has  been  held  that  any  rate  agreed 
upon  is  lawful.  Section  No.  4798  prohibits 
loans  at  a  greater  rate  than  twelve  per  cent., 
but  under  Section  No.  4803  the  provisions 
under  that  section  do  not  affect  any  loan 
made  by  a  national  bank  or  state  bank  or 
trust  company.  There  is  no  provision  in  the 
Connecticut  statute  that  the  agreement  for 
the  greater  rate  must  be  in  writing.  It 
follows,  therefore,  that  an  oral  agreement 
between  the  bank  and  borrower  that  the 
bank  would  discount  the  borrower's  note  at 
a  fixed  rate  higher  than  six  per  cent.,  taking 
out  the  interest  in  advance  and  crediting 
the  balance  to  the  customer's  account, 
would  be  valid,  though  not  in  writing. 
{Inquiry  from  Conn.,  June,  1920.) 

Discount  of  note  for  indorser  without  recourse 
at  excessive  rate 

2086.  A  makes  his  note  to  B  for  value, 
and  B  indorses  it  to  C  without  recourse  at  a 
discount  greater  than  the  legal  rate  of 
interest.  Opinion:  The  rule  in  Tennessee  is 
that  the  note  is  not  usurious  in  its  inception 
and  that  an  indorser,  who  has  transferred  a 
note  at  a  discount  greater  than  legal  interest 
and  has  paid  the  same  to  the  holder,  has  no 
right  of  recovery  of  the  excess  over  the  legal 
interest.    There  are  different  views  held  by 


courts  as  to  the  usurious  nature  of  the 
transaction.  Campbell  v.  Read,  8  Tenn. 
391.  May  v.  CampbeU,  26  Tenn.  450. 
{Inquiry  from  Tenn.,  June,  1916,  Jl.) 

Discount  at  maximum  legal  rate 

Discount  at  maximum  legal  rate  not  usurious 
in  Arkansas 

2087.  A  note  for  $100  having  ten  months 
to  run  was  discounted  by  a  bank  by  taking 
$10 — representing  10  per  cent. — from  its 
face  value.  The  Arkansas  statutes  with 
respect  to  usury  provide  that  all  contracts  for 
greater  rate  of  interest  than  10  per  cent,  per 
annum  shall  be  void  as  to  principal  and  in- 
terest, and  further  that  all  notes  whereupon 
there  shall  be  reserved  any  greater  sum  than 
is  prescribed  shall  be  void.  Is  the  note  in 
question  usurious?  Opinion:  It  has  been 
held  in  Arkansas  that  the  taking  of  the  high- 
est legal  rate  of  interest  in  advance  on  a  ne- 
gotiable note  payable  twelve  months  after 
date  does  not  constitute  usury.  In  the  case 
under  consideration  interest  was  collected  in 
advance  for  one  year,  whereas  the  note 
actually  matured  in  ten  months.  This 
plainly  amounts  to  usury.  Kirby's  Dig. 
Stat.  Ark.,  1904,  Sees.  5389,  5390.  Newport 
Bk.  V.  Cook,  60  Ark.  288.  First  Nat.  Bk.  v. 
Waddell,  74  Ark.  241.  Vohlberg  v.  Keaton, 
51  Ark.  534.  {Inquiry  from  Ark.,  March, 
1917,  Jl.) 

Conflict  of  decision 

2088.  In  Florida  and  Georgia  deduction 
of  interest  in  advance  at  highest  legal  rate 
is  usurious  but  in  Texas,  North  Carolina, 
North  Dakota  and  some  other  jurisdictions 
such  deduction  is  permissible.  Ga.  Civ. 
Code,  1910,  Sees.  3427,  3436.  Loganville 
Bk.  Co.  V.  Forrester,  143  Ga.  302.  Sayles 
Tex.  Civ.  St.,  Vol.  3,  Art.  4979.  Geisberg  v. 
Mutual  Bldg.,  etc.,  Assn.,  (Tex.  1900)  60 
S.  W.  478.  Webb  v.  Pahde,  (Tex.  1897) 
43  S.  W.  19.  Fla.  Comp.  L.,  1914,  Vol.  2, 
Ch.  5,  Sees.  3103,  3104,  3105.  Purvis  v. 
Frink,  57  Fla.  519.  Maxwell  v.  Jacksonville 
Loan,  etc.,  Co.,  45  Fla.  425,  34  So.  255. 
Lyle  V.  Winn,  45  Fla.  419,  34  So.  158. 
{Inquiry  from  Fla.,  Aug.,  1917,  Jl.) 

Deduction  of  interest  in  advance  on  five  year 
loan 

2089.  A  bank  made  a  loan  on  real 
estate  on  a  basis  of  five  years  at  8%,  2%  of 
which  is  payable  in  advance,  the  bank 
retaining  2%  of  the  loan  when  made;  the 
outside  legal  rate  being  8%  upon  written 


477 


2092-2096] 


DIGEST  OF  LEGAL  OPINIONS 


contracts.  The  bank  asks  whether  such 
loan  is  usurious.  Opinion:  While  a  number 
of  decisions  hold  that  the  taking  of  interest 
at  the  highest  legal  rate,  in  advance,  by 
way  of  discount  on  short  loans,  in  the 
ordinary  course  of  business,  is  not  usurious, 
a  reservation  of  interest  in  advance,  in  an 
ordinary  transaction  of  lending  money  for 
a  period  of  five  years,  is  usurious  when  the 
amount  reserved  and  the  amount  contracted 
to  be  paid  aggregate  a  sum  in  excess  of  the 
highest  legal  rate  for  the  term  of  the  loan. 
McCall  V.  Herring,  116  Ga.  235.  Union 
Sav.  Bk.  V.  Dollenheim,  107  Ga.  614. 
Mackenzie  v.  Flannery,  90  Ga.  590.  {In- 
quiry from  Iowa,  Jan.,  1916.) 

Discount  at  maximum  rate  not  exceeding  one 
year  legal  in  Oklahoma 

2092.  In  Oklahoma  the  maximum  rate 
of  interest,  not  exceeding  one  year's  amount, 
may  be  deducted  in  advance  without 
incurring  liability  on  the  part  of  the  lender 
for  usury.  Rev.  L.  Okla.,  Sees.  1004,  1007. 
Covington  v.  Fisher,  (Okla.)  97  Pac.  615. 
{Inquiry  from  Okla.,  Jan.,  1917,  Jl.) 

Deduction  in  advance  at  highest  legal  rate  in 
Texas 

2093.  Under  the  Texas  statute  regarding 
the  legal  rate  of  interest  which  provides 
that  "the  parties  to  any  written  contract 
may  agree  to  and  stipulate  for  any  rate  of 
interest  not  exceeding  ten  per  cent,  per  an- 
num on  the  amount  of  the  contract,"  it  is  not 
usury  to  deduct  interest  in  advance  at  the 
highest  legal  rate  of  ten  per  cent.  Vernon's 
Sayles'  Tex.  Civ.  Stat.  Vol.  3  Art.  4979. 
Geisberg  v.  Mut.  Bldg.  Assn.,  (Tex.  1900) 
60  S.  W.  478.  Webb  v.  Pahde,  (Tex.  1897) 
43  S.  W.  19.  Crowell  v.  Jones,  167  N.  C. 
386.  Sundahl  v.  First  St.  Bk.,  32  N.  Dak. 
373.  Contra.,  Loganville  Bank.  Co.  v. 
Forrester,  143  Ga.  302.  {Inquiry  from  Tex., 
June,  1917,  Jl.) 

Usurious  loans 

Consent  of  borrower  does  not  make  usurious 
loan  lawful 

2094.  Is  a  bank  justified  in  charging  as 
much  as  one  or  two  per  cent,  per  month  in 
advance  on  notes  when  the  maker  under- 
stands he  is  making  such  payment  and  makes 
no  objection?  Would  the  maker  have  a 
right  of  action  against  the  bank?  Opinion: 
The  legal  rate  of  interest  in  Missouri  is  6% 
and  parties  may  agree  in  writing  for  the 
payment  of  not  exceeding  8%  per  annum. 
It  would,  therefore,  be  illegal  and  usurious 


to  charge  the  maker  as  much  as  1%  per 
month.  The  fact  that  the  maker  under- 
stands he  is  paying  it  and  makes  no  objec- 
tion does  not  make  it  lawful  nor  constitute 
a  waiver  by  the  maker  of  his  right  of  action. 
{Inquiry  from  Mo.,  Nov.,  1915.) 

Requirement  that  certain  amount  he  kept  on 
deposit 

2095.  A  bank  loans  money  at  6% 
interest,  the  maximum  rate,  on  condition 
of  the  borrower's  agreement  to  keep  a 
stated  amount  on  deposit  during  the 
period  of  the  loan.  Is  this  usury?  Opinion: 
The  transaction  stated  is  usurious.  East 
River  Bank  v.  Hoyt,  32  N.  Y.  119,  and 
Butterworth  v.  Pecare,  8  Bosworth  (N.  Y.) 
671,  are  exactly  in  point.  In  the  case 
submitted  the  borrower  would  be  paying 
interest  on  the  full  amount  but  would  be 
given  the  use  of  only  a  portion  of  that 
amount;  therefore  the  amount  of  interest 
charged  on  the  sima  actually  applied  to  the 
use  of  the  borrower  would  be  above  the 
legal  rate  and  an  agreement  to  that  effect 
would  be  corrupt.  Were  there  no  binding 
agreement  requiring  that  a  portion  of  the 
borrowed  money  be  kept  on  deposit,  but 
this  was  a  purely  voluntary  action  on  the 
part  of  the  borrower,  the  transaction  would 
not  be  usurious,  although  the  borrower 
expected  that  this  course  would  enable 
him  to  obtain  money  from  the  bank  more 
readily.  Appleton  Bank  v.  Fiske,  90  Mass. 
201,  which  case,  however,  recognizes  that 
there  would  be  usury,  were  there  a  binding 
agreement.  Doster  v.  EngHsh,  (N.  C.) 
67  S.  E.  754.  Butterworth  v.  Pecare,  8 
Bosw.  (N.  Y.)  671.  East  River  Bk.  v. 
Hoyt,  32  N.  Y.  119.  Appleton  Bk.  v. 
Fiske,  90  Mass.  201.  {Inquiry  from  N.  C, 
July,  1912,  Jl.) 

Usury  in  Tennessee 

2096.  A  loan  was  originally  made  at  the 
legal  rate  of  six  per  cent.  After  maturity 
the  lender  increased  the  rate  to  eight  per 
cent.,  which  was  received  for  subsequent 
indulgence  and  forbearance  of  the  debt. 
Opinion:  The  taking  of  the  eight  per  cent, 
was  usurious  under  the  law  of  Tennessee. 
Shan.  Code  Tenn.,  1896,  Chap.  6.  Art.  1, 
Sees.  6732,  3492,  3493.  Richardson  v. 
Brown,  9  Baxt.  (Tenn.)  242.  Hamilton  v. 
Fowler,  99  Fed.  18.  {Inquiry  from  Tenn., 
April,  1915,  Jl.) 

Note:  The  Tennessee  legislature  in 
1921  raised  the  legal  contract  rate  of  interest 
from  6%  to  8%. 


\ 


478 


INTEREST  AND  USURY 


[2097-2100 


Usurious  note  payable  at  bank 

2097.  A  note  promising  payment  with 
interest  at  an  usurious  rate  is  made  payable 
at  a  bank.  When  it  is  presented  for  pay- 
ment the  maker  has  on  hand  sufficient 
funds.  In  the  absence  of  specific  instruc- 
tions from  the  customer,  should  the  bank 
pay  the  note  with  the  specified  rate  of 
interest  or  should  it  refuse  to  pay  and 
protest  the  note?  Would  the  bank  be  liable 
if  it  did  pay  and  charge  the  amount  to  the 
customer's  account?  Opinion:  Sec.  87  of 
the  Negotiable  Instruments  Act  provides: 
"Where  the  instrument  is  made  payable 
at  a  bank  it  is  equivalent  to  an  order  to  the 
bank  to  pay  the  same  for  the  account  of  the 
principal  debtor  thereon."  The  duty  of  a 
bank  under  the  statute  to  pay  presupposes 
that  the  note  is  not  illegal  or  irregular. 
Here  the  note  is  tainted  with  usury  and 
under  the  New  York  statute  (Gen.  Business 
Law  Sees.  370,  371,  373)  it  is  absolutely 
void.  The  Negotiable  Instruments  Law  did 
not  affect  this  rule;  the  note  is  unenforceable 
even  by  a  holder  in  due  course.  Sabine  v. 
Paine,  ^223  N.  Y.  401;  Claflin  v.  Boorum, 
122  N.  Y.  385,  388.  Hence,  payment  by 
the  bank  in  the  case  submitted  would  be 
unwarranted  and  would  render  it  liable  to 
the  customer.  In  such  a  case  the  bank 
should  return  the  note  which,  being  void 
for  usury,  does  not  call  for  protest.  (In- 
quiry from  N.  Y.,Feb.,  1921.) 

Power  of  Congress  to  fix  interest  rates 

Power  of  Congress  to  fix  7%  interest  rate  for 
national  banks 

2098.  A  bank  inquires  regarding  the 
constitutionality  of  a  proposed  amendment 
to  the  Federal  Reserve  Act  which  would 
make  it  possible  for  national  banks  in  any 
state  to  charge  seven  per  cent,  on  loans 
when  the  legal  rate  fixed  by  the  state  is 
six  per  cent.  Opinion:  It  is  safe  to  assume 
that  an  amendment  such  as  above  indicated 
would  not  be  unconstitutional.  Congress 
now  fixes  a  7%  rate  when  no  rate  is  fixed  by 
the  laws  of  the  state.  It  is  within  the 
power  of  Congress  to  allow  the  national 
banks  to  charge  any  rate  it  sees  fit,  not- 
withstanding state  laws  might  provide  a 
different  or  greater  rate.  It  has  been  the 
policy,  however,  of  Congress,  heretofore,  to 
make  the  rate  of  interest  that  allowed  by 
the  law  of  the  state.  (Inquiry  from  Va., 
June,  1920.) 

Question  of  constitutional  power  in  Congress  to 
regulate  state  interest  rates 

2099.  A  bank  asks  whether  it  would  be 


unconstitutional  for  Congress  to  pass  a 
law  regulating  the  rates  of  interest  in  the 
various  states.  Opinion:  The  Supreme 
Court  of  Illinois  in  Beach  v.  Peabody, 
118  111.  75,  held  that  the  provision  of  the 
U.  S.  Constitution,  Art.  1,  Sec.  8,  giving 
Congress  the  power  to  coin  money  and 
regulate  the  value  thereof,  has  no  reference 
to  the  rate  of  interest  to  be  charged  for  the 
use  of  money  and  does  not  deprive  the 
states  of  the  power  to  regulate  the  same  by 
statute.  It  is  generally  held  that  the  State 
legislatures  have  entire  control  over  the 
subject  of  interest,  restricted  only  by 
State  constitutional  hmitations.  (Inquiry 
from  Va.,  Feb.,  1917.) 

Usury  by  national  banks 

Payment  of  interest  on  greater  amount  than 
loan 

2100.  On  February  27,  1918,  the  comp- 
troller of  the  currency  issued  a  circular 
letter  to  all  national  banks,  a  portion  of 
which  is  as  follows:  "Your  attention  is 
called  to  a  recent  order  of  the  Supreme 
court  of  Erie  County  in  the  State  of  New 
York,  overruling  a  demurrer  to  a  bill  of 
complaint  brought  to  recover  usurious 
interest  under  Sec.  5198  U.  S.  R.  S.  The 
bank  had  not  openly  charged  interest  in 
excess  of  6  per  cent.,  the  legal  rate,  but  had 
required  the  borrower  to  carry  a  deposit 
balance  as  a  condition  of  the  loan  of  the 
money."  Several  national  banks  requested 
information  as  to  just  what  was  decided  in 
the  case  referred  to.  Opinion:  In  the  case 
referred  to,  the  complaint  alleged  that  the 
plaintiff  owed  the  bank  §85,000  on  notes, 
but  was  compelled  to  execute  notes  to  a 
total  of  over  $100,000,  and  to  pay  6% 
interest  on  the  full  amount  of  the  notes. 
To  make  it  appear  that  there  was  a  con- 
sideration for  the  increased  amount  of 
notes,  the  bank  executed  its  certificates  of 
deposit  for  such  increased  amount  of  notes 
above  $85,000,  but  retained  them  itself. 
The  decision  was  that,  admitting  for  the 
purpose  of  the  demurrer  all  the  facts  stated 
in  the  complaint  were  true,  the  complaint 
stated  a  cause  of  action  for  the  recovery  of 
usurious  interest  under  U.  S.  Rev.  St.  5198. 
The  bank  subsequently  settled  the  suit 
by  paying  the  plaintiff  nearly  the  full 
amount  demanded.  In  view  of  the  form  of 
the  complaint  the  holding  amounts  to  this: 
that  a  binding  agreement  that  the  customer 
keep  a  certain  amount  on  deposit,  repre- 
sented by  a  certificate  of  deposit,  constitutes 
usury,  where  thereby  he  pays  more  than  the 


479 


2101-2106] 


DIGEST  OF  LEGAL  OPINIONS 


legal  rate  of  interest  on  the  amount  actually 
owing,  and  the  device  is  one  to  evade  the 
usury  statute.  A  decision  that  such  a 
transaction  is  usurious  is  nothing  new. 
{Inquiry  from  N.  Y.,  April,  1918.) 

Usury  by  national  hank  in  Georgia 

2101.  The  Comptroller  of  the  Currency 
urged  by  circular  letters  that  a  national 
bank  in  Georgia  refrain  from  making 
further  loans  or  discounts  bearing  a  rate  of 
interest  greater  than  8%.  The  bank  asks 
whether  the  Comptroller  has  power  to  com- 
pel such  course.  Opinion:  Under  the  law 
of  Georgia,  the  legal  rate  of  interest  is 
seven  per  cent,  and  eight  per  cent,  may  be 
stipulated  for  by  contract.  Any  greater 
rate  is  usury.  The  National  Law  allows  a 
national  bank  to  charge  the  rate  allowed  by 
the  law  of  the  state,  and,  if  a  greater  rate 
is  charged  provides  a  penalty  of  forfeiture 
of  the  entire  interest,  or  if  a  greater  rate  is 
paid,  then  double  the  interest  at  the  suit  of 
the  borrower.  A  further  penalty  for 
violation  of  any  of  the  provisions  of  the 
Act  is  forfeiture  of  charter  at  the  suit  of 
the  Comptroller.  (Inquiry  from  Ga.,  April, 
1916.) 

Attorney's  fee  as  cover  for  usury 

2102.  A  national  bank  loaned  B  $100 
for  ninety  days  and  charged  $6  interest, 
making  the  note  $106.  The  note  also  pro- 
vided for  the  payment  of  an  attorney's  fee  of 
$15  and  ten  per  cent,  additional.  Opinion: 
In  this  case  usurious  interest  was  charged 
but  not  paid.  Under  the  National  Bank 
Act  the  entire  interest  is  forfeited  and  the 
principal  alone  is  recoverable.  The  usurious 
element  does  not  vitiate  the  entire  contract 
but  the  provision  for  the  attorney's  fee 
might  be  regarded  as  excessive  and  as  a 
cover  for  usury,  so  that  such  amount  would 
be  non-recoverable.  U.  S.  Rev.  St.,  Sec. 
5198.  Gates  v.  Montgomery  First  Nat. 
Bk.,  100  U.  S.  239.  Meador  v.  Johnson, 
(Okla.)  112  Pac.  1121.  (Inquiry  from 
Okla.,  May,  1913,  Jl.) 

Usury  pleaded  as  a  defense 

Defense  of  usury  by  surety 

2103.  A  national  bank  loaned  A  $100, 
taking  his  note  for  $106  signed  by  B  as 
surety.  The  loan,  being  for  a  period  less 
than  one  year,  was  usurious,  and  in  a  suit 
against  B  to  collect  the  note,  B  pleaded 
usury.  Opinion:  The  surety  may  defend 
on  the  ground  of  usury  to  the  same  extent 
as  the  principal  debtor.    If  the  defense  was 


successful,  the  bank  could  recover  the 
principal  sum  loaned,  but  no  interest. 
Gray  v.  Brown,  22  Ala.  262.  Austin  v. 
Fuller,  12  Barb.  (N.  Y.)  360.  U.  S.  Rev. 
St.,  Sec.  5198.  (Inquiry  from  Okla.,  Jan., 
1914,  JI-) 

Parol  evidence  to  prove  usury 

2104.  A  made  his  note  payable  to  a 
bank  for  $193  due  in  ten  months,  with 
interest  from  maturity  at  ten  per  cent.  The 
bank  collected  the  note  and  thereafter  A 
sued  the  bank  for  usurious  interest  to  the 
amount  of  double  the  interest  paid  at  time 
of  loan.  A  introduced  note  as  his  material 
allegation  and  bank  objected  to  any  other 
parol  evidence  being  introduced  to  alter 
terms  of  note.  Opinion:  Where  an  action 
is  brought  for  usurious  interest  and  the 
note,  pleaded  as  the  material  allegation  in 
support  of  the  usury,  does  not  itself  indicate 
that  the  transaction  was  usurious,  parol 
evidence  would  be  admissible  to  prove  the 
usury.  39  Cj^c.  1054,  and  cases  cited. 
Scott  V.  Lloyd,  9  Pet.  (U.  S.)  418.  Whildon 
V.  Milledgeville  B.  Co.,  3  Ga.  App.  69. 
France  v.  Munro,  138  Iowa  1,  7.  Roasenda 
V.  Zabriskie,  18  La.  346.  (Inquiry  from 
Okla.,  April,  1913,  Jl) 

By  a  Tennessee  corporation 

2105.  Under  the  laws  of  Tennessee 
usurious  interest  paid  on  a  loan  is  first  ap- 
plied to  the  payment  of  the  principal  and 
legal  interest,  and  until  such  debt  is  paid,  the 
claim  for  usury  does  not  arise,  and  the  action 
is  barred  in  two  years.  There  is  no  statute 
in  Tennessee  forbidding  a  corporation  from 
pleading  usury.  The  Vigilancia,  73  Fed. 
452.  Binghamton  Tr.  Co.  v.  Auten,  68 
Ark.  299.  Hartford  Fire  Ins.  Co.  v.  Hadden, 
28  111.  260.  Lane  v.  Watson,  51  N.  J.  L. 
186.  Frazier  v.  Trow's  Print.,  etc.,  Co.,  90 
N.  Y.  678.  Smith  v.  Isle  of  Wight  Co.,  3 
N.  Y.  S.  300.  Danville  v.  Pace,  25  Gratt. 
(Va.)  1.  Weatherhead  v.  Bovers,  7  Yerg. 
(Tenn.)  545.  Threadgill  v.  f  imberlake,  2 
Head  (Tenn.)  395.  Wood  v.  Todd,  3  Baxt. 
(Tenn.)  89.  Boyers  v.  Boddie,  3  Humph. 
(Tenn.)  666.  Laws  Tenn.,  1903,  Ch.  439. 
(Inquiry  from  Va.,  June,  1914,  Jl-) 

Penalty  for  usury 

Penalty  under  Georgia  law  of  1916 

2106.  A  bank  asks  whether  the  penalty 
imposed  by  the  law  of  1910  is  changed  by 
the  Act  of '1916.  Opinion:  The  law  of  1916 
changes  the  usury  penalty.    The  former  law 


480 


I 


LEGAL  TENDER 


[2107-2111 


(Sec.  3438  Code  of  1910)  provides  that  a 
person  guilty  of  usury  should  "forfeit  the 
excess  of  interest"  charged  or  taken  or 
contracted  to  be,  and  also  provided  (Sec. 
3442)  that  "all  titles  to  property  made  as  a 
part  of  a  usurious  contract  or  to  evade  the 
laws  against  usury  was  void."  The  Act  of 
1916  repealed  these  two  sections  but  enacted 
in  lieu  thereof  that  "any  person  violating 
the  law  against  usury  should  forfeit  the 
entire  interest  so  charged  or  taken  or 
contracted  to  be  reserved,  charged  or  taken" 
and  further  that  no  further  penalty  or 
forfeiture  should  be  suffered  for  taking 
usury.  The  law  of  1910,  therefore,  in- 
creases the  penalty  from  forfeiture  of  the 
excess  of  interest  to  forfeiture  of  the  entire 
interest;  but  repeals  the  penalty  avoiding 
titles  to  property.  {Inquiry  from  Ga., 
Oct.,  1917.) 

Penalty  for  usury  by  national  hank 

2107.  When  a  usurious  rate  of  interest 
is  charged,  is  the  interest  only  forfeited? 
Opinion:  Under  the  present  National 
Bank  Law  the  penalty  for  usury  by  a 
national  bank  is  forfeiture  of  the  entire 
interest  or  if  the  greater  rate  of  interest 
has  been  paid,  liability  for  double  the 
amount  of  such  greater  rate  at  the  suit  of 
the  borrower  within  two  years  from  the 
time  the  usurious  transaction  occurred. 
{Inquiry  from  N.  Y.,Feb.,  1916.) 

Usury  penalty  in  Oklahoma 

2108.  The  usury  laws  of  Oklahoma 
apply  equally  to  individuals  and  to  firms 
and  corporations,  but  in  the  case  of  the 
national  banks  the  penalty  for  usury  is  pro- 
vided for  in  the  national  and  not  in  the 
state  law.  Rev.  Laws  Okla.,  Ch.  12,  Art. 
VI,  Sees.  1004,  1005.  People's  Bk.  v. 
Dalton,  2  Okla.  476.  Seawell  v.  Hendricks, 
4  Okla.  435.  U.  S.  Rev.  St.,  Sec.  5197. 
{Inquiry    from    Okla.,    Feb.,  1914,  Jl-) 

Proposed  Oklahoma  usury  penalties  inappli- 
cable to  national  banks 

2109.  The  provisions  of  the   proposed 


Oklahoma  usury  law  (1)  making  usury  a 
misdemeanor,  (2)  making  it  a  misdemeanor 
for  the  original  holder  to  sell  or  transfer  a 
usurious  instrument,  (3)  prohibiting  the 
filing  of  a  mortgage  or  other  security  given 
for  a  usurious  loan,  and  (4)  prohibiting  suit 
in  court  upon  a  usurious  contract  will  not,  if 
enacted,  be  applicable  to  national  banks. 
Bk.  V.  Bearing,  91  U.  S.  29.  Railway  Co.  v. 
Bk.,  106  Ala.  346.  Peterborough  First 
Nat.  Bk.  V.  Childs,  133  Mass.  248.  First 
Nat.  Bk.  V.  Garlinghouse,  22  Ohio  St.  492. 
St.  V.  Clark  First  Nat.  Bk.,  2  S.  Dak.  568. 
Slaughter  v.  First  Nat.  Bk.,  109  Ala.  157. 
Easton  v.  State  of  Iowa,  188  U.  S.  220. 
U.  S.  Rev.  St.,  Sees.  5197,  5198.  {Inquiry 
from  Okla.,  July,  1913,  Jl.) 

Rights  of  holder  in  due  course  of  negoti- 
able instrument  void  under 
usury  statute 

2110.  A  bank  asks  whether  the  Negoti- 
able Instruments  Act  gives  an  enforceable 
title  to  a  holder  in  due  course  to  a  note  or 
bill  which  is  made  void  by  state  statutes 
against  usury  and  gaming.  Opinion:  There 
has  been  a  conflict  in  the  decisions  of  the 
courts  of  the  different  states  upon  this 
question.  At  common  law  where  a  statute 
declared  void  an  instrument  founded  upon 
a  gaming  consideration,  or  because  of 
usury,  a  bona  fide  purchaser  for  value  was 
not  protected.  But  the  Negotiable  Instru- 
ments Act  provides  that  a  holder  in  due 
course  holds  the  instrument  free  from  any 
defect  of  title  of  prior  parties  free  from  de- 
fenses available  to  prior  parties  among 
themselves  and  it  declares  that  the  title  of  a 
person  who  negotiates  an  instrument  is 
defective  when  he  obtains  the  instrument, 
among  other  things  "for  an  illegal  con- 
sideration." Some  courts  have  held  that 
said  act  virtually  repeals,  as  to  bona  fide 
holders,  state  statutes  making  notes  void 
when  given  for  a  gambling  debt  or  when 
tainted  with  usury,  but  other  courts  hold 
to  the  contrary.  {Inquiry  from  Va., 
Feb.,  1917.) 


LEGAL  TENDER 


Provision  for  payment  in  gold  coin 
2111.  The  customer  of  a  bank  holds  a 
bond  and  mortgage  which  provides  for  pay- 
ment at  maturity  in  gold  coin.  At  maturity 
he  insists  upon  specific  performance  of  the 
contract,  although  gold  is  unobtainable  at 
the  banks.     Opinion:     Where  a  note  and 


mortgage  provide  for  payment  in  gold  coin, 
the  creditor  is  entitled  to  payment,  specific- 
ally in  gold,  and  can  recover  and  enforce 
judgment  payable  specifically  in  that  me- 
dium. Should  it  become  physically  impos- 
sible to  obtain  gold,  the  promisor  would  be 
liable  in  damages  for  non-performance  but  it 


481 


2112-2118] 


DIGEST  OF  LEGAL  OPINIONS 


is  difficult  to  see  how  badly  damaged  he 
would  be,  since  paper  legal  tender  is  on  a 
par  with  gold.  Bronson  v.  Rodes,  7  Wall. 
(U.  S.)  229.  Butler  v.  Horwitz,  7  Wall. 
(U.  S.)  258.  Trebilcock  v.  Wilson,  12  WaU. 
(U.  S.)  687.  U.  S.  Rev.  St.  Sec.  3014.  (In- 
quiry from  Minn.,  Nov.,  1918,  Jl.) 

Legal   tender  substitute  for  gold  coin 

2112.  A  bank  desires  to  ehminate  from 
all  notes  payable  to  it  the  words  "Principal 
and  interest  payable  in  gold  coin  of  the 
United  States,"  and  substitute  the  words 
"Principal  and  interest  payable  in  lawful 
money  of  the  United  States."  Opinion:  A 
note  promising  to  pay  so  many  dollars  is 
payable  in  lawful  money,  i.  e.,  legal  tender, 
and  there  is  no  necessity  for  a  provision 
specifically  making  it  so  payable.  A  note 
payable  in  "gold  coin  of  the  United  States" 
is  specifically  payable  and  enforceable  in 
that  medium.  Miller  v.  Lacey,  33  Tex.  351. 
Opin.  Atty.  Gen.,  Vol.  17,  p.  123.  Carpenter 
V.  Northfield  Bk.,  39  Vt.  46.  Sanford  v. 
Hays,  52  Pa.  26.  Bronson  v.  Rodes,  7  Wall. 
(U.  S.)  229.  (Inquiry  from  Col.,  Aug.,  1918, 
Jl.) 

Legal  tender  qualities  of  money 

2113.  Gold  coins  and  standard  silver 
dollars  of  the  United  States  are  legal  tender 
at  their  nominal  value;  subsidiary  silver 
coins  smaller  than  one  dollar  are  legal  tender 
up  to  ten  dollars;  minor  coins  (nickel  and 
copper)  are  legal  tender  up  to  twenty-five 
cents;  United  States  notes,  demand  treasury 
notes  and  interest-bearing  treasury  notes  are 
legal  tender  in  payment  for  all  debts  public 
and  private  except  for  duties  on  imports  and 
interest  on  the  public  debt;  treasury  notes 
are  legal  tender  in  payment  of  all  debts  pub- 
he  and  private  and  are  receivable  for  cus- 
toms, taxes  and  all  pubhc  dues;  gold  and 
silver  certificates,  national  bank  and  Federal 
reserve  notes  are  not  legal  tender,  but  gold, 
and  silver  certificates  are  receivable  for  all 
public  dues;  national  bank  notes  are  receiv- 
able for  all  pubhc  dues  except  duties  on  im- 
ports; federal  reserve  notes  are  receivable  by 
national  and  member  banks  and  federal 
reserve  banks  and  for  all  taxes,  customs  and 
other  public  dues.  For  detailed  statement 
showing  exceptions  to  above,  see  10,  A.  B. 
A.  JL,  125.  Rev.  St.  U.  S.,  Sees.  3584,  3585, 
3587,  3589,  3590.  (Inquiry  from  Colo., 
Aug.,  1917,  Jl.) 

Deposit  in  gold  coin  payable  in  legal 
tender 

2114.  A  man  deposited  $1,000  gold  in  his 


bank  and  at  the  end  of  the  year  wishes  to 
withdraw  this  amount  and  demands  gold 
from  the  bank.  Opinion :  A  bank  which  re- 
ceives gold  coin  as  a  general  deposit  is  not 
obhged  to  pay  gold  on  demand  of  depositor, 
but  only  legal  tender,  but  if  gold  was  placed 
with  the  bank  as  a  special  deposit,  the  identi- 
cal thing  must  be  returned.  Carpenter  v. 
Northfield  Bk.,  39  Vt.  46.  (Inquiry  from 
Vt.,  Aug.,  1917,  Jl.) 

Standard  silver  dollars 

2115.  Standard  silver  dollars  are  legal 
tender  for  any  amount.  U.  S.  Rev.  St.,  Sec. 
254  (Act  Feb.  28,  1878).  (Inquiry  from  S. 
D.,  May,  1912,  Jl.) 

Payment  of  check  in  legal  tender 

2116.  A  private  bank  has  been  paying 
certain  checks  drawn  on  itself  in  minor  coin, 
and  inquires  if  it  can  lawfully  pay  such 
checks  in  cents  and  nickels  to  any  extent  it 
desires,  or  if  it  is  hmited  to  making  pay- 
ments in  subsidiary  silver  to  the  extent  of 
$10  or  in  minor  coins  to  the  extent  of  25 
cents,  and  whether  the  latter  appUes  to  the 
total  amount  of  checks  presented  or  to  each 
individual  check.  Opinion:  Subsidiary 
silver  coins  of  smaller  denominations  than 
$1  are  legal  tender  up  to  $10.  Minor  coins 
(nickel  and  copper)  are  legal  tender  not 
exceeding  25  cents  in  any  one  payment. 
Therefore,  in  paying  a  check,  the  bank  can- 
not lawfully  make  payments  in  these  coins 
beyond  the  legal-tender  hmit,  if  objected  to. 
If  checks  presented  represent  separate  debts, 
it  seems  this  limit  could  be  tendered  upon 
each  check;  but  if  the  checks  are  all  payable 
to  the  same  holder  so  as  to  constitute  one 
debt  the  case  would  be  different.  (Inquiry 
from  Mo.,  Sept.,  1918.) 

2117.  A  bank  asks  whether  a  person 
presenting  a  check  can  require  payment  in 
currency  or  silver  at  his  option.  Opinion: 
The  bank,  and  not  the  presenting  check- 
holder,  has  the  option  to  say  the  kind  of 
legal  tender  in  which  payment  shall  be  made. 
That  is  to  say,  standing  strictly  on  legal 
rights,  the  holder  has  a  right  to  demand  legal 
tender,  but  the  bank  has  a  right  to  make 
payment  in  any  kind  of  legal  tender,  gold 
coins,  silver  dollars  or  United  States  notes. 
Subsidiary  silver  coins  are  not  legal  tender 
for  more  than  $10.  (Inquiry  from  Tex., 
Sept.,  1915.) 

National    bank    notes   legal    tender    to 
other    national    banks 

2118.  A  bank  inquires  whether  it  is 
obligatory  upon  national  banks  "to  receive 


482 


J 


LETTERS  OF  CREDIT 


[2119-2120 


the  notes  of  every  other  national  bank  at 
par."  Opinion:  The  answer  may  be  found 
in  the  plain  wording  of  the  statute.  Sec- 
tion 5196  of  the  United  States  Revised 
Statutes  provides:  "Every  national  bank- 
ing association  formed  or  existing  under  this 
title  shall  take  and  receive  at  par,  for  any 
debt  or  hability  to  it,  any  and  all  notes  or 
bills  issued  by  any  lawfully  organized  na- 
tional banking  association.  But  this  pro- 
vision shall  not  apply  to  any  association 
organized  for  the  purpose  of  issuing  notes 
payable  in  gold."  (inquiry  from  Minn., 
*   April,  1917.) 

Obligation  of  bank  to  pay  deposits  of 
Mexican  funds  in  U.  S.  legal  tender 

2119.  It  is  stated  by  a  Texas  bank  that 
the  banks  along  the  border  have  around 
$10,000,000  in  Mexican  deposits,  of  which 
it  has  a  very  fair  share,  and  is  in  doubt  as  to 
advisability  of  continuing  to  receive  de- 
posits in  Mexican  money.  The  bank  re- 
quests wire  as  to  what  would  be  considered 
legal  tender  in  paying  Mexican  depositors 
where  deposits  are  made  in  Mexican  cur- 
rency, payable  in  Mexican  money;  that  it 
would  be  impossible  to  cover  deposits  in 
Mexican  gold  or  silver,  but  they  are  covered 
by  bills  issued  by  Banco  Londres  and  Banco 
Nacional.  Should  this  issue  later  on  not  be 
acceptable,  would  the  bank  be  forced  to  pay 


in  Mexican  gold,  silver  or  American  money 
at  any  rate  of  exchange?  Opinion:  A  bank 
which  receives  a  deposit  of  Mexican  coin  or 
currency  and  gives  credit  therefor  as  for  so 
much  United  States  money  must  pay  the 
depositor  the  amount  credited  in  United 
States  legal  tender  and,  therefore,  takes  the 
risk  of  loss  in  case  of  depreciation.  It  was 
formerly  held  in  case  of  deposit  of  state  bank 
bills  that,  notwithstanding  their  depreciation 
to  the  point  of  worthlessness,  payment  must 
be  made  in  full  in  good  money  and  even  the 
identical  bills  deposited  could  not  be  repaid, 
and  the  same  principle  applies.  The  bank 
cannot  pay  the  deposit  in  Mexican  bank 
bills  if  the  depositor  objects,  as  they  are  not 
legal  tender,  and,  furthermore,  in  any  event 
would  be  subject  to  Federal  tax  of  ten  per 
cent.  It  seems,  therefore,  if  there  is  danger 
of  loss  or  depreciation,  Mexican  coin  and 
currency  should  not  be  received  on  general 
deposit  at  all,  but  only  as  a  special  deposit 
to  be  specifically  returned,  or  a  special 
agreement  should  be  made  under  which  the 
bank  takes  as  agent  to  collect  the  bills  or 
convert  the  coin  and  give  credit  for  the 
proceeds  only  when  received  in  United 
States  money.  As  to  the  deposits  in  Mexi- 
can money  which  the  bank  now  has,  no 
specific  advice  can  be  given.  If  there  is 
danger  of  loss  the  bank  should  proceed  to 
readjust  the  credit  by  agreement  with  its 
depositors.     {Inquiry  from  Tex.,  Oct.,  1913.) 


LETTERS  OF  CREDIT 


Revocation  of  banker's  letter  of  credit 

2120.  A  letter  of  credit  issued  by  a  New 
York  bank  reads:  "Our  correspondents  at 
Paris  have  requested  us  bj-  cable  to  inform 
you  that  they  open  a  confirmed  credit  in 

your   favor available    against    your 

drafts  on  us  at  sight  accompanied  by  ship- 
ping documents."  May  the  l)ank  cancel 
such  letter  of  credit  merely  upon  instructions 
from  its  foreign  correspondent,  and  leave  the 
person  in  whose  favor  the  credit  was  opened 
to  his  remedy  against  the  bank's  corre- 
spondent in  Paris?  Would  the  New  York 
bank  be  held  as  would  an  American  bank 
issuing  a  letter  on  its  own  initiative? 
Opinion:  Recent  decisions  are  to  the  effect 
that  a  bank  issuing  a  letter  of  credit  on 
behalf  of  a  depositor  to  a  third  person  who 
acts  on  it  cannot  justify  its  refusal  to  honor 
its  obligation  because  of  contract  relations 
between  it  and  the  depositor  (American 
Steel  Co.  V.Irving  National  Bank,  266 Fed. 


41) ;  and  that  where  a  bank  issues  a  letter  of 
credit  at  the  buyer's  instance,  the  letter  of 
credit  is  irrevocable  and  the  buj^er  cannot 
enjoin  the  bank  from  honoring  or  paying  any 
drafts  thereon  nor  can  it  enjoin  the  seller 
from  drawing  or  negotiating  drafts  upon 
such  letter.  Frey  &  Son  v.  E.  R.  Sherburne 
&  Co.,  184  N.  Y.  Supp.  601.  In  the  latter 
case  the  court  said:  "Interests  of  innocent 
parties  who  may  hold  drafts  upon  the  letter 
of  credit  should  not  be  made  to  suffer  by 
reason  of  rights  that  may  exist  between  the 
parties  to  the  contract  of  sale  in  reference  to 
which  the  letter  of  credit  was  issued."  In 
the  case  submitted,  the  New  York  bank 
would  be  equally  bound  as  if  it  had  issued  a 
letter  of  credit  on  its  own  account;  it  is 
more  than  a  mere  agent  for  a  known  princi- 
pal, whose  acts  and  contracts  involve  no 
contractual  habihty  on  the  part  of  the  agent. 
The  bank  has  superadded  a  contract  of  its 
own  to  the  effect  that  it  holds  a  credit  in 


483 


2121-2122] 


DIGEST^OF  LEGAL  OPINIONS 


favor  of  the  person  addressed  and  its  state- 
ment that  such  credit  is  available  against 
such  person's  drafts  is  a  promise  to  pay  the 
drafts  drawn  against  the  credit  upon  which 
it  is  personally  liable.  An  agent  may  pledge 
his  own  credit  in  the  transaction  or  superadd 
it  to  that  of  the  principal  in  such  a  way  as  to 
render  himself  personally  hable.  McCauley 
V.  Ridgewood  Trust  Co.,  79  Atl.  (N.  J.)  327. 
Jones  V.  Gould,  29  N.  E.  (N.  Y.  1071.) 

Negotiable  Instruments  Act,  Sec.  135 
(N.  Y.  223)  provides  that  "an  unconditional 
promise  in  writing  to  accept  a  bill  before  it 
is  due  is  deemed  an  actual  acceptance  in 
favor  of  every  person  who,  upon  faith 
thereof,  receives  the  bill  for  value."  Under 
the  terms  of  this  provision,  the  letter  of  the 
New  York  bank  would  bind  it  as  acceptor 
of  drafts  drawn  against  the  credit  in  favor 
of  bona  fide  purchasers  for  value. 

There  is  a  certain  analogy  to  the  binding 
nature  of  a  certified  check,  payment  of  which 
the  depositor  cannot  stop,  except  as  con- 
cerns the  original  payee,  in  which  case  the 
decisions  are  somewhat  conflicting  whether 
the  bank  can  interpose  equities  of  the  de- 
positor against  him. 

Gelpcke  v.  Quentell,  74  N.  Y.  599,  is  very 
similar  to  the  case  submitted.  In  that  case 
the  New  York  correspondent  was  held 
justified  in  accepting  and  paying  drafts 
drawn  before  notice  of  revocation  of  the 
letter  of  credit  had  reached  the  person  in 
whose  favor  the  credit  was  extended,  and 
was  held  to  have  the  right  of  reimbursement 
from  its  foreign  correspondent.  Although 
in  this  case  the  court  seems  to  think  that  the 
letter  was  binding  as  an  acceptance  only  of 
such  drafts  as  were  drawn  before  the  drawer 
had  notice  of  the  withdrawal  of  the  credit, 
later  decisions  seem  to  go  further  and  up- 
hold the  absolute  irrevocability  of  letters  of 
credit,  not  only  in  favor  of  bona  fide  holders 
of  drafts,  but  also  in  favor  of  the  person  to 
whom  the  letter  is  issued.  The  above  dis- 
cussion does  not  apply  to  conditional  letters 
of  credit,  but  only  to  absolute  promises. 
{Inquiry  from  N.  Y.,Jan.,  1921.) 

Payment  of  overdrawn  letter  of  credit 

2121.  A  bank  issued  a  letter  of  credit  for 
$100,  promising  to  honor  drafts  to  that 
amount.  The  letter  required  that  the 
amount  of  each  payment  be  indorsed  on  the 
letter  and  negotiation  of  the  draft  to  con- 
stitute a  guaranty  that  the  requisite  indorse- 
ment was  made  and  that  all  drafts  "be  drawn 
against  our  letter  of  credit  No.  101."  Five 
drafts  of  $25  each  were  drawn  and  paid, 


creating  an  overdraft  of  $25.  The  first  draft 
stated  it  was  drawn  against  the  letter;  the 
next  three  did  not  so  state  and  the  letter  was 
attached  to  last  draft  drawn.  Opinion:  The 
bank  has  recourse  upon  its  customer  for 
the  overdraft  but  will  have  no  recourse 
against  any  of  the  cashing  banks  unless  it 
can  prove  the  drafts  were  negotiated  against 
the  letter  and  the  requirements  not  complied 
with.  The  bank  should  have  refused  pay- 
ment of  drafts  not  indorsed  as  drawn  against 
the  letter,  for  otherwise  such  drafts  could  be 
negotiated  without  showing  the  letter.  {In- 
quiry from  Kan.,  Feb.,  1914,  JI-) 

Liability  of  issuing  hank  for  overdraft  where 

credit  exhausted  by  previous  drafts  not 

indorsed  on  letter 

2122.  A  bank  issued  a  general  letter  of 
credit  authorizing  drafts  to  a  certain  amount 
to  be  indorsed  upon  the  letter  of  credit.  The 
question  is  raised  as  to  who  would  be  the 
loser  if  another  bank  making  a  payment  on 
the  letter  of  credit  neglected  to  make  a 
notation  of  this  payment  and  through  this 
neglect  gave  the  holder  an  opportunity  to 
draw  more  than  the  face  of  the  letter  of 
credit.  Opinion:  The  bank  issuing  the 
letter  of  credit  is  liable  to  the  innocent  pur- 
chaser of  a  draft  drawn  against  the  latter 
and  within  its  amount,  notwithstanding  the 
holder  of  the  letter  has  previously  exhausted 
the  credit  by  drafts  not  so  indorsed.  It 
would  be  liable  for  an  amount  within  the 
unindorsed  total  of  the  letter  of  credit, 
although  it  had  paid  the  full  amount  of  the 
letter  upon  drafts  which  had  not  been  in- 
dorsed thereon.  In  order  to  safeguard  the 
issuing  bank  from  being  misled  into  paying 
an  ordinary  draft  by  the  drawer  of  the  letter 
but  not  indorsed  there,  the  only  protection 
would  be  to  require  that  drafts  drawn 
against  the  letter  should  specify  upon  their 
face  that  they  were  so  drawn  and  that  their 
amount  had  been  indorsed  upon  the  letter; 
the  bank  refusing  to  pay  such  drafts  as  did 
not  contain  this  statement.  The  draft 
might   contain  a  clause:     "Drawn  against 

your  letter  of  credit  No and  the 

amount  of  this  draft  has  been  indorsed  there- 
on." If  the  draft  itself  contained  such 
statement,  this  would  be  an  express  warran- 
ty by  the  purchaser  to  the  drawee  of  a 
material  fact  which,  if  false  and  the  drawee 
relied  thereon  to  his  injury,  would  entitle 
him  to  recourse  upon  such  purchaser.  Bk. 
of  Seneca  v.  First  Nat.  Bk.,  105  Mo.  App. 
722.  Omaha  Nat.  Bk.  v.  First  Nat.  Bk.,  59 
111.428.  {Inquiry  from  Okla.,  March,  1919,Jl.) 


484 


[2123-2125 


LIBEL  AND  SLANDER 


Derogatory  statements  affecting  banks 

Legislation 
2123.  Note:  The  following  statute,  rec- 
ommended by  the  American  Bankers  Asso- 
ciation, which  punishes  the  wilful  and  maU- 
cious  circulation  of  statements,  written  or 
oral,  derogatory  to  banking  institutions,  has 
been  passed  either  in  the  recommended 
form  or  with  modifications  in  the  following 
states:  Arizona,  Arkansas,  California,  Con- 
necticut, Delaware,  Florida,  Georgia,  Idaho, 
Illinois,  Indiana,  Kansas,  Kentucky,  Louisi- 
ana, Maryland,  Michigan,  Missouri,  Nevada, 
New  Jersey,  New  Mexico,  New  York,  North 
Carolina,  Ohio,  Oklahoma,  Oregon,  Penn- 
sylvania, Rhode  Island,  Washington,  West 
Virginia,  Wisconsin,  Wyoming: 

An  Act  to  punish  derogatory  statements 
affecting  hanks. 

Be  it  enacted,  etc. 

Section  1.  Any  person  who  shall  wilfully 
and  maliciously  make,  circulate  or  transmit 
to  another  or  others  any  statement,  rumor 
or  suggestion,  written,  printed  or  by  word 
of  mouth,  which  is  directly  or  by  inference 
derogatory  to  the  financial  condition  or 
affects  the  solvency  or  financial  standing  of 
any  bank,  savings  bank,  banking  institution 
or  trust  company  doing  business  in  this 
State,  or  who  shall  counsel,  aid,  procure,  or 
induce  another  to  start,  transmit  or  circulate 
any  such  statement  or  rumor,  shall  be  guilty 
of  a  (felony  or  misdemeanor) ,  and  upon  con- 
viction thereof,  shall  be  punished  by  a  fine 
of  not  more  than  five  thousand  dollars  or  by 
imprisonment  for  a  term  of  not  more  than 
five  years,  or  both. 

Statement 

This  proposed  act  was  drafted  by  General 
Counsel  in  December,  1907,  to  punish 
persons  who  maliciously  make  or  circulate 
derogatory  statements  or  stories  affecting 
the  standing  and  credit  of  banking  institu- 
tions— a  kind  of  evil  to  which  banks  are 
peculiarly  subject,  and  which  often  causes 
great  injury  not  only  to  the  bank  or  banks 
affected  but  to  the  general  public.  Existing 
criminal  laws  are  inadequate  to  obtain  the 
conviction  and  punishment  of  offenders. 

As  originally  drafted,  following  a  law  of 
New  Jersey,  enacted  in  the  spring  of  1907, 
the  act  provided  for  the  punishment  of 
persons  who  "wilfully  or  maliciously"  circu- 
lated stories  "untrue  in  fact."     The  later 


draft  aims  at  one  who  "wilfully  and  mali- 
ciously" circulates  such  stories,  without  the 
necessity  of  proving  they  are  "untrue  in 
fact,"  making  the  gist  of  the  crime  depend 
upon  the  maliciousness  rather  than  upon  the 
untruth  of  the  injurious  utterance.  The 
new  draft  was  made  as  the  result  of  expert 
criticism  demonstrating  the  unwisdom  of 
bringing  in  the  untruth  as  a  material  ele- 
ment of  proof,  which  might  require  dragging 
a  bank's  entire  financial  condition  into  court 
before  conviction  could  be  obtained,  the 
impracticability  of  which  might  defeat  the 
ends  of  justice.    (April,  1921.) 

Circulation  of  false  stories  concerning  national 
hank 

2124.  A  bank  inquires  as  to  whether 
there  is  any  penalty  for  circulating  false  and 
malicious  stories  about  a  national  bank. 
Opinion:  At  common  law,  slander  is  not  a 
criminal  offense  unless  it  is  written  so  as  to 
constitute  libel,  and  a  national  bank  which 
has  been  injured  by  the  circulation  of  mah- 
cious  and  derogatory  statements  would  be 
confined  to  its  civil  action  for  damages  in 
case  the  slanderer  is  worth  suing.  In  1913 
the  legislature  of  Connecticut  passed  an  act 
to  make  criminal,  derogatory  statements 
affecting  banks,  the  extreme  penalty  there- 
for being  $500  fine  and  the  term  of  im- 
prisonment one  year.  {Inquiry  from  Conn., 
July,  1915.) 

No    federal    statute    punishing    derogatory 
statements  affecting  hayiks 

2125.  A  bank  asks  whether  there  is  a 
Federal  law  to  punish  derogatory  state- 
ments affecting  banks.  Opinion:  There  is 
no  federal  law  on  the  subject.  A  law  to 
cover  cases  of  this  kind  has  been  enacted  in 
a  number  of  states,  including  Kansas.  It  is 
Chapter  183  Laws  of  1919.  It  provides  in 
substance  that  whenever  any  person  mali- 
ciously and  without  probable  cause  circu- 
lates any  rumor  with  intent  to  injuriously 
affect  the  financial  standing  or  reputation  of 
any  bank  in  the  state,  either  verbally  or  in 
writing,  or  makes  a  statement  or  circulates 
a  false  rumor  to  injure  the  financial  standing 
of  a  bank,  or  seeks  to  start  a  run  upon  the 
bank,  or  connives  or  conspires  with  any 
person  to  injure  the  standing  or  start  a  run 
on  any  bank,  such  person  shall  be  deerned 
guilty  of  a  misdemeanor  and  upon  conviction 
shall    be   fined    not    more    than    §500    or 


485 


2126-2131] 


DIGEST  OF  LEGAL  OPINIONS 


imprisoned  for  not  more  than  three  months 
or  both.     (Inquiry  from  Kan.,  May,  1920.) 

False    derogatory    statements    'published    by 
editor  of  newspaper 

2126.  The  editor  of  a  newspaper  wil- 
fully published  a  statement  concerning  two 
banks  that  "the  deposits  of  the  First  Na- 
tional are  falhng  off  and  of  the  Citizens  are 
slowly  increasing,"  such  statement  being 
contrary  to  fact.  Opinion:  To  establish 
the  editor's  criminal  liability  for  libel, 
the  test  is,  was  the  publication  not  only 
untrue  but  malicious  and  did  such  publica- 
tion have  a  tendency  to  injure  the  bank  in 
its  business?  It  is  doubtful  if  the  editor  can 
be  convicted.  Cady  v.  Brooklyn  Union  Pub. 
Co.,  23  Misc.  Rep.  (N.  Y.)  409.  Ostrom  v. 
Calkins,  5  Wend.  (N.  Y.)  263.  (Inquiry 
frojn  N.  Y.,  Aug.,  1912,  Jl.) 

2127.  A  state  bank  pubhshed  this  ad- 
vertisement: "Think  this  over.  Some 
banks  are  stronger  and  more  carefully 
managed  than  others.  Savers  are  dis- 
criminating more  keenly  and  intelhgently 

every  day.    The Bank  welcomes  this 

tendency  toward  careful  investigation  know- 
ing the  more  exacting  the  comparison  the 
greater  will  be  the  growth.  Every  year  we 
make  not  less  that  four  sworn  statements  to 
the  Treasury  Department  of  the  United 
States  and  are  examined  by  experts  at  least 
twice  yearly.  More  effective  than  this  is 
our  own  plan  of  audit.  Every  transaction 
of   each    officer   and    employee   is   doubly 

checked  by  the  experts  of  the  A 

Guaranty  Company  who  report  daily  to  our 
Board  of  Directors.  A  service  given  you  in 
addition  to  the  insurance  of  your  deposits. 

Think  this   over.     The  Bank." 

A  national  bank  inquires  whether  any  ac- 
tion can  be  taken  against  the  rival  bank,  the 
only  other  bank  in  the  city,  because  of  such 
publication.  Opinion:  It  is  doubtful  that 
there  would  be  any  basis  in  this  advertise- 
ment for  an  action  for  libel,  but  if  an  untrue 
advertisement  is  pubhshed  by  a  bank  it 
would  seem  to  come  within  the  provision  of 
the  Ohio  statute  defining  fraudulent  ad- 
vertisement. Ohio  St.,  Sec.  13194,  Sec.  1 
(Vol.  4  Supp.  to  Page  &  Adams'  Ohio  Gen. 
Code.)  Apart  from  any  possible  legal  ac- 
tion, the  national  bank  might  publish  an 
answering  advertisement,   saying  that  the 

complaining  bank  is  the  only  bank  in 

subject  to  the  Federal  law  or  required  to 
make  reports  to  the  Treasury  Department. 
(Inquiry  from  Ohio,  April,  1917.) 


Malicious   reports   of  unsoundness   of  hank 

2128.  Certain  unscrupulous  persons  cir- 
culated malicious  reports  of  the  unsoundness 
of  a  bank,  and  such  statements  injured  the 
bank  but  not  to  a  great  extent.  Opinion: 
Under  a  Pennsylvania  statute  such  persons 
can  be  punished.  The  bank  should  lay  the 
facts  before  the  county  prosecuting  officer 
for  the  proper  action.  Pa.  Pub.  L.,  1909, 
No.  121.    (Inquiry  from  Pa.,  Nov.,  1910,  Jl.) 

False  statement  by  banker  that  rival  would 
"bust" 

2129.  A  rival  banker  made  a  derogatory 
and  untrue  statement  to  the  effect  that  a 
certain  national  bank  was  not  safe  and  would 
"bust"  and  advised  his  friend  to  withdraw 
his  money  therefrom.  Opinion:  The  mak- 
ing of  the  derogatory  statement  would 
render  the  banker  punishable  under  the  stat- 
ute enacted  in  Pennsylvania  in  1909,  and 
also  liable  in  a  civil  action  for  slander.  Pa. 
Pub.  L.,  1909,  No.  121.  (Inquiry  from  Pa., 
Aug.,  1912,  Jl.) 

False  statement  by  hotel  man  that  national 
bank  has  closed 

2130.  A  hotel  man  made  a  public  utter- 
ance of  the  derogatory  and  untrue  state- 
ment that  a  certain  national  bank  "has 
closed,"  thereby  causing  loss  to  the  bank. 
Opinion:  The  person  can  be  prosecuted 
criminally  under  the  "derogatory  state- 
ment" act,  in  force  in  Pennsylvania.  The 
bank  can  also  maintain  an  action  for  slander. 
For  the  Derogatory  Statement  Act  advo- 
cated by  the  American  Bankers  Association 
see  6  A.  B.  A.  Jl.  432.  Pa.  Pub.  L.,  1909,  No. 
121.  People's  U.  S.  Bk.  v.  Goodwin,  (Mo.) 
128  S.  W.  220.  International,  etc.,  Co.  v. 
Leader  Print.  Co.,  188  Fed.  86.  (Inquiry 
from  Pa.,  Dec,  1913,  Jl.) 

False  statement  that  bank  in  bad  shape 

2131.  A  person  tells  several  customers 
that  the  bank  is  in  bad  shape.  This  state- 
ment, which  is  untrue,  causes  the  depositors 
to  become  frightened  and  to  withdraw  their 
funds.  The  bank  wants  the  offender 
punished  criminally.  Opinion:  Slander  or 
oral  defamation  is  not  a  crime  at  common 
law  and  a  person  uttering  derogatory  and 
untrue  statements  affecting  the  solvency  of 
a  bank  cannot  be  punished  criminally  in 
the  absence  of  a  statute  making  such  offense 
a  crime.  The  "Derogatory  Statement"  Act 
drafted  on  behalf  of  this  Association  has 
been  enacted  in  a  number  of  states  but  not , 


486 


LOST  AND  STOLEN  PAPER 


[2132-2136 


as  yet,  in  Tennessee.  A  civil  action  for 
slander  will  lie.  St.  v.  Wakefield,  8  Mo. 
App.  11.  Bailey  v.  Dean,  5  Barb.  (N.  Y.) 
297.  Ohio  &  M.  Ry.  Co.  v.  Press  Pub.  Co., 
48  Fed.  206.  {Inquiry  from  Tenn.,  Feb., 
1914,  JI-) 

False  statements  by  former  president  affecting 
bank's  credit 

2132.  The  former  president  of  a  bank 
circulated  derogatory  and  untrue  state- 
ments affecting  its  credit  and  solvency  by 
advising  customers  to  withdraw  their 
money,  as  the  bank  was  going  to  "bust"  and 
also  causing  publication  of   untrue  state- 


ments in  the  local  newspaper.  Opinion:  The 
bank  may  maintain  an  action  in  libel  and 
slander  for  damages.  The  offender  is  prob- 
ably not  punishable  criminally  under  the 
existing  statutory  law  of  Virginia,  and  legis- 
lation covering  this  case  similar  to  that  of 
other  states  is  necessary.  25  Cyc.  326. 
People's  U.  S.  Bk.  v.  Goodwin,  (Mo.)  128 
S.  W.  220.  Internat.,  etc.,  Co.  v.  Leader 
Print.  Co.,  188  Fed.  86.  {Inquiry  from,  Va., 
Oct.,  1912,  Jl.) 

Note.  Since  this  opinion  was  rendered 
the  Derogatory  Statement  Act  has  been 
passed  in  Virginia  and  undoubtedly  the 
former  president  would  have  been  held 
liable. 


LOST  AND  STOLEN  PAPER 


Lost  and  stolen  checks 

Liability  of  collecting  bank  for  delay  in  re- 
porting loss 

2133.  A  bank  asks  whether  a  delay  of  a 
month  and  a  half  in  giving  notice  of  the  loss 
of  a  check  would  be  sufficient  to  make  the 
correspondent  liable.  Opinion:  It  is  the 
duty  of  a  collecting  bank  to  promptly  send 
a  tracer  for  lost  items  when  they  do  not 
receive  returns  or  return  advices  by  due 
course  of  mail,  and  failure  for  the  period  of 
one  or  two  months  to  notify  of  the  loss 
makes  the  collecting  agent  responsible  to  its 
principal.  But  where  prompt  notice  of  loss 
is  given  the  collecting  agent  is  not  responsi- 
ble in  the  absence  of  negligence.  Where  a 
correspondent  receives  and  mails  an  item 
and  it  is  lost  in  the  mail,  there  is,  of  course, 
no  negligence  on  its  part  which  makes  it 
responsible;  but  if  lost  in  the  bank  by  one 
of  its  own  clerks  the  case  would  doubtless 
be  different,  if  such  loss  could  be  proved. 
{Inquiry  from  N.  Y.,  Feb.,  1914-) 

Title  of  finder 

2134.  A  bank's  customer,  a  young  lady, 
wrote  out  a  check  at  the  bank  for  $20,  pay- 
able to  self.  She  made  a  mistake  in  the  date 
and  at  once  drew  another  check  putting  in 
the  correct  date,  and  left  the  discarded  one 
on  the  desk.  Soon  after,  another  lady  cus- 
tomer came  in  and  picked  up  the  discarded 
check,  indorsed  the  same  and  brought  it  to 
the  cashier's  window  with  her  own  check, 
and  the  same  were  placed  to  her  credit,  and 
thereafter  the  amount  thereof  was  charged 
back  to  her  account.  The  bank  asks  whether 
it  acted  properly  in  so  doing.  Opinion:  The 
lady  who  picked  up  the  check  had  no  right 


to  the  money  and  the  bank  had  a  perfect 
right  to  charge  the  amount  back  to  her.  The 
check  itself  belongs  to  the  first  stated  cus- 
tomer who  drew  it  and  then  discarded  it. 
The  bank's  second  customer  found  and  mis- 
appropriated a  check  to  which  she  had  no 
title  but  which  belonged  to  the  drawer.  She 
received  credit  of  the  amount  from  the  bank 
under  false  claim  of  title  and  when  the  bank 
made  the  discovery  it  very  properly  charged 
the  check  back  to  her  account.  {Inquiry 
from  Wash.,  Jan.,  1919.) 

Checks  misplaced  by  bank  before  credit 

2135.  A  customer  mailed  to  his  bank 
several  checks  for  deposit.  The  bank 
acknowledged  receipt  by  regular  card  but 
the  checks  were  misplaced  by  the  bank 
before  they  were  entered  in  the  books  to  his 
credit.  After  seven  months  the  customer 
claimed  credit  for  these  items,  which  the 
bank  refused  to  give  without  receiving  dupU- 
cates  of  the  lost  checks.  The  bank  had  for- 
warded monthly  statements  of  the  depos- 
itor's account,  in  each  of  which  there  was  an 
omission  of  the  credit.  Opinion:  The  bank 
cannot  refuse  to  give  the  customer  credit 
before  obtaining  duplicate,  ])ut  there  is  an 
equitable  obligation  on  his  part  to  give  the 
bank  all  the  information  in  his  power  to 
enable  the  bank  to  frame  duplicates  or 
written  particulars  upon  which  presentment 
for  payment  can  be  made,  and  the  drawer 
ultimately  looked  to  for  pavment.  {In- 
quiry from  N,  C,  Feb.,  1912,  Jl.) 

Negotiation  to  bank  by  thief  of  check  indorsed 
by  depositor  to  bank 

2136.  A  depositor  opened  an  account  by 
mail  and  indorsed  and  mailed  to  the  bank 


487 


2137-2140] 


DIGEST  OF  LEGAL  OPINIONS 


checks  payable  to  his  order,  accompanied 
by  his  pass  book.  The  bank  had  never  seen 
the  depositor  personally.  A  thief  stole  from 
the  depositor  his  pass  book  and  a  check  so 
indorsed  and  on  presentation  to  the  bank 
received  part  in  cash,  the  rest  being  credited 
to  the  depositor's  account.  Upon  the  ques- 
tion of  responsibility  for  the  loss  as  between 
bank  and  depositor,  Opinion:  That  the 
bank,  while  a  purchaser  for  value  of  the 
check,  would  nevertheless  be  the  loser  un- 
less it  was  a  holder  in  due  course,  which 
would  depend  upon  whether  the  Colorado 
courts  will  hold  (1)  that  a  payee  can 
be  such  a  holder,  which  is  a  question 
conflict  in  other  jurisdictions  and  if  so  held 
(2)  will  also  hold  that,  notwithstanding  the 
relation  of  depositor  and  banker,  the  bank 
under  the  circumstances  was  under  no  duty 
to  inquire  as  to  the  identity  of  the  holder  as 
its  depositor,  before  purchasing  the  check. 
The  outcome  of  such  a  case  is  uncertain 
although  there  is  some  ground  for  main- 
taining that  the  bank  is  a  holder  in  due 
course.     {Inquiry  from  Colo.,  April,  1921.) 

Depositor  denying  issue  of  check,  returned  as 
paid  voucher  and  lost  in  mail 

2137.  A  bank  paid  the  check  of  its  de- 
positor of  $96,  charged  the  same  to  his 
account,  and  mailed  same  to  him  with  a 
statement  of  account  and  other  paid  vouch- 
ers. The  statement,  however,  was  lost  in 
the  mail  and  never  reached  the  depositor 
who  claims  that  this  particular  item  of  $96 
was  never  drawn  by  him  and  that,  if  the 
bank  paid  same  it  must  have  been  a  forgery. 
Is  the  depositor  justified  in  his  demand  for 
$96?  Opinion:  The  depositor  claims  that 
he  never  drew  a  check  for  $96,  and  the  bank 
claims  that  it  has  paid  a  check  for  that 
amount.  If  the  parties  cannot  agree  upon 
the  facts  and  neither  is  willing  to  stand  the 
loss,  an  appeal  to  the  courts  must  result. 
The  depositor  will  bring  an  action  against 
the  bank  for  the  amount  of  the  deposit  and 
the  bank  will  allege  payment.  The  only 
proof  the  the  bank  can  offer  in  support  of 
payment  is  the  entry  upon  its  books,  and  the 
result  would  depend  upon  whether  a  jury 
believed  the  bank's  statement  or  that  of  its 
depositor.  (Inquiry  from  Idaho,  June, 
1917.) 

Burden  of  proof  of  payee's  indorsement  upon 
holder,    where   denied 

2138.  If  the  payee  of  a  lost  check  testi- 
fies that  it  was  not  indorsed  when  lost,  will 
the  burden  of  proof  fall  upon  the  holder  to 


establish  that  the  check  was  indorsed 
when  lost  and  that  the  payee's  indorsement 
was  not  forged?  Opinion:  The  burden 
seems  to  be  on  the  holder.  The  Negotiable 
Instruments  Act  provides  that  "Every 
holder  is  deemed  prima  facie  to  be  a  holder 
in  due  course ;  but  when  it  is  shown  that  the 
title  of  any  person  who  has  negotiated  the 
instrument  was  defective,  the  burden  is  on 
the  holder  to  prove  that  he  or  some  person 
under  whom  he  claims  acquired  the  title  as 
holder  in  due  course  *  *  *  ."  See,  for 
example,  Jones  v.  Miners'  &  Merchants' 
Bk.,  128  S.  W.  (Mo.)  829.  {Inquiry  from 
Pa.,  June,  1916.) 

Checks    lost    in    the    mail 

Loss  falls   on   owner 

2139.  A  check  was  lost  in  the  mail  in  the 
process  of  collection,  after  it  had  gone 
through  three  banks.  What  are  the  rights 
and  liabilities  of  the  bank  originally  credit- 
ing the  item  to  its  depositor's  account? 
Opinion:  The  general  rule  is  that  where  a 
check  is  lost  in  the  mail,  the  loss  and  the 
burden  of  procuring  a  duplicate  fall  on  the 
owner  unless  there  has  been  negligence  on 
the  part  of  some  agent  in  connection  with 
the  loss.  Assuming  that  the  first  bank  re- 
ceived the  check  for  collection  and  did  not 
become  owner,  then  it  would  be  a  collecting 
agent  and  would  have  the  right,  when  the 
check  was  lost  without  any  fault  on  its  part 
or  on  the  part  of  any  subsequent  corre- 
spondent, to  charge  the  amount  back  to  the 
owner — the  depositor — and  it  would  be  his 
burden  to  procure  another  check  or  copy 
upon  which  he  could  demand  payment  and 
hold  the  drawer  of  the  original  check  liable. 
But  if  the  bank  purchased  the  check  at  the 
time  of  deposit,  i.e.,  gave  absolute  credit  for 
it,  so  as  to  take  title,  then  the  depositor 
would  be  liable  only  as  indorser  and  in  case 
of  loss  in  the  mail,  the  burden  would  be  upon 
the  bank  as  owner  to  procure  a  duplicate  or 
a  copy  and  make  presentment  of  same  and 
if  not  paid  give  due  notice  of  dishonor  to  the 
depositor,  thus  holding  him  liable  as  in- 
dorser. The  delay  in  presentment  caused  by 
loss  in  the  mail  would  seem  to  be  excusable 
and  this  would  permit  of  a  reasonable  time 
for  obtaining  a  duplicate  or  copy  so  as  to 
make  due  presentment  and  charge  indorsers, 
if  unpaid,  by  due  notice  of  dishonor.  {In- 
quiry from  Wyo.,  Feb.,  1921.) 

Burden  of  obtaining  duplicate  falls  on  owner 

2140.  A  check  was  lost  in  the  mail  after 
the  payee  had  deposited  it  in  his  bank. 


488 


LOST  AND  STOLEN  PAPER 


[2141-2144 


Opinion:  Where  the  bank  takes  the  check 
as  owner,  it  has  the  burden  of  obtaining  a 
duplicate  and  the  duty  of  presenting  the 
item  in  order  to  charge  the  indorser  in  case 
of  dishonor;  but  if  the  bank  received  the 
item  for  collection,  its  duty  is  simply  to 
notify  the  customer  of  the  loss  without  un- 
reasonable delay.  The  legal  right  of  the 
bank  to  immediately  charge  back  to  a  cus- 
tomer a  check  lost  in  the  mail  depends  on 
where  title  to  the.check  rests,  which  must  be 
determined  by  the  rule  of  law  in  the  state 
where  the  bank  is  located,  or  may  depend 
upon  agreement  or  custom.  (Inquiry  from 
Colo.,  Oct.,  1909,  Jl.) 

2141.  A  customer  deposited  a  check  in 
an  Illinois  bank  payable  to  some  one  else, 
but  indorsed  by  the  depositor,  the  same 
being  drawn  on  another  bank,  and  the  same 
was  sent  by  the  receiving  bank  for  collec- 
tion, and  is  lost  in  transmission.  The  bank 
desires  to  know  upon  whom  the  loss  falls. 
Opinion:  There  are  no  decisions  in  Illinois 
on  the  subject  but  upon  the  facts,  as  pre- 
sented, the  loss  and  the  burden  of  obtaining 
a  new  check  would  fall  upon  the  owner  of 
the  lost  check.  That  is  to  say,  if  the  check 
was  deposited  in  bank  for  collection,  the 
bank  being  agent  and  the  depositor  re- 
taining the  title,  the  loss  en  route  to  the 
place  of  payment  would  be  the  loss  of  the 
owner,  assuming  there  was  no  negligence  on 
the  part  of  the  collecting  bank.  On  the 
other  hand,  if  the  check  was  deposited  as 
cash  and  the  bank  acquired  title  immediate- 
ly upon  deposit,  the  bank  would  be  the 
owner  and  the  loss  and  the  burden  of  ob- 
taining a  duphcate  would  fall  upon  it.  {In- 
quiry from  III.,  Nov.,  1913.) 

Owner    hank    must    procure    duplicate    and 
charge    customer    as    indorser 

2142.  A  bank  cashed  several  checks  on 
out-of-town  banks  for  a  customer.  In 
forwarding  these  checks  to  its  correspondent 
bank  for  collection  the  letter  and  checks 
became  lost  in  the  mail.  Because  of  such 
loss  the  forwarding  Ijank  charged  the  checks 
against  the  customer's  account.  What 
recourse  has  the  bank  upon  its  customer? 
Opinion:  It  appearing  from  the  statement 
that  the  bank  "cashed"  the  checks  in- 
dorsed by  its  customer  and  did  not  receive 
them  as  a  deposit,  the  courts  would  probably 
hold  that  the  bank  took  title  to  the  check 
and  that  the  only  liability  of  its  customer 
was  as  indorser.  The  burden  would,  there- 
fore, be  upon  the  bank,  as  owner,  to  procure 
a  duplicate  or  cause  presentment  to  be  made 


upon  a  copy  or  written  particulars  of  the 
originals  and  to  hold  its  customer  liable  as 
indorser  by  demand  and  notice.  In  such  a 
case  the  courts  would  allow  a  reasonable 
delay  in  giving  notice.  (Inquiry  from  N.  J., 
April,  1917.) 

Recovery  hy  owner  on  duplicate  or  written 
particulars 

2143.  A  check  was  given  by  a  drawer  in 
Florida  upon  a  Florida  bank  payable  to  the 
inquirer's  customer  who  withdrew  the  pro- 
ceeds. The  bank  forwarded  the  check  to  its 
city  correspondent  who  gave  the  sending 
bank  credit  for  the  same,  but  afterwards 
charged  back  the  amount,  stating  that  the 
check  had  been  lost  in  transit.  The  for- 
warding bank  is  unable  to  procure  a  copy 
and  there  is  some  doubt  whether  or  not  the 
check  has  been  paid,  for  the  drawer  "claims 
to  have  the  same."  Opinion:  In  case  of  a 
lost  check,  the  law  provides  that  demand  of 
payment  can  be  made  upon  a  copy  or  written 
particulars  and  upon  refusal  of  payment  the 
drawer  can  be  sued.  In  the  present  case,  if 
the  bank  cannot  procure  a  copy,  the  loss 
will  fall  upon  it,  as  it  purchased  the  check 
from  its  customer.  If,  however,  it  develops 
the  check  has  been  paid,  then  whoever 
received  the  proceeds  would  be  liable  to 
to  the  bank.  (Inquiry  from  Conn.,  April, 
1918.) 

Bond  of  indemnity 

2144.  A  bank  states  that  a  check  was 
received  from  out-of-town  by  a  local  mer- 
chant who  deposited  same  in  one  of  the  local 
banks  for  the  credit  of  his  general  account. 
The  local  bank  remitted  the  same  to  its 
correspondent  for  credit,  but  the  letter  was 
lost  in  transit.  The  maker  asked  for  an 
indemnity  bond  before  issuing  a  duplicate 
check.  The  local  bank  was  the  last  party 
holding  the  check.  The  bank  asks  who 
should  furnish  the  indemnity  bond. 
Opinion:  The  burden  of  obtaining  a  dupli- 
cate of  the  lost  check  and  furnishing  an 
indemnity  bond  would  fall  upon  the  owner 
of  the  check.  In  other  words,  if  the  local 
merchant  was  the  owner  and  the  bank  in 
which  he  deposited  the  same  took  the  check 
for  collection  as  agent,  then  the  burden  of 
obtaining  a  duplicate  would  fall  upon  the 
merchant.  If,  on  the  other  hand,  the  local 
bank  in  which  he  deposited  the  check  took 
title  and  became  owner,  the  burden  would 
be  upon  it.  (Inquiry  from  Minn.,  June, 
1919.) 


489 


2145-2149] 


DIGEST  OF  LEGAL  OPINIONS 


Burden  of  procuring  duplicate  of  lost  express 
company    money    order 

2145.  A  bank,  when  cashing  an  express 
order  for  Smith,  without  compensation, 
said  to  him  that  if  the  order  should  be  lost 
in  the  mail  he  would  be  required  to  reim- 
burse the  bank  and  secure  a  duplicate  from 
the  express  company.  The  order  was  lost 
in  the  mail,  and  the  bank  asks  who,  under 
those  circumstances,  would  be  regarded  as 
the  owner  of  the  express  order.  Opinion: 
If,  when  cashing  the  order  for  Smith  without 
compensation,  the  bank  stated  it  would  look 
to  him  for  reimbursement  and  procurement 
of  a  duplicate  from  the  express  company, 
this  would  indicate  that  the  bank  was  col- 
lecting this  order  for  Smith  as  a  matter  of 
accommodation  as  his  agent  and  merely 
advancing  the  proceeds  before  collection. 
The  bank  may  fairly  take  this  position  and 
look  to  Smith  for  reimbursement  in  view  of 
the  agreement.  Under  the  facts  stated  by 
the  bank,  it  seems  fair  to  conclude  that  the 
transaction  was  not  a  sale  of  the  express 
order  to  the  bank,  but  rather  an  instrument 
to  it  for  collection,  the  bank  advancing  the 
proceeds  as  a  matter  of  accommodation. 
{Inquiry  from  Miss.,  June,  1914.) 

Bank  receiving  check  as  collection  agent  can 
charge  hack 

2146.  A  bank  states  that  it  had  a  remit- 
tance letter  lost  in  the  mail  containing  twen- 
ty-six checks  payable  in  several  cities.  Im- 
mediately upon  learning  of  the  loss  thereof, 
the  bank  charged  back  the  amounts  of  the 
various  checks  to  the  last  indorsers.  The 
bank's  pass  books  state  that  it  acts  only  as 
agent  in  making  collections.  The  bank  asks 
whether  it  was  justified  in  charging  back 
said  checks.  Opinion:  It  has  been  held 
where  a  depositor  indorses  in  blank  and  de- 
posits to  his  credit  a  check  on  another  bank 
and  afterwards  draws  against  the  credit,  the 
transaction  constitutes  a  sale  of  the  paper 
to  the  bank  and  vests  title  to  the  same  in  the 
bank,  and  that  the  bank  does  not  have  the 
right  to  charge  back  the  amount  of  the  check 
against  his  account  because  it  had  been  lost 
in  the  mail.  Sponner  v.  Bank  of  Donaldson- 
ville,  82  S.  E.  (Ga.)  625.  But  if  the  bank  re- 
ceives the  check  for  collection  it  is  not  the 
owner  of  the  paper  but  only  agent  of  the 
owner  for  its  collection,  and  if  the  check  is 
lost  in  the  mail  the  bank  would  probably 
have  the  right  to  charge  it  back,  provided 
it  was  not  guilty  of  negligence.  In  the  in- 
stant case,  the  bank  clearly  establishes  the 
fact  that  it  handles  out-of-town  checks  as 


agent  and  not  as  owner  by  the  statement  in 
its  pass  book.  {Inquiry  from  Tex.,  May, 
1918.) 

2147.  A  bank  charges  a  customer's 
account  with  amount  of  check  returned  "not 
good"  from  bank  on  which  it  is  drawn.  The 
check  with  notice  of  charge  is  mailed  to  the 
bank's  customer,  and  lost  in  the  mail.  Up- 
on whom  would  the  loss  fall?  Opinion: 
Assuming  in  this  case  that  the  bank  did  not 
take  title  to  the  check  upon  deposit  so  as  to 
become  owner,  but  was  mere  agent  for 
collection,  the  loss  in  the  mail  would  be  that 
of  the  owner-customer  upon  whom  the  bur- 
den would  fall  of  giving  notice  to  and  pro- 
ceeding against  the  drawer  and  prior  in- 
dorsers, if  any,  upon  a  copy  of  written  par- 
ticulars.    {Inquiry  from  III.,  Sept.,  1920.) 

2148.  Bank  A  cashed  a  check  indorsed 
to  it  by  its  customer  and  the  check  was 
forwarded  by  mail  for  collection  to  cor- 
respondent bank.  The  check  was  lost  in  the 
mail.  Opinion:  The  right  of  the  corre- 
spondent bank  to  charge  the  amount  of  the 
check  back  would  depend  on  whether 
prompt  inquiry  was  made  and  Bank  A  was 
notified.  In  the  event  the  amount  was 
charged  back  Bank  A  would  have  recourse 
upon  its  customer  as  indorser,  by  causing 
substituted  presentment  to  be  made  by 
means  of  a  copy  or  description  of  the  check, 
and  upon  refusal  to  pay  by  giving  due  notice 
to  the  indorser.  Had  Bank  A  taken  the 
check  as  collection  agent,  its  duty  would  be 
to  notify  its  principal  without  unreasonable 
delay  and  the  burden  would  be  upon  the 
customer  of  procuring  a  duplicate  or  a  copy 
upon  which  to  make  a  substituted  present- 
ment. Aebi  V.  Bk.  of  Evansville,  124  Wis. 
73.  Shipsey  v.  Bk.,  59  N.  Y.  485.  Bk.  v. 
Bk.,  4  Dill.  (U.  S.)  290.  Sec.  Nat.  Bk.  v. 
Merchants  Nat.  Bk.,  Ill  Ky.  930.  {In- 
quiry from  Ind.,  May,  1910,  Jl.) 

Duty  of  hank  of  deposit  to  keep  record  of 
description  of  deposited  checks 

2149.  A  bank  asks  whether  in  receiving 
a  check  for  collection  it  is  necessary  to  keep 
a  complete  record  of  the  same  so  as  to  have 
the  right  to  charge  the  amount  back  when 
lost  in  the  mail.  Opinion:  Assuming  the 
check  was  received  by  the  bank  for  collection 
and  that  it  did  not  become  the  purchaser 
at  the  time  of  the  deposit,  the  bank  would 
have  the  right  to  charge  the  amount  back 
when  lost  in  the  mail,  assuming  it  gave 
prompt  advice  of  the  loss.  In  such  case  the 
burden  would  be  on  the  customer  to  procure 


490 


LOST  AND  STOLEN  PAPER 


[2150-2152 


a  duplicate  and  it  would  not  be  incumbent 
on  the  bank  to  keep  a  complete  record 
of  the  check  as  to  drawer,  payee,  date, 
number  and  amount  in  order  to  furnish  a 
complete  description  thereof.  (Inquiry  from 
Tex.,  May,  1917.) 

Payment   of  lost   check   by   drawee  without 
authority 

2150.  A  check  was  lost  in  the  mail  and 
never  reached  the  correspondent  and  who- 
ever presented  it  and  received  payment  did 
so  without  authority.    It  was  drawn  on  the 

M Bank  by  L.  O.,  in  favor  of  A.  M. 

v.,  and  indorsed  "Cr.  A.  M.  V."  and  bears 
the  indorsement  of  the  "W.  National  Bank," 
and  also  the  additional  indorsement  of 
"J.  C.  J."    It  is  marked  "Paid"  by  the  M. 

Bank.    The  W National  Bank  which 

lost  the  check  holds  the  M Bank 

responsible  and  demands  the  full  amount, 
which  is  refused.  Opinion:  If  the  indorse- 
ment by  the  payee  and  subsequent  indorse- 
ment were  blank,  the  check  when  lost  would 

be  in  negotiable  form  and  the  M 

Bank  would  be  protected,  although  it  paid 
the  amount  to  the  finder  of  the  check,  as  the 
check  would  be  in  legal  effect  payable  to 
bearer.  But  the  indorsement  by  the  payee  is 
"Cr.  A.  M.  v.,"  which  would  indicate  not 
an  indorsement  in  blank  but  an  indorse- 
ment for  the  purpose  of  receiving  credit. 
This  according  to  some  cases  would  be  held 
a  restricting  and  not  a  title-conveying  in- 
dorsement, in  which  event  the  check  when 
lost  would  not  be  in  negotiable  form  and  a 
finder  would  have  no  right  to  collect  it.    In 

this    case    the   M Bank    would    be 

responsible  to  the  drawer,  and  the  W- 


National  Bank  would  have  recourse  upon 
the  drawer.    (Inquiry  from  Va.,  Aug.,  1917.) 

Right  of  holder  against  indorser 

2151.  A,  who  is  not  a  customer  of  B,  a 
bank  not  in  the  same  town  in  which  A  re- 
sides, cashes  with  B  a  check  drawn  on  C,  a 
bank  in  the  town  in  which  A  resides.  A 
indorses  the  check  in  blank.  This  check 
with  others  is  sent  to  D,  the  correspondent 
bank  of  B,  which  remittance  is  lost  in  transit. 
The  records  of  B  do  not  show  who 
drew  the  check  on  C,  but  only  that  the 
last  indorser  was  A.  The  bank  asks  whether 
B  can  recover  from  A  the  money  paid  on  the 
check.  Opinion:  In  such  case  the  only 
liability  of  A  is  as  indorser,  and  to  preserve 
that  liability  there  must  be  due  demand  and 
notice  of  dishonor  to  A.  The  check  having 
been  lost  in  the  mail,  the  Negotiable  In- 


struments Act  provides:  "Where  a  bill  is 
lost  or  destroyed  or  is  wrongly  detained  from 
the  person  entitled  to  hold  it,  protest  may 
be  made  on  a  copy  or  written  particulars 
thereof."  As  the  bank  of  B  has  no  copy  of 
the  check  it  should  make  a  written  state- 
ment of  particulars  describing  the  check, 
cause  same  to  be  demanded  and  protested 
and  then  notice  of  dishonor  given  A.  The 
Negotiable  Instruments  Act  provides  that, 
"delay  in  giving  notice  of  dishonor  is  excused 
when  the  delay  is  caused  by  circumstances 
beyond  the  control  of  the  holder  and  not 
imputable  to  his  default,  misconduct  or 
negligence.  When  the  cause  of  delay  ceases 
to  operate,  notice  must  be  given  with  reason- 
able diligence."  When  A  is  charged  as 
indorser  he  can  then  be  held  liable  by  B; 
until  then,  not.  Presumably  in  this  case  B 
bank  indorsed  the  check  restrictively  to  D, 
so  that  no  question  of  title  would  arise  of  a 
holder  in  due  course  under  blank  indorse- 
ment of  A.  Assuming  a  case  where  a  check 
was  indorsed  in  blank  by  A,  so  as  to  be  pay- 
able to  bearer,  and  lost,  without  further 
indorsement,  payment  to  an  innocent  pur- 
chaser for  value  would  discharge  drawer 
and  indorser;  but  such  is  not  this  case.  (In- 
quiry from  Mich.,  July,  1919.) 

Check  credited  as  payment  on  note  and  lost 
in  mail 

2152.  A  bank  holds  a  chattel  mortgage 
on  a  customer's  cattle,  the  customer  after- 
wards sold  a  number  of  them  and  accepted, 
in  payment  thereof,  a  check  drawn  on  an 
out-of-town  bank.  The  customer  brought 
the  check  to  the  bank  which  credited  the 
amount  on  his  note  after  he  had  indorsed  the 
check,  and  the  bank  gave  him  a  receipt  for 
the  payment.  The  bank  cleared  this  check 
the  same  day  it  was  received,  and  thereafter 
the  bank  to  which  the  check  was  forwarded 
sent  notice  that  their  cash  letter  was  lost  in 
the  mail  and  they  were  charging  back  the 
amount  of  the  check  to  the  forwarding  bank. 
It  appears  that  at  the  time  the  original 
check  was  written  the  drawer  did  not  have 
money  in  the  bank  on  which  the  check  was 
drawn  to  pay  it,  and  had  the  check  gone 
though  in  due  course,  there  would  not  have 
been  money  on  deposit  to  meet  it.  The  cus- 
tomer refuses  to  make  pajinent  of  the  check 
for  the  reason  (1)  That  it  was  not  returned 
to  him  by  his  bank;  (2)  That  he  held  a 
receipt  for  the  amount  of  the  check,  and  that 
it  stated  that  the  bank  had  applied  the 
amount  to  his  credit.  Opinion:  It  seems, 
in  the  case  stated,  that  the  bank  has  re- 


491 


2153-2156] 


DIGEST  OF  LEGAL  OPINIONS 


course  upon  its  customer  for  the  amount 
represented  by  the  check  which  it  credited 
on  the  note.  It  is  a  general  rule  that  when  a 
check  is  tendered  to  a  creditor  it  is  received 
as  provisional  payment  only,  and  where  the 
check  is  not  collected  it  does  not  operate  as 
payment,  assuming  there  has  been  no  negli- 
gence on  the  part  of  the  holder.  In  the  pres- 
ent case  there  was  due  diligence  in  notifying 
the  customer  of  the  loss  in  the  mail.  With 
respect  to  the  right  of  a  bank  to  re-transfer 
or  charge  back  checks  to  its  customers' 
accounts,  the  general  rule,  with  few  excep- 
tions, is  that  all  checks  which  are  credited  to 
depositors  are  entered  with  the  express  or 
implied  right  to  charge  them  back  if  they 
are  not  paid.  Beal  v.  Sumerville,  50  Fed. 
647.  Bailie  v.  Augusta  Sav.  Bk.,  95  Ga. 
277.  In  re  State  Bk.,  56  Minn.,  119.  Mid- 
land Nat.  Bk.  V.  Brightwell,  148  Mo.  358. 
Nat.  Butchers,  etc.,  Bank  v.  Hubbell,  117 
N.  Y.  384.  Big  Cabin  Bk.  v.  English,  29 
Okla.  334.  In  the  present  case  the  check 
was  not  credited  to  his  account,  but  credited 
on  the  customer's  note;  but  it  seems  clear 
that  there  would  be  an  ultimate  right  to 
cancel  the  credit  upon  non-payment  and 
hold  the  customer  for  the  full  amount  of  his 
note,  although,  assuming  the  bank  took  the 
check  as  owner,  it  would  have  to  procure 
and  proceed  upon  a  copy  or  written  particu- 
lars to  preserve  the  liabihty  of  its  indorsing 


customer. 
1919.) 


{Inquiry  from   Okla.,    March, 


Collecting  hank  not  negligent  in  using  un- 
registered mail 

2153.  A  bank  asks  whether,  if  a  check 
is  received  on  an  out-of-town  bank  and  it 
uses  diligence  in  its  dispatch,  taking  a  record 
of  the  bank  on  which  it  is  drawn,  the  amount 
and  the  indorser's  name,  sending  it  in  the 
regular  mail,  not  registered,  the  bank  would 
be  liable  if  it  failed  to  reach  its  destination 
for  any  cause  beyond  its  control.  The  bank 
has  a  clause  on  its  deposit  slip  disclaiming 
responsibility  for  items  lost  in  the  mail. 
Opinion:  In  the  case  as  stated,  it  seems  the 
bank  is  sufficiently  protected  against  lia- 
bihty. The  collecting  bank  must  use  due 
diligence,  but  the  sending  in  the  regular  un- 
registered mail,  as  is  customary  with  banks, 
is  sufficient  diligence.  Should  there  be  a 
loss  the  bank  is  only  collecting  agent  and 
not  owner,  and  burden  of  obtaining  a  du- 
plicate would  fall  on  the  customer  to  whom 
the  check  could  be  charged  back.  Not  only 
is  this  the  general  rule,  but  the  bank  ex- 
pressly fortifies  itself  by  contract  disclaiming 


responsibility  for  loss  of  mail.  In  view 
thereof  the  bank  is  fully  protected.  {In- 
quiry from  Cal.,  June,  1916.) 

Delay  of  two  months  prevents  charging  hack 

2154.  Bank  A  sent  Bank  B  a  draft  on 
Bank  C,  which  Bank  B  credited  to  Bank  A. 
The  draft  was  drawn  by  a  stranger  and  had 
been  indorsed  to  Bank  A  by  one  of  its  cus- 
tomers. Two  months  later  Bank  B  notified 
Bank  A  that  the  draft  was  lost  in  the  mails 
and  charged  the  amount  back  against  Bank 
A.  Opinion:  Bank  B  in  delaying  two 
months  is  guilty  of  such  negligence  as  to 
make  the  draft  its  own,  and  cannot  charge 
the  amount  back  to  Bank  A.  Shipsey  v, 
Bk.,  59  N.  Y.  485.  Bk.  v.  Bk.,  4  Dill.  (U. 
S.)  290.  Sec.  Nat.  Bk.  v.  Merchants  Nat. 
B.,  Ill  Ky.  930.  {Inquiry  from  Tex.,  Oct., 
1910,  Jl.) 

Lost    bearer    checks 

Rights  of  innocent  purchaser  of  stolen  check 

2155.  A  check  on  a  bank  in  another  town 
was  made  payable  to  A  or  bearer  and  in- 
dorsed by  A.  The  inquiring  banker  paid 
the  money  without  identification  to  a 
stranger.  In  due  course  the  check  was  pro- 
tested because  of  insufficient  funds.  A, 
when  notified,  claimed  that  the  check  had 
been  stolen  from  his  safe.  Who  is  liable? 
Opinion:  The  banker  would  be  entitled  as 
an  innocent  purchaser  of  the  check  to  en- 
force same  against  A  for  the  full  amount 
upon  his  indorsement  and  also  enforce  pay- 
ment from  the  drawer  of  the  check;  this, 
notwithstanding  the  banker  purchased  the 
check  from  a  stranger  without  identification. 
{Inquiry  from  Miss.,  Feb.,  1917.) 

Holder  in  due  course  of  lost  hearer  check 

2156.  The  payee  of  a  check  endorsed  it 
in  blank  and  mailed  it  to  his  bank  for  de- 
posit. It,  however,  did  not  reach  its  des- 
tination, and  the  payee  had  the  drawer  stop 
payment.  Thereafter  the  check  was  pre- 
sented for  payment  with  the  indorsement  of 
a  merchant,  who  took  the  check  for  goods 
and  cash,  and  the  indorsement  of  a  bank. 
Payment  was  refused.  Has  the  merchant 
any  recourse;  if  so,  against  whom?  Opin- 
ion: This  check  indorsed  in  blank  was 
payable  to  bearer.  The  title  of  the  merchant 
then  depended  on  whether  he  was  a  holder  in 
due  course.  The  fact  that  he  took  the  check 
from  a  stranger  in  payment  for  goods  and 
cash  would  not,  of  itself,  be  an  act  of  bad 
faith  or  deprive  him  of  his  status  of  holder  in 
due  course.    See  opinion  No.  2199  ("Banks 


i 


492 


LOST  AND  STOLEN  PAPER 


[2157-2159 


as  Purchasers  of  Stolen  Liberty  Coupon 
Bonds").  If  there  were  any  circumstances 
of  suspicion  surrounding  the  taking  of  the 
check  by  the  merchant,  this  would  raise  a 
question  for  the  determination  of  a  jury 
whether  he  acquired  the  check  in  good  faith 
and  was  a  holder  in  due  course.  Presumably 
in  the  case  submitted  the  merchant  would  be 
a  holder  in  due  course  and  in  such  event  the 
merchant  would  have  recourse  on  the  drawer 
and  prior  indorsers  of  the  unpaid  check. 
{Inquiry  from  W.  Va.,Feb.,  1921.) 

Lost  counter  checks  payable  to  hearer 

2157.  A  bank  asks  whether  an  innocent 
holder  could  enforce  payment  of  a  lost  check, 

the  same  reading  as  follows :    "Pay  to 

or  bearer"  certified  "good  when  properly 
indorsed."  Opinion:  The  form  of  the 
check  indicates  that  it  is  a  counter 
check,  which  seems  to  be  used  only  at 
the  counter  when  the  drawer  comes 
to  the  bank  and  not  intended  for  circulation. 
Some  such  checks  are  stamped  "non-nego- 
tiable counter  check"  or  they  provide  "pay 
to  myself  only"  or  "to  be  used  only  at  the 
counter  of  the  bank  by  the  drawer  personal- 
ly." In  all  these  cases  the  counter-check 
would  be  non-negotiable.  In  the  instant 
case  the  counter  check  is  made  payable  to 

" or  bearer."     This  is  a  bearer 

check  under  the  Negotiable  Instruments  Act 
which  provides  that  the  instrument  is  pay- 
able to  bearer  "when  it  is  payable  to  a  per- 
son named  therein  or  bearer;"  and  a  bearer 
check  is  negotiable.  Whether  the  fact  that 
such  a  check  is  made  on  a  counter-check 
form  and  also  is  certified  "good  when  proper- 
ly indorsed"  (although  the  check  does  not 
require  indorsement,  being  payable  to 
bearer)  would  put  an  innocent  purchaser  on 
notice  is  an  uncertain  question.  The  finder 
of  this  check  might  insert  the  name  of  a 
payee  and  negotiate  it  on  forged  indorse- 
ment of  the  payee  and  yet,  the  instrument 
being  payable  to  bearer,  the  courts  might 
hold  the  innocent  purchaser  took  enforceable 
title  by  delivery  and  that  indorsement  was 
not  necessary  to  his  title.  On  the  other 
hand,  it  might  be  held  that  the  words 
"counter  check"  put  the  person  on  inquiry. 
There  is  no  judicial  precedent  on  a  precise 
case  of  this  kind.  (Inquiry  from  S.  C,  Jan., 
1917.) 

Lost     certified     checks 

Certifying  hank  entitled  to  bond  of  indemnity 

2158.  A  bank's  customer  deposited  with 


it  a  certified  check  which  was  sent  with  a 
letter  to  its  correspondent  which  claimed 
that  the  check  was  not  enclosed.  The  bank 
asks  whether  a  bond  of  indemnity  is  neces- 
sary. Opinion:  If  this  check  was  certified  for 
the  payee  after  delivery  by  the  drawer,  the 
drawer  was  absolutely  discharged  and  the 
certifying  bank  became  sole  debtor  thereon 
to  the  payee.  If,  on  the  other  hand,  the 
check  was  certified  for  the  drawer  who  de- 
livered the  certified  check  to  the  payee,  then 
the  drawer  remained  secondarily  liable 
thereon.  In  either  event  the  certifying  bank 
is  primary  debtor  an  would  probably  be 
entitled  to  a  bond  of  indemnity  from  the 
payee,  who  is  owner,  before  paying  the 
amount.  Presumably  the  check  was  in- 
dorsed in  blank  by  the  payee  and,  although 
it  bore  the  subsequent  restrictive  indorse- 
ment of  the  sending  bank,  there  might  be 
some  question,  whether  notwithstanding 
such  indorsement,  the  check  might  not  be 
negotiated  under  blank  indorsement  of  the 
payee  so  as  to  give  an  innocent  purchaser 
good  title.  However  this  may  be,  the 
certifying  bank  is  not  obliged  to  accept  the 
statement  of  facts  as  to  the  indorsement  of 
the  check  but  has  a  right  to  assume  that 
when  lost  it  was  in  such  form  as  to  be  fur- 
ther negotiated;  therefore,  as  said,  the  cer- 
tifying bank  would  seem  entitled  to  a  bond 
of  indemnity  before  paying  the  amount  to 
the  payee.    (Inquiry  from  Ohio,  Dec,  1913.) 

Bond  of  indemnity  for  duplicate  of  lost 
certified  check. 

2159.  A  bank  mailed  a  certified  check 
to  the  payee  in  an  envelope  bearing  the 
bank's  return  address.  Although  the  bank 
has  not  received  back  the  letter  sent,  the 
payee  claims  that  he  has  not  received  the 
check.  What  should  the  bank  do  in  order 
to  pay  the  payee  and  at  the  same  time  pro- 
tect itself  against  paying  the  certified  check? 
Opinion:  The  bank  is  entitled  to  a  bond  of 
indemnity  as  a  prerequisite  to  the  issuing  of 
a  duplicate  check.  No  one  but  the  payee 
could  negotiate  the  certified  check,  but  if  he 
did  negotiate  it  the  bank  would  be  liable. 
The  payee  should  have  no  objection  to 
furnishing  such  a  bond,  for,  unless  he  nego- 
tiated the  check,  he  could  not  be  hable 
thereon.  The  majority  of  decisions  are  to 
the  effect  that  where  an  instrument  is  lost 
by  the  payee  before  indorsement  he  can 
recover  thereon  without  tendering  indemni- 
ty; but  there  are  also  decisions  the  other 
way.     (Inquiry  from  Mo.,  April,  1921,  Jl.) 


493 


2160-2165] 


DIGEST  OF  LEGAL  OPINIONS 


No  statutory  requirement  for  bond  of 
indemnity 

2160.  A  bank  inquires  whether  there  is  a 
statute  in  any  of  the  states,  eompelUng 
banks  to  secure  bonds  of  indemnity  from 
persons  applying  for  duphcates  of  lost 
checks,  either  certified  or  uncertified.  Opin- 
ion: There  is  no  such  compulsory  legisla- 
tion in  any  of  the  states.  The  question 
comes  up  in  any  given  case  on  a  lost  certified 
check  or  certificate  of  deposit,  whether  the 
bank  is  entitled  to  indemnity  before  issuing 
a  duplicate  or  paying  the  money  and  the 
decision  as  to  indemnity  or  no  indemnity 
depends  upon  the  facts  of  the  particular 
case.     (Inquiry  from  N.  J.,  April,  1916.) 

Lost  and  stolen   certificate  of  deposit 

Bank    entitled   to   indemnity    before   issuing 
duplicate 

2161.  A  depositor,  who  claimed  he  had 
lost  his  certificate  of  deposit,  instructed  the 
bank  to  stop  payment  thereon  and  applied 
for  a  duplicate  certificate,  although  he  could 
not  afford  an  indemnity  bond.  The  bank 
was  not  well  acquainted  with  the  depositor. 
Opinion:  Where  a  depositor  claims  that  his 
negotiable  certificate  of  deposit  has  been 
lost  or  stolen,  the  only  safe  course  for  the 
bank  is  to  require  a  bond  of  indemnity 
before  issuing  a  second  certificate.  But  if 
the  amount  of  certificate  is  small  and  the 
bank  believes  the  statement  of  the  depositor, 
it  can  waive  the  bond  and  take  the  de- 
positor's afiidavit.  In  re  Cook,  86  N.  Y. 
App.  Div.  586.  {Inquiry  from  Neb.,  Nov., 
1912,  Jl.) 

2162.  A  bank  received  a  request  from  a 
depositor  who  claimed  to  have  lost  several 
certificates  of  deposit,  for  new  ones,  or  for 
payment  of  the  money.  Would  it  not  be  the 
right  course  for  the  bank  to  let  the  depositor 
sue  and  have  the  court  decide  the  matter? 
Opinion:  The  bank  could  pay  the  money 
or  issue  new  certificates  of  deposit  but  only 
upon  receiving  a  satisfactory  bond  of  in- 
demnity to  save  it  harmless  in  case  the 
certificates  duly  indorsed  should  turn  up  in 
the  hands  of  an  innocent  purchaser.  (/?*- 
quiry  from  Kan.,  Feb.,  1916.) 

Bank's  right  to  indemnity 

2163.  A  bank  issued  a  certificate  of 
deposit  to  one  of  its  customers  which  he 
transferred  to  another  person,  and  the  bank 
has  been  informed  by  the  transferee  thereof 
that  the  same  was  lost.  The  bank  has  been 
requested  to  stop  payment  of  the  certificate 


and  a  duplicate  has  been  applied  for.  The 
bank  requests  advice  as  to  the  proper  course 
to  pursue.  Opinion:  Before  issuing  a  du- 
plicate of  certificate  of  deposit  which  the 
holder  alleges  to  have  lost,  the  bank  should 
require  a  sufiicient  bond  of  indemnity  to 
protect  itself  in  event  the  original  should 
turn  up  in  the  hands  of  an  innocent  pur- 
chaser who  acquired  same  under  proper  in- 
dorsement. The  courts  generally  hold  the 
right  of  a  bank  to  require  the  owner  of  a  lost 
certificate  to  give  a  bond  of  indemnity  be- 
fore issuing  a  duplicate.  (Welton  v.  Adams, 
4  Cal.  37  [holding  that  the  maker  of  a  lost 
or  destroyed  certificate  of  deposit  may  re- 
quire indemnity  against  all  future  claims 
under  it  before  payment  can  be  enforced  by 
law.]  Frank  v.  Wessels,  64  N.  Y.  155.  De- 
vine  V.  Unaka  Nat.  Bk.,  125  Tenn.  98.) 
{Inquiry  from  Fla.,  April,  1918.) 

Reasons  why  indemnity  necessary 

2164.  A  bank  issued  a  certificate  of 
deposit  and  the  same  was  lost.  The  bank 
asks  if  it  would  be  liable  for  the  amount  of 
its  certificate  if  it  should  turn  out  that  the 
same  had  been  stolen,  the  indorsement 
forged,  and  later  came  into  the  hands  of  an 
innocent  holder  for  value.  Opinion:  Con- 
cerning necessity  for  indemnity  before  is- 
suing a  duplicate  or  paying  the  money  upon 
a  certificate  claimed  to  be  lost,  it  is  cus- 
tomary for  banks  to  require  such  indemnity 
to  guard  against  the  following  contingencies : 
(1)  that  the  certificate  was  indorsed  in  blank 
when  lost;  (2)  that  the  certificate  has  not 
been  lost  and  payee  makes  false  claim  of 
loss;  (3)  the  certificate  even  though  lost  may 
be  afterwards  found  and  indorsed  by  the 
payee.  In  all  these  contingencies  if  the  cer- 
tificate should  get  in  the  hands  of  an  inno- 
cent purchaser  for  value,  the  bank  would  be 
liable  on  the  original  certificate.  {Inquiry 
from  Okla.,  Dec,  1919..) 

Bank  takes  risk  in  issuing  duplicate  without 
indemnity 

2165.  A  customer  of  a  bank  had  a  cer- 
tificate of  deposit  stolen  from  him  and  is 
unable  to  give  a  bond.  The  bank  inquires 
as  to  what  means  it  can  take  to  protect 
itseK  in  issuing  duplicate.  Opinion:  Where 
a  negotiable  certificate  of  deposit  has  been 
lost,  banks  generally  require  the  owner  to 
give  a  bond  of  indemnity  before  paying  him 
the  amount  called  for  in  the  certificate.  This 
is  because  there  may  be  a  false  claim  of  loss 
or  the  certificate  may  have  been  indorsed  in 
blank  when  lost  and  may  be  in  the  hands  of 


494 


LOST  AND  STOLEN  PAPER 


[2166-2168 


an  innocent  purchaser  who  can  enforce  pay- 
ment from  the  bank.  If  the  bank  is  wiUing 
to  take  the  risk  that  the  certificate  was  un- 
indorsed in  blank  when  stolen,  and  that  the 
depositor  is  telling  the  truth  when  he  claims 
it  has  been  stolen,  it  might  issue  him  a  du- 
phcate  and  take  an  affidavit  from  him  that 
the  certificate  had  been  stolen  and  that  he 
had  not  signed  his  name  in  blank  on  the 
back  thereof.  But  if  the  certificate  should 
turn  out  to  have  been  indorsed  in  blank  and 
negotiated  to  an  innocent  purchaser,  the 
bank  would  be  held  liable  on  the  original 
as  well  as  on  the  duplicate,  if  that  had  been 
negotiated.  The  bank  might  make  the 
duplicate  non-negotiable  so  that  depositor 
could  not  transfer  it,  and  make  it  payable 
at  some  future  time.  It  would  be  protected 
during  that  time  in  case  the  original  turned 
up  in  the  hands  of  an  innocent  holder.  But 
even  then  there  might  be  a  remote  chance 
that  the  original  was  in  the  hands  of  an 
innocent  holder  with  enforceable  rights. 
If  the  bank  issues  a  duplicate  without  re- 
quiring indemnity,  it  takes  the  risk,  and  it  is 
a  matter  for  its  own  judgment  whether  there 
is  any  great  risk  in  the  particular  case. 
{Inquiry  from  III.,  April,  1919.) 

2166.  What  course  should  a  bank  follow 
when  a  customer  who  has  no  financial  re- 
sponsibility, and  is  unable  to  furnish  the 
bank  with  a  proper  bond,  loses  a  certificate 
of  deposit?  Opinion:  A  bank  cannot  safely 
pay  a  lost  certificate  to  its  depositor  without 
indemnity  if  the  certificate  is  in  negotiable 
form,  for  there  is  always  the  danger  of  the 
customer's  dishonesty  and  his  actual  nego- 
tiation of  the  certificate  to  an  innocent  pur- 
chaser to  whom  the  bank  would  be  liable. 
It  is  incumbent  upon  the  customer  to  furnish 
indemnity  and  if  he  is  unable  to  do  so  it  is 
his  loss.  This  seems  a  hardship  on  the  cus- 
tomer, and,  if  in  any  particular  case  the 
bank  is  convinced  of  his  honesty  and  the 
amount  is  not  large,  it  might  be  willing  to 
take  the  risk  upon  his  making  aflSdavit  that 
the  certificate  has  been  lost  and  at  the  time 
of  loss  was  not  indorsed  by  him.  But  the 
only  absolutely  safe  way  is  to  require  in- 
demnity. {Inquiry  from  Panama,  Jan., 
1917.) 

Customary   procedure   as   to   indemnity 

2167.  A  reliable  and  responsible  cus- 
tomer of  a  bank  lost  a  time  certificate  of 
deposit  for  a  considerable  amount,  which  he 
claimed  he  had  not  indorsed,  and  the  bank 
inquires  as  to  what  is  the  customary  bank 
proceeding  in  such  cases.     Opinion:     The 


customary  procedure  in  case  of  claim  of  loss 
of  a  negotiable  certificate  of  deposit  is  to 
require  a  satisfactory  bond  of  indemnity 
from  the  depositor  before  issuing  him  a  du- 
plicate or  making  payment.  The  depositor 
may  claim  that  it  has  been  destroyed  or  that 
he  has  lost  it,  and  it  was  not  indorsed,  and 
what  he  says  may  be  true,  but  there  is 
always  the  risk  that  the  depositor  has  ne- 
gotiated the  certificate  and  made  a  false 
claim  of  loss  or  destruction,  or  that  it  was 
indorsed  by  him  when  lost  although  he  may 
have  forgotten  the  fact,  or  he  may  find  it 
and  fraudulently  negotiate  it.  It  is  to  pro- 
tect the  bank  against  these  contingencies, 
should  the  certificate  turn  up  properly 
indorsed  in  the  hands  of  an  innocent  pur- 
chaser, that  it  is  the  practice  to  require 
sufficient  bond  of  indemnity.  Of  course,  if 
the  bank  in  any  case  is  satisfied,  of  the  re- 
sponsibility and  veracity  of  its  depositor,  it 
may  take  the  risk  and  issue  a  duplicate  and 
make  payment  without  a  bond  of  indemnity, 
but  the  practice  is  to  require  such  bond, 
which  in  many  cases  is  furnished  by  surety 
companies.  {Inquiry  from  Wash.,  Feb., 
1919.) 

Necessity  for  indemnity  in  Pennsylvania 

2168.  A  bank  issued  a  certificate  of  de- 
posit "payable  on  return  of  this  certificate 
properly  indorsed,"  and  the  payee,  having 
lost  it,  asked  for  a  duphcate.  The  inquiry 
is  as  to  the  negotiability  of  the  instrument 
and  whether  or  not  the  bank  should  require 
a  bond  of  indemnity  to  be  given.  Opinion: 
By  repeated  decisions  of  the  Pennsylvania 
courts  rendered  before  the  passage  of  the 
Negotiable  Instruments  Act  in  1901,  a 
certificate  of  deposit  "payable  on  return  of 
this  certificate  properly  indorsed"  was  held 
not  a  negotiable  instrument  but  only  a 
special  agreement  to  pay  the  deposit  on  the 
return  of  the  certificate;  such  a  promise  was 
held  not  absolute  and  unconditional, 
but  contingent.  The  Negotiable  Instru- 
ments Act  1901  provides  that  to  be  nego- 
tiable the  promise  to  pay  must  be  uncondi- 
tional and  there  have  been  no  Pennsylvania 
decisions  on  the  subject  since  the  passage  of 
the  Act.  The  decisions  of  the  courts  of  most 
of  the  other  states,  however,  are  to  the  effect 
that  such  a  certificate  is  negotiable.  The 
Federal  courts  also  so  hold.  See  Bank  of 
Saginaw  v.  Title  &  Trust  Co.,  105  Fed.  491, 
where  it  was  held  that  such  a  certificate 
issued  by  a  Pennsylvania  bank  was  nego- 
tiable and  that  the  Federal  courts  were  not 
controlled   by   the   decisions   of   the    state 


495 


2169-2172] 


DIGEST  OF  LEGAL  OPINIONS 


court  on  questions  of  general  commercial 
law.  It  would  follow,  therefore,  even  as- 
suming that  the  Pennsylvania  courts  will 
adhere  to  their  former  ruhng  and  hold  such 
certificates  non-negotiable,  that  this  ruling 
would  not  apply  to  or  bind  an  innocent 
purchaser  for  value  in  another  state  who 
should  sue  the  bank  upon  such  certificate 
in  the  Federal  courts.  Consequently  there 
is  a  real  necessity  to  require  a  bond  of  in- 
demnity, before  making  payment  or  issuing 
a  dupUcate  for  a  lost  certificate,  to  guard 
against  liability  upon  the  original  should  it 
be  sued  upon  by  an  innocent  indorser  in  the 
Federal  courts.  {Inquiry  from  Pa.,  March, 
1918.) 

Necessity  for  indemnity  and  statute  of  limi- 
tations 

2169.  On  July  15,  1918,  an  Oklahoma 
bank  issued  its  certificate  of  deposit  to  order 
of  S,  payable  January,  1919.  About  the 
time  of  the  maturity  of  the  certificate  it  was 
lost.  Does  the  statute  of  limitations  run 
against  certificates  of  deposit,  and  if  so,  how 
long  a  time  must  elapse?  Is  there  any  way 
the  bank  can  safely  pay  this  certificate 
without  requiring  a  bond?  Opinion:  (1) 
There  is  no  safe  way  in  which  the  certificate 
could  be  paid  or  a  duphcate  issued  without 
indemnity.  If  the  certificate  was  indorsed 
in  blank  when  lost,  or  should  be  afterwards 
recovered  and  indorsed  by  S,  or  has  not  been 
stolen  but  has  been  negotiated,  the  bank 
would  be  liable  to  an  innocent  purchaser. 
Therefore,  unless  the  bank  is  willing  to 
trust  S,  indemnity  is  necessary  to  its  safety 
before  payment  or  issue  of  a  duplicate.  (2) 
In  some  states  it  is  held  that  the  statute  of 
limitations  on  a  time  certificate  of  deposit 
begins  to  run  from  the  date  of  its  maturity 
(Bank  v.  Harrison,  [N.  M.  1901]  66  Pac.  460; 
In  re  Gardner's  Estate,  228  Pa.  St.  282) 
while  in  other  states  the  statute  does  not 
begin  to  run  until  actual  demand,  and  the 
certificate  is  not  outlawed  until  the  statutory 
period  after  demand.  (Thompson  v.  Farm- 
ers' State  Bank,  159  Iowa  662,  140  N.  W. 
877.  Maupin  v.  Morbridge  State  Bank, 
[S.  Dak.  1917]  161  N.  W.  332.)  There  are 
no  cases  in  point  in  Oklahoma,  and  the 
question  is,  therefore,  an  open  one  in  that 
state.    {Inquiry  from  Okla.,  Feb.,  1921.) 

Right    of   innocent    'purchaser    of   certificate 
indorsed  in  blank   and  stolen 

2170.  A  bank  purchased  in  good  faith 
before  maturity  and  for  value  a  negotiable 
certificate  of  deposit,  indorsed  in  blank  by 


the  payee.  The  seller  from  whom  the 
certificate  was  acquired  had  stolen  the  same 
from  the  payee.  The  issuing  bank  refused 
payment  because  of  a  stop  payment  order. 
Opinion:  The  purchasing  bank  is  a  holder 
in  due  course  and  may  enforce  payment  from 
the  issuing  bank.  The  certificate  indorsed 
in  blank  is  payable  to  bearer  and  good  title 
could  be  acquired,  even  through  one  who 
had  stolen  it.  Rev.  St.  Ariz.,  1913,  Sec. 
3360.  Mass.  Nat.  Bk.  v.  Snow,  187  Mass. 
160.  Jefferson  Bk.  v.  Chapman,  122  Tenn. 
415.  Schaffer  v.  Marsh,  90  Misc.  (N.  Y.) 
307.  City  of  Adrian  v.  Whitney  Central 
Bk.,  180  Mich.  171.  {Inquiry  from  Ariz., 
June,  1918,  Jl.) 

Indemnity  not  necessary  where  lost  certificate 
not  negotiable 

2171.  Is  there  any  liability  attaching  to 
the  bank  where  it  issues  duplicate  non- 
negotiable  certificates  of  deposit  and  pays 
these  duplicates  to  the  payee  who  claims  to 
have  lost  the  originals?  Opinion:  The  bank 
would  be  perfectly  safe.  It  would  be  a 
defense  against  payment  to  any  subsequent 
holder  to  whom  the  certificates  had  been 
transferred,  that  duphcates  had  been  issued 
to  the  original  payee.  If  the  certificates 
claimed  to  be  lost  were  negotiable,  indem- 
nity would  be  necessary.  {Inquiry  from  La., 
Jan.,  1917.) 

Payee's  affidavit  of  loss  of  unindorsed  certifi- 
cate as  substitute  for  indemnity 

2172.  Bank  A  issued  to  B  a  negotiable 
demand  certificate,  and  the  latter,  claiming 
that  it  had  been  stolen,  asked  for  a  duplicate. 
This  the  bank  refused  to  give  unless  B  fur- 
nished a  good  and  sufficient  bond,  but  B 
claimed  that  his  affidavit,  to  the  effect  that 
certificate  was  lost  or  stolen  and  that  it  did 
not  bear  his  indorsement,  would  be  suffi- 
cient, and  that  the  bank  could  only  be  com- 
pelled to  pay  the  duplicate.  It  is  asked  if 
B's  contention  is  correct.  Opinion:  Bank 
A  took  the  correct  position  in  requiring  a 
satisfactory  bond  of  indemnity  before  issuing 
a  duplicate  for  a  certificate  of  deposit 
claimed  to  have  been  lost.  While  the  pay- 
ee's affidavit  that  the  certificate  when  lost 
did  not  bear  his  indorsement  would  have 
made  him  criminally  liable  if  the  fact  was 
otherwise,  this  would  not  protect  A  in  case 
the  certificate  had  been  indorsed  when  lost, 
or  had  not  been  lost  at  all  and  was  subse- 
quently negotiated  by  him  after  he  had 
received  the  duplicate.  In  other  words,  the 
certificate  being  a  negotiable  instrument, 


496 


LOST  AND  STOLEN  PAPER 


[2173-2177 


bank  A  would  be  liable  both  on  the  certifi- 
cate and  on  the  duplicate  in  case  both  were 
negotiated  to  innocent  parties.  (Inquiry 
from  Okla.,  Aug.,  1914.) 

Delay  of  one  month   by  collecting  bank  in 
notifying  of  loss 

2173.  A  sent  to  B  for  collection  and 
credit  a  certificate  of  deposit.  The  latter 
promptly  acknowledged  receipt,  but  a 
month  later  notified  A  that  the  item  was 
lost  in  transit  and  that  the  same  would  be 
charged  back  to  A's  account.  The  latter 
claims  that  there  is  no  justification  for  this, 
because  of  the  unreasonable  delay.  Opin- 
ion: The  courts  hold  that  a  collecting  bank 
must  use  due  diligence  in  tracing  items  which 
are  not  heard  from  in  due  course,  and  if  this 
action  is  not  taken  within  a  reasonable  time, 
the  collecting  bank  is  liable  to  its  principal. 
It  was  incumbent  upon  B  when  the  item 
was  not  heard  from  in  due  course  to  send  a 
tracer  and  ascertain  what  had  become  of  it. 
The  question  as  to  whether  the  delay  in 
notifying  A  was  unreasonable  would  be  one 
of  fact;  if  so,  B  would  be  liable  to  A  for  the 
amount,  and  the  burden  would  be  upon  it 
to  procure  a  duplicate  or  written  particulars 
of  the  certificate  of  deposit  and  make  col- 
lection thereon,  with  obligation  probably 
to  give  indemnity  to  the  issuing  bank  before 
receiving  payment  of  the  lost  item.  Ho- 
bart  Nat.  Bank  v.  McMurrough,  24  Okla. 
210,  103  Pac.  601.  First  Nat.  Bank  v.  First 
Nat.  Bank,  4  Dill.  290.  (Inquiry  from  Ohio, 
April,  1918.) 

Lost  cashier's  check 

Bond  of  indemnity  as  prerequisite  to  paying 
lost  cashier^ s  check 

2174.  A  bank  issued  to  A  its  cashier's 
check  which  was  lost.  Before  issuing  a 
duplicate,  the  bank  requested  an  indemnity 
bond  in  double  the  amount.  A  refused  to 
give  the  bond,  but  produced  an  affidavit  that 
the  check  was  lost  without  indorsement. 
Opinion:  The  bank  is  entitled  to  require  in- 
demnity as  a  prerequisite  to  paj^ing  the 
cashier's  check  alleged  to  be  unindorsed 
when  lost,  for,  notwithstanding  the  affidavit, 
the  bank  would  not  be  relieved  from  lia- 
bility to  pay  an  innocent  purchaser  should 
the  affidavit  prove  false  or  should  the  payee 
thereafter  find  and  negotiate  the  original 
cashier's  check.  Code  Mo.,  Sees.  1983, 
1984.  Eans  v.  Bk.,  79  Mo.  182.  Citizens 
Nat.  Bk.  V.  Brown,  45  Ohio  St.  39.  Means 
v.  Kendall,  35  Neb.  693.    Clinton  Nat.  Bk. 


V.  Stiger,  67  N.  J.  Eq.  522. 
Mo.,  Feb.,  1916,  Jl.) 


(Inquiry  from 


2175.  A  bank  states  that  one  of  its  de- 
positors has  lost  a  treasurer's  check  mailed 
to  her  about  six  months  ago,  and  that  the 
bank  has  been  requested  to  issue  another 
and  hesitates  to  do  so  without  receiving  a 
surety  bond.  The  bank  asks  whether  it  is 
necessary  or  customary  for  banks  to  require 
such  a  bond  in  like  cases.  Opinion:  When 
the  payee  loses  a  cashier's  check  or  certifi- 
cate of  deposit  it  is  customary  to  require  a 
bond  of  indemnity  before  issuing  a  duplicate 
in  order  to  guard  against  the  possibility  that 
the  holder  has  made  a  false  claim  or  that  the 
check,  when  lost,  was  indorsed  in  blank  so 
as  to  be  in  negotiable  form.  If  the  claim  was 
false  and  the  check  was  afterwards  nego- 
tiated the  bank  would  be  hable  to  an  inno- 
cent purchaser  of  both  original  and  dupli- 
cate; hence,  the  necessity  of  indemnity  to 
guard  against  this  possibility.  (Inquiry 
from  N.  Y.,  March,  1918.) 

Lost  cashier^s  check  indorsed  in    blank 
purchased  from  gambler 

2176.  A  cashier's  check  indorsed  in 
blank  by  the  payee  was  lost  and  purchased 
by  the  proprietor  of  a  drug  store  from  the 
finder.  The  purchaser  knew  the  seller  to  be 
a  gambler,  and  that  he  was  not  the  person 
named  as  payee.  Payment  of  the  check  was 
stopped  and  the  bank  seeks  to  know  whether 
it  must  reimburse  the  payee  and  also 
whether  it  can  demand  a  return  of  the  check. 
Opinion :  Where  a  cashier's  check  is  indorsed 
in  blank  by  the  payee  and  lost  and  is  pur- 
chased by  a  merchant  from  the  finder,  in 
good  faith  and  for  value,  the  latter  is  a  holder 
in  due  course  with  right  to  enforce  payment 
of  the  instrument,  and  the  fact  that  the  pur- 
chaser knew  the  seller  to  be  a  gambler  is  not, 
of  itself,  sufficient  to  deprive  him  of  his 
status  as  holder  in  due  course,  in  the  absence 
of  knowledge  of  facts  which  would  make  his 
taking  the  instrument  an  act  of  bad  faith. 
(Inquiry  from  Okla.,  Nov.,  1918,  Jl.) 

Lost  bank  draft 

Bank   entitled   to   indemnity   before   issuing 
duplicate 

2177.  Inquiry  is  made  whether  payment 
can  be  stopped  on  a  New  York  draft  in  case 
same  is  lost,  and  whether  duplicate  may  be 
issued  without  having  purchaser  furnish  a 
bond.  Opinion:  A  bank  which  issues  its 
New  York  draft  to  a  payee  has,  of  course, 


497 


2178-2182] 


DIGEST  OF  LEGAL  OPINIONS 


the  right  to  instruct  the  drawer  to  stop 
payment  on  claim  of  the  purchaser  that  the 
draft  has  been  lost.  But  it  is  not  safe  to 
issue  a  duplicate  without  requiring  a  bond  of 
indemnity.  There  is  always  a  possibility 
that  the  draft  has  not  been  lost  and  is  sus- 
ceptible of  negotiation  by  the  payee  to  an 
innocent  purchaser,  or  may  have  been  in- 
dorsed in  blank  when  lost,  and  in  any  case 
where  an  innocent  purchaser  should  acquire 
the  draft  under  proper  indorsement,  the 
issuing  bank  would  be  hable  to  pay  the  same 
to  the  drawer.  {Inquiry  from  Mich.,  Nov., 
1920.) 

2178.  Where  a  bank  issues  its  draft 
upon  its  correspondent  in  favor  of  a  third 
party  who  claims  to  have  lost  same  and 
requests  a  duplicate,  the  issuing  bank  as  a 
prerequisite  to  issuing  such  duphcate  is  en- 
titled to  a  bond  of  indemnity  to  save  it 
harmless  should  the  original  be  negotiated 
under  indorsement  of  the  payee,  but  where  a 
draft  is  made  payable  directly  to  the  corre- 
spondent upon  which  drawn  and  is  lost,  du- 
plicate may  safely  be  issued  without  in- 
demnity. {Inquiry  from  N.  D.,  Feb.,  1918, 
Jl.) 

Issuing  bank  liable  to  innocent  purchaser  of 

lost  bank  draft  notwithstanding  payment 

of  duplicate 

2179.  A  bank  issued  a  New  York  draft 
to  a  customer,  who  later  represented  that  the 
draft  had  been  lost  and  a  duplicate  was  pro- 
cured, the  bank  having  taken  the  necessary 
steps  to  stop  paj^ment  of  the  original  draft. 
The  duplicate  draft  was  paid  in  regular 
order,  and  later  the  original  draft  came  into 
the  hands  of  a  innocent  purchaser.  The 
question  is  asked  whether  the  bank  that 
sold  the  original  draft  on  which  stop  pay- 
ment was  issued  is  liable.  Opinion:  The 
bank  which  issued  the  New  York  draft  to  a 
customer  is  responsible  to  an  innocent  pur- 
chaser upon  proper  indorsement  from  the 
payee.  The  fact  that  a  duplicate  had  been 
issued  to  the  payee  and  paid  and  that  pay- 
ment had  been  stopped  on  the  original  on 
claim  of  loss,  while  a  defense  by  the  drawer 
from  a  claim  of  the  payee  who  purchased  the 
original  is  no  defense  against  an  innocent 
holder  thereof  for  value.  The  bank  to  pro- 
tect itself  in  such  cases  should,  before 
issuing  a  duplicate,  require  a  satisfactory 
bond  of  indemnity  against  liability  should 
the  original  turn  up  in  the  hands  of  an  inno- 
cent purchaser.  {Inquiry  from  Ohio,  June, 
1920.) 


Non-necessity  for   indemnity  where  bank  is 
payee 

2180.  A  bank  which  is  the  payee  of  a 
bank  draft  which  has  been  lost  requests  that 
payment  be  stopped  and  a  duplicate  draft 
be  issued.  Should  the  drawer  require  a  bond 
before  issuing  the  duplicate?  Opinion: 
There  seems  to  be  no  necessity  for  requiring 
a  bond  of  indemnity  before  issuing  a  duph- 
cate draft,  unless  there  is  reason  to  distrust 
the  financial  standing  or  solvency  of  the 
payee  bank.  The  object  of  requiring  a  bond 
of  indemnity  is  to  protect  the  bank  should 
the  original  lost  draft  turn  out  to  have  been 
negotiated  by  the  payee  who  claims  to  have 
lost  the  same.  If  the  bank  is  financially 
responsible,  it  would  not  claim  the  loss  of  a 
draft  and  then  negotiate  the  same,  and  even 
if  it  did,  it  would  be  responsible  for  the 
amount  twice  received.  {Inquiry  from 
Mont.,  Jan.,  1921.) 

Holder  in  due  course  of  bank  draft  indorsed 
under    threat    and    stolen 

2181.  A  draft  drawn  by  the  cashier  of  a 
bank  in  Montana,  payable  to  his  order  on 
an  Illinois  bank,  was  forcibly  taken  from  him 
at  the  point  of  a  revolver  and  he  was  com- 
pelled to  indorse  it  under  threat  of  death. 
The  draft  bore  four  indorsements.  Imme- 
diately thereafter  the  banks  were  directed 
to  stop  payment  of  the  draft.  The  third 
indorser  now  holds  the  draft  and  threatens 
suit  to  recover  the  amount  thereof.  The 
first  indorser  asks  as  to  his  rights  in  the 
matter.  Opinion:  An  innocent  purchaser 
of  this  draft  would  be  protected  and  entitled 
to  recourse  against  the  drawer  and  prior 
parties  thereon.  The  Negotiable  Instru- 
ments Act  provides  that  "the  title  of  a 
person  who  negotiates  an  instrument  is  de- 
fective within  the  meaning  of  this  Act  when 
he  obtained  the  instrument  or  any  signature 
thereto  by  fraud,  duress,  or  force  and  fear 
or  other  unlawful  means  *  *  *  "  but  provides 
that  "a  holder  in  due  course  holds  the  instru- 
ment free  from  any  defect  of  title  of  prior 
parties  and  free  from  defenses  available  to 
prior  parties  among  themselves,  and  may 
enfore  payment  of  the  instrument  for  the 
full  amount  thereof  against  all  parties  liable 
thereon."  Assuming  that  the  third  indorser 
is  a  holder  in  due  course,  he  would  have  an 
enforceable  right  against  the  drawer  and  the 
first  indorser  would  be  the  loser.  {Inquiry 
from  III,  April,  1916.) 

Indorsement  of  payee  procured  by  force 

2182.  A  banker's  draft  was  stolen  from 


498 


LOST  AND  STOLEN  PAPER 


[2183-2185 


a  payee,  who  was  forced  to  indorse  the  draft. 
Payment  was  stopped  on  the  draft  and  the 
same  was  protested.  The  payee  wants  a 
dupHcate  draft.  Opinion:  Assuming  that 
the  original  draft  was  not  surrendered,  it 
would  not  be  safe  for  the  issuing  bank  to 
issue  a  duplicate  without  receiving  indemni- 
ty as  protection  against  liabihty  on  the 
original  which  might  have  been  acquired 
by  an  innocent  purchaser  for  value  before 
presentment  and  protest.  The  fact  that  the 
indorsement  was  under  duress  would  be  no 
defense  against  a  holder  in  due  course.  {In- 
quiry from  S.  D.,  Feb.,  1915,  Jl.) 

Bank  draft  in  hands  of  insane  joint  payee  who 
has  disappeared 

2183.  A  bank  asks  what  should  be  done 
in  the  following  case:  A  man  and  wife  de- 
posited money  in  the  bank  in  both  of  their 
names,  and  thereafter  the  bank  gave  them 
a  New  York  draft  for  the  amount  of  their 
balance,  making  it  payable  to  them  jointly 
at  their  request.  The  bank  has  been  notified 
that  the  wife  became  insane  and  has  dis- 
appeared, taking  the  draft  with  her.  The 
husband  has  been  unable  to  locate  either  his 
wife  or  the  draft.  Opinion:  When  a  draft 
is  made  payable  to  two  persons  jointly,  it 
requires  the  indorsement  of  both  to  negotiate 
or  receive  pa3'ment.  In  the  present  case,  the 
bank  stopped  payment,  and  the  joint  payee 
desires  the  bank  to  issue  a  duplicate  to  him 
only.  The  bank  should  not  comply  with 
the  request  unless  the  husband  gives  the 
bank  a  satisfactory  bond  of  indemnity  to 
secure  it  against  liability  on  the  original. 
It  is  possible  that,  after  receiving  a  duplicate, 
the  original  might  be  negotiated  under  in- 
dorsement of  both  payees  and  the  bank  be 
compelled  to  pay  to  an  innocent  purchaser. 
Furthermore,  even  though  one  of  two  joint 
payees  is  adjudicated  incompetent  in  legal 
proceedings  brought  for  that  purpose,  the 
property  rights  of  such  person  are  not  there- 
by forfeited,  but  vest  in  the  committee  of  the 
lunatic  who  would  have  equal  right  to  pay- 
ment of  the  draft  as  the  other  payee.  {In- 
quiry from  W.  Va.,  June,  1917.) 

Lost    draft    negotiated    eight   and    one -half 
months  after  issue 

2184.  A  draft  by  a  bank  on  its  corre- 
spondent, issued  to  A,  its  customer,  and  in- 
dorsed by  A  to  B,  was  claimed  to  have  been 
lost.  A  duplicate  was  issued  and  later  paid 
by  the  bank  in  addition  to  stopping  payment 
upon    the    original.      Eight    and    one-half 


months  after  date  of  the  draft  the  original, 
having  been  found,  was  cashed  by  B  at  a 
bank,  which  presented  it  to  payor  bank 
where  it  was  protested  for  non-payment. 
Opinion:  The  Negotiable  Instruments  Act 
provides  that  if  an  instrument  payable  on 
demand  is  negotiated  an  unreasonable 
length  of  time  after  its  issue,  the  purchaser  is 
not  a  holder  in  due  course.  Under  this,  the 
negotiation  of  a  check  of  a  customer  on  a 
bank  eight  months  after  its  issue  would 
probably  be  held  not  within  a  reasonable 
time,  but  a  distinction  has  been  taken  in 
some  cases  between  an  ordinary-  check  and 
a  banker's  draft  as  to  time  limit  for  negotia- 
tion, and  the  question  of  the  period  of  time 
for  free  circulation  of  such  instruments  be- 
fore they  are  discredited  has  not  yet  been 
definitely  settled.  As  to  banker's  drafts,  the 
question  will  remain  somewhat  problemat- 
ical until  a  more  definite  rule  is  established 
by  the  courts  indicating  what  is  an  un- 
reasonable length  of  time  of  negotiation 
under  Section  53  of  the  Negotiable  Instru- 
ments Act  to  deprive  a  purchaser  of  the 
status  of  a  holder  in  due  course.  London, 
etc..  County  Bk.  v.  Groome,  L.  R.  8  Q.  B., 
Div.  228.  Bk.  v.  Needham,  29  Iowa  249. 
Cowing  V.  Altman,  71  N.  Y.  435.  Caldwell 
V.  Dismukes,  111  Mo.  App.  570.  Neg.  Inst. 
L.  (Comsr's.  dft.),  Sec.  53.  Citizens  St. 
Bk.  V.  Cowles,  39  Misc.  (N.  Y.)  571,  aff'd 
180  N.  Y.  346.  Asbury  v.  Taube,  (Ky.)  151 
S.  W.  372.  McAdam  v.  Grand  Forks  Merc. 
Co.,  (N.  Dak.)  140  N.  W.  725.  German 
American  Bk.  v.  Wright,  (Wash.)  148  Pac. 
769.  Marbourg  v.  Brinkman,  23  Mo.  App. 
511.  Story  on  Bills,  Sec.  472.  Bull  v.  First 
Nat.  Bk.,  123  U.  S.  105.  {Inquiry  from 
Minn.,  March,  1919,  Jl.) 


Effect  of  "duplicate  unpaid"  on  draft 

2185.  A  Washington  bank  issued  to  its 
customer  a  draft  on  New  York,  which  was 
stolen  from  the  payee  after  he  had  indorsed 
it.  A  duplicate  draft  was  issued  and  paid. 
Afterwards  the  stolen  draft  was  cashed  for 
value,  and  forwarded  by  the  holder  for  pay- 
ment and  was  protested.  Opinio?i:  The 
Washington  bank  is  liable  to  the  holder  and 
would  have  rcmed}'  over  against  its  cus- 
tomer. If  in  this  case  the  original  draft  had 
upon  it  the  words  "duplicate  unpaid,"  the 
drawer  would  not  be  liable  to  the  holder. 
Wirt  V.  Stubl^lefield,  17  App.  D.  C.  283. 
Schlesinger  v.  Kellv,  114  N.  Y.  App.  Div. 
546.  Klar  v.  Kostiuk,  119  N.  Y.  S.  682. 
{Inquiry  from  Wash.,  July,  1911,  Jl.) 


499 


2186-2191] 


DIGEST  OF  LEGAL  OPINIONS 


Paper  signed  or  indorsed  in  blank 

Rights  of  holder  in  due  course  of  stolen  check 
indorsed  in  blank 

2186.  The  Baltimore  and  Ohio  Railroad 
Company  issued  its  check  for  $60  to  John 
Doe,  who  indorsed  it  in  blank  and  cashed  it 
with  a  pool  room  proprietor.  Shortly  after, 
the  proprietor  lost  the  check  and  immediate- 
ly notified  the  company  not  to  honor  the 
check  if  presented  without  his  indorsement. 
The  check  was  stolen  and  negotiated  to  an 
innocent  purchaser  for  value.  Opinion: 
Where  a  check,  bearing  indorsement  in 
blank  of  the  payee,  is  stolen  from  the  owner 
and  negotiated  to  an  innocent  purchaser  for 
value,  the  latter  is  a  holder  in  due  course  and 
acquires  title  to  the  check  with  right  of  en- 
forcement. See  citations  in  opinion  No. 
2186a.  {Inquiry  from  W.  Va.,  Nov.,  1917, 
Jl) 

2186a.  A's  check  to  B,  indorsed  in 
blank  by  the  latter,  is  stolen  and  negotiated 
to  E,  an  innocent  purchaser,  for  value. 
Payment  was  stopped  by  A.  Opinion:  E 
as  holder  in  due  course  has  a  right  to  enforce 
payment  from  the  drawer  and  indorser.  The 
check  was  made  payable  to  bearer  by  the 
indorsement  in  blank  and  E  was  an  innocent 
holder  in  due  course,  notwithstanding  it  had 
been  stolen.  Mass.  Nat.  Bk.  v.  Snow,  187 
Mass.  160.  Jefferson  Bk.  v.  Chapman,  122 
Tenn.  415.  Schaffer  v.  Marsh,  90  Misc. 
(N.  Y.)  307.  N.  Y.  Inst.  A.  (Comsr's.  dft.), 
Sec.  57.  {Inquiry  from  Wyo.,  Nov.,  1917, 
Jl) 

Rights  of  purchaser  of  stolen  instrument  in- 
dorsed in  blank 

2187.  In  case  a  negotiable  note  in- 
dorsed in  blank,  and  belonging  to  a  bank,  is 
stolen  and  then  negotiated  before  maturity, 
can  the  bank  have  payment  stopped  by  the 
maker,  or  can  the  then  holder  enforce  col- 
lection? Would  it  be  the  same  in  the  case 
of  coupon  bonds?  Opinion:  The  purchaser 
of  a  negotiable  note,  or  other  negotiable 
security,  which  has  i3een  stolen  from  the 
true  owner  when  indorsed  in  blank,  has  a 
right  to  enforce  payment  thereof,  provided 
he  acquired  the  same  for  value  in  good  faith 
before  maturity  and  without  notice.  But 
the  burden  of  proof  is  upon  such  purchaser 
to  show  that  he  is  a  holder  in  due  course. 
The  rule  would  apply  to  coupon  bonds  which 
are  negotiable  instruments.  Mass.  Bank  v. 
Snow,  187  Mass.  160.  Hinckley  v.  Mer- 
chants Nat.  Bank,  131  Mass.  147.  City  of 
Adrian  v.  Whitney  Central  Bank,  180  Mich. 


171.  Northampton  Nat.  Bank  v.  Kidder, 
106  N.  Y.  221.  Jefferson  Bank  v.  Chapman, 
122  Tenn.  415.  Sec.  57  Neg.  Inst.  Law. 
{Inquiry  from  Kan.,  Jan.,  1920,  Jl.) 

2188.  A  bank  cashed  a  check  which  was 
indorsed  in  blank  by  the  payee  and  stolen 
from  him.  The  bank  had  no  notice  of  the 
loss.  Payment  of  the  check  was  stopped. 
Opinion:  The  bank  acquired  perfect  title 
to  the  bearer  check  and  can  enforce  pay- 
ment from  the  drawer  and  the  payee. 
Unaka  Nat.  Bk.  v.  Butler,  113  Tenn.  574. 
{Inquiry  from  Ore.,  April,  1915,  Jl.) 

2189.  A  check  was  indorsed  in  blank  by 
the  payee,  stolen  from  him  without  delivery 
and  negotiated  to  a  merchant  for  value. 
The  drawee  under  a  stop  payment  order 
refused  to  pay  the  check.  Opinion:  The 
bank  is  not  liable  but  the  merchant  as  a 
bona  fide  purchaser  can  recover  from  the 
drawer  and  the  payee,  although  the  check 
was  never  delivered  by  the  payee.  Angus 
V.  Downs,  (Wash.)  147  Pac.  630.  Mass. 
Nat.  Bk.  V.  Snow,  187  Mass.  159.  Greeser 
V.  Sugarman,  76  N.  Y.  S.  922.  Poess  v. 
Twelfth  Ward  Bk.,  86  N.  Y.  S.  857.  Buzzell 
V.  Tobin,  (Mass.)  86  N.  E.  923.  {Inquiry 
from  III.,  June,  1915,  Jl.) 

2190.  A  check  indorsed  in  blank  by  the 
payee  was  stolen  and  cashed  at  a  bank.  The 
drawer  stopped  payment  before  the  check 
reached  the  drawee.  Opinion:  The  cashing 
bank  was  a  bona  fide  purchaser  from  the 
thief,  and, being  a  holder  indue  course, can 
enforce  against  the  drawer  and  the  indorser. 
Neg.  Inst.  L.  (Comsr's.  dft.),  Sees.  16,  52. 
Mass.  Nat.  Bk.  v.  Snow,  187  Mass.  159. 
Greeser  v.  Sugarman,  37  Misc.  (N.  Y.)  799. 
Poess  V.  Twelfth  Ward  Bk.,  43  Misc.  (N. 
Y.)  45.  {Inquiry  from  W.  Va.,  Sept.,  1914, 
Jl.) 

Payment  of  check  signed  in  blank,  stolen  and 
filled  in — Drawee  can  charge  depositor 

2191.  A  depositor  has  been  in  the  habit 
of  signing  blank  checks  before  leaving  town, 
to  be  filled  in  by  his  clerk  to  pay  bills.  One 
of  these  checks  was  lost  or  stolen,  filled  in, 
cashed  and  charged  to  his  account.  The 
bank  inquires  whether  it  is  liable  for  paying 
said  check.  Opinion:  Where  a  man  signs 
a  check  in  blank  and  leaves  it  lying  around 
and  it  is  taken  by  an  unauthorized  person, 
filled  in  and  cashed  at  the  bank,  it  has  been 
held  that  the  bank  is  protected  and  can  charge 
the  amount  to  the  customer's  account.  {In- 
quiry from  N.  Y.,Oct.,  1917.) 


500 


LOST  AND  STOLEN  PAPER 


[2192-2198 


2192.  A  signs  blank  check  on  the  bank 
and  leaves  it  with  B  to  be  filled  out  when 
needed  to  close  a  deal.  C  steals  the  check 
from  B  and  fills  it  out  to  himself,  and  is 
identified  to  the  bank  which  pays  the  check. 
Can  A  recover  from  the  bank?  Opinion: 
It  was  held  in  Trust  Company  of  America 
V.  Conkhn,  119  N.  Y.  Supp.  367,  that  a 
depositor,  who  signed  checks  in  blank  to  be 
used  by  his  bookkeeper  in  the  business,  is 
chargeable  by  the  bank  for  money  paid  on 
a  check  which  was  stolen  and  filled  out  by 
an  unauthorized  employee.  This  seems  to 
cover  the  present  case.  (Inquiry  from  Pa., 
Jan.,  1919.) 

2193.  A  drawee  bank  paid  three  checks, 
which  were  signed  in  blank  by  the  drawer, 
and  never  delivered,  but  were  stolen,  filled 
out  and  negotiated.  Opinion:  The  drawee 
which  paid  the  checks  can  charge  the 
amount  to  the  drawer's  account  because  of 
breach  of  an  imphed  contract  duty  to  exer- 
cise care.  The  drawer,  however,  has  a  right 
of  recovery  from  the  banks  which  purchased 
and  collected  such  checks,  because  under  the 
rule  of  the  law  merchant  and  the  Negotiable 
Instruments  Act  an  incompleted  instrument 
not  delivered  is  not  a  valid  contract  in  the 
hands  of  any  holder,  notwithstanding  its 
subsequent  unauthorized  completion  and 
negotiation.  Mo.  Rev.  St.,  1909,  Sec.  9986. 
Tr.  Co.  V.  Conklin,  119  N.  Y.  S.  367.  Linick 
v.  Nutting  &  Co.,  125  N.  Y.  S.  93.  {Inquiry 
from  Mo.,  Oct.,  1914,  JI-) 

Drawer  not  liable  to  innocent   purchaser  of 
check  signed  in  blank   and  stolen 

2194.  A  thief  stole  from  a  check  book 
a  check  bearing  only  the  name  of  the  drawer, 
and  negotiated  it  for  value  to  an  innocent 
purchaser.  Can  payment  of  the  check  be 
stopped?  Opinion:  Payment  can  be 
stopped  and  the  drawer  is  not  liable  to  the 
innocent  purchaser.  The  check  was  in- 
complete without  delivery.  Baxendale  v. 
Bennett,  L.  R.  3  Q.  B.  Div.  525.  Burson  v. 
Huntington,  21  Mich,  416.  Salley  v.  Ter- 
rill,  95  Me.  553.  Linich  v.  Nutting,  125 
N.  Y.  S.  931.  Neg.  Inst.  A.,  Sec.  15  (Com- 
sr's.  dft.).  (Inquiry  from  Col.,  Aug.,  1913, 
Jl.) 

Note  indorsed  in  blank  by  payee  and  lost  or 
stolen 

2195.  A  promissory  note,  indorsed  in 
blank  by  the  payee,  is  stolen  from  the  payee 
and  negotiated  before  maturity  to  an 
innocent  purchaser  for  value.  Can  the 
innocent  purchaser  collect  the  amount  of 


the  note,  and  if  so,  who  should  stand  the 
loss,  the  thief  being  irresponsible?  Opinion: 
In  the  case  stated  the  payee  is  the  loser. 
An  innocent  purchaser  for  value  before 
maturity  of  a  note  indorsed  in  blank  by  the 
payee,  stolen  from  him  and  negotiated  by 
the  thief,  takes  title  as  against  the  payee. 
(Inquiry  from  Mo.,  June,  1914.) 

Negotiation  of  lost  check  indorsed  in  blank 

2196.  A  party  lost  a  check  payable  to 
his  order,  and  indorsed  by  him.  The  check 
was  cashed  at  another  bank,  but  bears  no 
other  indorsement.  Can  the  payee  recover 
from  the  cashing  bank?  Opinion:  Under 
the  circumstances  related,  the  cashing 
bank,  in  the  absence  of  knowledge  or  bad 
faith,  is  a  holder  in  due  course,  the  indorse- 
ment in  blank  making  the  instrument 
payable  to  bearer  and  negotiable  by  de- 
livery— and  can  enforce  payment  from  the 
drawer,  free  from  claim  of  title  of  the 
payee,  who  has  no  recourse  against  such 
cashing  bank.  Mass.  Nat.  Bank  v.  Snow, 
187  Mass.  160.  Jefferson  Bank  v.  Chapman, 
122  Tenn.  415;  Sees.  52,  56  Neg.  Inst.  Law. 
(Inquiry  from  Kan.,  June,  1920,  Jl.) 

Newspaper  notice  of  loss  insufficient  unless 
purchaser  reads  article 

2197.  A  gave  his  note  payable  at  a 
bank  to  B,  who  lost  the  instrument.  C 
found  it  and  negotiated  it  to  an  innocent 
purchaser  for  value,  who  received  payment 
at  the  bank  before  B  could  serve  notice. 
Opinion:  Where  a  note  indorsed  in  blank 
by  the  payee  is  lost  and  negotiated  by  the 
finder  to  a  holder  in  due  course,  the  latter 
acquires  a  good  title  as  against  the  payee. 
Assuming  payment  has  been  stopped  and 
notice  of  the  loss  pubhshed  in  the  newspaper, 
this  would  not  be  sufficient  to  protect  the 
maker  and  payee  from  liability,  unless  it 
could  be  proved  that  the  purchaser  for 
value  read  the  article.  Mass.  Nat.  Bk.  v. 
Snow,  187  Mass.  160.  Jefferson  Bk.  v. 
Chapman,  122  Tenn.  415.  Setzer  v.  Deal, 
(N.  C.)  47  S.  E.  466.  (Inquiry  from  R.  I., 
Nov.,  1918,  Jl.) 

Lost  and  stolen  bonds 

Holder  in  due  course  of  stolen  government 
bearer  bonds 

2198.  The  Federal  Reserve  Bank  of  St. 
Louis  sent  government  coupon  bonds  by 
registered  mail  to  a  purchaser.  The  mail 
pouch  containing  these  bonds  was  thrown 
off  the  train  at  the  proper  place  but  it  was 
caught   in    the    train,    and    the    bonds   in 


501 


2199] 


DIGEST  OF  LEGAL  OPINIONS 


question  were  carried  some  fifty  miles  and 
dropped  near  the  track.  The  finder,  after 
watching  for  notices  of  lost  bonds,  negotiated 
some  of  them  to  a  bank.  Some  of  the 
mutilated  bonds  were  sent  to  the  Federal 
Reserve  Bank  for  exchange  for  new  ones. 
At  the  Federal  Reserve  Bank  it  was  dis- 
covered that  these  bonds  were  a  part  of  the 
shipment  by  registered  mail,  and  it  claims 
all  the  bonds  in  the  shipment  as  the  property 
of  the  government,  being  undelivered  regis- 
tered mail.  Is  tliis  claim  valid?  Opi7iion: 
It  would  seem  that  if  the  bank  is  the 
innocent  purchaser  of  government  coupon 
bonds,  it  has  a  valid  claim  thereto  even 
though  they  were  stolen  from  the  govern- 
ment without  delivery.  (Inquiry  from  III., 
Jan.,  1921.) 

Banks  as  innocent  purchasers  of  stolen  Liberty 
coupon  bonds 

2199.  What  is  the  hability  of  a  bank 
which  purchases  Liberty  coupon  bonds 
which  afterwards  turn  out  to  have  been 
stolen?  Opinion:  A  coupon  bond  is  a 
negotiable  instrument  payable  to  bearer 
and  negotiable  by  delivery,  and  a  purchaser 
to  be  secure  with  respect  to  a  bond,  which 
afterwards  turns  out  to  be  stolen,  must 
have  acquired  the  same  under  the  conditions 
prescribed  by  the  Negotiable  Instruments 
Act  to  constitute  it  a  holder  in  due  course. 
These  conditions  are  found  in  section  52  of 
the  Negotiable  Instruments  Act  which 
provides:  "A  holder  in  due  course  is  a 
holder  who  has  taken  the  instrument 
under  the  following  conditions:  L  That 
it  is  complete  and  regular  on  its  face.  2. 
That  he  became  the  holder  of  it  before  it 
was  overdue,  and  without  notice  that  it 
had  been  previously  dishonored,  if  such  was 
the  fact.  3.  That  he  took  it  in  good 
faith  and  for  value.  4.  That  at  the  time 
it  was  negotiated  to  him  he  had  no  notice 
of  any  infirmity  in  the  instrument  or  defect 
in  the  title  of  the  person  negotiating  it." 
Sec.  56  provides:  "To  constitute  notice  of 
an  infirmity  in  the  instrument  or  defect  in 
the  title  of  the  person  negotiating  the  same, 
the  person  to  whom  it  is  negotiated  must 
have  had  actual  knowledge  of  the  infirmity 
or  defect,  or  knowledge  of  such  facts  that 
his  action  in  taking  the  instrument  amounted 
to  bad  faith."  Sec.  57  provides:  "A  holder 
in  due  course  holds  the  instrument  free  from 
any  defect  of  title  of  prior  parties,  and  free 
from  defenses  available  to  prior  parties 
among  themselves,  and  may  enforce  pay- 
ment of  the  instrument  for  the  full  amount 


thereof  against  all  parties  liable  thereon." 
Under  this  section  a  holder  in  due  course  of 
a  note  or  check  payable  to  bearer  acquires 
title  thereto  from  one  who  has  stolen  it. 
Mass.  Nat.  Bank  v.  Snow,  187  Mass.  160. 
Jefferson  Bank  v.  Chapman,  122  Term. 
415.  Schaeffer  v.  Marsh,  90  Misc.  (N.  Y.) 
307.  It  has  been  held  that  the  same  rule 
apphes  to  negotiable  bonds  payable  to 
bearer.  City  of  Adrian  v.  Whitney  Cent. 
Bank,  146  N.  W.  (Mich.)  654.  Taking  in 
"good  faith"  is  an  essential  of  a  holder  in 
due  course.  The  great  majority  of  cases 
hold  that  the  mere  purchase  of  bearer  paper 
from  a  stranger,  without  inquiry  or  investi- 
gation, does  not,  of  itself,  constitute  bad 
faith.  Pennington  County  Bank  v.  First 
State  Bank,  125  N.  W.  (Minn.)  119  (citing 
Commercial  Bank  v.  First  Nat.  Bank,  30 
Md.  11,  96  Am.  Dec.  554.  Murray  v. 
Lardner,  2  Wall.  110).  Unaka  Nat.  Bank 
V.  Butler,  83  S.  W.  (Tenn.)  655.  But  some 
courts  hold  that  a  person  should  not 
purchase  paper  payable  to  bearer  from  a 
stranger  without  inquiry.  Wickersham 
Banking  Co.  v.  Nicholas,  82  Pac.  (Cal.) 
1124.  Where  there  are  suspicious  surround- 
ing circumstances,  the  fact  of  purchase  from 
a  stranger  will  be  taken  into  consideration 
with  all  the  other  circumstances  in  de- 
terming  the  good  faith  of  the  purchaser. 
In  other  words,  a  question  of  fact  will  be 
raised  for  the  determination  of  a  jury 
whether  the  purchaser  was  in  fact  honest 
or  guilty  of  bad  faith.  See,  for  example. 
Merchants,  etc.,  Nat.  Bank  v.  Ohio  Valley 
Furniture  Co.,  50  S.  E.  (W.  Va.)  880. 
Pelletier  v.  State  Nat.  Bank,  38  So.  (La.) 
132.  There  are  a  few  specific  cases  growing 
out  of  the  theft  of  Liberty  and  Victory 
coupon  bonds  and  involving  the  title  of 
purchasers.  In  Morris  v.  Muir,  181  N.  Y. 
Supp.  913,  there  was  more  than  the  mere 
taking  of  bonds  from  a  stranger;  the  court 
took  the  ground  that  the  immature  age 
and  physical  appearance  of  the  seller  was 
such  as  to  negative  the  belief  that  he  was 
the  owner  of  the  securities,  and  that  he 
conducted  a  newspaper  stand  on  his  own 
account,  as  he  represented,  and  it  was 
therefore  held  that  the  purchaser  acted  in 
bad  faith,  and  did  not  acquire  title.  Wagner 
&  Co.  V,  Whitney  &  Co.,  decided  in  the 
federal  court  in  New  York  city  Feb.  11, 
1921,  without  opinion,  did  not  involve 
purchase  from  a  stranger,  but  did  decide 
that  a  purchaser  in  good  faith  of  stolen 
Victory  coupon  bonds  takes  good  title  to 
them.    {Inquiry  from  Tex.,  Feb.,  1921.) 


502 


LOST  AND  STOLEN  PAPER 


[2200-2204 


Banks  as  purchasers  of  stolen  Ldberty  coupon 
bonds — Notice 

2200.  Is  a  purchaser  of  stolen  Liberty 
bonds  chargeable  with  notice  of  the  defect 
in  the  title  of  the  seller  where,  by  newspaper, 
special  letters  or  printed  circulars, the  theft 
is  announced  and  the  bonds  described? 
Opinion:  Newspaper  publication  does  not 
charge  a  purchaser  of  negotiable  paper  with 
notice  in  the  absence  of  actual  knowledge 
thereof.  Wildsmith  v.  Tracy,  80  Ala.  258. 
Gehlbach  v.  Carhnville  Nat.  Bank,  83 
111.  A.  129.  Of  course,  actual  knowledge 
of  the  pubhcation  would  charge  the  pur- 
chaser with  notice.  Newspaper  articles 
have  been  held  admissible  as  tending  to 
show  knowledge  of  contents  by  the  pur- 
chaser where  he  subscribed  to  the  paper. 
Merrill  v.  Hole,  85  Iowa  66.  Apparently 
the  receipt  by  a  banker  or  broker  of  a  printed 
circular  or  letter  describing  stolen  negotiable 
paper  does  not  charge  the  recipient  with 
any  legal  duty  to  preserve  the  notice  and 
retain  the  contents  in  memory,  and  if,  not- 
withstanding the  receipt  of  such  notice, 
stolen  paper  is  purchased  before  maturity 
for  full  value  in  forgetfulness  or  ignorance 
of  the  notice,  the  purchaser  is  protected. 
Vermilye  v.  Adams  Exp.  Co.,  21  Wall. 
138;  Raphael  v.  Bank  of  England,  17  Com. 
Bench  Rep.  (Eng.)  161.  Actual  knowledge 
would,  of  course,  deprive  the  purchaser  of 
the  status  of  holder  in  due  course,  and  the 
circumstances  in  any  particular  case  might 
be  such  as  to  charge  the  purchaser  with  bad 
faith.    {Inquiry  from  N.  Y.,  April,  1921,  Jl.) 

Liability  of  bank  for  loss  of  Liberty  coupon 
bonds  in  unregistered  mail 

2201.  A  draft,  with  coupon  Liberty 
bonds  attached,  was  sent  through  the  mail, 
unregistered,  by  a  bank,  and  was  lost  in 
transit.  Who  is  hable  for  the  loss?  Opinion: 
Where  a  bank  forwards  coupon  bonds  by 
ordinary  unregistered  mail,  and  the  letter 
is  lost  in  transit,  the  bank  is  Hable  for  the 
loss.  Clay  City  Nat.  Bank  v.  Conlee,  106 
Ky.  788.    {Inquiry  from  S.  C,  Ju7ie,  1920,  Jl. 

Duplicates   not   issued  for   lost   government 
coupon  bonds 

2202.  Where  coupon  bonds  of  the  govern- 
ment are  lost  or  stolen  and  are  acquired 
by  a  bona  fide  purchaser  from  a  finder  or 
thief,  the  latter's  title  is  superior  to  that  of 
the  former  owner  and  there  is  no  provision 
of  the  Federal  statutes  to  protect  the 
original  owner  in  such  case.  But  where 
such  bonds  are  wholly  or  partly  destroyed 


or  defaced  and  can  be  identified,  the 
Federal  statutes  provide  for  the  issue  of 
duplicates  upon  giving  of  indemnity  and 
also  provide  for  the  issue  of  duphcates  for 
lost  or  destroyed  registered  bonds.  {In- 
quiry from  W.  Va.,  July,  1918,  Jl.) 

Liability  of  government  on  stolen  registered 
bonds 

2203.  A  bank  held  registered  Liberty 
bonds  for  a  customer  for  safe  keeping. 
They  were  stolen  from  the  bank,  assignment 
made  before  an  officer  of  a  bank  in  Louisiana, 
who  acknowledged  the  assignment  under 
his  official  signature  and  bank  seal.  The 
assignment  has  been  accepted  by  the 
Treasury  Department,  who  now  hold  the 
cancelled  bonds.  Can  bank  recover  from 
the  government,  and  if  so,  what  procedure 
should  be  taken?  Opinion:  Where  regis- 
tered Liberty  bonds  have  been  stolen,  the 
payee's  assignment  forged  and  acknowl- 
edged, and  the  bonds  accepted  and  cancelled 
by  the  Treasury  Department  and  new 
bonds  issued,  the  government  is  liable  to 
the  true  owner  of  the  stolen  bonds,  who 
should  petition  the  Treasury  Department, 
or  bring  suit  in  the  Court  of  Claims  or 
Federal  District  Court  for  reimbursement. 
(German  Bank  of  Memphis  v.  U.  S.,  148 
U.  S.  573;  U.  S.  Judicial  Code,  Sec.  991, 
subd.  20.  And  see  Stanley  v.  Schwalby, 
162  N.  S.  255.)  There  is  also  a  hability  on 
the  part  of  the  official  who  certified  the 
acknowledgment  of  the  forged  assignment. 
(Second  Nat.  Bank  v.  Curtiss,  153  N.  Y. 
681.  Nat.  Exch.  Bank  v.  U.  S.,  151  Fed. 
402.)    {Inquiry  from  Okla.,  Feb.,  1920,  Jl.) 

Procedure  to  obtain  duplicates  of  destroyed 
Liberty  coupon  bonds 

2204.  A  bank  lost  some  Liberty  coupon 
bonds  or  same  were  destroyed.  It  asks 
how  it  will  be  possible  to  secure  duplicates 
or  reimbursement  therefor.  Opinion:  If 
the  bank  can  prove  that  the  Liberty  bonds 
have  been  destroyed,  the  procedure  is, 
under  sections  3702  and  3703  of  the  Revised 
Statutes,  to  obtain  duplicates  upon  filing 
the  bond  of  indemnity  therein  described. 
It  is  to  be  presumed  that  there  can  be 
obtained  from  the  Treasury  Department  a 
copy  of  the  regulations  showing  the  precise 
procedure  as  to  making  application  for 
duplicates.  If,  however,  it  is  impossible 
to  prove  that  the  bonds  have  been  destroyed, 
but  the  facts  would  indicate  that  they  have 
been  lost,  there  is  no  provision  under  which 
the    Government    wlII    issue   a   duplicate, 


503 


2205-2208] 


DIGEST  OF  LEGAL  OPINIONS 


because  such  bonds  can  pass  from  hand  to 
hand  the  same  as  money  and  an  innocent 
purchaser  of  the  Liberty  bonds  would 
acquire  the  title.  {Inquiry  from  Ariz., 
Dec,  1919.) 

Rights  of  holder  of  stolen  coupon  bonds 

2205.  What  are  the  legal  rights  and 
liabilities  of  a  holder  of  stolen  coupon 
bonds?  Opinion:  Coupon  bonds  payable 
to  bearer  are  negotiable  by  delivery  and  an 
innocent  purchaser  can  acquire  a  good  title 
from  the  thief  or  finder.  Mass.  Nat.  Bank 
V.  Snow,  187  Mass.  160.  City  of  Adrian 
V.  Whitney  Central  Bank,  180  Mich.  171. 
However,  section  59  of  the  Negotiable 
Instruments  Act  provides  that  when  it  is 
shown  that  the  title  of  a  prior  party  is 
defective,  the  burden  is  on  the  holder  to 
prove  that  he,  or  some  person  under  whom 
he  claims,  acquired  the  title  as  holder  in 
due  course. 

Where  negotiable  securities  have  been 
stolen  and  negotiated,  the  burden  is  upon 
the  holder  to  show  that  he  is  himself  a 
holder  in  due  course,  or  that  he  claims  under 
such  a  holder;  and  there  is  no  presumption 
that  the  thief  negotiated  the  securities  before 
they  became  due.  Northampton  Nat. 
Bank  v.  Kidder,  108  N.  Y.  221.  Hinckley 
V.  Merchants  Nat.  Bank,  131  Mass.  147. 
{Inquiry  from  Kan.,  Jan.,  1921.) 

Stolen  coupon  bonds — Method  of  procedure  to 
protect  owner 

2206.  What  method  may  be  adopted  to 
protect  the  owner  of  coupon  bonds  which 
have  been  stolen,  with  respect  to  the  bonds 
themselves  and  the  interest  coupons?  Opin- 
ion: See  Opinion  No.  2205  for  law  with 
respect  to  coupon  bonds.  As  appHed  to  the 
case  submitted,  if  the  issuing  company 
should  refuse  payment  on  these  bonds  at  the 
request  of  the  owner  on  the  claim  that 
they  were  stolen,  and  the  holder  should  sue 
the  company  thereon,  the  burden  would  be 
on  the  holder  to  prove  that  he  was  a  holder 
in  due  course,  and  if  he  made  such  proof, 
and  the  bonds  were  payable  to  bearer,  he 
would  have  a  right  of  recovery.  The  correct 
procedure  for  the  owner  is  to  ask  that 
payment  of  the  stolen  bonds  and  the  cou- 
pons be  withheld  and  to  tender  a  sufficient 
bond  of  indemnity  to  protect  the  issuing 
company  in  the  event  it  is  sued  and  held 
liable  by  a  holder  in  due  course.  Upon  such 
request  and  tender  it  would  seem  reasonable 
that  the  issuing  company  should  comply 
with  the  request  and  refuse  payment  until 


the  holder  could  prove  that  he  was  a  holder 
in  due  course.  {Inquiry  from  Ore.,  April, 
1920.) 

Holder  in  due  course  of  stolen  municipal  bonds 

2207.  A  bank  from  which  municipal 
bonds  were  stolen  notified  the  city  of  the 
theft,  and  the  city  notified  the  bank  at 
which  they  were  payable  to  stop  payment 
thereon ;  the  latter  bank,  however,  neglected 
to  do  so  and  paid  the  bonds.  What  are  the 
rights  of  bank  holding  the  bonds?  Opinion: 
Assuming  that  the  stolen  bonds  were 
payable  to  bearer,  they  are  negotiable  by 
delivery  and  an  innocent  purchaser  for 
value  is  entitled  to  enforce  payment  thereof, 
notwithstanding  the  theft.  Mass.  National 
Bank  v.  Snow,  187  Mass.  160.  Jefferson 
Bank  v.  Chapman  122  Tenn.  415.  City 
of  Adrian  v.  Whitney  Central  Bank,  180 
Mich.,  171.  The  only  advantage  of  stopping 
payment  is  to  compel  the  holder  to  prove 
that  he  is  an  innocent  holder  for  value. 
A  bank  at  which  a  note  or  bond  is  made 
payable  is  compelled  to  obey  the  stop  pay- 
ment order  of  the  maker  and  is  liable  for 
any  damages  caused  to  the  maker  by  failure 
to  carry  out  his  instructions.  Hence,  the 
bank  paying  the  bonds  against  the  instruc- 
tions of  the  city  would  be  liable  to  it  and 
the  city  would  be  liable  to  the  bank  from 
which  the  bonds  were  stolen,  unless  the 
paying  bank  could  prove  that  the  payment 
was  made  to  a  holder  in  due  course,  which 
would  relieve  it  from  liability.  {Inquiry 
from  Ohio,  Nov.,  1920.) 

Method  of  procedure  to  protect  holder  of  stolen 
municipal  coupon  bonds 

2208.  The  holder  of  stolen  municipal 
bonds  with  coupons  payable  to  bearer  has 
been  asked  by  the  bank  at  which  they  are 
payable  to  serve  it  with  a  legal  notice  so 
that  if  coupons  are  presented  for  payment 
it  may  have  some  basis  for  its  refusal  to 
pay.  What  should  be  the  form  of  the 
notice?  Opinion:  It  would  be  well  to 
make  a  sworn  statement  or  affidavit  that 
the  bonds  in  question  were  stolen  from  the 
bank  and  attach  this  to  a  notice  to  the  city 
issuing  the  bonds,  requesting  it  not  to  pay 
until  the  holder  has  established  good  title 
as  an  innocent  purchaser  for  value  and  to 
instruct  the  bank,  at  which  the  bonds  are 
made  payable,  to  refuse  payment.  The 
notice  should  be  accompanied  with  an  offer 
to  indemnify  the  city  for  any  liabihty 
incurred  in  the  event  of  suit  and  a  request 
that  it  give  notice  to  the  owner  of  the  bonds, 


504 


LOST  AND  STOLEN  PAPER 


[2209-2213 


so  that  it  may  have  an  opportunity  to 
come  in  and  defend.  The  city  should  also 
be  requested  to  make  reply  so  that  it  will  be 
known  that  it  accedes  to  the  request.  A 
copy  of  the  affidavit  and  notice  should  be 
sent  directly  to  the  pajdng  bank,  accom- 
panied by  a  similar  request  not  to  pay.  If 
the  city  and  the  bank  agree  not  to  pay  until 
the  holder  has  shown  himself  a  holder  in 
due  course,  this  is  sufficient;  otherwise,  it 
may  be  necessary  to  apply  for  an  injunction 
against  the  city  and  the  bank,  restraining 
them  from  making  payment  until  the 
rights  of  the  holder  are  judicially  established, 
and  in  such  a  proceeding  the  court  would 
probably  require  the  execution  of  a  bond  of 
indemnity  as  a  condition  precedent  to  the 
issuing  of  the  restraining  order.  {Inquiry 
from  Ohio,  Dec,  1920.) 

Lost  or  stolen  pass-books 

Savings  pass-hook  not  negotiable 

2209.  The  fund  in  a  savings  bank  had 
been  withdrawn  by  a  depositor  upon  claim 
of  loss  of  his  pass-book.  Later  he  fraudu- 
lently negotiated  to  an  innocent  purchaser 
his  draft  and  pass-book  on  the  account. 
Can  payment  of  the  instrument  be  enforced 
against  the  bank?  Opinion:  A  bank  which 
pays  a  savings  deposit  to  its  depositor 
without  production  of  the  book,  upon 
claim  of  loss,  is  not  liable  to  an  innocent  pur- 
chaser to  whom  a  draft  upon  the  bank,  ac- 
companied by  the  pass-book,  has  been  nego- 
tiated, the  pass-book  not  being  a  negotiable 
instrument.  Witte  v.  Vincenott,  43  Cal. 
325.  McCaskell  v.  Conn.  Sav.  Bk.,  60 
Conn.  300.  Kummel  v.  Germania  Sav.  Bk., 
127  N.  Y.  488.  {Inquiry  from  Cal.,  April, 
1917,  Jl.) 

Indemnity  not  necessary  unless  hank  in  doubt 
as  to  identity  of  depositor 

2210.  A  savings  bank  depositor  claimed 
that  his  bank  book  was  either  lost  or  stolen. 
The  bank  required  an  indemnity  bond  in 
double  the  amount  of  the  deposit,  before 
issuing  a  duplicate  book  or  before  paying 
over  the  balance.  Opinion:  It  is  customary 
for  savings  banks  to  print  in  pass-books  a 
rule  that  indemnity  will  be  required  before 
making  payment  in  case  of  loss.  These  pass- 
book rules  are  generally  held  contracts,  but 
the  courts  are  divided  as  to  enforcing  the 
contract  of  indemnity.  A  majority  hold 
that,  the  pass-book  being  non-negotiable, 
the  bank  is  protected  if  it  pays  or  issues  a 
duplicate  without  indemnity.  But  where 
the  bank  is  not  satisfied  as  to  the  indentity 


of  the  depositor  who  claims  payment,  the 
right  of  indemnity  may  be  upheld.  Cal. 
Bk.  Act,  Sec.  64.  Bayer  v.  Com.  Tr.  Co., 
(Mo.)  129  S.  W.  268.  {Inquiry  from  Cal, 
April,  1912,  Jl.) 

2211.  The  depositor  of  a  savings  bank 
lost  his  pass-book  and  applied  for  a  duplicate. 
The  bank  asks  as  to  the  necessity  of  a 
bond  of  indemnity  before  issuing  the  du- 
plicate. Opinion:  There  is  no  necessity  for 
a  bond  of  indemnity  before  paying  money  or 
issuing  a  duplicate,  except  where  the  bank  is 
uncertain  as  to  the  identity  of  its  depositor. 
Ordinarily  there  is  no  necessity  for  such  re- 
quirement, the  pass-book  being  non-negoti- 
able. Where  there  is  a  b3^-law  providing  for 
such  indemnity,  the  courts  will  refuse  bank's 
right  to  require  a  bond  unless  some  necessity 
is  shown.  Baj^er  v.  Com.  Tr.  Co.,  (Mo.) 
129  S.  W.  268.  Mitchell  v.  Home  Sav.  Bk., 
38  Hun  (N.  Y.)  255.  Warhus  v.  Bowery 
Sav.  Bk.,  21  N.  Y.  543.  Mierke  v.  Jefferson 
Co.  Sav.  Bk.,  134  N.  Y.  S.  44.  Mills  v. 
Albany  Exch.  Sav.  Bk.,  28  Misc.  (N.  Y.) 
251.  Wagner  v.  Howard  Sav.  Inst.,  52 
N.  J.  L.  225.  Palmer  v.  Provident  Inst., 
14  R.  I.  68.  Heath  v.  Portsmouth  Sav.  Bk., 
46  N.  H.  78.  Vincent  v.  Port  Huron  Sav. 
Bk.,  147  Mich.  437.  {Inquiry  from  Pa., 
April,  1913,  Jl.) 

2212.  A  woman  of  foreign  birth  has 
considerable  deposit  with  a  savings  bank, 
and  advises  the  bank  that  her  pass-book 
has  been  stolen.  It  would  do  no  good  to 
have  her  sign  bond  of  indemnity,  and,  in  the 
opinion  of  the  bank,  she  could  get  no  one  to 
go  on  such  bond.  Should  the  bank  issue  a 
duplicate  book?  And  is  a  savings  bank 
book  negotiable?  Opinion:  A  savings 
bank  pass-book  is  not  a  negotiable  instru- 
ment, and  where  depositor  claims  his  book 
has  been  lost,  and  bank  is  satisfied  as  to  his 
identity,  bank  may  safely  pay  him  the 
money  or  issue  duplicate,  upon  proper 
receipt,  without  requiring  indemnity,  which 
is  only  necessary  where  bank  is  in  doubt  as 
to  identitv  of  depositor.  Bayer  v.  Com. 
Trust  Co.^  (Mo.)  126  S.  W.  268.  Mills  v. 
Albany  Exch.  Sav.  Bank,  28  Misc.  (N.  Y.) 
251.    {Inquiry  from  Pa.,  July,  1919,  Jl.) 

Waiver  by  hank  of  requirement  of  advertise- 
ment and  indemnity 

2213.  Where  the  transferring  of  accounts 
in  a  mutual  savings  bank  is  prohibited,  may 
the  bank  with  safety  waive  its  rules  under 
which  it  may  require  the  depositor  to 
advertise  the  loss  of  a  pass-book,  and  to 


505 


2214-2218] 


DIGEST  OF  LEGAL  OPINIONS 


give  a  bond  of  indemnity,  as  a  condition  to 
the  issuing  of  a  duplicate?  Opinion:  A 
pass-book  is  not  a  negotiable  instrument, 
hence  a  savings  bank  may  safely  pay  a 
deposit  to  the  depositor  without  its  pro- 
duction and  without  indemnity.  An  assignee 
of  the  account,  presenting  the  pass-book 
and  an  order  on  the  bank,  although  receiving 
the  assignment  for  value  and  without  notice, 
takes  no  greater  rights  than  the  depositor. 
The  stipulation  by  the  bank,  inserted  in  the 
pass  book,  that  it  will  not  make  payments 
without  the  production  of  the  pass-book 
does  not  raise  an  estoppel.  There  is  one 
contingency  when  it  might  be  necessary  to 
require  indemnity,  which  is  where  the  bank 
is  not  sure  of  the  indentity  of  the  depositor. 
{Inquiry  from  Minn.,  May,  1914.) 

Issue  of  duplicate 

2214.  May  a  bank,  which  has  received 
no  notice  of  assignment  of  a  savings  deposit, 
issue  a  duplicate  pass-book  three  months 
after  notice  of  loss  of  the  original  pass-book 
and  after  advertising  in  one  issue  of  a  local 
paper?  Opinion:  The  duplicate  may  be 
issued  safely.  A  savings  pass-book  is  not  a 
negotiable  instrument  and  a  transferee 
acquires  no  greater  rights  than  the  assignor. 
Furthermore,  a  bond  of  indemnity  is  not 
necessary  as  a  prerequisite  to  issuing  a 
duplicate.  {Inquiry  from  N.  Y.,  June,  1917.) 

Issue  of  duplicate  without  indemnity 

2215.  What  is  the  proper  course  for  a 
bank  to  pursue  to  insure  it  complete  pro- 
tection in  the  issuance  of  a  duplicate  sav- 
ings pass-book?  Opinion:  A  savings  pass- 
book is  not  a  negotiable  instrument  and 
an  assignee  of  a  book  claimed  to  be  lost  takes 
no  greater  rights  than  the  original  depositor. 
It  seems,  therefore,  that  a  savings  bank 
may  safely  issue  a  duplicate  book  without 
requiring  a  bond  of  indemnity.  The  only 
contingency  in  which  a  bond  of  indemnity 
would  seem  to  be  necessary  is  where  the 
bank  is  not  sure  of  the  identity  of  its  de- 
positor,' that  is  to  say,  where  a  person 
claims  to  be  John  Smith,  states  that  he  has 
lost  his  book,  and  requests  a  duplicate,  and 
the  bank  is  not  sure  that  he  is  John  Smith. 
Were  he  an  impersonator,  the  issuance  off  a 
duphcate  book  would  not  affect  the  liabihty 
of  the  bank  to  the  original  depositor.  {In- 
quiry from  Wis.,  Jan.,  1918.) 

Right  of  hank  to  require  indemnity  in  absence 
of  contract 

2216.  Where  a  savings  bank  pass-book 


is  claimed  to  be  lost  may  the  bank  require  a 
bond  of  indemnity  before  issuing  a  duplicate 
or  paying  the  depositor?  Opinion:  Al- 
though the  decisions  are  conflicting  in  New 
York,  the  weight  of  authority  therein  is  that 
the  bank  cannot  require  indemnity  in  the 
absence  of  a  contract  therefor  between  the 
bank  and  the  depositor.  Mierke  v.  Jefferson 
County  Sav.  Bank,  134  N.  Y.  Supp.  44  and 
Mills  V.  Albany  Exch.  Sav.  Bank,  28  Misc. 
Rep.  251,  holding  that  the  provisions  for 
exacting  indemnity  against  lost  instruments 
in  suit  (Code  Civ.  Proc,  Sec.  1917),  refer  to 
such  as  are  negotiable,  and  the  statute  has 
no  application  to  the  savings  bank  pass- 
book, since  it  is  not  negotiable  (citing  as  to 
non-negotiability  of  pass-book:  Kummel  v. 
Germania  Savings  Bank,  127  N.  Y.  488. 
Smith  V.  Brooklyn  Savings  Bank,  101  N.  Y. 
58.  Allen  v.  Williamsburgh  Savings  Bank, 
69  N.  Y.  314.  Beaver  v.  Beaver,  53  Hun 
258).  Where  a  by-law  as  to  indemnity 
exists,  forming  part  of  the  contract  between 
the  bank  and  the  depositor,  it  will  generally 
be  enforced  in  New  York.  Mitchell  v.  Home 
Sav.  Bank,  38  Hun  (N.  Y.)  255.  Mills  v. 
Albany  Exchange  Bank,  28  Misc.  Rep.  251. 
See  also,  on  the  general  question,  Worhus 
V.  Bowery  Sav.  Bank,  21  N.  Y.  543,  holding 
that  a  regulation  of  a  savings  bank,  requiring 
the  production  of  the  depositor's  pass-book 
before  he  is  entitled  to  receive  any  payment, 
is  reasonable  in  a  general  sense;  but  that 
proof  of  the  loss  of  the  pass-book,  or  ina- 
bility to  find  it  after  proper  search,  will  ex- 
cuse the  non-production  and  entitle  the  de- 
positor to  his  money.  In  this  case  the  ques- 
tion as  to  security  was  not  raised  or  decided. 
{Inquiry  from  N.  Y.,  March,  1918.) 

Lost  stock  certificate 

Right   of  innocent   purchaser   of   lost   stock 
certificate    indorsed    in    blank 

2217.  Where  a  stock  certificate  indorsed 
in  blank  is  lost  by  the  owner  and  sold  by  the 
finder  to  an  innocent  purchaser  for  value, 
latter  acquires  title  as  against  owner  under 
Stock  Transfer  Act  which  gives  full  ne- 
gotiability to  certificates  of  stock.  Knox  v. 
Eden  Musee,  148  N.  Y.  441.  Scollans  v. 
Rollins,  173  Mass.  275.  N.  Y.  Personal 
Prop.  Law,  Sees.  162,  166,  168.  {Inquiry 
from  N.  Y.,  Aug.,  1916,  Jl.) 

Issue  of  duplicate  for  undelivered  and  lost 
certificate  of  stock 

2218.  A  owned  stock  in  a  bank  that 
merged  with  another  bank,  new  stock  being 
issued  in  lieu  of  old.    He  received  dividends 


506 


LOST  AND  STOLEN  PAPER 


[2219-2223 


on  his  allotment  of  the  new  stock  for  some 
years,  but  claims  he  never  received  certifi- 
cate of  stock  which  bank  mailed  to  him. 
Could  the  bank  issue  a  duphcate  safely 
without  requiring  indemnity?  Opinio7i: 
In  the  case  stated  the  certificate  of  stock 
does  not  appear  to  have  been  delivered  to 
the  stockholder,  and,  if  such  fact  were 
proved,  he  would  be  entitled,  and  the  court 
would  hold  he  had  a  right,  to  a  duphcate 
without  giving  bond  of  indemnity,  because 
the  certificate  could  never  be  transferred  by 
indorsement  to  a  bona  fide  holder.  As- 
suming the  original  has  never  been  received 
by  the  stockholder,  and  there  is  no  reason  to 
question  the  honesty  of  his  statement  in  this 
particular,  the  bank  can  safely  issue  a  du- 
plicate without  requiring  indemnity.  (In- 
quiry from  Colo.,  Aug.,  1916.) 

Bond  of  indemnity  for  duplicate  for  lost  stock 
certificates 

2219.  A  stockholder  in  a  bank  claimed 
to  have  lost  his  certificates  of  stock  unin- 
dorsed. The  bank  wishes  protection  against 
dishonesty.  Opinion:  The  bank  should 
issue  duplicate  certificates  and  require  a 
sufficient  bond  of  indemnity  of  the  stock- 
holder. The  object  of  the  bond  is  to  protect 
the  bank  against  the  claim  of  a  bona  fide 
purchaser  for  value  of  the  lost  certificates 
who  derived  title  through  the  stockholder, 
who  may  have  been  dishonest.  (Inquiry 
from  N.  J.,  May,  1911.) 

2220.  A  stockholder  of  a  national  bank 
claims  to  have  lost  his  certificate  and  re- 
quests a  duplicate.  Opinion:  As  a  certifi- 
cate of  stock  is  freely  transferable  by  the 
owner,  the  bank  is  entitled  to  a  bond  of 
indemnity  to  protect  it  against  hability  upon 
the  original  certificate.  Johnson  v.  Laflin, 
103  U.  S.  800.  (Inquiry  from  Ohio,  Jan., 
1919,  Jl.) 

Issuing  corporation  cannot  require  surety 
company  bond 
222L  A  corporation  refused  to  issue  a 
new  certificate  of  stock  to  replace  one  stolen 
from  the  owner,  unless  the  owner  furnished 
a  surety  company  bond.  The  owner 
tendered  an  individual  indemnity  bond, 
which  was  refused  by  the  corporation,  pur- 
suant to  a  provision  in  its  bj^-laws.  Opin- 
ion: The  corporation  cannot  enforce  the 
by-law,  which  requires  a  surety  company, 
as  distinguished  from  an  individual  bond, 
before  issuing  duplicate  for  stolen  certificate. 
The  character  and  sufficiency  of  the  bond  is 
for  the  court  to  determine  if  the  parties  can- 


not agree.  Pa.  Const.,  Art.  3,  Sec.  7.  Jones 
on  Collateral  Securities,  Sec.  162.  Meeker 
V.  Jackson,  3  Yeates  (Pa.)  442.  Beaver 
Valley  Lodge  v.  Bk.,  7  Pa.  Super.  Ct.  552. 
Snyder  v.  Wolfley,  8  Serg.  &  R.  (Pa.)  328. 
Milne  v.  Marshall,  5  Phila.  (Pa.)  131. 
Fitchett  V.  North  Pa.  R.  Co.,  5  Phila.  (Pa.) 
132.    (Inquiry  from  W.  Va.,  April,  1914,  Jl.) 

Power  of  bank  to  become  surety  on  indemnity 
bond  for  lost  stock  collateral 

2222.  Certain  certificates  of  stock  were 
held  by  a  national  bank  as  collateral  security 
and  were  lost  through  robbery.  To  enable 
the  owners  of  the  lost  stock  certificates  to 
procure  duplicates,  the  bank  became  surety 
on  indemnity  bonds.  Opinion:  It  was  not 
an  ultra  vires  act  for  the  bank  to  become 
surety,  for  although  the  loss  of  stock  certifi- 
cates imposes  no  real  loss  upon  the  owner  in 
the  absence  of  statute  conferring  full  nego- 
tiabihty,  but  only  the  burden  of  obtaining 
duplicates,  the  bank  has  a  special  title  in 
such  certificates  and  an  interest  in  obtaining 
duplicates  to  be  lodged  with  it  as  security,  so 
long  as  the  loan  is  unpaid,  which  would  make 
the  giving  of  indemnit}^  an  act  in  its  own  in- 
terest and  within  its  power.  Knox  v.  Eden 
Musee  Co.,  148  N.  Y.  441.  Nat.  Bk.  v. 
Graham,  100  U.  S.  699.  Prather  v.  Kean,  29 
Fed.  498.  Pattison  v.  Bk.,  80  N.  Y.  82. 
(Inquiry  from  W.  Va.,  Jan.,  1912,  Jl.) 

Right  of  national  bank  to  bond  of  indemnity 
before  issuing  duplicate  for  lost  certificate 

2223.  A  bank  asks  for  instructions  how 
to  proceed  in  the  case  of  a  lost  certificate  of 
its  (national)  bank  stock.  Opinion:  Upon 
a  claim  of  loss  or  destruction  of  a  certificate 
of  stock  in  a  national  bank  in  New  Jersey, 
the  bank  is  entitled,  as  a  prerequisite  to 
issuing  a  new  certificate,  to  a  bond  of  in- 
demnity, in  the  discretion  of  its  board  of 
directors,  in  such  sum  as  the  directors  may 
direct.  It  is  not  essential  that  a  corporation 
bond  be  taken,  nor  is  it  within  the  province 
of  a  national  bank  examiner  to  pass  upon  the 
sufficiency  of  the  bond.  The  New  Jersej^ 
statute  authorizing  requirement  of  a  bond 
in  case  of  a  lost  or  destroyed  certificate  of 
stock  is  applicable  to  a  national  bank.  In 
re  Hoyt,  39  Misc  356.  79  N.  Y.  Suppl.  845, 
(citing  New  York  Laws  1892,  Ch.  688, 
Sees.  50,  51,  and  Hiscock  v  Lacy,  30  N.  Y. 
Suppl.  860),  Comp.  St.  N.  J.,  Art.  XIII 
(Pub.  L.  1896,  p.  314);  ibid.,  Sees.  112,  113. 
22  Stat.  1882,  Ch.  290,  Sec.  4.  U.  S.  Rev. 
St.,  Sec.  5240.  (Inquiry  from  N.  J.,  Nov., 
1919,  Jl.) 


507 


2224-2229] 


DIGEST  OF  LEGAL  OPINIONS 


Bank^s  return  of  stock  collateral  hy  unregis- 
tered mail — Responsibility  for  loss 

2224.  A  bank  is  requested  to  return  a 
paid  note  together  with  collateral  consisting 
of  a  stock  certificate.  The  bank  claims  to 
have  returned  the  same  by  special  deUvery, 
The  certificate  was  lost  in  the  mail.  The 
bank  asks  who  should  pay  for  the  bond  of 
indemnity.  Opinion:  If  the  customer  re- 
quested return  by  special  delivery  and  not 
by  registered  mail,  and  the  bank  followed 
his  request,  it  would  not  be  responsible;  but 
if  he  simply  requested  return  of  the  stock 
and  the  bank  failed  to  use  the  customary 
method  of  return  of  Jvaluable  securities  by 
registered  mail,  it  seems  the  bank  would  be 
responsible  and  should  pay  the  bond  of 
indemnity.     {Inquiry  from  Fla.,  Feb.,  1919.) 

Lost  letter  of  credit 

Bank   purchasing  forged   draft   against   lost 
letter  of  credit 

2225.  A  Texas  bank  issued  a  general 
letter  of  credit  to  one  J.  E.  C.,  authoriz- 
ing the  latter  to  draw  drafts  up  to  $200. 
The  letter  contained  the  signature  of  J.  E. 
C.  for  identification.  The  letter  was  stolen 
and  attached  to  a  forged  draft  for  the  full 
amount  and  cashed  by  a  bank  in  California. 


Opinion:    The  California  bank  is  the  loser 
and  cannot  hold  the  bank  issuing  the  letter 
of  credit  responsible.     {Inquiry  from  Cal.,' 
July,  1914,  Jl.) 

Issue  of  duplicate  for  lost  letter  of  credit 

2226.  A  bank  issued  a  letter  of  credit 
addressed  generally  and  authorizing  a 
specified  customer,  and  not  the  bearer,  to 
draw  for  amount  within  thirty  days  from 
date.  The  letter  became  lost  before  any 
checks  were  drawn,  and  the  customer  desired 
a  duplicate.  Opinion:  A  duplicate  can 
safely  be  issued  by  the  bank  without  in- 
demnity except  as  against  the  customer's 
dishonesty.  The  bank  would  be  liable  to 
bona  fide  purchasers  of  checks  negotiated  by 
the  customer.  {Inquiry  from  N.  M.,  April, 
1916,  Jl.) 

Unsigned   national   bank   notes   stolen 
and  circulated 

Unsigned  bank  currency  stolen  and  circulated 

2227.  Where  national  bank  notes  are 
lost  or  stolen  and  put  into  circulation  with- 
out the  signature  or  upon  forged  signatures, 
the  public  is  protected,  and  the  bank  and 
not  the  holder  stands  the  loss.  U.  S.  Stat, 
at  Large,  Act  July  28,  1892.  {Inquiry 
from  Pa.,  April,  1914,  J^-) 


MAIL 


Loss    of   registered    mail 


Collecting  bank  not  responsible  for  loss   of 
securities    in    registered    mail 

2228.  Where  a  bank  receives  for  col- 
lection a  draft  with  Liberty  bonds  payable 
to  bearer  attached  and  forwards  same 
through  the  registered  mail,  it  would  appear 
that  such  method  of  forwarding  (without 
insuring  the  package  unless  the  amount  is 
unsually  large)  is  the  exercise  of  reasonable 
care  and  the  bank  would  not  be  responsible 
where  the  securities  are  lost  through  robbery 
of  the  post  office.  The  fact  that  the  draft 
was  mailed  direct  to  the  payor,  although 
held  by  some  courts  a  negligent  method, 
would  not  charge  the  bank  with  responsi- 
bility where  neglect  or  failure  of  the  payor 
was  not  the  cause  of  loss.  Auten  v.  Manis- 
tee Nat.  Bk.,  67  Ark.  243.  Amer.  Exch. 
Nat.  Bk.  V.  Met.  Nat.  Bk.,  71  Mo.  App.  451. 
Buell  V.  Chapin,  99  Mass.  594.  Clay  City 
Nat.  Bk.  V.  Conlee,  106  Ky.  788.  U.  S. 
Comp.  St.  1918,  Sec.  7406.  {Inquiry  from 
Ark.,  April,  1919,  Jl.) 


Railroad  as  government  agent  not  responsible 
to  owner  for  loss  of  registered  mail 

2229.  A  mail  pouch  containing  a  regis- 
tered package  addressed  from  one  bank  to 
another  was  stolen  from  one  of  the  trucks 
at  a  railroad  depot.  The  package  contained 
$1,500  currency  and  was  being  transported 
by  the  railroad  company.  Opinion:  The 
nature  of  the  railroad's  employment  in 
carrying  registered  or  unregistered  mail  is 
as  public  agent  and  not  as  common  carrier 
for  the  individual,  and  there  is  no  liability 
to  the  individual  owner  for  loss  of  registered 
mail  caused  by  negligence  or  even  theft  of  a 
railroad  employee,  unless  in  a  particular  case 
the  negligence  of  the  corporation  itself,  as 
distinguished  from  its  subordinates,  was  the 
direct  cause  of  the  loss.  German  St.  Bk.  v. 
Minn.,  etc.,  R.  Co.,  113  Fed.  414.  Bankers 
Mut.  Cas.  Co.  V.  Minn.,  etc.,  R.  Co.,  117 
Fed.  4.34.  Boston  Ins.  Co.  v.  Chicago,  etc., 
R.  Co.,  118  Iowa  423.  {Inquiry  from  Kan., 
May,  1911,  Jl.) 


508 


I 


MAIL 


[2230-2234 


I 


Claim    against    government   for    undelivered 
revenue  stamps 

2230.  A  bank  ordered  revenue  stamps  to 
be  forwarded  by  registered  mail.  The  order 
was  received  but  the  stamps  were  never  de- 
livered. It  is  likely  that  they  were  never 
forwarded  but  that  the  collector  profited 
personally  by  the  non-delivery.  What  can 
the  bank  do  to  recover?  Opinion:  The 
Court  of  Claims  has  jurisdiction  of  the  claim 
for  reimbursement.  U.  S.  Comp.  Stat.  1901, 
p  752.  There  is  apparently  no  regulation  of 
the  treasury,  interior,  or  post-office  depart- 
ments providing  for  refund  in  cases  similar 
to  the  one  submitted,  and  it  would  seem  that 
the  procedure  in  the  Court  of  Claims  is  the 
only  method  of  redress  open.  (Inquiry 
from  Iowa,  Jan.,  1921.) 

Non-liability    of   postmaster  for  failure   to 

properly  identify  addressee  of  registered 

package 

2231.  A  bank  received  a  letter  and  check 
purporting  to  be  signed  by  A,  its  customer, 
requesting  the  amount  be  sent  by  registered 
mail  to  A  at  a  place  named.  The  check  and 
letter  were  forged  by  a  person  impersonating 
A.  The  bank  sent  the  money  by  registered 
package  addressed  to  A  at  the  place  named, 
and  the  postmaster  delivered  it  to  the  im- 
personator. The  bank  reimbursed  its  cus- 
tomer and  seeks  to  hold  the  postmaster 
liable  because  he  failed  to  procure  proper 
identification  before  delivering  the  registered 
package.  Opinion:  The  postmaster  would 
not  be  personally  liable  unless  guilty  of  neg- 
ligence in  the  performance  of  his  official 
duty,  and  where  he  delivered  the  package  to 
the  precise  person  who  had  asked  that  the 
money  be  forwarded  and  whom  the  bank 
intended  as  the  person  to  receive  it  in  mis- 
taken belief  that  such  person  was  its  custom- 
er, it  is  doubtful  if  the  postmaster  could  be 
held  liable.  Raynsford  v.  Phelps,  43  Mich. 
344.  Teal  v.  Felton,  12  How.  (U.  S.)  284. 
Danforth  v.  Grant,  14  Vt.  283.  U.  S.  v. 
Griswold,  8  Ark.  453,  9  Ark.  304.  {Inquiry 
from  W.  Va.,  June,  1912,  Jl.) 

Acceptance  of  oflFer  by  mail 

Mailing  letter  of  acceptance  completes  contract 

2232.  A  from  Salt  Lake  City  makes  an 
offer  to  B  New  York  City,  which  B  accepts 
by  mail.  The  question  is  asked  whether  the 
contract  is  made  when  B  places  his  accept- 
ance in  the  mail,  and  would  B  have  power  to 
revoke  his  acceptance  by  telegraph  before  A 
received  it.  Opinion:  Where  an  offer  is 
made   by  mail,   acceptance   by   post,   dis- 


patched in  due  time  as  far  as  the  acceptor  is 
concerned,  concludes  the  contract,  notwith- 
standing delay  or  miscarriage  of  the  letter 
of  acceptance.  It  is  always  sufficient  that 
the  offer  be  accepted  in  the  mode  either 
expressly  or  impliedly  required  by  the  offer- 
er. There  is  a  contrary  view  in  Massachu- 
setts. Revocation  of  an  acceptance  is  valid 
if  communicated  before  the  acceptance  is 
communicated.  Niebhng  Co.  v.  James  Coal, 
etc.,  Co.,  44  Utah  50,  137  Pac.  834.  White 
V.  Corlies,  46  N.  Y.  467.  Howard  v.  Dalv, 
61  N.  Y.  362.  N.  J.  Com.  Ins.  Co.  v.  Hal- 
lock,  27  N.  J.  L.  645.  Tayloe  v.  Merchants 
F.  Ins.  Co.,  9  How.  (U.  S.)  390.  Pattrick 
V.  Bowman,  149  U.  S.  411.  Haarstick  v. 
Fox,  9  Utah  110.  U.  S.  Postal  Reg.,  Sees. 
531,  533.  Contra,  McCulloch  v.  Eagle  Ins. 
Co.,  1  Pick.  (Mass.)  278.  {Inquiry  from 
Utah,  March,  1919,  Jl.) 

Gift   of  bank   draft   through    mail 

Death  of  donee  before  delivery 

2233.  A  sister,  intending  to  make  a  gift 
to  her  brother,  purchased  a  bank  draft 
payable  to  his  order  and  mailed  it  to  him. 
The  brother  died  before  the  mail  was  deliv- 
ered. Opinion:  The  gift  was  not  completed 
for  want  of  delivery  and  the  sister  and  not 
the  brother's  estate  is  entitled  to  the  money 
represented  by  the  draft.  In  this  case  the 
post  office  is  not  to  be  regarded  as  the  agent 
of  the  brother,  and  delivery  to  the  post  office 
is  not  delivery  to  the  addressee.  Wheeler  v. 
Glasgow,  97  Ala.  700.  Field  v.  Shorb,  99 
Cal.  661.  Burke  v.  Bishop,  27  La.  Ann. 
465.  Taylor's  Est.,  154  Pa.  183.  Scott  v. 
Lauman,  104  Pa.  593.  Jones  v.  Deyer. 
16  Ala.  221.  Seavey  v.  Seavev,  30  111.  App. 
625.  People  v.  Benson,  99  111.  App.  325. 
Bickford  v.  Mattocks,  95  Me.  547.  Brogdcn 
V.  Met.  R.  Co.,  2  App.  Cas.  666.  Dunmore 
V.  Alexander,  9  Shaw  D.  &  B.  190.  U.  S. 
Post-office  Reg.  487,  489.  Carr  v.  Taylor, 
128  Iowa  636.  29  Cyc.  1116.  Buehler  v. 
Gait,  35  111.  App.  225.  {Inquiry  from  III, 
Aug.,  1913,  Jl.) 

Deposits  by  mail 

Dishonor  of  customer's  check  where  sufficient 
deposit  in  P.  0.  mail  box 

2234.  A  bank  has  a  number  of  customers 
living  in  the  country,  whose  deposits  are  made 
through  the  mails.  These  mails  arrive  at 
various  times  during  the  forenoon,  one  at 
such  an  hour  as  to  be  placed  in  the  bank 
mail  box  at  from  1.00  to  1.30  P.  M.  The 
bank  closes  at  2.00  P.  M.    Suppose  it  should 


509 


2235-2238] 


DIGEST  OF  LEGAL  OPINIONS 


fail  to  send  to  the  post  office  to  get  the  mail 
just  before  closing  hour,  and  a  note  or  check 
of  a  depositor  should  go  to  protest,  through 
the  bank's  failure  to  get  a  remittance  of  such 
customer  in  this  last  mail,  is  the  bank  in 
any  way  hable  for  damages?  Opinion: 
Where  a  bank  shortly  before  its  closing  hour 
or  2.00  P.  M.  dishonors  a  customer's  check 
for  insufficient  funds,  there  is  no  liability 
to  such  customer  arising  from  the  fact  that 


there  has  arrived  at  and  been  deposited  in 
the  bank's  box  at  the  post  office  at  1.30  P.M. 
a  mail  remittance  from  the  customer  suffi- 
cient to  cover  the  check,  because  (1)  the 
mail  is  the  agent  of  the  customer,  and  the 
bank  is  not  indebted  for  the  deposit  until 
received  at  the  bank ;  (2)  in  the  absence  of 
special  agreement  there  is  no  duty  to  the 
customer  to  send  for  mail  at  any  particular 
hour.    {Inquiry  from  Ala.,  March,  1920,  Jl.) 


MINORS  AND  INCOMPETENTS 


Deposits  of  minors 

2235.  Note :  An  act  relative  to  the  pay- 
ment of  deposits  to  minors  or  other  persons 
under  disability. 

"Be  it  enacted,  etc.  Whenever  any  minor 
or  other  person  under  disability  shall  make 
or  have  credit  for  a  deposit  in  any  bank  in 
his  or  her  name,  such  bank  may  pay  such 
money  on  the  check  or  order  of  such  de- 
positor, and  such  payment  shall  be  in  all 
respects  valid  in  law." 

Statement.  In  a  majority  of  states  there 
are  statutes  which  authorize  the  payment 
of  deposits  to  minors  and  other  persons 
under  disability;  but  such  statutes  do  not 
exist  in  all  of  the  states  and  in  many  they 
only  relate  to  the  deposits  of  minors  in 
savings  institutions  and  do  not  extend  to 
general  deposits  subject  to  check.  In  view 
of  the  fact  that  business  accounts  of  minors 
and  other  persons  under  disability  in  banks 
and  trust  companies  are  not  infrequent,  it 
would  seem  desirable  to  extend  such  legis- 
lation to  all  banks  in  states  which  have 
legislation  relating  to  deposits  in  savings 
banks  only,  as  well  as  to  procure  enactment 
in  states  which  have  no  legislation  on  the 
subject. 

The  foregoing  draft  of  proposed  law 
drafted  and  recommended  by  the  American 
Bankers  Association  with  appropriate  modi- 
fications is  presented  chiefly  by  way  of 
suggestion  for  passage  in  states  whose  legis- 
lation is  incomplete  on  this  subject  or  which 
have  no  legislation  at  all.    {April,  1921.) 

No  legal  capacity  to  withdraw  deposit  except 
by  statute 

2236.  Has  a  minor  legal  capacity  to 
withdraw  funds  from  bank?  Opinion:  In 
the  absence  of  a  statute,  a  minor  has  no 
legal  capacity  to  withdraw  a  deposit  stand- 
ing in  his  name.  The  only  statute  in  Arkan- 
sas is  one  which  authorizes  a  minor  who 
makes  a  deposit  in  any  savings  bank  to  with- 


draw the  deposit.  {Inquiry  from  Ark.,  Aug., 
1916.) 

Parent  as  natural  guardian  cannot  control 
minor's  deposit 

2237.  A  boy,  eighteen  years  old,  opened 
an  account  in  a  national  bank  and  deposited 
therein  his  weekly  earnings.  The  boy's 
father  notified  the  bank  to  desist  paying  his 
son's  checks  unless  countersigned  by  him. 
The  bank  asks  whether  it  can  legally  refuse 
payment  of  the  son's  check  if  not  so  counter- 
signed. Opinion:  A  parent  as  natural 
guardian  cannot  control  or  withdraw  a 
deposit  to  the  credit  of  a  minor  in  the  ab- 
sence of  legal  appointment  as  guardian  of 
the  estate,  and  in  the  case  stated  by  the 
bank  the  father  has  no  authority  to  forbid 
the  bank  to  pay  any  more  checks  of  the  son. 
In  the  state  of  Florida  there  are  statutes 
which  permit  a  minor  when  not  under 
guardianship  to  make  or  withdraw  de- 
posits in  any  savings  bank,  institution  of 
savings  or  trust  company.  There  is  no 
special  statute  covering  deposits  of  a  minor 
in  a  national  bank.  As  to  the  safety  of  the 
bank  in  honoring  the  minor's  checks  upon 
deposits  made  by  him,  there  might  be  a 
question  of  liability  if  when  the  minor 
became  of  age  he  should  disaffirm  such 
checks.    {Inquiry  from  Fla.,  Oct.,  1920.) 

Withdrawal   of  deposit   by   parent 

2238.  A  bank  which  holds  a  deposit  of     | 
a  minor  receives  the  following  letter:  "First 

National   Bank   of ,    Gentlemen: 

You  and  each  of  you  are  hereby  notified  not 

to  cash  any  more  checks  drawn  by , 

my  son,  he  being  a  minor,  until  further 
notice  from  his  father.  Signed,  his  father." 
The  bank  asks  if  it  should  obey  the  instruc- 
tions. Opinion:  Where  a  minor  makes  a 
deposit  to  his  personal  credit  and  there  is  a 
statute,  as  in  California,  exempting  such 
deposit  from  the  control  of  all  persons  except 


510 


MINORS  AND  INCOMPETENTS 


[2239-2244 


creditors  and  authorizing  pajonent  to  the 
minor,  it  is  beyond  the  power  of  the  father 
of  the  minor  to  stop  payment  of  the  minor's 
check.  A  parent,  as  natural  guardian,  can- 
not control  or  withdraw  a  deposit  to  the 
credit  of  a  minor  in  the  absence  of  legal 
appointment  as  guardian  of  the  estate.  Cal. 
Bk.  Act,  Sec.  16.  {Inquiry  from  Cal.,  May, 
1919,  JL) 

2239.  A  father,  who  deposited  money  in 
a  bank  in  California  to  the  credit  of  his  son, 
a  minor,  has  no  right  to  withdraw  the  same. 
By  statute  in  California  the  bank  holds  the 
deposit  free  from  the  father's  control  and 
may  pay  the  same  to  the  minor,  taking  his 
receipt  or  acquittance  therefor.  Bk.  Act 
Cal.,  Sec.  16.  {Inquiry  from  Cal.,  Oct., 
1912,  Jl.) 

2240.  A  parent  cannot  withdraw  a 
deposit  to  the  credit  of  a  minor  without 

p  letters  of  guardianship.  When  the  New  Jer- 
!!'  sey  statute  provides  that  such  deposit  shall 
be  held  for  the  "exclusive  right  and  benefit" 
of  the  minor  and  "free  from  control  of  all 
other  persons  except  creditors"  and  "shall 
be  paid"  to  the  minor,  whose  receipt  shall  be 
a  discharge  to  the  bank,  it  is  doubtful 
whether  even  a  legally  appointed  guardian 
would  have  the  right  to  withdraw  the 
deposit ;  and  it  is  uncertain  whether  this  stat- 
ute applies  to  a  national  bank.  Lefever  v. 
Lefever,  6  Md.  472.  Land  v.  Pettus,  11 
Ala.  37.  Bk.  Law  N.  J.,  Sec.  17.  Young's 
Est.,  17  Phila.  (Pa.)  511.  {Inquiry  from 
N.  J.,  Feb.,  1913,  Jl.) 

2241.  Under  decisions  in  Pennsylvania 
a  parent  has  no  right  to  withdraw  a  deposit 
to  the  credit  of  a  minor  child,  even  though 
the  parent  made  the  deposit;  the  parent 
cannot  control  the  child's  property  unless 
he  has  been  duly  appointed  as  guardian  and 
the  judicial  policy  of  Pennsylvania  is  not  to 
appoint  the  parent  as  curator  of  the  child's 
estate.  The  statute  in  Pennsylvania  on  this 
subject  allows  the  bank  to  pay  the  deposit 
to  a  minor  free  from  the  control  of  the  legally 
appointed  guardian.  Pa.  St.  1874,  Sec.  1. 
{Inquiry  from  Pa.,  July,  1913,  Jl.) 

2242.  A  parent,  as  natural  guardian, 
cannot  withdraw  a  deposit  to  the  credit  of  a 
minor  in  the  absence  of  a  legal  appointment 
as  guardian  of  the  estate.  Nelson  v.  Goree, 
34  Ala.  565.  Vernon's  Sayles'  Tex.  Civ.  St., 
1914,  Arts.  4068-4070.  Vineyard  v.  Haard, 
(Tex.)  167  S.  W.  22.  {Inquiry  from  Tex., 
Nov.,  1916,  Jl.) 


Applicability  to  national  bank  of   Kansas 

statute  authorizing  payment  of  deposit 

to  minor 

2243.  What  is  the  law  of  Kansas  relative 
to  deposits  of  minors?  Opinion:  Section  70 
of  the  Banking  Law  of  Kansas  provides: 
"It  shall  be  lawful  for  any  bank  now  or 
hereafter  doing  business  in  the  state  of 
Kansas  to  receive  deposits  from  minors,  and 
pay  same  upon  the  order  of  such  minors.  Pay- 
ments so  made  shall  discharge  the  bank  for- 
ever from  further  liability  on  account  of  the 
money  so  paid."    Laws  1907,  ch.  66,  Sec.  1. 

This  provision  would  probably  apply  to  a 
national  bank  as  it  is  not  limited  to  a  bank 
incorporated  under  the  law  of  Kansas  but 
applies  to  any  bank  doing  business  in  the 
state,  whereas  a  number  of  other  provisions 
of  the  Banking  Law  refer  to  "any  state 
bank  doing  business  in  the  state." 
And  certain  other  provisions  of  the  law,  for 
example.  Section  14,  expressly  except  a 
national  bank.  If  this  statute  applies  to  a 
minor's  deposit  in  a  national  bank,  then  it 
may  lawfully  pay  a  deposit  standing  to  the 
credit  of  a  minor  to  him  personally.  Further- 
more, the  father  of  the  minor,  in  the  absence 
of  a  permissive  statute,  would  have  no  right 
to  withdraw  the  deposit  to  the  credit  of  the 
minor,  for  a  father's  natural  guardianship 
does  not  extend  to  control  of  the  property 
of  his  minor  child  without  express  letters  of 
guardianship  from  the  court.  {Inquiry 
from  Kan.,  April,  1913.) 

Applicability  to  national  bank  of  New  York 
statute   authorizing   payment    to    minor 

2244.  Where  an  account  in  the  savings 
deposit  department  of  a  national  bank 
stands  in  the  name  of  a  minor,  is  it  subject 
to  his  order?  Opinion:  The  New  York 
statute  authorizes  a  bank  to  pay  out  the 
deposit  of  a  minor  on  his  order.  The  ques- 
tion is  whether  this  statute  includes  a 
national  bank.  This  is  doubtful.  The  New 
York  statute  defines  a  bank  as  a  domestic 
moneyed  corporation.  If  a  national  bank 
comes  within  this  definition  the  statute 
applies  to  it,  but  the  General  Corporation 
Law  provides  that  "a 'domestic  corporation' 
is  a  corporation  incorporated  by  or  under 
the  laws  of  the  state  or  colony  of 
New  York.  Every  corporation  wliich  is 
not  a  domestic  corporation  is  a  foreign  cor- 
poration, except  as  provided  by  the  Code  of 
Civil  Procedure  for  the  purpose  of  construing 
such  code."  The  Code  of  Civil  Procedure 
provides  that  "a  'domestic  corporation'  is 
a  corporation  created  by  or  under  the  laws 


611 


2245-2247] 


DIGEST  OF  LEGAL  OPINIONS 


of  the  state,  or  located  in  the  state  and 
created  by  or  under  the  laws  of  the  United 
States.  ..."  In  matters  of  court  procedure, 
therefore,  a  national  bank  comes  within  the 
definition  of  a  domestic  corporation,  but  it 
is  doubtful  whether  such  bank  comes  under 
the  permissive  provision  to  banks  with 
respect  to  payment  of  deposits  to  minors.  It 
might  be  so  held;  the  question  is  uncertain 
and  undecided,  (inquiry  from  N.  Y.,Scpt., 
1917.) 

2245.  The  question  is  doubtful  and  un- 
decided whether  the  New  York  statute 
allowing  banks  to  pay  deposits  to  minors 
would  be  held  applicable  to  national  banks. 
The  statute  contemplates  a  deposit  by  or  in 
the  name  of  any  minor,  and  requires  that 
the  bank  shall  hold  the  deposit  for  the  bene- 
fit of  the  minor  with  the  authority  to  pay 
the  same  to  him.  There  is  no  provision 
fixing  a  minimum  age  limit.  N.  Y.  Bk.  Law, 
Art.  Ill,  Sec.  148.  N.  Y.  Bk.  Law,  Art.  V, 
Sec.  198.  N.  Y.  Bk.  Law,  Art.  VI,  Sec.  249. 
{Inquiry  from  N.  Y.,  Dec,  1916,  Jl.) 

Note:  The  following  recent  decisions  as 
to  the  applicability  or  non-applicability  to 
national  banks  of  state  statutes  not  expressly 
including  such  institutions  in  the  term 
"bank,"  but  relating  generally  to  "banks"  or 
"corporations"  will  illustrate,  by  analogy, 
the  doubtful  nature  of  the  question  whether 
a  state  statute  authorizing  a  "bank"  to  pay 
a  deposit  to  a  minor  will  be  construed  as 
applicable  to  national  banks.  In  Common- 
wealth V.  Clark  Co.  Nat.  Bank,  219  S.  W. 
(Ky.)  175,  decided  1920,  a  state  statute 
prohibiting  corporations  from  holding  real 
estate  not  necessary  for  their  own  legitimate 
business,  longer  than  five  years,  was  held 
applicable  to  national  banks  and  not  in 
conflict  with  any  act  of  Congress.  The 
court  cited  McClelland  v.  Chipman,  164 
U.  S.  347,  which  holds  in  substance  that 
national  banks  are  subject  to  the  laws  of  the 
state  in  their  business  transactions,  except 
when  the  state  law  incapacitates  the  banks 
from  discharging  their  duties  to  the  govern- 
ment. But  in  England  v.  Hughes,  217  S. 
W.  (Ark.)  13,  decided  1920,  the  state  statute 
providing  for  disposition  of  unclaimed  de- 
posits by  the  Commissioner  was  held  to  re- 
fer exclusively  to  state  banks  and  not  to 
apply  to  national  banks;  and  in  Columbia 
Nat.  Bank  v.  Powell,  108  Atl.  (Pa.)  445, 
the  Escheat  Act  of  1915,  requiring  banks  to 
make  annual  reports  to  the  auditor,  was  held 
not  applicable  to  national  banks  doing 
business  in  Pennsylvania,  but  only  to 
institutions  governed  by  its  laws. 


Application  to  national  hank  of  Maryland 
statute  authorizing  payment  to  minor 

2246.  A  national  bank  asks  as  to  the 
law  of  Maryland  with  respect  to  deposits  of 
minors.  Opinion:  The  Banking  Law  of 
Maryland  (Code  Art.  XI,  Sec.  70)  provides: 
"Whenever  any  deposit  shall  be  made  in 
any  bank,  savings  institution,  or  trust  com- 
pany, by  and  in  the  name  of  any  minor,  or 
female  being  or  thereafter  becoming  a 
married  woman,  the  same  shall  be  held  for 
the  exclusive  right  and  benefit  of  such  minor 
or  female,  and  free  from  the  control  or  lien 
of  all  persons  whatsoever,  except  creditors, 
and  shall  be  paid,  with  any  interest  due 
thereon,  to  the  person  in  whose  name  the 
deposit  shaU  have  been  made,  and  the  re- 
ceipt of  such  minor  or  female  shall  be  a 
sufficient  release  or  discharge  for  such  de- 
posit to  the  bank."  If  this  is  applicable  to 
a  national  bank,  it  may  receive  deposits 
from  a  minor  and  pay  such  deposits  to  the 
minor  without  his  parent's  consent.  It  i& 
somewhat  doubtful,  however,  whether  this 
statute  applies  to  a  national  bank,  and  there 
is  no  provision  in  the  National  Bank  Act 
governing  the  deposits  of  minors.  Until  the 
point  is  positively  decided  a  deposit  standing 
to  the  credit  of  a  minor  in  a  national  bank 
cannot  with  entire  safety  be  paid  to  him  nor 
to  his  father  or  mother,  but  only  to  a  regular- 
ly appointed  guardian.  While  the  father  is 
the  natural  guardian  of  his  child,  he  is  not 
the  guardian  of  the  property  of  such  child, 
and  has  no  right  to  control  the  child's  de- 
posit in  the  absence  of  letters  of  adminis- 
tration.   {Inquiry  from  Md.,  June,  1913.) 

Time  certificate  payable  to  minor 

2247.  The  mother  of  A,  a  minor,  had 
bank  B  issue  a  certificate  of  deposit  to  him 
payable  to  his  own  order  seven  years  after 
date  with  interest  at  4  per  cent  per  annum 
if  left  seven  years.  The  certificate  was  left 
with  C  for  safe  keeping,  who,  on  the  demand 
of  an  attorney  who  presented  a  written  order 
for  it  signed  both  by  mother  and  son,  mailed 
it  to  the  mother's  address  where  it  was  re- 
ceived by  another  person  about  the  day  of 
her  death.  The  administrator  of  her  estate 
threatened  to  sue  bank  B  for  refusal  to  pay 
the  certificate  upon  the  demand  of  the 
attorney.  The  bank  inquires  as  to  its  rights 
in  the  matter.  Opinion:  A  suit  could  not 
sucessfully  be  maintained  against  bank  B 
for  refusal  to  pay  the  certificate  to  the 
attorney,  even  if  he  had  a  right  to  receive 
payment,  as  it  is  payable  seven  years  after 
date,  and  the  bank  cannot  be  compelled  to 


512 


I 


MINORS  AND  INCOMPETENTS 


[2248-2252 


pay  before  maturity.  Even  if  this  certificate 
was  payable  on  demand,  it  certifies  to  the  de- 
po  sit  by  a  minor  of  the  money  payable  to  the 
order  of  himself  and  neither  the  mother  of 
the  boy,  nor  the  boy  himself,  nor  both 
w  ould  have  a  right  to  demand  payment,  for 
a  parent,  as  natural  guardian,  has  no  right 
to  money  standing  in  the  name  of  a  minor 
ch  ild  even  though,  the  parent  made  the  de- 
posit,  but  letters  of  guardianship  must  be 
obtained.  The  attorney  authorized  by 
mother  and  son  had  no  standing  to  maintain 
a  legal  demand  of  payment,  and  there  was 
no  default  in  refusing  his  demand.  Ordinarily 
a  legal  guardian  would  be  entitled  to  de- 
mand the  deposit  of  a  minor  payable  on  de- 
mand but  this  certificate  is  not  payable  on 
demand  and,  unless  the  interest  clause  pro- 
viding for  payment  of  interest  "if  left  seven 
years"  is  to  be  held  by  the  court  to  give  the 
holder  the  right  to  payment  at  any  time 
before  the  date  of  maturity,  and  it  is  not 
likely  that  it  would  be  so  construed,  no 
action  can  be  maintained  on  it  by  anyone. 
{Inquiry  from  La.,  Sept.,  1913.) 

Deposit  by  A,  trustee  for  minor 

2248.  Where  an  account  in  a  national 
bank  stands  in  the  name  of  A,  trustee  for  B, 
a  minor,  may  the  bank  pay  the  deposit  to 
B  when  he  reaches  his  majority?  Opinion: 
The  trustee  is  the  depositor  and  the  account 
remains  payable  to  him  unless  by  the  terms 
of  the  trust  it  is  to  terminate  when  the 
the  infant  becomes  twenty-one.  See  Hem- 
merich  v.  Union  Dimes  Savings  Instn.,  129 
N.  Y.  Supp.  267.  The  result  desired  can  be 
effected  by  coupling  with  the  account  a 
provision  terminating  the  trust  when  the 
minor  reaches  his  majority.  {Inquiry  from 
N.  Y.,  Sept.,  1917.) 

Indorsement  of  certificate  of  deposit  by  minor 

2249.  A  minor  deposited  $25  in  a  state 
bank,  obtaining  the  bank's  certificate  of  de- 
posit. The  minor  indorsed  the  certificate  to 
a  firm  in  payment  for  a  suit  of  clothes.  Be- 
fore the  certificate  reached  the  bank  for  pay- 
ment, the  minor's  father  stopped  payment. 
Opinion:  The  bank  under  the  New  York 
statute  has  the  right  to  pay  the  amount  of 
the  certificate  to  a  bona  fide  indorsee  of  the 
minor,  although  the  father  ordered  the  bank 
not  to  pay.  The  indorsement  by  the  minor 
would  pass  the  property  in  the  certificate  to 
the  indorsee,  although  the  minor  might  not 
be  liable  on  the  indorsement.  Dickinson  v. 
Leominster  Sav.  Bk.,  152  Mass.  51.  Genet 
V.  Tahnadge,  1  Johns  Ch.  (N.  Y.)  4.    Neg. 


Inst.  Law  (Comsr's.  dft.),  Sec.  41.    {Inquirii 
from  N.  Y.,  Oct.,  1912,  Jl.) 

Payment  by  Idaho  bank  of  check  of  minor 

2250.  What  is  the  liability  of  a  bank  in 
Idaho  which  paj^s  a  check  of  a  minor,  which 
the  payee  has  obtained  from  him  under  false 
pretenses?  Opinion:  Under  the  law  of  Ida- 
ho a  bank  is  protected  in  paying  a  deposit 
on  the  check  of  a  minor.  The  fact  that  the 
check  was  obtained  by  false  pretenses  does 
not  affect  the  duty  of  the  bank  to  obey  the 
order  of  the  depositor  and  pay  the  money. 
{Inquiry  from  Idaho,  May,  1915.) 

Minors   as   agents   and    mortgagors 

Payment  of  check  to  infant  agent 

2251.  A  customer  sends  his  son,  a  minor, 
to  the  bank  to  cash  checks  amounting  to 
$1,000.  In  the  event  the  boy  is  robbed 
on  his  return  to  his  father,  would  the  bank 
in  any  way  be  liable?  Opinion:  An  infant 
or  minor  may  act  as  the  agent  of  another  per- 
son and  a  bank  which  pays  a  check  to  an  in- 
fant, who  has  been  authorized  by  his  prin- 
cipal to  collect  same,  is  protected,  although 
the  money  is  lost  by  or  stolen  from  the 
infant  and  never  reaches  the  principal. 
Talbot  V.  Bower,  1  A.  K.  Marsh  (Ky.)  436. 
U.  S.  Invest.  Corp.  v.  Ulrickson,  (Minn.) 
86  N.  W.  613.  {Inquiry  from  Wis.,  April, 
1918,  Jl.) 

Power  of  infant  to  buy  and  mortgage  real 
estate 

2252.  The  question  is  asked  whether  an 
infant  has  legal  right  to  purchase  real 
estate  in  his  own  name  and  give  a  valid  deed 
of  trust  respecting  same.  Opinion:  At  com- 
mon law  an  infant  may  be  a  grantee  in  a 
conveyance  of  land,  and  the  estate  conveyed 
vests  in  him,  subject  only  to  be  divested  in 
case  he  elects  to  avoid  same  when  he  reaches 
full  age,  which  he  has  power  to  do.  Daven- 
port V.  Prewitt,  9  B.  Mon.  (Ky.)  94.  Mas- 
terson  v.  Cheek,  23  III.  72.  IMonumental 
Bldg.  Assn.  v.  Herman,  33  Md.  128.  Scan- 
Ian  V.  Wright,  13  Pick.  (Mass.),  523.  In 
Missouri  conveyances  to  infants  are  not 
void,  but  merely  voidable.  Griffith  v. 
Schwenderman,  27  Mo.,  412.  Irvine  v. 
Irvine,  9  Wall.  (U.  S.)  617.  Baker  v. 
Kenneth,  50  Mo.  82,  where  the  court  said: 
"The  old  distinction  between  the  void  and 
voidable  contracts  of  infants  is  becoming 
exploded  by  the  courts,  and  the  tendency  of 
modern  decisions  is  in  favor  of  the  reason- 
ableness and  policy  of  a  very  liberal  exten- 
sion of  the  rule,  that  the  acts  and  contracts 


513 


2253-2256] 


DIGEST  OF  LEGAL  OPINIONS 


of  infants  should  be  deemed  voidable  only, 
and  subject  to  their  election  when  they  be- 
come of  age  either  to  afl&rm  or  disaffirm 
them.  Townsend  Admr.  v.  Cox,  45  Mo. 
401.  2  Kent's  Com.  268,  and  cases  cited.  If 
an  infant  would  disaffirm  his  contract,  and 
recover  back  his  property,  either  real  or 
personal,  he  must  refund  what  he  has  re- 
ceived. There  can  be  no  right  of  recovery 
so  long  as  any  part  of  the  consideration  is 
withheld.  Kerr  v.  Bell,  44  Mo.  120.  High- 
ley  V.  Barron,  49  Mo.  103.  In  case  of  land, 
the  general  doctrine  seems  now  to  be  that 
the  infant  cannot  conclusively  avoid  the 
conveyance  till  he  arrives  at  age.  Schneider 
v.  Staihr,  20  Mo.  269.  Stafford  v.  Roof,  9 
Cow.  626.  Bool  v.  Mix,  17  Wend.  120.  In 
Missouri  a  deed  or  any  instrument  purporting 
to  convey  real  property,  or  any  interest 
therein,  operates  to  transmit  the  title,  and 
is  voidable  only,  and  not  void.  Shipley  v. 
Bunn,  125  Mo.  445.  Ferguson  v.  Bell,  17 
Mo.  347,  and  cases  above  cited.  {Inquiry 
from  Mo.,  April,  1920.) 

Deposits    of   Incompetents 

Authority  of  wife  to  withdraw  savings  account 
of  husband  in  sanitarium 

2253.  A  savings  bank  depositor  is 
compelled  to  go  to  a  sanitarium,  and  while 
there  is  mentally  under  disability  and  in- 
capable of  giving  legal  authority  to  the  bank 
to  pay  out  the  deposit.  His  wife  is  per- 
mitted by  the  bank  to  withdraw  the  ac- 
count, signing  his  name,  followed  by  the 
word  "by,"  and  her  own  name.  A  portion 
of  this  money  is  expended  for  the  expenses  of 
the  husband.  About  two  years  after  the 
withdrawal  and  after  the  husband's  recovery 
he  and  his  wife  separate  and  he  starts  suit 
against  the  bank.  May  he  recover?  Opin- 
ion: As  a  general  rule  a  wife  has  no  au- 
thority to  sign  her  husband's  name  to  a 
check  or  withdraw  his  funds,  and  unless  the 
bank  can  prove  authority  or  ratification, 
it  is  responsible  to  the  husband  for  the 
money  so  withdrawn.  In  the  case  sub- 
mitted, with  the  husband  in  such  a  condi- 
tion that  he  could  not  sign  a  power  of 
attorney,  the  proper  procedure  would  have 
been  to  have  obtained  a  court  order  ap- 
pointing a  committee  of  his  estate  with 
authority  to  expend  the  money  on  his 
behalf.  It  would  have  been  far  better  and 
safer  to  have  had  the  checks  made  payable 
to  the  sanitarium  for  the  precise  amounts 
needed  for  the  husband's  care  instead  of 
permitting  the  whole  amount  to  be  with- 
drawn at  once.    Unless  the  bank  can  prove 


ratification,  it  is  liable  for  the  amount  of  the 
deposit,  as  paid  without  authority,  less  the 
amount  expended  for  the  benefit  of  the 
husband.  Acquiescence  may  constitute 
ratification,  and  a  two  years'  acquiescence, 
with  knowledge  of  the  withdrawal,  might 
be  held  under  the  circumstances  to  consti- 
tute a  complete  ratification.  {Inquiry  from 
Kan.,  March,  1920.) 

Payment    to    incompetent    depositor    unsafe 

2254.  A  "trusty"  in  a  hospital  for  treat- 
ment of  the  insane  had  earned  and  deposited 
in  a  bank  a  considerable  sum  of  money.  The 
bank  questions  its  right  to  allow  the  depos- 
itor to  withdraw  any  of  his  deposit.  Opin- 
ion: The  bank  should  make  payment  only 
to  the  legally  appointed  guardian.  It  would 
be  unsafe  to  pay  the  "trusty"  who  has  been 
judicially  declared  insane  and  has  not  been 
discharged  as  cured.  American  Tr.  &  Bk. 
Co.  v.  Boone,  102  Ga.  202.  Reed  v.  Mat- 
apan,  etc.,  Co.,  198  Mass.  306.  Riley  v. 
Bk.,  36  Hun  (N.  Y.)  519.  WalHs  v.  Man- 
hattan Co.,  2  Hall  (N.  Y.)  495.  Drew  v. 
Nunn,  L.  R.  4  B.  Div.  661.  {Inquiry  from 
Cat.,  Dec,  1912,  Jl.) 

Checks  of  depositor  taking  ''gold  cure" 

2255.  Checks  are  signed  by  a  depositor, 
who  is  in  a  sanitarium  taking  the  "gold 
cure"  for  alcoholism  and  whose  father  noti- 
fied^, the  bank  that  the  depositor  is  in- 
competent. Opinion:  The  safest  course  is 
for  the  bank  to  refuse  to  honor  the  checks 
until  it  is  reasonably  sure  that,  in  issuing 
them,  the  drawer  was  in  possession  of  his 
reason  suflSciently  to  know  the  nature  of  his 
acts.  The  liabihty  a  bank  would  incur  for 
injuring  the  depositor's  credit  in  a  case  of 
possible  competency  would  be  neghgible. 
Prentice  v.  Achorn,  2  Paige  (N.  Y.)  30. 
Pickett  V.  Sutter,  5  Cal.  412.  Bates  v.  Ball, 
72  111.  108.  Mansfield  v.  Watson,  2  Iowa 
111.  Drefahl  v.  Security  Sav.  Bk.,  (Iowa) 
107  N.  W.  179.  {Inquiry  from  N.  Y.,  Dec, 
1909,  Jl.) 

Payment  by  Georgia  bank  of  check  of  minor 
and  of  insane  depositor 

2256.  A  bank  asks  information  relative 
to  the  handhng  of  a  minor's  account;  also 
as  to  responsibility  of  bank  for  paying  a 
lunatic's  check  without  knowledge  of  his 
mental  incapacity.  Opinion:  1.  The 
Statute  of  Georgia  (Park's  Annotated 
Code.  Sec.  4233)  provides  that  the  contracts 
of  an  infant  are  void,  except  for  necessaries; 
but  (Sec.  4235)  if  an  infant,  by  permission 


I 


514 


MINORS  AND  INCOMPETENTS 


[2257-2260 


of  his  parent  or  guardian,  or  by  permission 
of  law,  practices  any  profession  or 
trade,  or  engages  in  any  business  as  an 
adult,  he  shall  be  bound  for  all  contracts 
connected  with  such  profession,  trade  or 
business.  2.  Concerning  payment  of  a 
lunatic's  check  where  the  bank  is  ignorant 
of  the  lunacy.  Insanitj'  of  a  depositor  re- 
vokes the  authority  of  the  bank  to  pay  his 
check.  But  payment  of  the  genuine  check 
of  an  insane  person  without  notice  of  the 
insanity  would  generally  be  held  a  vaUd 
payment.  Riley  v.  Bank,  36  Hun.  519. 
But  the  Supreme  Court  of  Georgia  has  held 
in  Am.  Trust  &  B.  Co.  v.  Boone,  102  Ga.  202, 
that  a  check  drawn  by  a  depositor  while 
insane,  is  absolutely  void  and  payment  by 
the  bank  in  ignorance  of  the  insanity  is  no 
protection.  This  rule  seems  to  be  peculiar 
to  Georgia  and  is  contrary  to  the  general 
rule  which  protects  a  bank  which  pays  a 
check  of  an  insane  depositor  in  good  faith 
without  notice  that  he  has  become,  or  has 
been  adjudicated,  insane.  {Inquiry  fromGa., 
March,  1918.) 

Payment  of  deposit  to  foreign  committee  of 
lunatic 

2257.  Can  a  New  Mexico  bank  with 
safety  turn  over  money  on  deposit  to  the 
conservator  of  the  estate  of  its  insane  de- 
positor appointed  by  a  court  of  probate  of 
Connecticut?  Opinion:  It  would  appear 
from  the  provisions  of  the  New  Mexico 
statute  that  the  foreign  conservator  is  not 
entitled  to  the  fund  on  deposit  in  New  Mexi- 
co, and  it  would  not  be  safe  to  turn  it  over 
to  him.  The  statute  indicates  that  the 
proper  procedure  is  to  present  duly  authenti- 
cated proof  of  such  foreign  appointment  to 
the  proper  district  court  in  New  Mexico, 
and  have  such  conservator,  or  some  other 
proper  person,  appointed  a  committee  of 
the  estate  in  New  Mexico.  {Inquiry  from 
N.  M.,  April,  1921,  Jl) 

Minors    as    stockholders 

Liability  of  minor  as  national  bank  stockholder 

2258.  A  minor  was  presented  with  a 
share  of  stock  in  a  national  bank,  the  trans- 
fer being  registered  on  the  books.  Fifteen 
months  later  the  bank  failed  and  the  receiver 
is  trying  to  enforce  the  full  100  per  cent, 
assessment  against  the  parent  of  the  child. 
Opinion:  The  minor  cannot  be  held  liable 
for  the  assessment,  as  he  has  no  capacity  to 
assent  to  become  a  stockholder,  but  the 
person  making  the  transfer  is  not  relieved 
from  liability.     The  parent  of  the  minor 


cannot  be  held  liable  for  the  assessment 
unless  he  himself  owned  the  stock  and  trans- 
ferred it  to  his  child.  Foster  v.  Chase,  75  Fed. 
797.  Aldrich  V.  Bingham,  131  Fed.  363.  Fowler 
V.  Gowing,  152  Fed.  801.  29  Cyc.  1654. 
{Inquiry  from  Fla.,  April,  1919,  Jl.) 

Infant  as  joint  owner  of  national  bank  stock 

2259.  A  bank  states  that  one  of  its 
shareholders  has  fourteen  shares  of  the  bank 
stock  and  has  requested  that  the  same  be 
transferred  to  John  Doe  or  John  Doe,  Jr.,  or 
the  sm'vivor.  Inasmuch  as  John  Doe,  Jr.,  is  a 
minor,  the  bank  doubts  that  it  would  be 
legal  to  register  the  stock.  Opinion:  In- 
fants are  not  necessarily  precluded  from 
becoming  stockholders,  and,  in  the  absence 
of  statutes  which  expressly  or  impliedly  ex- 
clude them,  they  may  become  such,  but 
with  the  right  to  repudiate  the  relation 
either  during  infancy  or  within  a  reasonable 
time  after  becoming  of  age.  But  it  has  been 
held  in  the  case  of  national  banks  that  one 
who  buys  stock  in  the  name  of  an  infant,  or 
transfers  stock  to  an  infant,  will  be  liable 
for  an  assessment  since  the  infant  is  not 
capable  of  binding  himself  as  a  stockholder. 
Foster  v.  Chase,  75  Fed.  797.  Aldrich  v. 
Bingham,  131  Fed.  163.  Further,  that 
ratification  by  the  infant  of  such  purchase 
after  he  becomes  of  age  will  not  affect  such 
liability.  Foster  v.  Wilson,  75  Fed.  797. 
In  the  case  stated  by  the  bank  it  appears 
that  it  would  be  proper  to  transfer  the  stock 
to  John  Doe  or  John  Doe,  Jr.,  or  survivor, 
for,  in  such  case  John  Doe  would  remain 
liable  as  a  stockholder.  {Inquiry  from 
N.  J.,  March,  1920.) 

Contracts   of  persons  under  disability 

Note  of  aged  maker  under  guardianship  in 
exchange  for  prior  valid  notes 

2260.  An  old  man  was  put  under  guard- 
ianship on  May  26,  1910.  Not  knowing  this, 
a  bank  on  October  31,  1910,  consolidated 
three  notes,  which  he  owed  it,  into  one  and 
surrendered  the  old  ones.  Two  of  the 
notes  were  dated  prior  to  the  guardian- 
ship. Opinion:  The  Minnesota  statute 
makes  contracts  of  a  person  put  under 
guardianship  void — but  notes  given  before 
the  guardian  was  appointed  are  collectible, 
if  acquired  in  good  faith  and  without  notice 
of  the  incompetency.  The  bank  would  have 
a  right  in  a  proper  proceeding  to  recover  the 
amount  of  the  two  notes,  which  were  sur- 
rendered under  mistake  of  fact.  Schaps  v. 
Lehmer,  54  Minn.  208.     Morris  v.  Great 


515 


2261-2264] 


DIGEST  OF  LEGAL  OPINIONS 


Northern  R.  Co.,  67  Minn.  74.  Griswold 
V.  Butler,  3  Conn.  227.  American  Tr.  Co. 
V.  Boone,  102  Ga.  202.    Willmerth  v.  Leon- 


ard, 156  Mass.  277.  Carter  v.  Beckwith, 
128  N.  Y.  312.  Knox  v.  Haug,  48  Minn.  58. 
(Inquiry  from  Minn.,  Aug.,  1912,  Jl.) 


MORTGAGES  AND  LIENS 


Chattel  mortgages 

Joinder  of  wife  in  chattel  mortgage  for  purchase 
price  unnecessary 

2261.  A  chattel  mortgage  was  given  to 
secure  the  purchase  price  of  personal 
property  bought  by  a  man  at  a  farm  sale. 
The  bank  to  which  the  mortgage  was  exe- 
cuted asks  whether  it  is  necessary  to  have  his 
wife  join  in  the  mortgage.  The  question  is 
raised  in  view  of  the  Iowa  Code  (Sec.  2906, 
Code  1897)  which  provides  as  follows: 
"That  no  incumbrance  of  personal  property 
which  may  be  held  exempt  from  execution 
by  the  head  of  a  family,  if  a  resident  of  the 
state,  shall  be  of  any  validity  as  to  such 
exempt  property,  unless  the  husband  and 
wife,  if  both  are  hving,  concur  in  and  sign 
the  same  joint  instrument."  Opinion: 
Iowa  statute  which  invalidates  chattel 
mortgage  of  exempt  property  unless  both 
husband  and  wife  join  in  mortgage  does  not 
require  joinder  of  wife  where  mortgage  ex- 
ecuted to  secure  purchase  price  of  property. 
Iowa  Code,  1897,  Sec.  2906.  Grover  v. 
Younie,  110  Iowa  446.  Nicholson  v. 
Aney,  127  Iowa  278.  Pease  v.  L.  Fish,  etc., 
Co.,  70  111.  App.  138,  176  111.  138.  Mantony 
v.  Emerich  Outfit  Co.,  172  111.  92.  (In- 
quiry from  Iowa,  May,  1919,  Jl.) 

Date  of  chattel  mortgage 

2262.  A  note  was  dated  and  dehvered  in 
January  and  a  chattel  mortgage  to  secure 
its  payment  was  given  by  the  maker  of  the 
note  the  following  February.  Opinion: 
The  chattel  mortgage  was  valid.  The 
mortgage  should  bear  the  date  of  its  actual 
execution,  reference  being  made  in  the  body 
thereof  to  the  note.  Heitman  v.  Griffith, 
43  Kan.  553.  Hees  v.  Carr,  115  Mich.  654. 
Burditt  V.  Hunt,  25  Me.  419.  Jacobs  v. 
Dennison,  141  Mass.  117.  Partridge  v. 
Swazey,  46  Me.  414.  Johnson  v.  Stell- 
wagon,  67  Mich.  10.  Stonebraker  v.  Kerr, 
40  Ind.  186.  Shaughnessey  v.  Lewis,  130 
Mass.  355.  Sheldon  v.  Brown,  72  Minn. 
496.  Merrill  v.  Dawson,  Hempst.  (U.  S.) 
563.     {Inquiry  from  Kan.,  Sept.,  1913,  Jl.) 

Affidavit  of  consideration  under  New  Jersey 
statute 

2263.  A    bank,    through    its    executive 


committee,  sanctioned  a  loan  of  $1,500, 
crediting  this  amount  to  a  mortgagor  and 
taking  as  evidence  three  four-months'  notes 
of  $500  each,  secured  by  a  chattel  mortgage. 
The  mortgagor  orally  agreed  with  the  bank's 
cashier  that,  in  case  the  committee  a  week 
hence  should  object  to  the  amount  of  the 
loan,  the  mortgagor  would  then  consent  to 
charging  back  $500  before  maturity.  The 
bank,  under  the  New  Jersey  chattel  mortgage 
act,  filed  an  aflidavit  of  consideration,  which 
did  not  include  the  oral  agreement.  The 
statute  provides  that  a  mortgage  is  absolute- 
ly void  as  against  creditors  of  the  mortgagor 
unless  it  has  annexed  thereto  an  affidavit 
stating  the  consideration  of  the  mortgage. 
The  mortgagor  became  bankrupt  and  the 
bank  rehes  on  the  validity  of  the  mortgage 
to  recover  the  loan.  Opinion:  It  would 
seem  that  the  aJB&davit  stating  that  the 
consideration  of  the  chattel  mortgage  was 
for  $1,500,  was  the  substantial  truth  and 
should  not  be  held  defective,  and  the 
mortgage  should  not  be  held  void  because  it 
did  not  include  a  statement  of  the  oral 
agreement.  Ehler  v.  Turner,  35  N.  J.  Eq. 
68.  Black  v.  Pidgeon,  70  N.  J.  L.  802. 
Howell  v.  Stone,  (N.  J.)  71  Atl.  914.  Breit 
V.  Solferino,  (N.  J.)  72  Atl.  79.  Simpson  v. 
Anderson,  (N.  J.)  73  Atl.  493.  {Inquiry 
from  N.  J.,  Jan.,  1913,  Jl.) 

Sufficiency  of  consideration  for  chattel 
mortgage 

2264.  A  bank  holds  note  of  B.  I.  S.  for 
$500  for  a  loan;  also  holds  note  of  C.  O.  S. 
for  a  loan  which  B.  I,  S.  signs  with  the 
maker.  The  bank  proposes  to  renew  both 
notes  and  to  take  as  additional  security  a 
chattel  mortgage  from  B.  I.  S.  to  secure 
both  notes.  B.  I.  S.,  instead  of  signing  new 
note  with  C.  O.  S.,  is  to  give  his  written 
guaranty.  The  bank  asks — (1)  can  there 
be  any  defense  on  the  ground  the  mortgage 
is  without  consideration;  (2)  could  the 
bank  sue  C.  O.  S.  on  the  old  note  without 
making  B.  I.  S.  a  defendant;  (3)  if  not, 
could  the  bank  sue  C.  O.  S.  on  the  new  note 
without  making  B.  I.  S.  a  defendant  where 
he  did  not  sign  the  note  but  has  given  a 
written  guaranty  respecting  same?  Opin- 
ion:   If  the  bank  renews  the  notes  in  the 


516 


MORTGAGES  AND  LIENS 


[2265-2268 


way  stated,  (1)  there  could  not  be  any 
defense  on  the  ground  that  the  chattel 
mortgage  was  without  consideration;  (2) 
it  is  doubtful  if  the  bank  could  sue  C.  0.  S. 
on  the  old  note  either  with  or  without 
making  B.  I.  S.  a  defendant  because,  accord- 
ing to  the  weight  of  authority,  where  a  note 
is  given  in  renewal  of  another  note  and  the 
original  is  retained,  the  right  of  action  on  the 
original  is  suspended,  but  (3)  the  bank 
could  sue  C.  0.  S.  on  the  new  note  without 
making  B.  I.  S.  a  defendant.  {Inquiry 
from  Kan.,  June,  1914.) 

Validity  of  chattel  mortgage  securing 
'pre-existing  indebtedness 

2265.  A  bank  asks  whether  it  is  legal  to 
include  in  a  chattel  mortgage  an  old  note 
that  has  been  in  force  for  some  time,  as  well 
as  the  new  note.  Opinion:  A  mortgage 
may  be  given  for  a  pre-existing  debt  which 
is  valid  between  the  parties  and  their 
privies;  but  a  pre-existing  debt,  according 
to  the  weight  of  authority,  is  not  such  a 
consideration  as  to  put  the  mortgagee  in  the 
position  of  a  bona  fide  purchaser  for  value 
so  as  to  entitle  him  to  prevail  over  a  de- 
frauded seller  seeking  to  rescind  the  sale  for 
fraud.  Browning  v.  De  Ford,  178  U.  S.  196. 
But  if,  besides  procuring  a  pre-existing  debt, 
the  mortgage  is  based  on  some  new  and 
additional  consideration,  such  as  an  exten- 
sion of  time  of  payment,  the  mortgage  will 
be  protected.  Com.  Nat.  Bk.  v.  Pierre, 
82  Fed.  799.  {Inquiry  from  N.  D.,  March, 
1919.) 

Form   of   mortgage   in    Wyoming   to   secure 
additional  advances 

2266.  A  form  of  chattel  mortgage  is 
prepared  and  submitted  with  the  intention 
of  complying  with  Chapter  71  of  the  Session 
Laws  of  Wyoming  for  1913.  The  question 
presented  is  whether  the  clause  in  said 
form  relative  to  additional  advances  meets 
the  requirements  of  said  statute.  Opinion: 
The  statute  makes  it  lawful  to  execute  a 
mortgage  of  chattels  to  secure  further 
advances  and  points  out  how  this  may  be 
done,  namely,  that  the  mortgage  shall  state 
a  specific  sum  as  the  ultimate  amount  to  be 
secured,  a  date  prior  to  which  such  advances 
shall  be  completed,  and  the  date  on  which 
the  last  installment  or  portion  of  indebted- 
ness shall  mature.  The  form  of  mortgage 
submitted  provides  "the  ultimate  amount  so 

secured    not    to    exceed    dollars." 

This  is  stating  a  specific  sum  as  the  ultimate 
amount  to  be  secured.    The  statute  further 


requires  a  statement  of  a  date  prior  to 
which  such  advances  shall  be  completed  and 
the  date  on  which  the  last  installment  shall 
mature.  This  requirement  seems  to  be 
complied  with  by  the  language  employed  in 
the  mortgage.  {Inquiry  from  Wyo.,  July, 
1914.) 

Statement  of  amount  secured 

2267.  In  the  absence  of  a  statute  requir- 
ing the  specific  amount  secured  to  be  stated 
in  the  chattel  mortgage,  the  weight  of 
authority  is  to  the  effect  that  a  provision  in 
the  mortgage  that  it  is  given  to  secure  a  speci- 
fied amount  and  "any  other  indebtedness" 
to  the  mortgagee  on  future  advances  is  valid 
and  enforceable.  Where  the  statute  (as  in 
Kansas)  requires  the  filing  of  an  affidavit 
upon  renewal  specifically  stating  the  amount 
yet  due  and  unpaid  under  the  chattel 
rnortgage,  it  is  questionable  whether  addi- 
tional advances  thereafter  made  would  be 
protected  as  against  a  subsequent  incum- 
brance under  the  terms  of  the  chattel 
mortgage  which  secures  "any  other  indebted- 
ness," and  it  would  be  unsafe  to  make  an 
additional  loan  during  the  pendency  of  the 
renewal.  Field  v.  Silo,  44  N.  J.  L.  355. 
Milburn  Mfg.  Co.  v.  Johnson,  9  Mont.  537. 
Pub.  L.  N.  J.,  1878,  p.  139.  Ehler  v.  Turner, 
35  N.  J.  Eq.  68.  Ohio  Rev.  St.  1890.  Sec. 
4154.  Hanes  v.  Tiffany,  25  Ohio  St.  549. 
Blandy  v.  Benedict,  42  Ohio  St.  295.  20 
Am.  &  Eng.  Encyc.  L.  (2nd  Ed.),  p.  927, 
and  cases  cited.  Greeson  v.  German  Nat. 
Bk.,  78  Ark.  141.  Fort  v.  Black,  50  Ark. 
259.  Rice  v.  Davis,  96  Mo.  App.  636. 
Thompson  v.  Bairbanks,  196  U.  S.  516 
(aff'ing  75  Vt.  361).  Frank  H.  Buck  Co.  v. 
Buck,  (Cal.  1912)  122  Pac.  466.  Tapia  v. 
Demartini,  77  Cal.  383.  Ackerman  v. 
Hansicker,  85  N.  Y.  43.  Chandler  v. 
Cromwell,  (Miss.  1912)  57  So.  554.  Gen. 
St.  Kan.  1909,  Ch.  82,  Sec.  5226.  {Inquiry 
from  Kan.,  March,  1914,  JI-) 

After  acquired  property 

2268.  A  chattel  mortgage  covers  the 
following  property:  "All  of  our  personal 
property  of  all  kinds  and  descriptions  what- 
soever whether  described  specifically  herein 
or  not  and  all  that  may  be  added  thereto  or 
come  into  our  possession  until  this  note  is 
fully  paid,"  specifying  thereafter  some 
individual  articles.  As  between  mortgagor 
and  mortgagee  does  this  mortgage  cover  all 
personal  property  owned  by  the  mortgagor 
at  the  time  of  the  foreclosure?  Opinion: 
The  rule  is  well  recognized  that  if  a  chattel 


517 


2269-2272] 


DIGEST  OF  LEGAL  OPINIONS 


mortgage  is  designed  to  cover  after-acquired 
property,  whether  in  esse  or  not,  it  is 
necessary  that  such  an  intent  be  clearly 
expressed,  and  that  the  property  be  described 
so  that  it  may  be  identified.  Ashley  v. 
Keenan,  157  Iowa  1;  Iowa  State  Nat.  Bank 
V.  Taylor,  98  Iowa  631.  Lormer  v.  Allyn, 
64  Iowa  726.  McArthur  v.  Garman,  71 
Iowa  34;  Jones  Chat.  Mort.  Sec.  160.  This 
rule  does  not  obtain  where  the  effect  would 
be  to  defeat  the  manifest  intention  of  the 
parties  as  gathered  from  the  language  and 
the  surrounding  circumstances,  Iowa  State 
Nat.  Bank  v.  Taylor,  98  Iowa  631. 

Following  the  spirit  of  these  decisions  it 
would  seem  that  as  between  the  mortgagor 
and  the  mortgagee  the  quoted  instrument 
would  cover  all  personal  property  of  the 
mortgagor.  Of  course,  in  order  to  make 
such  mortgage  effective  as  against  subse- 
quent lien  creditors  of  the  mortgagor,  it 
would  have  to  be  recorded  as  provided  by 
statute,  unless  there  be  a  visible  and  notori- 
ous change  of  possession.  Anno.  Code, 
Iowa  1897,  Sec.  2906.  Horsley  v.  Hairsine, 
77  Iowa  141.  Hickok  v.  Buell,  51  Iowa  655. 
(Inquiry  from  Iowa,  Jan.,  1919.) 

Future  crops 

2269.  A  bank,  as  a  condition  for  renewing 
a  note,  accepted  security  from  the  maker, 
consisting  of  a  chattel  mortgage  covering 
future  crops  to  be  grown  on  lands  which  he 
owned  and  leased.  In  advance  of  the  season 
for  planting,  the  maker  sold  the  lands 
without  provision  for  the  chattel  mortgage. 
The  bank  inquires  whether  an  action  for 
conversion  will  lie  against  the  purchaser 
after  crops  thereon  have  been  harvested. 
Opinion:  A  chattel  mortgage  on  crops  to  be 
thereafter  grown  does  not  give  the  mortgagee 
a  lien  on  the  lands,  but  attaches  only  to  the 
interest  which  the  mortgagor  has  in  the 
crop  when  it  comes  into  being.  McMaster 
V.  Emerson,  109  Iowa  284,  80  N.  W.  389. 
It  is  held  in  that  case  that,  before  a  chattel 
mortgage  on  crops  to  be  grown  in  the 
future  attaches,  such  crops  must  come  into 
existence  and  be  acquired  by  the  mortgagor. 
Where  the  mortgagor,  in  a  chattel  mortgage 
on  crops  to  be  grown  in  the  future,  leased  the 
land,  receiving  full  pajonent,  the  crops 
raised  by  such  lessee  cannot  be  subjected 
to  the  payment  of  the  mortgage  as  said 
mortgage,  not  being  a  lien  on  the  land,  did 
not  prevent  the  leasing  of  it  by  the  mortgagor 
who  thereafter  retained  no  interest  in  the 
crops  grown  by  the  lessee.  It  appears, 
therefore,   in   the   case  submitted   by  the 


bank,  that  "A,"  the  chattel  mortgagor, 
would  have  no  interest  in  the  crop  subse- 
quently grown  by  his  vendee  on  the  lands 
to  which  the  lien  of  the  mortgage  could 
attach.  Had  he,  in  his  contract  of  sale, 
reserved  to  himself  an  interest  in  the  future 
crops  to  be  grown  upon  the  land,  the  lien  of 
the  chattel  mortgage  would  attach  as  soon 
as  such  crops  came  into  being;  but  no  such 
reservation  being  made,  the  bank,  as 
holder  of  the  chattel  mortgage,  would  have 
no  recourse  against  the  vendee  of  the  land. 
{Inquiry  from  Okla.,  June,  1920.) 

Widow's  statutory  rights  in  mortgaged  personal 
property  in  Missouri 

2270.  After  a  chattel  mortgage  on  farm 
animals  and  implements  fell  due  the 
mortgagor  foreclosed  it  and  sold  the  property 
for  less  than  the  amount  due.  May  the 
widow  thereafter  claim  the  statutory  allow- 
ance of  $400  from  the  mortgagor?  Opinion: 
The  Missouri  statute  allows  the  widow 
certain  enumerated  household  furniture  and 
articles,  and  necessary  provisions,  not  to 
exceed  the  value  of  $500,  and  "in  addition 
. . .  .the  widow  may  take  such  personal 
property  as  she  may  choose,  not  to  exceed 
the  appraised  value  of  four  hundred  dollars," 
under  which  the  claim  is  made  in  this  case. 
The  statute  further  provides  that  "the 
widow  shall  apply  for  such  property  [that 
last  mentioned].  . .  .before  the  same  shall  be 
distributed  or  sold."  This  last  quoted 
provision  bars  any  recovery  in  this  case, 
for  there  was  no  application  by  the  widow 
before  the  sale  of  the  property.  See  also 
Drawry  v.  Baur,  68  Mo.,  155.  (Inquiry 
from  Mo.,  May,  1921,  Jl.) 

Requirement  of  filing  in  Idaho 

2271.  A  bank  expresses  doubt  as  to 
whether  the  original  or  copy  of  a  chattel 
mortgage  should  be  filed  with  the  County 
Recorder  of  the  county.  Opinion:  Either 
the  original  or  a  copy  of  the  mortgage  may 
be  filed,  accompanied  by  affidavit  of  the 
mortgagor  as  prescribed  by  statute.  See 
Compiled  Stat.  1919,  Chap.  238,  Sec.  6375. 
(Inquiry  from  Idaho,  June,  1920.) 

Priority  of  record  determines  priority  of  lien 

2272.  On  January  1st,  1914,  A  gave  a 
chattel  mortgage  to  B,  and  on  February 
4th,  another  to  C  on  the  same  horse.  At 
the  time  C  received  his  mortgage  B's 
mortgage  had  not  been  recorded,  nor  was 
C  aware  that  B  held  a  mortgage  on  the 
horse.      However,    B    had    his     mortgage 


518 


MORTGAGES  AND  LIENS 


[2273-2276 


recorded  on  February  26th,  and  C  recorded 
his  on  April  10th.  The  question  is  asked 
whether  the  fact  that  B  did  not  have  his 
mortgage  recorded  before  C's  gave  the 
latter  a  prior  claim.  Opinion:  It  seems,  in 
the  case  stated,  B  has  a  better  claim  to  the 
horse  than  C  because  his  mortgage  was 
first  in  point  of  time  and  first  recorded, 
although  before  he  recorded  it  A  gave 
another  mortgage  on  the  same  horse  to  C. 
The  present  Code  of  Alabama  (1907,  Sec. 
3386)  in  regard  to  recording  chattel  mort- 
gages has  no  provision  as  to  the  time  in 
which  chattel  mortgages  should  be  recorded, 
except  in  instances  not  applicable  to  the 
present  case.  The  general  rule,  however, 
seems  to  be  that,  as  between  recorded 
mortgages,  priority  of  record  generally 
determines  priority  of  lien,  and  priority  as 
between  unrecorded  mortgages  is  generally 
determined  by  priority  of  execution.  (In- 
quiry from  Ala.,  Oct.,  1914.) 

Chattel  mortgage  hy  A  to  C  of  property  A 
has  agreed  to  sell  B 

2273.  A,  the  owner  of  personal  property, 
delivers  possession  thereof  to  B  under  an 
agreement  that  if  B  secures  a  loan  upon 
his  real  estate,  the  price  agreed  upon  is  to  be 
paid  by  B  as  soon  as  the  money  on  loan  is 
secured.  Before  the  loan  is  made  A  mort- 
gages the  personal  property  to  bank  C 
which  has  notice  of  the  agreement  between 
A  and  B,  this  agreement  not  being  in  writing 
and  consequently  not  filed  or  recorded. 
The  mortgage  to  C  was  recorded.  Who  is 
entitled  to  the  personal  property  in  question? 
Opinion:  The  general  rule  is  that  a  valid 
mortgage  may  be  made  covering  chattels 
which  the  mortgagor  is  under  an  executory 
contract  to  sell  to  another  when  title  has 
not  yet  passed.  Buckingham  v.  Dake, 
112  Fed.  258.  Everitt  v.  Hall,  67  Me.  497. 
Snohomish  Iron  Works  v.  Guhr  Lumber  Co., 
57  Wash.  381.  In  the  case  submitted,  the 
agreement  between  A  and  B  would  seem  at 
best  to  be  simply  an  executory  contract  of 
sale,  and  would,  therefore,  be  subject  to  the 
recorded  mortgage  of  the  C  bank.  {Inquiry 
from  Mo.,  July,  1919.) 

Right  of  recorded  mortgagee  as  against 
subsequent  agister's  lien 

2274.  Assuming  that  a  chattel  mortgage 
of  cattle  is  properly  recorded,  is  it  subject 
to  a  subsequent  agister's  lien?  To  an 
earher  agister's  lien?  Opinion:  A  chattel 
mortgage  is  superior  to  a  later  agister's 
lien,  but  subject  to  an  earher  hen  of  the 


latter    kind. 
1921.) 


(Inquiry   from    Tex.,    Jan., 


Double  registry  or  filing  of  mortgage  embracing 
both  real  and  personal  property 

2275.  Is  it  necessary  to  file  a  trust  deed 
as  a  chattel  mortgage  in  addition  to  filing 
it  as  a  real  estate  mortgage,  where  personal 
property  as  well  as  real  estate  is  covered? 
Opinion:  It  has  been  held  in  a  number  of 
states  that  double  recording  or  fihng  is 
necessary  as  to  a  mortgage  embracing  both 
real  and  personal  property — in  order  to 
comply  with  the  recording  laws  and  protect 
both  classes  of  property.  Stewart  v. 
Beale,  7  Hun  (N.  Y.)  405,  68  N.  Y.  629. 
Bayne  v.  Brewer  Pottery  Co.,  90  Fed.  754. 
Ramsdell  v.  Citizens'  Elec.  L.  &  P.  Co.,  103 
Mich.  89,  61  N.  W.  275.  Manhattan  Trust 
Co.  V.  Seattle  C.  &  I.  Co.,  16  Wash.  499, 
48  Pac.  333,  737.  There  has  been  no  deci- 
sion in  Wisconsin.  The  only  statutory 
provision  relative  to  the  question  is  section 
2314  of  the  laws  of  1915,  which  provides 
that  every  mortgage  of  personal  property,  or 
a  copy  thereof,  shall  (or  may)  be  filed  in  the 
office  of  the  clerk  of  the  town,  city  or 
village  where  the  mortgagor  resides;  and 
where  such  mortgage  consists  of  a  stock  of 
goods,  wares  and  merchandise,  or  of  the 
fixtures  pertaining  to  the  same,  the  mort- 
gage, or  a  copy  of  it,  shall,  in  addition,  be 
filed  in  the  office  of  the  registry  of  deeds  of 
the  county  in  which  the  town,  city  or 
village  may  be  situated.  See  also  Pierce  v. 
Milwaukee  &  St.  P.  R.  Co.,  24  Wis.  551; 
Smith  V.  Waggoner,  50  Wis.  155,  in  which 
latter  case  it  was  held  that  a  prior  lien  by 
mortgage  or  otherwise  upon  a  mill  contain- 
ing machinery,  which  had  become  fixtures, 
would  not  be  affected  as  to  such  fixtures  by 
a  subsequent  mortgage  of  them  as  chattels, 
executed  by  the  owner  of  the  estate.  (In- 
quiry from  Wis.,  Aug.,  1917.) 

Chattel  mortgage  law  of  Ohio 

2276.  A  bank  refers  to  the  fact  that 
farmers  of  Ohio  for  a  few  j^ears  past  have 
been  feeding  cattle  for  the  market,  and  the 
bank  is  desirous  of  loaning  them  money  and 
to  secure  same  by  taking  a  hen  on  the 
cattle;  and  further  states  that  in  such  cases 
the  only  means  of  securing  such  loans  is  by 
chattel  mortgage  which  is  expensive  as  to 
recording,  etc.  The  bank  refers  to  an  Ohio 
statute  which,  it  states,  simplifies  such 
transactions  and  requests  the  particulars 
thereof  and  advantages  thereunder,  with 
the  view  of  having  a  similar  statute  passed 


619 


2277-2278] 


DIGEST  OF  LEGAL  OPINIONS 


in  Maryland.  Opinion:  The  Ohio  statute 
in  regard  to  instruments  intended  to  create 
a  hen  on  personal  property,  where  there  is 
no  change  of  possession,  is  as  follows:  "A 
mortgage,  or  conveyance  intended  to  operate 
as  a  mortgage  of  goods  and  chattels,  which 
is  not  accompanied  by  an  immediate  de- 
livery, and  followed  by  an  actual  and 
continued  change  of  possession  of  the 
things  mortgaged,  shall  be  absolutely  void 
as  against  creditors  of  the  mortgagor, 
subsequent  purchasers,  and  mortgagees  in 
good  faith,  and  unless  the  mortgage,  or  a 
true  copy  thereof,  be  forthwith  deposited 
as  directed  in  the  next  succeeding  section." 
(Page  &  Adams  Anno.  Ohio  Gen.  Code, 
Chap.  1,  Sec.  5680.)  A  transfer  of  the  title 
of  personal  property  as  a  security  for  a 
debt  is,  under  this  statute,  in  legal  effect  a 
chattel  mortgage.  (Tufts  v.  Haynie,  4 
Ohio  Cir.  Ct.  494.)  {Inquiry  from  Md., 
Jan.,  1916.) 

Rights  of  purchaser  and  mortgagee  of 
stolen  cattle 

2277.  A  bank's  customer,  H.  F.  T., 
bought  three  car  loads  of  cattle  of  B.  Bros. 
&  Co.,  commission  merchants,  at  K.  C. 
Stock  Yards,  and  the  bank  took  a  chattel 
mortgage  for  a  sum  necessary  to  purchase 
same.  A  few  daj'S  after  the  purchase  a  man 
replevined  them,  claiming  the}'^  had  been 
stolen  from  his  pasture.  A  bond  was 
furnished  by  T.,  the  purchaser,  and  it 
seems  pro]3able  that  the  claimant  will  prove 
ownership  of  the  cattle  at  the  trial,  as  he 
has  several  witnesses  to  identify  the  cattle. 
The  bank  requests  opinion  as  to  whether 
B.  Bros,  are  responsible  to  T.  for  such  loss 
as  he  may  suffer  because  of  the  fact  they 
were  stolen  cattle.  B.  Bros,  claim  to  have 
acted  merely  as  purchasing  agents.  Opin- 
ion: If  the  claimant  proves  ownership  of 
the  cattle,  then  two  questions  arise,  (1) 
liability  of  B.  Bros,  to  the  bank's  customer, 
(2)  liability  of  the  customer  to  the  bank. 
If  B.  Bros,  are  to  be  regarded  as  principals, 
then  the  well  established  rule  must  apply 
that  on  a  sale  of  goods  there  is  an  implied 
warranty  of  title  (Williamson  v.  Sammons, 
34  Ala.  691.  Gould  v.  Bourgeois,  51  N.  J.  L. 
361.  Edick  V.  Crim,  10  Barb.  [N.  Y.]  445. 
Whitaker  v.  Eastwick,  75  Pa.  St.  229), 
especially  if  the  sale  is  for  a  fair  price  and 
the  goods  are  in  the  possession  of  the 
seller  at  the  time  of  the  sale  (Paulsen  v. 
Hall,  39  Kan,  365),  [holding  that  where  an 
implication  of  warranty  arises,  and  the 
title  of  the  seller  is  defective  so  that  nothing 


passes,  the  purchaser  can  recover  his  money, 
although  there  is  no  fraud  or  express  warran- 
ty on  the  part  of  the  vendor].  Benington  v. 
Corwin,  24  N.  J.  L.  257.  McKinney  v. 
Fort,  10  Tex.  220.  Lane  v.  Romer,  2  Pinn. 
[Wis.]  404).  If,  on  the  other  hand,  they 
are  factors  or  commission  merchants,  it  | 
has  been  held  that  a  factor  who  sells  stolen 
goods  is  liable  to  the  owner  for  their  value, 
though  he  merely  sells  them  for  another, 
without  knowledge  of  the  theft,  and  pays 
over  the  proceeds  to  his  employer.  Miller 
Bros.  V.  Laws,  6  Ohio  Dec.  Rep.  607.  See 
also  Johnson  v.  Martin,  92  N.  W.  (Minn.) 
221,  holding  that  in  an  action  for  conversion 
brought  against  a  factor  by  the  owner  of 
personal  property  which  had  come  into  the 
possession  of  the  factor  by  a  criminal  act  of 
a  third  person,  where  the  factor  has  sold  the 
property  and  paid  over  the  net  proceeds 
to  the  criminal,  it  is  no  defense  that  he 
acted  throughout  in  entire  good  faith, 
without  negligence  in  the  belief  that  the 
criminal  was  the  owner  of  the  property. 
If,  therefore,  B.  Bros,  are  factors  they 
would  be  liable  in  this  transaction  to  the 
original  owners  of  the  cattle,  and  the 
bank's  customer,  as  innocent  purchaser, 
would,  it  seems,  be  subrogated  to  the  rights 
of  the  original  owners  and  be  entitled  to 
recover  from  B.  Bros,  the  amount  of  the 
piu"chase  price  of  the  stolen  property.  As 
to  the  rights  of  the  bank  in  the  matter,  if  its 
customer  took  no  title  to  the  cattle,  the 
mortgage  given  to  the  bank  would  be  n-uU 
and  void.  There  is  an  implied  warranty 
of  title  in  the  sale  of  personal  property, 
and  the  same  rule  applies  to  a  mortgage  of 
such  property.  Schell  v.  Stephens,  50  Mo. 
375.  Watkins  v.  Crenshaw,  59  Mo.  App. 
183.  Hickman  v.  Dill,  39  Mo.  App.  246. 
Moore  v.  Byrmn,  10  S.  C.  453.  Sherman  v. 
Transp'n  Co.,  31  Vt.  162;  Jones  on  Chat. 
Mtges.  (5th  Ed.)  Sec.  101.  The  remedy  of 
the  bank,  therefore,  would  be  to  hold  its 
customer,  the  mortgagor  of  the  cattle,  on 
his  implied  warranty  of  title.  The  bank 
would  have  no  remedy  against  B.  Bros. 
{Inquiry  from  Kan.,  Dec,  1915.) 

Purchaser  of  goods  covered  hy  recorded 
mortgage 

2278.  A  gave  a  chattel  mortgage  to  the 
inquiring  bank,  and  after  doing  so  sold  the 
chattels  covered  thereby  to  his  father,  who 
knew  of  the  then  existing  instrument. 
What  are  the  rights  of  the  father  or  of  his 
creditors?  Opinion:  If  the  chattel  mort- 
gage which  the  bank  took  as  security  has 


520 


MORTGAGES  AND  LIENS 


[2279-2282 


been  recorded,  the  record  furnishes  con- 
structive notice  of  its  contents  to  creditors 
of  the  mortgagor  and  to  subsequent  pur- 
chasers of  the  property.  Berson  v.  Numan, 
63  Cal.  550.  The  fact,  therefore,  that  the 
mortgagor  has  sold  the  chattels  to  his 
father,  who  knew  of  the  existence  of  the 
mortgage,  would  not  affect  the  security  in 
the  bank's  hands  and  the  mortgage  would 
hold  as  against  creditors  of  the  father. 
{Inquiry  from  Cal.,  Dec,  1915.) 

Rights  of  mortgagee  superior  to  garnishing 

creditor  of  mortgagor — Liability  of 

clerk  of  sale 

2279.  An  owner  of  property  holds  a 
■,  public  sale  of  personal  property  on  which 
there  is  a  chattel  mortgage  of  $3,500.  The 
property  brings  S4,000.  Before  the  sale  the 
chattel  mortgagee  delivers  his  note  and 
mortgage  to  the  clerk  of  the  sale  for  collec- 
tion. After  the  sale,  and  while  the  clerk 
j;'  still  has  the  proceeds,  a  third  person  serves 
the  clerk  with  garnishee  summons  based  on 
an  open  account  and  brings  suit  against 
the  chattel  mortgagor  for  $600.  The  clerk, 
at  the  instance  of  the  mortgagor,  pays  the 
$600  out  of  the  proceeds  of  the  sale.  Is  the 
clerk  liable  to  the  mortgagee  for  the  differ- 
ence between  $3,500,  the  amount  of  the 
mortgage,  and  $3,400,  the  balance  of  the 
proceeds?  Opinion:  The  clerk  is  personally 
liable  for  $100.  It  was  his  first  duty  to 
apply  the  proceeds  of  the  sale  on  the  note 
and  mortgage.  The  claim  of  the  garnishee 
creditor  was  clearly  subsequent  to  that  of 
the  mortgagee  B.  The  clerk  was  the 
mortgagor's  agent,  and  is  liable  as  such. 
Greer  v.  Newland,  70  Kan.  310,  has  a  partial 
analogy  to  the  case  submitted. 

The  mortgagor  may  also  recover  from  the 
garnishee  creditor  for  the  amount  of  B's 
money  which  he  has  converted.  {Inquiry 
from  Kan.,  April,  1917.) 

Colorado  statute  allowing  thirty   days    after 
maturity  to  take  possession 

2280.  A  note  was  payable  on  demand, 
and  the  chattel  mortgage  given  to  secure 
the  same  provided  that  if  the  mortgagor 
shall  pay  the  note  of  even  date  "due  on  de- 
mand after  date,  or  if  no  demand  is  made, 
then  note  is  due  two  years  from  date,"  the 
mortgage  shall  be  void.  Opinion:  A  reason- 
able construction  is  that  the  debt  matures  in 
two  years  unless  sooner  demanded  and  the 
holder  is  protected  for  thirty  days  thereafter 
under  the  Colorado  statute  allowing  thirty 
days  after  maturity  of  the  debt  to  take 


possession  of  the  chattels.  Mills  Anno.  St. 
Colo.,  1912,  Sec.  627.  Brooks  v.  Mitchell, 
9  Mus.  &  W.  15.  Brophy  Grocery  Co.  v. 
Wilson,  (Mont.)  124  Pac.  510.  Mobile 
Sav.  Bk.  V.  McConnell,  83  Ala.  595.  O'Neil 
V.  Wagner,  81  Cal.  631.  Lee  v.  Balcom,  9 
Colo.  216.  Walker  v.  Woolen,  54  Ind.  164. 
{Inquiry  from  Colo.,  July,  1915,  Jl.) 

Release  of  chattel  mortgage  in  Nebraska 

2281.  An  order  of  release  of  a  chattel 
mortgage  in  Nebraska  must  be  attested 
and  unless  a  chattel  mortgage  which  has 
been  paid  is  discharged  in  one  of  the  two 
modes  prescribed  by  the  statute  within  ten 
days  after  request,  the  mortgagee  would  be 
liable  to  the  statutory  penalty.  Cobbey's 
Anno.  St.  Neb.,  Sec.  6034.  Boyes  v.  Sum- 
mers, 46  Neb.  308.  {Inquiry  from  Neb., 
July,  1912,  Jl.) 

Real    estate    mortgages    and    deeds    of 
trust — Parties  and  contents 

Mortgage  in  nam£  of  cashier 

2282.  A  mortgage  runs  to  "John  Doe, 
Cashier,  First  National  Bank,"  and  an 
assignment  of  such  mortgage  is  executed  by 
"John  Scott,  Cashier,  First  National  Bank," 
successor  of  Doe.  Opinion:  The  courts 
would  be  Hkely  to  hold  that  the  mortgage  so 
drawn  and  assignment  so  executed  w^ere 
instruments  running  to  and  executed  by 
the  bank  and  not  the  person  named  as 
cashier  individually,  but  the  authorities  are 
not  all  uniform.  Although  a  national 
bank  has  no  power  to  take  a  real  estate 
mortgage  for  a  present  loan,  only  the 
Government  can  complain  and  the  mortgage 
as  between  the  parties  is  not  invalidated. 
Nat.  Bk.  V.  Whitney,  103  U.  S.  99.  Rey- 
nolds V.  Crawfordsville  Nat.  Bk.,  112  U.  S., 
405.  Greenfield  v.  Stout,  122  Ga.  303. 
N.  W.  Fire,  etc.,  Co.  v.  Lough,  (N.  Dak.) 
102  N.  W.  160.  Mich.  St.  Bk.  v.  Trowbridge 
92  Mich.  217.  Shewalter  v.  Pirder,  55  Mo. 
218.  Caspy  v.  Dodwell,  115  Cal.  677. 
Steinkey  v.  Yetzer,  108  Iowa  512.  Board 
v.  Mfrs.  Bk.,  59  Minn.  421.  {Inquiry  from 
Wis.,  Aug.,  1912,  Jl.) 

Note:  By  Sec.  24  of  the  Federal  Reserve 
Act,  national  banks  not  situated  in  central 
reserve  cities  may  make  loans  secured  by 
farm  land  or  real  estate,  improved  and 
unencumbered,  within  their  federal  reserve 
district  or  within  100  miles'  radius  of  the 
bank,  hmited  to  five  years  for  farm  land 
and  one  year  for  other  real  estate,  up  to  50% 
of  the  value  of  the  property. 


521 


2283-2287] 


DIGEST  OF  LEGAL  OPINIONS 


Signature  of  wife  to  purchase-money  mortgage 
without  signature  to  note 

2283.  Where  a  wife  signs  a  purchase- 
money  mortgage  given  by  her  husband  but 
does  not  sign  the  notes  to  secure  which 
the  mortgage  was  given,  is  she  bound  to  the 
extent  of  her  interest  in  the  land?  Opinion: 
The  failure  to  sign  the  notes  does  not  reheve 
the  wife  from  liabihty  to  the  extent  of  her 
interest  in  the  land.  Main  v.  Ray,  57  S.  W. 
(Ky.)  7.  Hadley  v.  Clark,  8  Ida.  497. 
(Inquiry  from  Okla.,  March,  1920.) 

Wrong  description  in  mortgage 

2284.  A  national  bank  as  mortgagee  of 
certain  real  estate  recorded  the  mortgage 
and  learned  that  the  mortgage  papers 
described  a  different  parcel  of  land  from 
that  intended.  Opinion:  If  the  owner  of 
the  real  estate  which  through  error  was  not 
described  disposes  of  his  rights  therein  by 
sale  or  by  mortgage  to  an  innocent  purchaser 
for  value,  the  latter's  rights  are  superior  to 
those  of  the  bank,  regardless  of  the  recorded 
mortgage,  but  the  bank  has  an  equitable 
title,  good  against  the  owner  or  attaching 
creditor.  The  course  to  pursue  is  to  have 
the  owner  correct  the  mistake  by  giving  a 
new  correct  mortgage  and  have  that 
mortgage  recorded;  if  the  owner  refuses,  to 
file  a  bill  in  equity  to  compel  reformation  of 
the  mortgage.  Bush  v.  Bush,  33  Kan.  556. 
{Inquiry  from  Okla.,  Jan.,  1912,  Jl.) 

Mortgage  covering  other  indebtedness 

2285.  A  form  of  mortgage  is  submitted 
containing  the  following  clause:  "It  is 
further  expressly  agreed  that  this  mortgage 
shall  stand  as  security  for  any  other  in- 
debtedness the  mortgagee  may  hold  or 
acquire  against  the  said  mortgagor."  In- 
formation is  sought  as  to  whether  this 
clause  is  vahd  and  enforceable.  Opinion: 
In  the  absence  of  agreement  a  mortgage 
cannot,  of  course,  be  held  as  security  for 
any  debt  other  than  that  for  which  it  was 
given.  But  where  the  mortgage  contains  a 
clause  that  it  is  given  as  security  for  other 
indebtedness,  the  courts  generally  recognize 
the  vahdity  of  the  mortgage  as  securing 
such  other  indebtedness,  unless  there  is 
some  statute  to  the  contrary.  For  example, 
under  the  Georgia  statute  requiring  the 
mortgage  to  specify  the  debt  secured,  a 
mortgage  reciting  that  it  is  given  for  a  note 
and  "such  future  advances"  as  may  be 
made  during  a  given  year  is  valid  only  as 
security  for  the  note.  Benton  v.  Shingler 
Co.  V.  Mills,  79  N.  E.  755.   But,  unless  there 


is  some  such  statute  in  Iowa — and  upon 
examination  of  the  Revised  Statutes  there 
appears  to  be  no  such  provision — it  seems 
the  mortgage  would  be  valid  to  secure  other 
indebtedness.  {Inquiry  from  Iowa,  Oct., 
1915.) 

Difference  between  deed  of  trust  and  mortgage 

2286.  What  is  the  difference  between 
a  deed  of  trust  and  a  mortgage?  Opinion: 
Briefly  stated,  a  trust  deed  in  the  nature 
of  a  mortgage  is  a  conveyance  of  real  estate 
in  fee  simple  to  one  or  more  trustees  who 
are  to  hold  the  same  for  the  benefit  of  the 
lawful  holder  of  the  note,  bond  or  other 
obligation  secured,  permitting  the  grantor 
to  retain  the  possession  and  enjoy  the 
rents  and  profits  of  the  estate  until  default 
shall  be  made  in  the  payment  of  the  obhga- 
tion  secured,  and  with  a  power  in  the 
trustee  or  trustees,  upon  such  default,  to 
make  a  sale  of  the  premises  and  satisfy  the 
holder  of  the  debt  out  of  the  net  proceeds, 
retaining  the  surplus,  if  any,  to  the  grantor. 
27  Cyc.  966.  The  California  case  of  Levy 
V.  Burkle,  14  Pac.  564,  appears  to  hold  that 
a  deed  of  trust  of  real  estate  executed  for 
the  purpose  of  securing  a  debt,  conditioned 
to  be  void  upon  payment  of  the  debt  and 
containing  a  power  of  sale  upon  default,  is 
essentially  a  mortgage  and  does  not  differ 
in  its  legal  operation  and  effect  from  an 
ordinary  mortgage  with  power  of  sale. 
See  also  Grant  v.  Burr,  54  Cal.  298,  as  to  the 
distinction  between  an  absolute  deed  of 
trust  and  a  deed  of  trust  in  the  nature  of  a 
mortgage.     {Inquiry  from  Cat.,  Oct.,  1915.) 

Validity  of  mortgage 

Clause  requiring  mortgagor  to  pay  taxes  upon 
mortgage  debt  in  addition  to  maximum 
interest 

2287.  A  real  estate  mortgage  given  to 
secure  a  loan  drawing  ten  per  cent,  interest, 
the  highest  legal  rate  in  Nebraska,  contains 
a  clause  providing  that  the  mortgagor  shall 
pay  taxes  levied  upon  the  mortgage  or 
debt,  or  against  the  holder.  Opinion: 
The  clause  would  probably  render  the  trans- 
action usurious,  because  it  calls  for  payment 
of  taxes  in  addition  to  the  highest  legal  rate. 
Such  a  clause  was  formerly  held  to  render 
the  mortgage  note  non-negotiable  but  a  Ne- 
braska statute  now  provides  that  its  negotia- 
bility is  unaffected.  Allen  v.  Dunn.  71  Neb. 
831.  Rev.  St.  Neb.,  (1911)  Sec.  6351. 
Green  v.  Grant,  134  Mich.  462.  Mortimer 
V.    Pritchard.      Bailey    Eq.    (S.    C.)    505. 


522 


MORTGAGES  AND  LIENS 


[2288-2290 


Meem  v.  Dulaney,  88  Va.  674.  Union 
Mort.  Co.  V.  Hagood  97  Fed.  360.  Cobbey's 
Anno.  St.  Neb.,  (1903)  Vol.  2,  Sec.  10257. 
{Inquiry  from  Neb.,  Nov.,  1915,  Jl.) 

Relinquishment  of  homestead  after 
mortgage  thereof 

2288.  A  borrower  procured  a  loan  from 
a  bank  and  gave  as  security  therefor  a 
preliminary  mortgage  on  his  homestead, 
and  some  time  later  he  relinquished  his 
right  to  the  land  for  $200  and  left  the 
country  without  paying  his  note.  Opinion: 
Where  there  is  neither  constitutional  nor 
statutory  prohibition,  as  incident  to  the 
right  of  ownership,  the  owner  of  the  home- 
stead may  sell  or  encumber  it;  and  such 
sale  or  encumbrance  will  be  as  valid  as  if  the 
property  had  not  been  set  apart  as  a  home- 
stead. Gee  V.  Moore,  14  Cal.  473.  Wea 
Gas,  etc.,  Co.  v.  Frankhn  Land  Co.,  54  Kan. 
533,  38  Pac.  790.  Allensworth  v.  Kimbrough, 
19  Ky.  332.  Lewis  v.  Wetherell,  36  Minn. 
386,  holding  that  one  making  a  "homestead 
entry"  under  the  laws  of  the  U.  S.  may, 
after  receiving  his  final  certificate,  and 
before  he  receives  a  patent,  make  a  valid 
mortgage  upon  the  land.  The  Montana 
Statute  recognizes  the  right  of  the  owner  to 
mortgage  his  homestead  by  providing  that 
the  homestead  is  subject  to  execution,  or 
forced  sale  in  satisfaction  of  judgments  ob- 
tained or  debts  secured  by  mortgage  on  the 
premises,  executed  by  the  husband  and  wife, 
or  by  an  unmarried  claimant.  Rev.  Code 
Mont.,  1907,  Sec.  4698.  In  the  submitted 
case,  if  the  mortgage  on  the  homestead  held 
by  the  bank  was  duly  acknowledged  by  the 
husband  and  wife,  or  the  claimant  alone,  if 
single,  and  duly  recorded  prior  to  the 
abandonment  of  the  homestead,  then  the 
grantee  under  such  abandonment  would 
undoubtedly  take  the  homestead  subject  to 
the  lien  of  the  mortgage.  In  Amer,  Sav.  & 
Loan  Assn.  v.  Burghardt,  19  Mont.  323,  it 
was  held  that  a  subsequent  declaration  of 
abandonment  by  husband  and  wife  gives 
no  validity  to  a  void  mortgage  of  the 
homestead,  but  it  has  nowhere  been  held 
that  a  subsequent  abandonment  will  render 
invahd  a  prior  valid  mortgage.  {Inquiry 
from  Mont.,  June,  1919.) 

Questions  of  priority 

Agreement  subordinating  senior  to 
junior  mortgage 

2289.  Will  the  lien  of  a  senior  mortgage 
be  subordinated  to  that  of  a  junior  encum- 
brance where  an  agreement  to  that  effect 


is  made  between  the  parties  to  the  first 
mortgage  or  between  the  two  mortgagees? 
Opinion:    The  authorities  are  to  the  effect 
that  the  lien  of  a  senior  mortgage  will  be 
subordinated  to  that  of  a  junior  encum- 
brance,  where  an  agreement  is  made  be- 
tween the  parties  to  the  first  mortgage  or 
between    the    two    mortgagees.     See,    for 
example,  Sanders  v.  Barlow,  21  Fed.  836. 
Loucks  V.   Union  Bank,  2  La.  Ann.   617. 
Walters  v.  Ward,  153  Ind.  578.    But  it  was 
held  in  an  early  case  in  New  York  (Bank  for 
Savings    v.    Frank,    56    How.    Prac.    403, 
affirmed  45  N.  Y.   Super.   Ct.  404)   that, 
while  such   a  subordination   agreement  is 
vahd  and  binding  between  the  parties,  it  is 
not  binding  upon  an  assignee  of  the  first 
mortgage   for   value   and    without   notice. 
It  was  held  in  that  case  that  the  agreement 
was  not  such  a  one  as  was  entitled  to  be 
recorded   under   the   recording   statute   in 
effect   at   that   time   and   hence   a   record 
thereof    was    not    constructive    notice    to 
anybody.     The  Connecticut  recording  acts 
entitle  such  an  agreement  to  be  recorded  so 
that   the   record    would    constitute  notice. 
See  Genl.   Stats,   of  Conn.,   Section  4036. 
As  between  the  first  and  second  mortgages 
tke  agreement  is  valid  and  gives  priority 
to   the   second   mortgage.      {Inquiry  from 
Conn.,  Aug.,  1915.) 

Recorded  writing  subordinating  first  to  second 
corporate  mortgage 

2290.  A  corporation  issued  bonds  se- 
cured by  a  first  mortgage  on  its  plant,  these 
bonds  being  registered  and  held  in  its 
treasury.  Later,  and  before  any  of  these 
bonds  were  sold,  the  corporation  issued  a 
second  mortgage.  Still  later,  and  before 
any  bonds  secured  by  the  first  mortgage 
had  been  sold,  it  executed  and  recorded  a 
writing  declaring  the  second  mortgage  a 
prior  lien  to  the  first  mortgage.  Subse- 
quently bonds  were  sold  and  pledged  to  a 
bank  as  collateral  for  a  loan  by  an  innocent 
purchaser.  Can  the  bank,  as  an  innocent 
purchaser,  enforce  payment  of  these  bonds 
against  the  first  mortgage  security  against 
which  they  were  originally  issued?  Also,  if 
the  bank  is  afterwards  notified  of  the  facts 
and  continues  to  renew  the  loan  from  time 
to  time,  will  its  original  position  be  changed? 
Opinion:  The  sale  of  the  bonds  which  were 
secured  by  the  "first  mortgage"  carried  to 
the  vendee  of  such  bonds  the  full  benefit 
of  the  security,  but  if  such  first  mortgage 
was  not  recorded  (as  would  seem  to  be  the 
case)  and  a  subsequently  executed  mortgage 


523 


2291-2293] 


DIGEST  OF  LEGAL  OPINIONS 


was  recorded,  then  the  purchaser  of  the 
bonds  secured  by  the  "first  mortgage" 
could  only  enforce  its  lien  subject  to  the 
lien  of  the  "second  mortgage."  See  Com- 
piled St.  of  N.  J.  (1910),  p.  3414,  Sec.  22. 
(Inquiry  from  N.  J.,  May,  1914.) 

Mortgage  to  secure  future  advances — Priority 

over    second    mortgage    where    advances 

made  after  second  mortgage  recorded 

2291.  A  bank  took  and  had  recorded  a 
mortgage  for  $2,000  upon  real  estate,  as 
collateral  to  loans  to  be  made  to  maker  for 
amounts  not  to  exceed  $2,000.  In  the 
mortgage  was  written:  "This  mortgage 
and  note  secured  thereby  are  to  be  held  by 

bank  as  a  collateral  to  such  loans  and 

advances  as  may  be  made  to  John  Doe  by 

bank,  the  principal  of  sum  not  to 

exceed  $2,000."  The  maker  has  only 
borrowed  a  part  of  the  money  when  the 
bank  learns  that  a  second  mortgage  has 
been  recorded.  Is  it  safe  in  advancing  the 
balance?  Opinion:  From  the  decisions 
cited  below,  it  would  appear  that  where 
the  bank  takes  a  mortgage  to  secure  loans 
to  $2,000,  and  only  advances  a  part  of  that 
amount  before  notice  that  a  second  mort- 
gage to  another  person  has  been  recorded, 
the  bank  would  nevertheless  be  safe  in 
advancing  the  balance  of  the  $2,000  to  the 
mortgagor  and  the  first  mortgage  would  be 
a  prior  lien  for  the  full  amount  as  against  the 
subsequent  encumbrances.  Hamilton  v. 
Rhodes,  72  Ark.  625,  83  S.  W.  351.  Hun- 
tington V.  Kneeland,  92  N.  Y.  Suppl.  944. 
Freiberg  v.  Negale,  70  Tex.  116,  7  S.  W. 
684.  Citizens  Sav.  Bk.  v.  Koch,  117 
Mich.  225.  Wagner  v.  Breed,  29  Neb. 
720,  46  N.  W.  286.  Truscott  v.  King,  6 
N.  Y.  147.  Kramer  v.  Farmers,  etc.  Bk., 
15  Ohio  203;  and  there  are  numerous  other 
decisions  to  like  effect  in  various  states. 
{Inquiry  from  Ohio,  March,  1919.) 

Assignment    of   negotiable    note    secured    by 
mortgage 

2292.  A  bank  purchased  a  note  from  the 
payee  on  the  face  of  which  appeared  the 
words,  "This  note  is  secured  by  real  estate 
mortgage";  the  assignment  of  which  was 
recorded  in  the  county  wherein  the  land  lies. 
The  note  was  returned  to  the  payee  for 
indorsement,  but  he  failed  to  return  same 
to  the  bank.  Inquiry  is  made  whether,  in 
case  this  note  has  been  transferred  to 
another  party,  a  claim  could  be  successfully 
made  that  such  transferee  is  an  innocent 
purchaser  for  value.     Opinion:     Where  a 


promissory  note  secured  by  a  mortgage  on 
real  estate  is  indorsed  and  transferred  to  a 
purchaser  without  a  formal  assignment  of 
the  mortgage,  the  security  follows  the  note 
as  an  incident  thereto.  The  purchaser 
becomes  the  equitable  owner  of  the  mort- 
gage, acquiring  an  interest  which  enables 
him  to  deal  with  it  for  all  purposes,  unless  it 
is  expressly  stipulated  to  the  contrary  by 
the  parties  to  the  transfer.  Mankato  First 
Nat.  Bank  v.  Pope,  85  Minn.  433.  Also, 
Cooper  V.  Newell,  263  Mo.  190,  172  S.  W. 
326.  Ferry  v.  Meckert,  32  N.  J.  Eq.  38; 
Matter  of  Falls,  66  N.  Y.  App.  Div.  616; 
and  other  cases.  The  fact  that  a  note 
contains  on  its  face  a  reference  to  collateral 
security  for  the  payment  thereof,  as  where  a 
note  contains  a  provision  that  it  is  secured 
by  a  lien  on  real  state,  or  that  it  is  secured 
by  mortgage,  does  not  destroy  its  negoti- 
ability. De  Hass  v.  Dilbert,  70  Fed.  227. 
Dumas  v.  Peoples  Bk.,  146  Ala.  226. 
Farmer  v.  Malvern  First  Nat.  Bk.,  89  Ark. 
132.  Zollman  v.  Jackson,  etc.,  T.  Co.,  238 
111.  290.  Branning  v.  Markham,  12  Allen 
(Mass.)  454.  But  notwithstanding  the 
indorsee  of  a  negotiable  note  secured  by 
mortgage  ordinarily  acquires  the  mortgage 
as  an  incident,  in  a  case  like  the  present, 
where  the  assignment  of  the  mortgage  to 
the  bank  is  on  record,  it  is  doubtful  if  it 
would  be  held  that  the  indorsee  of  the 
note  took  superior  rights  to  the  mortgage 
security.    (Inquiry  from  Minn.,  April,  1919.) 

Priority  of  mortgage  lien  over  subsequent 
judgment 

2293.  A  executes  a  mortgage  on  realty 
to  B  to  secure  the  payment  of  a  promissory 
note.  C  held  judgment  notes  on  which 
judgment  was  entered  after  the  mortgage 
was  recorded.  Is  the  mortgage  lien  prior  to 
the  judgment?  Opinion:  The  mortgage 
lien  has  priority.  The  general  rule  is  that 
the  lien  of  a  mortgage,  once  attached  to 
land,  continues  in  force  until  the  mortgagee 
has  received  payment  or  satisfaction  of  the 
debt  secured  thereby.  Morse  v.  Clayton, 
13  Sm.  &  M.  (Miss.)  373.  Rice  v.  Dewey, 
54  Barb.  (N.  Y.)  455.  Priest  v.  Wheelock, 
58  111.  114,  holding  that,  in  the  absence  of 
any  statutory  provision  to  the  contrary, 
the  lien  of  a  mortgage  continues,  notwith- 
standing the  debt  has  been  reduced  to  a 
judgment,  which,  by  lapse  of  time,  has 
ceased  to  be  a  lien,  unless  he  previously 
releases  it.  McMillan  v.  McMillan,  184 
lU.  230.  Hazle  v.  Bondy,  173  111.  302;  or  a 
merger  takes  place  by  his  acquisition  of  the 


524 


MORTGAGES  AND  LIENS 


[2294-2297 


legal  title  to  the  property  mortgaged  or 
until  the  debt  has  become  barred  by  the 
statute  of  limitations.  Where  a  mortgage  is 
renewed  or  extended,  at  or  before  its  maturi- 
ty, or  the  evidence  of  the  debt  secured  is 
changed,  by  the  substitution  of  new  notes  or 
otherwise,  the  lien  of  the  mortgage  is  not 
affected,  in  respect  either  to  its  continuity 
or  its  priority,  unless  it  clearly  appears  to 
have  been  the  intention  to  make  an  absolute 
payment  and  cancellation  of  the  mortgage, 
and  to  create  an  entirely  new  security. 
Bond  V.  Liverpool,  etc.,  Ins.  Co.,  106  111.  654. 
{Inquiry  from  III.,  Aug.,  1913.) 

Priority  between  judgment  and  mortgage 

2294.  On  January  2,  1918,  A  executed 
a  note  secured  by  mortgage  covering  real 
estate  which  was  given  as  collateral  security 
to  bank  B.  On  August  1,  1918,  the  note 
given  by  A  to  bank  B  was  paid.  Without 
assigning  this  mortgage,  A  by  a  separate  and 
distinct  transaction  gave  a  mortgage  to 
bank  C  to  secure  a  loan,  which  mortgage 
was  not  put  on  record  until  August  1,  1918. 
A  creditor  obtained  a  judgment  against  A 
on  June  1,  1918.  An  opinion  is  asked 
relative  to  the  rights  of  the  parties.  Opinion: 
As  above  shown,  the  judgment  against  A 
was  obtained  on  June  1, 1918,  and,  assuming 
it  was  docketed,  the  lien  thereof  immediately 
attached  to  all  the  realty  of  A  in  the  county 
so  that  while  it  was  subordinate  to  the 
mortgage  held  by  bank  B  it  had  priority 
over  the  mortgage  given  to  bank  C  on 
August  1,  1918.  {Inquiry  from  Mich., 
April,  1919.) 

Priority  of  judgment  over  mortgage  discharged 
by  payment  and  subsequently  pledged 

2295.  Jones  gave  his  note  to  a  Imnk 
secured  by  deed  of  trust  on  his  property. 
He  paid  the  note  and  received  back  the 
deed  of  trust.  Thereafter  a  creditor  ob- 
tained a  judgment  against  Jones  which 
was  docketed.  Afterwards  Jones  obtained  a 
further  loan  secured  by  the  same  deed  of 
trust.  Opinion:  The  payment  of  the  note, 
or  debt,  satisfied  the  deed  of  trust.  When 
the  creditor  obtained  the  judgment  against 
Jones  which  was  docketed  and  became  a 
lien  on  Jones'  land,  the  priority  of  this 
judgment  lien  was  not  affected  by  the  fact 
that  still  later  Jones  obtained  a  loan  from 
bank  and  hypothecated  the  same  deed  of 
trust  which  had  become  functus  officio  upon 
payment  of  the  debt  which  it  secured.  It 
has  been  held  in  many  cases  that  payment 
of  a  debt  secured  by  mortgage,  when  made 


by  the  mortgagor  to  the  holder  of  the  debt, 
for  the  purpose  of  extinguishing  it,  dis- 
charges the  mortgage  and  lifts  its  lien  from 
the  property  affected.  Kilpatrick  v.  Haley, 
66  Fed.  133.  Loewenthal  v.  McCormick, 
101  111.  143.  Stevenson  v.  Polk,  71  Iowa, 
278.    {Inquiry  from  Mo. f  June,  1919.) 

Second  mortgage  cannot  claim  priority  because 
first  mortgage  extended 

2296.  A  first  mortgagee  extended  the 
time  of  payment  of  his  mortgage.  Inquiry 
is  made  whether  a  second  mortgagee  can 
claim  priority  over  the  first  mortgage  merely 
on  the  ground  of  such  extension.  Opinion: 
The  rule  is  well  recognized  that  where  the 
first  mortgagee  grants  to  the  mortgagor  an 
extension  of  time  for  payment  of  the 
mortgage  debt,  but  without  any  intended  or 
actual  discharge  of  the  mortgage  or  accept- 
ing a  new  one  in  its  place,  and  without  any 
fraudulent  intent  as  to  the  second  mortgagee, 
the  latter  cannot  claim  to  be  preferred  to  the 
first  mortgage  merely  on  the  ground  of  such 
extension.  Fry  v.  Shehee,  55  Ga.  208. 
Kraft  V.  Holzman,  206  III.  548.  French  v. 
Poole,  111  Pac.  488.  Whittacre  v.  Fuller, 
5  Minn.  508.  Farmers  Bk.  v.  Mut.  Assur. 
Soc,  4  Leigh  (Va.)  69.  Sheridan  First 
Nat.  Bk.  V.  Cit.  St.  Bk.,  11  Wyo.  32.  Willis 
V.  Sanger,  15  Tex.  Civ.  App.  655.  See  also 
Lord  V.  Morris,  18  Cal.  482.  {Inquiry 
from  Cal.,  Nov.,  1916.) 

Extended  first  mortgage  retains  priority  over 
second  unless  outlawed 

2297.  A  savings  bank  holds  a  note 
secured  by  first  mortgage  on  property 
falhng  due  February  1,  1917,  and  a  second 
mortgage  has  been  given  thereon  which 
falls  due  on  the  same  date.  The  bank 
desires  to  extend  its  note  and  first  mortgage 
for  a  period  of  three  years  from  its  due 
date.  The  bank  asks  (1)  whether,  if  it 
executes  and  records  a  written  instrument 
reciting  that  the  mortgage  has  been  extended 
in  accordance  therewith,  it  will  lose  its 
position  as  first  lien  holder  and  the  second 
mortgage  become  a  first  lien;  (2)  whether 
in  case  the  bank's  mortgage  became  out- 
lawed it  could  have  an  extension  agree- 
ment executed  and  still  hold  its  first  mort- 
gage lien  even  though  there  were  other 
liens  secondary  thereto  which  had  not  be- 
come outlawed.  Opinion:  1.  The  rule  is  well 
recognized  that,  where  a  first  mortgagee 
grants  to  the  mortgagor  an  extension  of 
time  for  payment  of  the  mortgage  debt,  but 
without  any  intended  or  actual  discharge 


525 


2298] 


DIGEST  OF  LEGAL  OPINIONS 


of  the  mortgage  or  taking  a  new  one,  and 
without  any  fraudulent  intent  as  regards 
the  second  mortgagee,  the  latter  cannot 
claim  to  be  preferred  to  the  first  mortgage 
merely  on  the  ground  of  such  extension. 
Fry  V.  Shehee,  55  Ga.  208.  Kraft  v. 
Holzmann,  206  111.  548.  French  v.  Poole, 
111  Pac.  488.  It  has  been  further  held  that 
where,  as  in  the  instant  case,  a  note  is  also 
given  in  connection  with  the  mortgage,  the 
mortgage  so  given  would  continue  to  be  a 
first  lien  until  the  note  became  barred  by 
the  statute  of  limitations.  Wittacre  v. 
Fuller,  5  Minn.  508.  Farmers'  Bk.  v.  Mut. 
Assur.  Soc,  4  Leigh  (Va.)  69.  Sheridan 
First  Nat.  Bk.  v.  Citizens  St.  Bk.  11  Wyo. 
32;  in  which  latter  case  it  was  held  that  the 
taking  of  a  new  note  in  place  of  the  one 
originally  given  does  not  generally  operate 
as  an  extinguishment  of  the  lien  of  the 
mortgage  securing  the  debt,  unless  it  is  the 
actual  and  express  intention  of  the  parties; 
that  the  mere  extension  of  the  time  of 
payment  of  the  debt  by  a  mortgagee  in  no 
way  impairs  the  security  even  as  against 
subsequent  incumbrances,  although  the 
extension  may  have  been  made  by  a  renewal 
of  the  mortgage.  2.  In  the  early  case  of 
Lord  v.  Morris,  18  Cal.  482,  it  was  held  that 
where  a  note  is  secured  by  mortgage  upon 
real  property,  and  subsequently,  after  the 
remedy  on  the  note  is  barred  by  the  statute, 
the  mortgagor  executes  a  second  mortgage 
to  a  third  party,  such  third  party  can  inter- 
pose a  plea  of  the  statute  of  limitations  in  a 
suit  to  foreclose  the  first  mortgage,  and 
thus  acquire  priority  for  his  subsequent 
mortgage;  and  this,  even  though  the  mort- 
gagor had,  after  the  execution  of  the 
second  mortgage  and  after  the  note  was 
barred,  indorsed  the  first  note  and  re- 
newed, revived  and  agreed  to  pay  the  same. 
See,  also,  Wood  v.  Goodfellow,  43  Cal. 
185.  Branderstein  v.  Johnson,  140  Cal. 
29.  Redondo  Imprv.  Co.  v.  O'Shaughnessy, 
168  Cal.  325.  (inquiry  from  Cal.,  Nov., 
1916.) 

Extension  of  time  of  payment 

Methods  of  extending  unpaid  mortgage 
security 

2298.  Advice  is  asked  as  to  which  of  the 
following  methods  of  taking  care  of  a 
matured  real  estate  mortgage  affords  the 
greatest  protection:  1.  "To  execute  and 
record  an  extension  of  mortgage.  (Will  the 
filing  of  such  an  extension  allow  previously 
filed  liens,  mortgages,  etc.,  which  are  of 
record  subsequent  to  the  first  mortgage  to 


take  precedence  thereto?)"  2.  "To  allow 
the  original  first  mortgage  and  note  to 
remain  past  due.  (How  long  can  a  matured 
mortgage  retain  its  security  land  prece- 
dence?) "  3.  "To  have  executed  a  new  mort- 
gage and  note.  (What  is  the  proper  method 
of  negotiating  the  renewal  to  insure  the 
mortgagee,  absolutely,  against  the  filing  of 
some  lien  or  other  mortgage  between  the 
fifing  of  release  and  new  indenture?)" 
Opinion:  1.  An  agreement  by  a  mortgagee  to 
extend  the  time  for  payment  of  the  debt 
secured  by  a  mortgage,  whether  indorsed 
on  the  instrument  or  otherwise  evidenced, 
will  continue  the  lien  of  the  mortgage  and 
all  his  rights  and  remedies  thereunder  for 
the  new  period.  Lent  v.  Morrill,  25  Cal. 
492.  Bennesson  v.  Savage,  130  111.  352. 
Cook  V.  Gilchrist,  82  Iowa  277.  Griffin  v. 
Walter,  74  Mich.  1.  Eby  v.  Ryan,  22  Neb. 
470.  Veerhof  v.  Miller,  51  N.  Y.  Supp. 
1048.  Hinton  v.  Ferebee,  107  N.  C.  154. 
Union  Cent.  L.  Ins.  Co.  v.  Bonnell,  35 
Ohio  St.  365.  Cleveland  v.  Martin,  2 
Head  (Tenn.)  128.  Montague  County  v. 
Meadows,  28  Tex.  Civ.  App.  256.  Warner 
V.  Conn.  Mut.  Life  Ins.  Co.,  109  U.  S.  357. 
2.  Duration  of  Lien.  The  Hen  of  a  mort- 
gage, once  attached  to  land,  continues  in 
force  until  the  mortgagee  has  received 
payment  or  satisfaction  of  the  debt  secured 
(Schroeder  v.  Wolf,  127  111.  App.  506. 
Morse  v.  Clayton,  13  Sm.  &  M.  Miss.  373. 
Rice  V.  Dewey,  54  Barb.  [N.  Y.]  455)  unless 
he  previously  releases  it,  or  a  merger  takes 
place  by  his  acquisition  of  the  legal  title  to 
the  property  mortgaged  (McMillan  v. 
McMillan,  184  111.  230.  Hazle  v.  Bondy, 
173  111.  302.  Mut.  Mills  Ins.  Co.  v.  Gordon, 
20  111.  App.  559),  or  until  the  debt  has 
become  barred  by  the  statute  of  limitations. 
In  Wisconsin  this  period  would  be  twenty 
years.  (Wis.  St.  1917,  Sec.  4220.  See  also 
Wells  V.  Scanlan  124  Wis.  229.)  3.  Effect 
of  taking  new  mortgage.  The  execution  of 
a  new  mortgage  on  the  same  property  to 
secure  the  same  debt  covered  by  the  old 
mortgage  will  release  and  discharge  it  if 
intended  by  the  parties  to  operate  as  a 
payment  or  satisfaction,  or  to  cancel  one 
security  to  substitute  the  other.  (William- 
son V.  Strong,  [Cal.]  68  Pac.  484.  Walters 
V.  Walters,  73  Ind.  425.  Friend  v.  Yahr,  126 
Wis.  291.  Brown  v.  Bass,  4  Wall.  [U.  S.] 
262.)  Certainly  it  is  not  discharged  if  the 
purpose  of  the  parties  was  merely  to  give 
and  receive  an  additional  or  cumulative 
security  (Dillon  v.  Bjrrne,  5  Cal.  455. 
Whitney  v.  Trainer,  74  Wis.  289)  or  to  renew 


526 


MORTGAGES  AND  LIENS 


[2299-2302 


the  loan  or  extend  the  time  for  its  payment, 
in  which  case  the  Hen  of  the  original  mort- 
gage is  simply  continued,  without  interrup- 
tion, by  and  under  the  new  mortgage.  It 
was  held,  Gerb  v.  Reynolds,  35  Minn.  331, 
that,  if  the  holder  of  a  mortgage  takes  a 
new  mortgage  as  a  substitute  for  a  former 
one,  and  releases  the  latter  in  ignorance  of 
the  existence  of  an  intervening  lien  upon  the 
mortgaged  premises,  equity  will,  in  the 
absence  of  some  disqualifying  circumstance, 
restore  the  lien  of  the  first  mortgage. 
{Inquiry  from  Wis.,  Dec,  1919.) 

2299.  A  bank  requests  an  outline  of  the 
different  methods  of  banks  in  renewing 
mortgage  loans.  Opinion:  The  same  are  as 
follows:  (1)  Crediting  payments  on  the 
back  of  the  mortgage  note,  (2)  Taking  new 
note  and  retaining  original  as  collateral, 
(3)  Taking  new  note  and  surrendering  the 
old,  but  marking  the  new  note  "renewal," 
the  mortgage  expressly  providing  that  it  is 
security  for  renewals.  All  these  methods, 
from  a  legal  standpoint,  are  sufficient  to 
preserve  the  security  and  the  question 
resolves  itself  into  one  of  practicabiUty — 
By  what  method  is  the  transaction  more 
easily  or  readily  handled?  There  is  some 
danger,  where  an  original  mortgage  note  is 
surrendered  and  a  new  note  taken,  that  it 
might  be  held  a  payment  and  extinguish- 
ment of  the  debt  and  a  relinquishment 
of  the  mortgage  security.  This,  the  courts 
hold,  is  a  matter  of  intention,  and  where 
the  intention  of  the  parties  is  that  the 
debt  and  security  were  to  be  continued, 
the  courts  give  effect  to  such  intention. 
(Inquiry  from  S.  C,  Jan.,  1920.) 

Extension  of  mortgage  debt  at  greater  rate 

2300.  A  bank  holds  a  mortgage  bearing 
interest  at  6%  that  matured  on  May  1, 
1920.  The  mortgagor  wishes  a  renewal  for 
five  years  at  the  rate  of  63^%.  The  bank 
does  not  desire  to  accept  a  new  mortgage 
and  note,  but  is  willing  that  the  existing 
mortgage  be  extended  by  agreement  for  the 
requested  period  at  said  increased  rate  of 
interest.  Inquiry  is  made  as  to  the  legality 
of  the  proposed  transaction.  Opinion: 
Where  a  mortgagee  grants  to  the  mortgagor 
an  extension  of  the  time  of  payment  of  the 
mortgage  debt,  but  without  any  actual  or 
intended  discharge  of  the  mortgage  or 
taking  a  new  one,  and  without  any  fraudu- 
lent intent  as  regards  junior  incumbrances, 
the  latter  cannot  claim  to  be  preferred  to 
the  first  mortgage  merely  on  the  ground  of 
such  extension.    Fry  v.  Shehee,  55  Ga.  208. 


Kraft  V.  Holzmann,  206  111.  548.  Whittacre 
V.  Fuller,  5  Minn.  508.  Farmers  Bk.  v. 
Mt.  Assur.  Soc,  4  Leigh  (Va.)  69.  Sheridan 
First  Nat.  Bk.  v.  Cit.  State  Bk.,  11  Wyo.  32, 
70  Pac.  726.  In  the  case  submitted,  an 
extension  agreement,  with  a  provision  that 
the  mortgage  shall  bear  interest  at  the  rate 
of  63/^%  for  the  extension  period,  would 
be  perfectly  legal,  but  such  agreement 
should  be  recorded  in  order  to  protect  the 
mortgage  against  junior  incumbrances.  Min- 
nesota has  a  statute  which  provides  that 
contracts  shall  bear  the  same  rate  of  interest 
after  maturity  as  before,  and  that  any 
provision  in  any  contract,  note  or  instru- 
ment providing  for  an  increase  of  the  rate  of 
interest  after  maturity,  shall  work  a  for- 
feiture of  the  entire  interest.  Genl.  Stat. 
Minn.  1913,  Sec.  5805.  Green  v.  Northw. 
T.  Co.,  128  Minn.  30.  This  statute  goes 
upon  the  theory  that  such  increased  rate  of 
interest  after  maturity  is  in  the  nature  of  a 
penalty,  and  against  public  policy,  and  is, 
therefore,  declared  unenforceable.  It  mani- 
festly has  no  appUcation  to  an  agreement 
such  as  in  the  instant  case,  where  a  new 
agreement  is  entered  into  upon  the  maturity 
of  the  mortgage,  based  upon  a  valid  consider- 
ation— namely,  the  five  years'  extension  of 
the  mortgage.  (Inquiry  from  Minn.,  May, 
1920.) 

Partial  payment  hy  and  extension  to  sole  heir 
of  mortgagor 

2301.  A  person  mortgaged  his  real  estate 
to  a  bank  and  died  before  the  mortgage 
became  due.  It  is  asked  if  the  bank  would 
be  safe  in  accepting  partial  payment  from 
the  widow  who  is  sole  heir  and  extending  the 
mortgage?  Opinion:  Under  the  rule  that 
pajonent  of  a  debt  secured  by  a  mortgage 
may  be  made  by  any  person  having  a  right 
or  interest  in  the  property  which  he  is 
obhged  to  protect  by  paying  the  mortgage, 
thereby  subrogating  him  to  the  rights  of  the 
mortgagee,  a  widow  may  pay  off,  or  make 
partial  payments  on,  a  mortgage  on  realty 
of  her  deceased  husband  and  thereby  be 
subrogated  to  the  rights  of  the  mortgagee 
therein  and  a  partial  payment  by  her  of  the 
principal  of  the  mortgage,  particularly  where 
she  is  the  sole  heir  or  devisee,  will  be  a  valid 
consideration  and  ample  protection  to  the 
mortgagee  in  extending  the  mortgage. 
Stinson  v.  Anderson,  96  111.  373.  (Inquiry 
from  III.,  April,  1917.) 

Insurance 

Mortgage  clause  in  insurance  policies 

2302.  The  building  occupied  by  a  bank 


527 


2303-2307] 


DIGEST  OF  LEGAL  OPINIONS 


on  which  it  holds  a  mortgage  for  $10,000, 
is  owned  by  a  holding  company.  The  bank 
holds  policies  of  insurance  thereon  issued  to 
the  holding  company  aggregating  $20,000. 
Up  to  the  present  the  bank  has  had  mortgage 
clause  attached  on  only  enough  of  the 
insurance,  $10,000,  to  cover  amount  of  its 
loan.  The  bank  is  advised  by  an  attorney 
that  the  clause  should  be  attached  to  all 
the  policies  covering  the  building  in  view 
of  the  existence  of  the  mortgage  thereon. 
An  opinion  is  asked  by  the  bank  as  to  the 
effect  of  such  situation.  Opinion:  Insur- 
ance taken  by  the  holding  company  in  its 
own  interest  would  not  inure  to  the  benefit 
of  the  bank,  although  if  procured  by  the 
mortgagor  under  an  obligation  to  insure 
for  the  mortgagee's  benefit,  the  proceeds 
recovered  by  the  mortgagor  would  be  held 
in  trust  for  the  mortgagee.  In  the  case 
submitted  by  the  bank  the  reason,  perhaps, 
the  attorney  advised  that  the  mortgage 
clause  should  be  attached  to  all  the  policies 
covering  the  building  is  that  where  other 
insurance  is  taken  out  in  which  the  bank 
is  not  the  beneficiary  to  the  extent  to  which 
its  interest  may  appear,  the  bank's  interest 
may  be  directly  damaged  by  scaling  down 
its  insurance  by  reason  of  the  pro  rata 
clauses  contained  in  the  various  policies. 
See  Wilson  v.  Guyer,  53  111.  App.  348,  and 
Ames  V.  Richardson,  29  Minn.  330,  on  this 
point.    {Inquiry  from  Wis.,  Feb.,  1920.) 

Statute  of  limitations 

Fifteen  year  period  in  Minnesota 

2303.  Information  is  sought  as  to  the 
law  governing  limitation  of  actions  on  real 
estate  mortgages.  Opinion:  No  action  or 
proceeding  can  be  maintained  to  foreclose 
a  real  estate  mortgage  unless  commenced 
within  fifteen  years  from  the  maturity  of 
the  whole  debt  secured  thereby,  and  this 
limitation  shall  not  be  extended  by  reason  of 
non-residence  of  any  party  interested  in  the 
land,  nor  by  reason  of  any  payment  made 
after  maturity,  nor  by  reason  of  any  exten- 
sion of  the  time  of  payment  of  the  mortgage 
or  the  debt  or  obligation  thereby  secured 
or  any  portion  thereof,  unless  such  extension 
be  in  writing  and  recorded  in  the  same  office 
in  which  the  original  mortgage  is  recorded 
within  the  said  limitation  period.  See  Genl. 
Stat.  Minn.  (1913)  Sees.  7698,  7699.  {In- 
quiry from  Minn.,  Feb.,  1916.) 

Twenty  year  period  in  New  York 

2304.  An  opinion  is  asked  relative  to 
enforceability  of  a  mortgage  thirty-six  years 


old,  upon  which  there  has  been  no  payment 
either  of  principal  or  interest.  Opinion: 
The  Code  of  Civil  Procedure  fixes  a  limita- 
tion of  twenty  years  within  which  actions 
may  be  brought  upon  sealed  instruments. 
It  is  said,  in  Herbert  v.  Clark,  128  N.  Y.  295, 
that:  "The  mortgage,  being  under  seal,  can 
be  foreclosed  by  action  at  any  time  within 
twenty  years.  It  is  only  an  action  upon  the 
notes  that  is  barred  after  six  years."  The 
instant  mortgage  is  outlawed,  unless  there 
has  been  some  particular  acknowledgment 
or  extension  to  keep  it  alive.  {Inquiry 
from  N.  Y.,  Aug.,  1920.) 

Payment  and  satisfaction 

Notice  of  intention  to  pay  principal  at  matu- 
rity of  interest  installment 

2305.  A  first  mortgage  real  estate  note 
gave  the  maker  the  option  to  pay  $100  or 
any  multiple  thereof  on  the  principal  at  the 
maturity  of  any  coupon  by  giving  the  holder 
of  the  note  thirty  days'  notice  in  writing  of 
his  intention.  The  maker  gave  notice  that 
he  would  pay  the  whole  note  at  maturity  of  a 
certain  interest  coupon.  At  such  maturity 
the  maker  paid  the  interest  but  concluded 
not  to  pay  the  principal  until  it  was  due. 
Opinion:  The  mere  giving  of  notice  of 
intention  does  not  mature  the  note,  where 
the  intention  has  not  been  carried  out  by 
payment  of  the  principal.  {Inquiry  from 
Mo.,  April,  1911,  Jl.) 

Release  by  alternative  payee  of  mortgage  note 

2306.  A  mortgage  note  payable  to  a 
bank  was  indorsed  by  the  bank  to  John  Doe 
or  Anna  Doe  without  recourse.  John  Doe 
died  and  the  mortgagor  is  ready  to  pay  the 
note  at  maturity,  but  hesitates  to  receive  the 
release  signed  by  Anna  Doe.  Opinion: 
Anna  Doe  could  execute  a  good  release  to  the 
mortgagor  upon  payment  and  surrender  of 
the  note.  The  note  indorsed  by  the  bank 
payable  to  alternative  payees  is  negotiable 
under  the  Negotiable  Instruments  Law  and 
the  indorsement  by  either  one  of  the  payees 
passes  title.  Colo.  Neg.  Inst.  Act,  Sees. 
5058,  5091.  Union  Bk.  v.  Spies,  151  Iowa 
178.    {Inquiry  from  Colo.,  Jan.,  1916,  Jl.) 

Satisfaction   of  mortgage    acquired    by    bank 
merger 

2307.  Where  a  bank  purchases  the  assets 
and  assumes  the  liabilities  of  two  other 
banks,  effecting  a  complete  merger  thereof, 
can  such  bank,  as  the  successor  of  the  two 
merged  banks,  satisfy  or  assign  mortgages 
running    to    either    of    these    institutions? 


528 


MORTGAGES  AND  LIENS 


[2308-2311 


Opinion:  A  Valid  and  effectual  release  of  a 
mortgage  can  only  be  given  by  the  person 
who  is  the  rightful  owner  of  the  debt  which 
secures  it;  hence,  after  an  assignment  of  the 
debt  and  mortgage,  authority  to  give  a 
release  resides  in  the  assignee,  not  in  the 
assignor.  (Center  v.  Elgin  City  Bank  Co., 
185  111.  534,  57  N.  E.  439.  George  v. 
Somerville,  153  N.  W.  7,  54  S.  W.  491. 
Frerking  v.  Thomas,  64  Neb.  193,  89  N.  W. 
1005.  Tradesmen's  Build.,  etc.,  Assoc,  v. 
Thompson,  31  N.  J.  Eq.  536.)  In  the 
instant  case  all  the  assets  of,  including 
debts  due  to,  the  merged  corporations, 
automatically  became  the  property  of  the 
new  institution  immediately  upon  consoli- 
dation, unless  specifically  excepted  there- 
from, and  the  latter  bank  was  thereafter 
the  only  party  who  could  execute  a  valid 
satisfaction  piece  as  the  owner  of  the 
mortgages.  (See  Owensboro v.  Tel.,  etc.,  Co., 
230  U.  S.  58.  Otis  v.  Mines  Co.,  15  Ariz. 
264.  Trust  Co.  v.  Zinser,  264  111.  31,  105 
N.  E.  718.  In  re  Bergdorf,  206  N.  Y.  309, 
99  N.  E.  714.  Dalmas  v.  R.  R.  Co.,  254 
Pa.  St.  9.)  {Inquiry  from  Minn.,  June,  1919.) 

Place  of  'payment  of  mortgage  note 

2308.  A  mortgage  note  does  not  state 
where  it  is  payable.  B,  the  mortgagee, 
moves  to  another  state  and  mortgage  be- 
comes due.  A,  the  mortgagor,  wishes  to 
pay  it  off.  Is  it  his  duty  to  locate  B,  and 
remit  to  him,  or  should  B  have  the  mortgage 
presented  to  A,  and  if  so,  who  should  pay 
the  expense  attached  to  the  presentation? 
Opinion:  The  rule  both  in  England  and  the 
United  States  is  that  where  a  mortgage  note 
becomes  due  and  does  not  state  where  it  is 
payable,  the  maker  must  seek  out  the 
holder,  if  witliin  the  state,  and  make  tender 
to  him.  But  if  the  holder  has  removed  to 
another  state,  the  debtor  is  not  obliged  to 
follow  him,  and  readiness  to  pay  within  the 
state  will  save  a  forfeiture.  Weyand  v. 
Park  Terrace  Co.,  (N.  Y.)  95  N.  E.  723. 
Hale  v.  Patton,  60  N.  Y.  233.  Shepp. 
Touch.  Sec.  136.  {Inquiry  from  Neb., 
July,  1919,  Jl.) 

Surrender  by  mortgagee  of  uncancelled  note  and 
mortgage  to  stranger 

2309.  A  bank  holds  a  note  secured  by 
mortgage  and  receives  the  money  thereon 
from  one  other  than  the  maker  without 
cancelling  the  note  but  delivers  the  payor 
the  note  and  mortgage.  It  is  asked  what 
Uability  the  bank  incurs  by  so  doing. 
Opinion:    It  does  not  seem  that  the  bank 


incurs  any  liabihty.  The  transaction  is 
more  in  the  nature  of  a  sale  of  the  note  and 
mortgage  and  purchase  thereof  than  pay- 
ment, and  the  bank  certainly  has  a  right  to 
sell  and  assign  the  note  and  mortgage. 
Assuming  the  transaction  to  be  payment  by 
a  stranger  and  not  a  sale,  such  payment 
would  discharge  the  debt  and  the  payor 
would  have  no  recourse  upon  the  maker  of 
the  note;  but  it  seems  such  a  transaction 
would  be  construed  as  a  purchase  and  not  a 
payment  of  the  debt.  {Inquiry  from  Mo., 
March,  1920.) 

Payment  of  coupons  on  called  bonds 

2310.  The  usual  provision  in  trust 
mortgages  for  optional  acceleration  of 
bonds  prescribes  newspaper  publication, 
but  this  is  not  adapted  to  the  giving  of 
actual  notice  to  all  the  bond  holders.  Kirk- 
bride,  Sterrett  and  Wilhs'  "Modern  Trust 
Company"  (Fifth  Edition),  p.  271,  offers  the 
following  suggestion:  "It  is  well  to  refuse 
payment  of  the  coupon  due  on  the  date  when 
interest  ceased  unless  the  called  bond  is 
presented  at  the  same  time."  A  bank 
criticizes  this  procedure.  Opinion:  The 
method  suggested  seems  rather  drastic  and 
unwarranted.  At  the  same  time,  may  it 
not  be  better  and  more  to  the  interest  of  the 
bond  holder  to  dishonor,  without  technical 
right,  the  particular  coupon  than  to  await 
presentment  of  the  next  coupon  which  will 
certainly  be  dishonored  and  the  holder  of 
the  coupon  lose  six  months  interest  in  the 
interim?  May  dishonor  of  the  coupon  not 
also  be  justified  upon  the  theory  that  as  the 
bond,  by  reason  of  the  published  notice,  is 
due  as  well  as  the  coupon,  the  corporation  is 
entitled  to  make  payment  of  the  whole 
debt  and  not  merely  that  part  of  the  debt 
represented  by  the  coupon?  The  book 
quoted  gives  as  an  alternative  "or  if  the 
coupons  are  paid,  pains  should  be  taken 
to  notify  the  payee  of  the  call."  If  this  is 
practicable,  it  would  be  the  better  method. 
{Inquiry  from  Wis.,  Jan.,  1921.) 

Foreclosure  of  mortgage 

Remedy  in  Iowa 

2311.  In  the  case  of  the  foreclosure  of  a 
mortgage  on  realty  in  Iowa,  a  personal 
judgment  is  rendered  against  the  mortgagor 
(save  in  some  excepted  cases),  and  a  special 
execution  issues  against  the  mortgaged 
property;  and  where  the  debt  is  not  satisfied 
a  general  execution  for  the  deficiency  issues 
against  any  other  realty  than  held  by  the 
mortgagor.     In  the  case  of  the  foreclosure 


529 


2312-2315] 


DIGEST  OF  LEGAL  OPINIONS 


of  a  chattel  mortgage  in  Iowa,  where  the 
proceeds  of  a  sale  of  the  mortgaged  chattels 
are  insufficient  to  pay  the  mortgage,  the 
mortgagor  is  personally  hable  for  the  defi- 
ciency. Grand  Island  Sav.,  etc.,  Assoc,  v. 
Moore,  40  Neb.  686.  WilHams  Bros.  v. 
Hanmer,  132  Mich.  635.  Elmore  v.  Higgins, 
20  Iowa  250.  Kennion  v.  Kelsey,  10  Iowa 
443.  Weil  v.  Church,  52  Iowa  253.  Chit- 
tenden &  Co.  V.  Gossage,  18  Iowa  157. 
Demond  v.  Crary,  9  Fed.  750.  Pike  v. 
Gleason,  60  Iowa  150.  Iowa  Code,  1897, 
Ch.  7,  Sees.  4289,  4290.  Iowa  Code,  1897, 
Ch.  9,  Sees.  3801,  3802.  Aetna  L.  Ins.  Co. 
V.  Hesser,  77  Iowa  381.  Handy  v.  Tracy, 
150  Mass.  524.  Comer  v.  Lehman,  87  Ala. 
362.  Com.  Bk.  v.  Davidson,  18  Ore.  57. 
Lynch  v.  Naylor,  63  111.  App.  107.  Mannen 
V.  Bailey,  51  Kan.  442.  Dinning  v.  Gavin, 
4  N.  Y.  App.  Div.  298.  Iowa  Code,  1897, 
Ch.  7,  Sec.  4286.  {Inquiry  from  Iowa, 
June,  1915,  Jl) 

Foreclosure  of  second  mortgage 

2312.  A  bank  asks:  (1)  Whether  a 
second  mortgage  on  real  estate  in  Wyoming 
may  be  foreclosed  without  reference  to  a 
prior  mortgage,  and  (2)  If  there  is  anything 
in  the  Federal  Farm  Loan  Act  that  would 
prevent  the  foreclosure  of  a  second  mortgage 
prior  to  the  maturity  of  a  first  mortgage. 
Opinion:  (1)  It  is  held  by  the  courts  in 
numerous  cases  that,  where  the  sale  is 
made  on  foreclosure  of  a  junior  mortgage 
or  trust  deed,  the  purchaser  does  not  acquire 
an  absolute  title  but  only  the  mortgagor's 
equity  of  redemption;  that  is,  he  takes 
subject  to  the  older  lien.  Grahan  v.  King, 
15  Ala.  563.  Scheppelmann  v.  Fuerth,  87 
Mo.  351.  The  Federal  Farm  Loan  Act  pro- 
vides that  no  Federal  Land  Bank  shall 
make  loans  except  upon  the  security  of 
first  mortgages.  There  seems  to  be  nothing 
in  the  Act  which  would  prevent  a  second 
mortgagee  from  foreclosing  his  mortgage 
prior  to  the  maturity  of  the  first  mortgage 
held  by  the  farm  land  bank.  But,  of  course, 
the  purchaser  would  take  the  property 
subject  to  the  first  mortgage.  {Inquiry 
from  Wyo.,  May,  1918.) 

Foreclosure  of  mortgage  securing  corporate 
bonds — Liability  of  guarantors 

2313.  A  bank  interested  in  some  bonds 
presents  this  situation:  A  trust  company, 
as  trustee  for  bondholders,  commenced  an 
action  to  foreclose  a  mortgage  because  of 
default  in  payment  of  principal  and  interest 
due    on    the    bonds.      There    were    three 


guarantors  of  payment  thereof,  all  of  whom 
were  made  defendants  in  the  foreclosure 
action.  The  bank  asks  whether  the  re- 
sources of  the  maker  of  the  bonds  or  notes 
must  be  exhausted  before  recourse  can  be 
had  to  the  guarantors.  Opinion:  It  has 
been  held  that  where  a  third  person  guaran- 
tees the  payment  of  a  bond  or  note  secured 
by  mortgage,  he  is  not  liable  until  after 
resort  is  made  to  the  mortgage  security. 
Johnson  v.  Cook,  24  Wash.  474.  But  see, 
contra,  Hartman  v.  Lancaster,  etc.,  Bank, 
103  Pa.  St.  581.  Mizner  v.  Spier,  96  Pa. 
St.  533.  Stearns  Sur.  Sec.  61.  And  a 
guaranty  of  payment  has  been  generally 
held  to  be  an  absolute  undertaking  imposing 
liabiUty  upon  the  guarantor  immediately 
upon  the  default  of  the  principal  debtor 
and  regardless  of  whether  any  steps  were 
taken  to  enfore  the  liabihty  of  the  principal 
debtor,  or  whether  notice  of  the  default  was 
given  to  the  guarantor.  Kalman  v.  Scar- 
boro,  11  Ga.  App.  547.  Cownie  v.  Dodd, 
167  Iowa,  627.  Bank,  etc.,  Co.  v.  Concienne, 
140  La.  929.  Sanford  v.  Allen,  1  Cush. 
(Mass.)  473.  Bank  v.  Schirmer,  (Minn.) 
159  N.  W.  800,  and  many  other  cases  might 
be  cited.    {Inquiry  from  Wis.,  March,  1919.) 

Liens 

Priority  between  mortgage  and  mechanic's  lien 

2314.  A  mortgagor  caused  some  improve- 
ments to  be  made  upon  his  property  after 
he  had  mortgaged  it  to  a  bank.  The  party 
making  the  improvements  was  not  paid 
and  duly  filed  a  mechanic's  lien.  Thereupon 
the  property  was  sold,  but  the  proceeds  were 
only  sufficient  to  cover  the  mortgage.  Opin- 
ion: In  the  absence  of  a  statute  giving  the 
mechanic's  hen  priority,  a  prior  recorded 
mortgage  takes  precedence  over  a  subsequent 
mechanic's  lien.  {Inquiry  from  N.  C, 
Oct.,  1908,  Jl.) 

Landlord's  lien  on  crops 

2315.  The  owner  of  a  farm  filed  a  lease 
containing  an  agreement  by  the  lessee  to 
execute  a  chattel  mortgage  on  the  crops  as 
soon  as  planted  and  growing  as  security 
for  the  rent  notes.  Opinion:  The  lessor 
would  probably  not  be  protected  against  a 
subsequent  mortgagee  of  the  crops  after 
they  were  grown,  in  the  event  the  promised 
mortgage  was  not  given.  It  is  doubtful  if 
the  filed  lease  would  affect  the  rights  of  a 
subsequent  mortgagee  of  the  crops  and,  in 
any  event,  it  has  been  held  in  Nebraska 
that  the  lien  of  a  chattel  mortgage  on  a 
crop  not  planted  will  not  attach  to  the 


530 


MORTGAGES  AND  LIENS 


[2316-2318 


future  crop.  Forrester  v.  Kearney  Nat. 
Bk.,  49  Neb.  655.  Meyer  v.  Miller,  51  Kan. 
620.  Cole  V.  Kerr.  19  Neb.  553.  New 
Lincoln  Hotel  Co.  v.  Shears,  57  Neb.  478. 
Brown  v.  Neilson,  61  Neb.  765.  {Inquiry 
from  Neb.,  Nov.,  1914,  Jl.) 

Note:  In  some  states  a  landlord  is 
given  a  statutory  lien  on  crops  for  rent 
reserved.  There  is  no  such  statute  in 
Nebraska,  but  by  section  8656  Revised 
Statutes  if  a  tenant  or  lessee,  without 
consent  of  the  landlord,  disposes  of  the 
landlord's  share  of  the  crop,  he  is  punisha- 
ble as  for  stealing  property. 

Landlord's  statutory  lien  on  crops  for  rent  in 
Kansas 

2316.  In  the  case  of  a  farm  lease,  where 
the  land  is  rented  for  cash,  and  the  crop 
becomes  a  lien  for  the  rent,  and  the  lease  is 
not  recorded,  and  the  crop  is  afterwards 
mortgaged  by  the  tenant,  or  levied  on  by 
creditors,  can  the  landlord's  lien  be  enforced, 
and  is  it  a  prior  Hen  to  the  recorded  mortgage 
or  creditor's  levy?  Opinion:  By  statute  in 
a  number  of  jurisdictions,  and  among  them 
Kansas,  a  landlord  is  given  a  lien  upon  the 
personal  property  or  crops  of  his  tenant 
for  the  payment  of  the  rent  reserved.  (Kan. 
Gen.  St.,  1889.  Sec.  3633.)  No  writing  is 
required  to  give  force  to  a  landlord's  lien, 
nor  is  the  fihng  or  recording  of  the  contract 
of  lease  a  prerequisite  to  the  creation  of 
such  lien.  And  where  a  landlord's  lien  upon 
a  crop  has  not  been  waived,  relinquished, 
lost,  or  otherwise  divested,  it  is  paramount 
to  the  claim  of  one  who  has  purchased  the 
same  (or  acquires  a  mortgage  thereon) 
while  yet  in  the  possession  of  the  tenant 
upon  the  leased  premises.  (Scully  v. 
Porter,  57  Kan.  322,  46  Pac.  313.  (Inquiry 
from  Kan.,  Nov.,  1920.) 

Laborer's  lien  vs.  chattel  mortgage  on  crop 

2317.  A  bank  filed  a  chattel  mortgage 
covering  a  growing  crop.  Subsequently  to 
such  fihng  a  laborer,  who  planted  the  crop 
and  cultivated  it  throughout  the  season, 
filed  a  lien  for  his  wages.  Inquiry  is  made 
as  to  which  lien  has  priority.  Opinion: 
The  Nebraska  statute  nowhere  specifically 
provides  for  or  mentions  a  lien  given  to 


farm  laborers,  eo  nomine,  though  it  does 
provide  for  mechanics',  artisans',  and  la- 
borers' liens  in  general,  and  provides  thus 
respecting  the  priority  of  such  liens:  "Such 
lien  shall  be  in  force  from  and  after  the  date 
it  is  filed  as  aforesaid,  and  shall  be  prior  and 
paramount  to  all  other  liens  upon  such 
property  except  those  previously  filed  in 
said  office  (office  of  County  Clerk)  and  shall 
be  treated  in  all  respects  as  a  chattel  mort- 
gage *  *  *  Laws  of  Nebraska  1913,  p.  31L 
It  would  seem,  therefore,  that  in  the  case 
submitted  by  the  bank  the  chattel  mortgage 
would  have  priority  over  the  lien  of  the  farm 
laborer  by  reason  of  the  fact  that  the 
chattel  mortgage  was  first  recorded,  par- 
ticularly in  the  absence  of  express  statutory 
provision  to  the  contrary.  {Inquiry  from 
Neb.,  April,  1916.) 

Vendor's  lien  note  v.  chattel  mortgage 

2318.  A  sells  B  a  horse  for  $150,  and 
takes  B's  note  for  $100  which  recites  that 
a  lien  is  retained  on  said  horse  to  secure  the 
note.  B  then  gives  the  bank  a  mortgage 
on  the  horse  which  is  duly  recorded. 
Quaere:  Does  an  ownership  note  take 
precedence  over  a  recorded  mortgage? 
The  bank  states  that  it  has  been  advised 
both  ways.  Opinion:  In  the  case  submitted 
it  is  stated  that  B,  the  vendee,  gave  A,  the 
vendor,  his  note  for  $100,  the  remainder  of 
the  purchase  price  of  the  horse,  which  note 
recited  that  "a  lien  is  retained  on  said  horse 
to  secure  the  note."  The  transaction,  then, 
might  well  be  regarded  as  a  chattel  mortgage 
rather  than  a  conditional  sale.  Under  the 
Arkansas  Mortgage  Act  (Kirby's  Digest, 
Sec.  5396)  the  filing  or  recording  of  a 
chattel  mortgage  is  essential  and  is  not  a 
valid  lien  against  other  mortgages,  pur- 
chasers or  creditors  acquiring  liens  thereon 
until  it  is  filed  in  the  recorder's  office. 
(Thornton  v.  Findley,  97  Ark.  432.  Smead 
V.  Chandler,  71  Ark.  505.  Turman  v.  Bell, 
54  Ark.  273.)  As  between  conflicting 
mortgages,  the  one  first  filed  for  record 
will  have  priority.  (Mitchell  v.  Badgett, 
33  Ark.  387.)  Assuming  the  bank's  mortgage 
was  first  recorded,  its  claim  would  have 
preference.  {Inquiry  from  Ark.,  March, 
1919.) 


531 


2319-2322] 


NOTARIES 


Competency  of  bank  and  corporation 
notaries 

Legislation 

2319.     The  law  advocated  by  the  Ameri- 
can Bankers  Association  relating  to  com- 
petency of  bank  and  corporation  notaries 
has  been  passed  either  in  full  or  with  modi- 
fications in  the  following  states:    Delaware, 
(1919,  c.  65,  p.  144),  Idaho,  (passed  in  1921), 
Kansas,  (Genl.  St.  1915,  sections  6733-6735), 
Louisiana,  (passed  in  1921),  Maine,  (R.  S. 
1916,  c.  40,  sec.  27),  Michigan,  (Comp.  L. 
1915,  sec.  2503,  p.  1025),  Minnesota,  (1913 
Genl.  St.,  sec.  5747,  amended  1915,  c.  20,  p. 
21),    Mississippi,    (1918,    c.    227,    p.    287), 
Montana,  (1909,  c.  77,  p.  107,  Rev.  Code 
Suppl.  1915,  sec.  332a),  Nevada,  (1917,  c. 
38,  p.  42),  New  Jersey,  (Comp.  St.  1910,  sec. 
40,  p.  3776)7  New  Mexico,  (passed  in  1921), 
New  York,  (Consol.  L.  1918  [Executive  Law 
sections  101-105a]  pp.  2729,  2737),  North 
Carohna,  (passed  in  1921),  (examine  revised 
code  of  North  Dakota,  sec.   5593)   South 
Dakota,  (Rev.  Code  1919,  sec.  5250,  1911  c. 
197),  Vermont,  (1917  Genl.  Laws,  sec.  4943, 
Laws  1917,  No.  95,  p.  88.  [limited  to  ac- 
knowledgments]),    Washington,     (Pierce's 
Code  1919,  sec.  4273,  R.  &  B.  1913  Suppl., 
sections  8298-1),  West  Virginia,   (1919,   c. 
60,  sec.  79a  [12]  p.  248),  Wyoming,  (Comp. 
St.  1920,  sec.  4516).  The  law,  stated  in  full, 
is  as  follows:     "It  shall  be  lawful  for  any 
notary  public  who  is  a  stockholder,  director, 
officer  or  employe  of  a  bank  or  other  cor- 
poration to   take  the   acknowledgment   of 
any  party  to  any  written  instrument  exe- 
cuted to  or  by  such  corporation  or  to  ad- 
minister an  oath  to  any  other  stockholder, 
director,  officer,  employe  or  agent  of  such 
corporation,  or  to  protest  for  non-acceptance 
or  non-payment  bills  of  exchange,  drafts, 
checks,  notes  and  other  negotiable  instru- 
ments which  may  be   owned    or   held  for 
collection  by  such  corporation:     Provided, 
it  shall  be  unlawful  for  any  notary  public 
to  take  the  acknowledgment  of  an  instru- 
ment by  or  to  a  bank  or  other  corporation  of 
which  he  is  a  stockholder,  director,  officer, 
or  employe,  where  such  notary  is  a  party  to 
such  instrument,  either  individually  or  as  a 
representative  of  such   corporation,   or  to 
protest  any  negotiable  instrument  owned  or 
held    for    collection    by   such    corporation, 
where  such  notary  is  individually  a  party  to 
such  instrument."    (April,  1921.) 


Cashier  not  a  stockholder — Alabama 

2320.  A  bank  asks  if  its  cashier,  who  is  a 
notary  pubhc,  can  legally  protest  checks  for 
the  bank,  the  cashier  not  owning  stock  of  the 
bank.  Opinion:  It  has  been  held  in  Ala- 
bama in  Morris  v.  Bank  of  Attalia,  142  Ala.. 
638,  38  So.  804  (1905),  that  the  acknowledg- 
ment of  a  mortgage  to  a  bank  was  not  in- 
valid because  taken  before  a  notary  who  wa«5 
an  agent  or  employee  of  the  mortgagee. 
Where,  however,  the  notary  is  also  a  stock- 
holder, the  acknowledgment  is  invalid. 
Jenkins  v.  Schwab  Co.,  138  Ala.  664 
( 1 903) .  Answering  the  bank's  specific  ques  - 
tion,  therefore,  the  casliier  of  a  bank,  who  is 
a  notary  public,  can  legally  protest  checks 
for  the  bank  and  also  take  acknowledg- 
ments of  instruments  running  to  the  bank 
where  he  does  not  own  stock  in  the  institu- 
tion. See  also  4  A.  B.  A.,  Jl.,  615  {Inquiry 
from  Ala.,  March,  1919.) 

Acknowledgment  before  officer  and  stockholder 
of  mortgagee  hank — Arkansas 

2321.  A  bank  inquires  as  to  the  legality 
of  one  of  its  officers  and  stockholders  taking 
an  acknowledgment  to  a  trust  deed  or  mort- 
gage in  favor  of  the  bank.  Opinion:  It  was 
held  by  the  Supreme  Court  of  Arkansas  in 
Davis  V.  Hale,  114  Ark.  426,  170  S.  W.  99, 
that,  where  a  deed  of  trust  was  executed  to 
secure  an  indebtedness  to  a  corporation 
without  fraud,  coercion  or  undue  ''advantage, 
its  validity  was  not  affected  by  the  fact  that 
the  notary  who  took  the  acknowledgment 
was  a  stockholder  in  the  corporation.  Under 
this  decision,  it  seems,  it  would  be  competent 
for  one  of  the  bank's  officers  and  stock- 
holders who  is  a  notary  to  take  such  ac- 
knowledgment. (Inquiry  from  Ark.,  Feb., 
1919.) 

Protest  of  paper  payable  at  the  bank  — District 
of  Columbia 

2322.  A  bank  asks  whether  its  cashier 
can  act  as  notary,  and  whether  he  can  pro- 
test paper  payable  at  the  bank.  Opinion: 
There  appears  to  be  no  legal  disqualification 
which  would  prevent  the  cashier  from  acting 
as  notary,  and  if  he  were  not  a  stockholder, 
it  seems  he  would  be  qualified  to  protest 
paper  owned  by  the  bank  and  payable  at 
the  bank.  In  case  the  paper  payable  at  the 
bank  is  not  owned  by  the  bank,  it  appears 
he  would  be  qualified  in  any  event  because 


I 


533 


NOTARIES 


[2323-2326 


the  reason  for  disqualification,  namely, 
pecuniary  interest,  would  not  exist  where 
the  bank  was  mere  agent.  {Inquiry  from 
D.  C,  Sept.,  1917.) 

Officer-stockholder    not   disqualified   in 
California 

2323.  A  bank  wishes  to  be  advised 
whether  a  notary  who  is  assistant  cashier  of 
the  bank  can  take  acknowledgments  of 
instruments  executed  to  or  by  the  bank. 
Opinion:  A  notary  who  is  assistant  cashier 
of  a  national  bank  can  take  acknowledg- 
ments of  instruments  executed  to  or  by  the 
bank.  He  could  do  so  even  if  he  were  stock- 
holder. See  Riverside  v.  Merrill,  Cal.  De- 
cisions, Vol.  47,  page  377,  No.  2501.  First 
National  Bank  v.  Merrill  (1914)  139  Pac. 
(Cal.)  1066.  {Inquiry  from  Cal.,  Feb., 
1919,  Jl.) 

Note:  Prior  to  1914  a  notary  in  Cali- 
fornia who  was  a  stockholder  was  held  in- 
competent to  take  acknowledgments  run- 
ning to  the  bank,  although  competent  to 
acknowledge  instruments  executed  by  the 
bank.  It  was  also  held  that  he  could  ac- 
knowledge paper  running  to  the  bank  where 
he  was  an  officer  and  not  a  stockholder. 
Bank  v.  Oberhaus.  125  Cal.  320.  Lee  v. 
Murphy  119  Cal.  365.  Merced  Bank  v. 
Rosenthal,  99  Cal.  39.  Murray  v.  Tulare 
Irrig.  Co.  120  Cal.  311. 

Acknowledgment    before   cashier- 
stockholder  of  mortgagee — 
Colorado 

2324.  Is  a  notary  in  Colorado  competent 
to  take  acknowledgments  running  to  the 
bank  although  he  is  a  stockholder?  Opinion: 
A  decision  of  the  Supreme  Court  of  Colorado 
makes  it  clear  that  a  notary  is  competent  to 
take  acknowledgments  of  instruments  run- 
ning to  the  bank  although  he  is  a  stockholder 
thereof.  In  Babbitt  v.  Bent  County  Bank 
of  Las  Animas,  108  Pac.  (Col).  1003,  the 
court  held  that  the  fact  that  an  acknowledg- 
ment of  a  chattel  mortgage  executed  to  a 
bank  was  taken  before  a  notary  who  was  a 
cashier  of  and  stockholder  in  the  bank  would 
not  invalidate  the  mortgage  in  the  absence 
of  fraud  in  talcing  the  acknowledgment. 
The  court  said : 

"Upon  the  claim  that  the  acknowledg- 
ment of  the  mortgage  to  the  bank  was  taken 
before  a  notary  who  was  the  cashier  of,  and 
a  stockholder  in,  that  corporation,  and  the 
mortgage  therefore  invalid,  it  is  to  be  ob- 
served that  on  its  face  the  mortgage  was 
fair  and  entitled  to  record.     The  taking  of 


this  acknowledgment,  unlike  that  of  a 
married  woman,  where  separate  examina- 
tion is  required,  was  purely  ministerial.  The 
alleged  infirmity  is  a  matter  outside  the 
record  that  may  not  be  taken  advantage  of 
except  for  fraud.  If  there  was  fraud  in  fact, 
of  which  there  is  no  intimation,  it  should 
have  been  averred  and  proven.  In  the 
absence  of  such  averment  and  proof  the 
record  of  the  mortgage  must  be  held  to  have 
been  constructive  notice  to  Babbitt.  To  say 
otherwise  would  be  to  overturn  the  purpose 
of  the  law  providing  for  this  notice.  Such 
policy  would  destroy  the  reliability  of 
records,  and  lead  to  mischievous  dissensions 
rather  than  to  the  stability  and  security  of 
property  rights.  The  rule  here  announced 
is  well  settled.  Brereton  v.  Bennett,  supra; 
Bank  v.  Hove,  45  Minn.  40,  47  N.  W.  449; 
Heilbrun  v.  Hammond,  13  Hun  (N.  Y.)  475. 
Bank  V.  Conway  (U.  S.  Cir.  Ct.,  4th  Dist.) 
1  Hughes  37,  Fed.  Cas.  No.  10,037."  {In- 
quiry from  Colo.,  July,  1915,  Jl.) 

Weight  of  authority  unless  changed  hy  statute 
disqualifies  7iotary-stockholder —  Unde- 
cided in  Florida 

2325.  Is  an  assistant  cashier,  who  owns 
no  stock  in  the  bank,  competent  to  take 
acknowledgment  running  to  the  bank? 
Opinion:  Wliile  the  majority  of  the  courts 
hold  that  an  officer  of  the  bank,  who  is  a 
stockholder,  is,  by  reason  of  his  pecuniary 
interest,  disqualified  to  take  acknowledg- 
ments running  to  his  bank,  the  decisions  are 
quite  unanimous  that  where  there  is  no 
stock  interest,  the  mere  fact  of  being  an 
officer  does  not  disqualify  the  notary.  There 
is  no  decision  upon  the  special  point  in 
Florida,  but  it  is  reasonably  certain  that  an 
assistant  cashier  who  owns  no  stock  in  the 
bank  would  be  held  competent,  as  notary, 
to  take  acknowledgments  of  instruments 
running  to  the  bank.  The  Negotiable  In- 
struments Act  does  not  affect  this  ques- 
tion.   {Inquiry  from  Fla.,  Oct.,  1916.) 

Notary-stockholder  in  Illinois  competent  to 

take  acknowledgment  real  estate  mortgage 

to  his  hank — Uncertain  as  to  chattel 

mortgages 

2326.  What  is  the  law  in  Illinois  as  to 
the  competency  of  an  officer  of  a  bank,  who  is 
also  a  stockholder,  to  take  acknowledgments 
of  real  estate  and  chattel  mortgages  running 
to  the  bank?  Opinion:  By  statute  in 
Illinois  a  notary  who  is  a  stockholder  or 
officer  of  a  bank  is  competent  to  take  ac- 
knowledgments of  instruments  relating  to 


533 


2327-2332] 


DIGEST  OF  LEGAL  OPINIONS 


real  estate  to  which  the  bank  is  a  party.  See 
Maxwell  v.  Lincoln  Building  &  Loan  Assn., 
216  111.  85  holding  statute  valid  and  con- 
stitutional. Statute,  however,  covers  only- 
deeds  and  mortgages  of  real  estate.  It 
changes  law  as  held  in  Ogden  Building  & 
Loan  Assn.  v.  Meusch,  196  111.  554,  which 
held  that  acknowledgment  of  a  mortgage 
taken  before  a  notary  who  is  stockholder  of 
the  mortgages  is  invahd  because  of  the  no- 
tary's pecuniary  interest.  The  statute  does 
not  cover  chattel  mortgages  and  the  rule  as 
to  the  competency  of  notary-stockholder 
to  take  acknowledgment  of  chattel  mortgage 
to  bank  remains  uncertain.  {Inquiry  from 
III,  May,  1912,  Jl.) 

Officer  of  Illinois  hank,  not  a  stockholder  com- 
petent to  take  acknowledgments  and  pro- 
test paper  owned  by  bank 

2327.  The  cashier  of  an  Illinois  bank, 
who  is  not  a  stockholder,  desires  to  act  as 
notary  in  taking  acknowledgments  of  in- 
struments running  to  the  bank  and  protest- 
ing paper  owned  by  the  bank.  Is  he  com- 
petent? Opinion:  Notary  of  bank  in  IlHnois 
who  is  an  officer  of  the  bank,  but  has  no 
stock  interest  therein,  is  competent  to  take 
such  acknowledgments  and  protest  paper 
owned  by  the  bank.  (Inquiry  from  III., 
Sept.,  1914,  Jl.) 

Competency  of  notary-stockholder  of  Illinois 

bank  to  protest  paper  held  by  bank  as 

collection  agent 

2328.  In  the  absence  of  judicial  decision 
in  Illinois  a  notary-stockholder  of  a  bank  is 
competent  to  protest  paper  held  by  the 
bank  as  collection  agent,  and,  when  held  by 
the  bank  as  owner,  it  is  probable  that  such 
notary  is  hkewise  competent  to  protest. 
{Inquiry  from  III.,  Aug.,  1911,  Jl.) 

Competency  of  bank  notary  in  Indiana 

2329.  By  statute  in  Indiana  a  notary 
public  who  is  an  officer  or  employee  of  a 
bank  or  trust  company  cannot  protest  paper 
running  to  the  bank  or  otherwise  act  as 
notary  in  the  business  of  the  bank.  Burns 
Rev.  St.  Ind.,  (1908)  Sees.  9539,  2932. 
Ind.  Acts,  1911,  Ch.  248.  Kothe  v.  Krag  Co. 
20  Ind.  App.  293.  Spegal  v.  Krag  Co.  21 
Ind.  App.  205.  McNulty  v.  State,  37  Ind. 
App.  612.  {Inquiry  from  Ind.,  Aug.,  1914, 
Jl.) 

Competency  of  bank  notary — Iowa 

2330.  A  bank  asks  whether  a  notary  who 
is  an  officer,  director  or  stockholder  in  a 
state  bank  is  authorized  to  take  acknowl- 


edgments of  mortgages,  deeds  and  other 
instruments  running  to  the  bank.  Opinion: 
Under  decisions  rendered  by  the  Supreme 
Court  of  Iowa  a  notary  who  is  a  stockholder 
of  a  bank  is  incompetent  to  take  ac- 
knowledgments running  to  the  bank.  See, 
for  example,  Bardsley  v.  German  Am.  Bk., 
113  Iowa  216,  in  which  the  Supreme  Court 
held  that  (1)  a  notary  having  an  interest, 
direct  or  contingent,  in  a  mortgage  or  its 
subject  matter,  cannot  take  and  certify  an 
acknowledgment  thereof,  and  the  record  of 
an  instrument  so  acknowledged  does  not 
impart  notice  to  third  persons  of  the  mort- 
gagee's interest  thereunder;  (2)  but  the 
mere  fact  that  a  notary  who  takes  the  ac- 
knowledgment of  a  mortgage  to  a  banking 
partnership  is  cashier  of  the  mortgagee — he 
not  being  a  partner — does  not  disqualify  him 
from  acting  as  notary  in  the  transaction; 
(3)  nor  is  the  notary  disqualified  because  he 
himself  is  a  creditor  of  the  mortgagor  (hav- 
ing sold  him  the  mortgaged  land),  and  the 
mortgage  to  the  bank  is  to  obtain  money 
with  which  to  pay  his  claim.  See  also  City 
Bank  v.  Radtke  87  Iowa  363.  Smith  v. 
Clark,  100  Iowa  605.  Farmers,  etc.,  Bank  v. 
Stockdale  121  Iowa  748.  Bank  v.  Bank  107 
Iowa  543,  78  N.  W.  195.  It  would  appear, 
therefore,  that  an  officer  who  is  not  a  stock- 
holder would  be  competent,  but  where  the 
notary  is  a  stockholder,  his  pecuniary  in- 
terest would  disqualify  him.  See  Greve  v. 
Echo  Oil  Co.  8  Cal.  App.  275  and  7  A.  B. 
A.  JL,  779.  {Inquiry  from  Iowa,  Oct.,  1917.) 

Interpretation    of    Kansas    statute 

2331.  In  Kansas  the  statute  of  1905 
authorizes  a  notary-stockholder  to  take 
acknowledgment  of  instruments  executed  to 
his  bank  except  "when  acting  himself  in  be- 
half of  the  corporation."  Where  a  notary 
draws  up  a  mortgage  for  bank,  and  his  name 
is  not  mentioned  in  the  papers,  it  seems  un- 
reasonable to  hold  that  he  is  acting  himself 
in  behalf  of  the  bank.  The  Kansas  statute 
does  not  require  an  affidavit  of  ownership 
upon  the  original  fihng  of  a  chattel  mort- 
gage, but  such  affidavit  is  necessary  for  a 
renewal.  Kan.  Laws,  1905,  Ch.  311.  Gen. 
St.  Kan.,  1909,  Sees.  5224-5227  Gen.  Stat. 
1915  Sections  6733,  6735.  Farmers,  etc., 
Bk.  V.  Bk.  of  Glen  Elder,  46  Kan.  376. 
Howard  v,  Nat.  Bk.,  44  Kan.  549.  Fair  v. 
Citizens  St.  Bk.,  70  Kan.  612.  {Inquiry 
from  Kan.,  April,  1912,  Jl.) 

Competency  of  notary  in  Massachusetts 
2332.     Is  a  cashier  who  is  not  a  stock- 


534 


NOTARIES 


[2333-2339 


holder  competent  to  act  as  notary  in  pro- 
testing checks  drawn  on  his  bank  or  notes 
payable  at  his  bank  in  Massachusetts? 
Opinion:  It  seems  the  question  of  com- 
petency of  a  notary  who  is  an  officer  or  a 
stockholder,  or  both,  of  a  bank,  to  take 
acknowledgments  of  instruments  running 
to  the  bank  or  protests  of  the  bank's  paper 
has  never  been  passed  on  by  the  courts  of 
Massachusetts.  But  in  view  of  the  deci- 
sions elsewhere,  it  would  be  reasonably  safe 
for  the  cashier  in  the  case  stated  to  protest 
checks  drawn  on  the  bank  or  notes  payable 
at  the  bank — in  which  cases  the  bank  is 
acting  as  agent  for  the  holder.  {Inquiry 
from  Mass.,  Aug.,  1914-) 

Competency  of  notary  in  Missouri 

2333.  It  is  asked  whether  a  notary  who 
is  also  an  officer  or  director  in  a  bank  may 
legally  take  acknowledgments  of  instru- 
ments running  to  the  bank.  Opinion:  It 
has  not  been  specifically  decided  in  Missouri 
that  where  a  deed  of  trust  is  made  to  a  bank, 
an  acknowledgment  taken  by  a  notary  who 
is  an  officer  or  stockholder  of  the  bank  is 
invalid.  But,  according  to  the  weight  of 
authority  elsewhere,  it  seems  that  the  ac- 
knowledgment would  be  valid  where  taken 
by  an  officer  who  is  not  a  stockholder,  but 
if  the  notary  were  also  a  stockholder  his 
pecuniary  interest  would  disquahfy  him. 
See  Dail  v.  Moore  51  Mo.  589.  3  A.  B.  A. 
Jl.  202.  4  A.  B.  A.  Jl.  552.  Under  the 
existing  conditions  of  the  law  in  Missouri, 
a  bank  would  be  safe  in  using  its  notary  for 
protests  and  acknowledgments,  where  such 
notary  is  a  non-stockholding  officer,  but  not 
when  he  is  a  stockholder,  except  in  case  of 
protest  of  paper  held  by  the  bank  as  col- 
lecting agent.  {Inquiry  from  Mo.,  Feb., 
1916.) 

2334.  Is  it  proper  for  a  stockholder  in  a 
bank  who  is  also  a  notary  to  protest  items 
sent  to  it  for  collection.  Opinion:  Where 
items  are  sent  to  a  Missouri  bank  merely  for 
collection,  the  bank  having  no  property 
interests  in  them,  the  notary  would  probably 
be  competent  to  make  protest  even  though 
he  was  a  stockholder.  {Inquiry  from  Mo., 
May,  1919.) 

Competency  of  hank  notary  in  Nebraska 

2335.  A  notary  who  is  stockholder  not 
competent  to  take  acknowledgments  of  in- 
struments running  to  the  bank.  But  an 
officer  who  is  not  stockholder  is  competent. 
Chadron  Loan,  etc.,  Assn.  v.  O'Linn,  (Neb.) 
95  N.  W.  368.    Wilson  v.  Griess,  64  Neb. 


792.  Horbach  v.  Tyrrell,  48  Neb.  514. 
Castetter  v.  Stewart,  70  Neb.  815.  Girard 
Tr.  Co.  V.  Null,  (Neb.)  134  N.  W.  372. 
{Inquiry  from  Neb.,  July,  1912,  Jl.) 

Rule  unsettled  in  New  Hampshire 

2336.  In  the  absence  of  any  established 
rule  in  New  Hampshire,  a  notary  who  is  a 
director  of  a  bank  is  competent  to  protest 
paper  held  by  the  bank  for  collection,  but 
when  the  paper  is  owned  by  the  bank  the 
question  is  unsettled.  {Inquiry  from  N.  H., 
Dec,  1911.) 

Disqualification  of  Ohio  notary 

2337.  A  statute  in  Ohio  prohibiting  a 
director,  officer  or  clerk  of  a  bank  from 
acting  as  a  notary  in  any  matter  in  which  the 
bank  "is  in  any  way  interested"  does  not  dis- 
qualify a  stockholder  holding  no  official 
relation  from  taking  acknowledgments  or 
making  protests,  but  a  director  who  is  a 
notary  cannot  protest  paper  owned  by  the 
bank.  Whether  a  director-notary  can  pro- 
test paper  held  for  collection  is  doubtful. 
Bates'  Anno.  Ohio  St.,  Ch.  1,  Sec. 
111.  Read  v.  Toledo  Loan  Co.,  (Ohio) 
67  N.  E.  729.  {Inquiry  from  Ohio,  Jan., 
1916,  Jl.) 

Competency  of  bank  notary  in  Oklahoma 

2338.  In  Oklahoma  a  notary  is  probably 
competent  to  acknowledge  instruments  to 
and  from  a  bank  or  to  protest  the  bank's 
paper,  although  a  stockholder  of  such  bank 
or  holding  other  official  relation.  Ardmore 
Nat.  Bk.  V.  Briggs  Mach.,  etc.,  Co.,  20 
Okla.  427.  Read  v.  Toledo  Loan  Co.,  68 
Ohio  St.  280.  {Inquiry  from  Okla.,  May, 
1912,  Jl.) 

Competency  of  bank  clerk  notary  in 
Pennsylvania 

2339.  Are  bank  clerks  in  Pennsylvania 
competent  as  notaries  to  take  acknowledg- 
ments of  instruments  executed  by  and  run- 
ning to  the  bank.  Opinion:  Under  the 
Act  of  1909  a  bank  clerk  would  be  compe- 
tent, as  notary,  to  take  acknowledgments  of 
instruments  executed  by  or  running  to  the 
bank.  The  competency  of  a  stockholder  to 
take  acknowledgments,  as  notary,  of  in- 
struments running  to  the  bank  would  de- 
pend on  whether  he  is  disqualified  by  his 
stock  interest,  which  has  not  been  decided  in 
Pennsylvania.  A  stockholder  other  than  a 
director  would  be  competent  to  make  pro- 
tests.   {Inquiry  from  Pa.,  June,  1912,  Jl.) 


535 


2340-2346] 


DIGEST  OF  LEGAL  OPINIONS 


Competency  oj  hank  notary  in  South  Carolina 

2340.  A  bank  asks  if  one  of  its  officers 
who  is  also  a  notary  can  protest  paper  in 
which  the  bank  is  interested.  Opinion:  It 
would  probably  be  competent  in  South 
Carolina  for  a  notary  who  is  an  officer  of  a 
bank  to  protest  paper  owned  by  the  bank  as 
well  as  that  held  by  it  as  collecting  agent, 
and  also  to  take  acknowledgments  of  mort- 
gages and  other  instruments  running  to  the 
bank.  If,  however,  a  notary  is  pecuniarily 
interested  in  the  bank  as  a  stockholder,  as 
well  as  being  an  officer,  there  would  be  a 
question  as  to  his  competency  which  has  not 
yet  been  tested  in  South  Carolina.  {In- 
quiry from  S.  C,  Jan.,  1913.) 

Competency  oJ  hank  notary  in  Tennessee 

2341.  The  courts  of  Tennessee  disap- 
prove acknowledgments  of  instruments  run- 
ning to  bank  by  a  notary  who  is  a  stock- 
holder of  bank,  but  hold  that  such  acknowl- 
edgments are  not  void  but  merely  voidable 
upon  proof  of  fraud,  oppression  or  other 
ground  for  invalidation.  Cooper  v.  Hamil- 
ton Loan,  etc.,  Assn.,  97  Tenn.  285.  {Inquiry 
from  Tenn.,  Sept.,  1909,  Jl.) 

Notary-stockholder  of  mortgagee  hank  in  Texas 
incornpetent  to  take  acknowledgment 

2342.  A  chattel  mortgage  was  given  to  a 
Texas  bank,  and  the  mortgagor's  acknowl- 
edgment was  taken  by  a  notary  who  was 
also  an  officer  and  shareholder  in  the  bank. 
Would  this  make  the  mortgage  invalid? 
Opinion:  It  was  held  in  the  case  of  Brown 
V.  Moore,  38  Tex.  645,  that  an  officer  in- 
terested in  a  deed  cannot  take  the  acknowl- 
edgment of  the  grantors  in  such  deed.  Later 
decisions,  Bexar  Building  &  Loan  Assn.  v. 
Heady,  21  Tex.  Civ.  App.  154,  and  W.  C. 
Belcher  Land  Mortgage  Co.  v.  Taylor, 
(Tex.  1914)  173  S.  W.  278,  are  to  the  same 
effect.  The  conclusion  can  be  drawn  from 
these  authorities  that  the  acknowledgment 
of  a  chattel  mortgage  in  Texas  taken  before 
a  notary  who  was  an  officer  and  stockholder 
in  the  mortgagee  would  be  invalid  because 
of  the  interest  of  the  notary,  even  though 
there  was  nothing  in  the  instrument  to  show 
that  the  notary  was  an  officer  or  stockholder. 
{Inquiry  from  Tex.,  March,  1919.) 

Competency  of  hank  notary  in  Wisconsin 

2343.  A  cashier  of  Wisconsin  bank  who 
is  notary  but  not  a  stockholder  is  compe- 
tent to  take  acknowledgments  of  instru- 
ments running  to  the  bank.  If  cashier  is  also 
a  stockholder,  this  fact  would  probably  dis- 


qualify him.  Bk.  v.  Oberhaus,  125  Cal.  320. 
Fla.  Sav.  Bk.  v.  Rivers,  36  Fla.  577.  Bards- 
ley  V.  German- Amer.  Bk.,  113  Iowa  216. 
Bank  House  v.  Stewart,  70  Neb.  815.  Hor- 
bach  V.  Tyrell,  48  Neb.  514.  Sawyer  v.  Cox, 
63  111.  130.  Laws  Wis.,  1911,  Ch.  579,  Sec.  1. 
{Inquiry  from  Wis.,  May,  1915,  Jl.) 

2344.  A  bank  raises  the  question  wheth- 
er an  officer  of  a  bank  who  is  a  notary  can 
protest  checks,  drafts  or  bills  of  exchange  for 
non-payment  or  non-acceptance,  where 
there  is  no  notary  in  the  vicinity.  Opinion : 
In  the  absence  of  express  statutory  provi- 
sions, it  has  been  held  in  a  number  of  cases 
that  an  officer  who  is  a  stockholder  of  a  bank 
is  disqualified  by  reason  of  his  interest  to 
take  acknowledgments,  as  a  notary,  of 
instruments  running  to  the  bank;  but  where 
the  officer  is  not  a  stockholder  he  is  not  dis- 
qualified. This  point  has  not  been  expressly 
decided  in  Wisconsin.  {Inquiry  from  Wis., 
May,  1920.) 

Jurisdiction   of  notary 

Protest    in    government    camp 

2345.  Inquiry  is  made  as  to  whether  a 
notary  public  can  protest  an  instrument  in  a 
Government  camp  ceded  to  the  United 
States  but  situate  within  the  bounds  of  the 
county  in  which  he  has  jurisdiction.  Opin- 
ion: Usually,  under  the  express  provisions 
of  the  statute  authorizing  his  appointment, 
the  jurisdiction  of  a  notary  public  is  con- 
fined to  the  limits  designated  in  the  com- 
mission of  the  governor.  It  would  follow 
that  he  would  not  be  qualified,  to  make  pro- 
test at  the  camp  which  is  not  within  the 
jurisdiction  of  the  state,  and  the  Nego- 
tiable Instruments  Act  which  provides  that 
protest  may  be  made  by  "any  respectable 
resident  of  the  place  where  the  bill  is  dis- 
honored in  the  presence  of  two  or  more 
credible  witnesses"  is  not  operative.  How- 
ever, as  the  act  in  this  respect  is  simply  a 
codification  of  the  law  merchant,  this  pro- 
cedure may  be  followed.  Harris  v.  Burton, 
4  Harr.  (Del.)  66.  Allgood  v.  State,  87  Ga. 
668.  Barhydt  v.  Alexander,  59  Mo.  App. 
188.  Lamb  v.  Lamb,  139  Mich.  166.  Mut. 
Life  Ins.  Co.  v.  Corey,  7  N.  Y.  Suppl.  939. 
Maxwell  v.  Hartman,  50  Wis.  660.  Schiff 
V.  Leipsinger,  65  N.  Y.  App.  Div.  33. 
{Inquiry  from  Kan.,  Jan.,  1919.) 

Prerequisite     of    appointment 

Notary  not  living  in  state  one  year 

2346.  An  acknowledgment  to  a  mort- 
gage deed  is  taken  by  a  notary  who  has  not 


536 


NOTARIES 


2347-2351] 


resided  in  the  state  a  year  previous  to  taking 
out  his  commission.  Would  this  affect  the 
legahty  of  the  deed?  Opinion:  The  only 
residential  prerequisite  for  appointment  as 
notary  public  in  Montana  is  citizenship  in 
state  and  residence  in  county.  Citizenship 
is  acquired  as  soon  as  a  citizen  of  the  United 
States  leaves  his  former  residence  with  no 
intention  of  returning  and  enters  the  state 
with  the  intention  of  residing  there.  Sec. 
71  Political  Code.  See  also  Donovan  v. 
State  Capital  Commission  21  Mont.  344, 
53  Pac.  1133.  If  the  acknowledgment  is 
regular  and  conforms  to  the  statute  in  other 
respects,  it  is  valid.  (Inquiry  from  Mont., 
Oct.,  1914.) 

Eligibility  of  woman  as  notary 

Qualified  elector  in  Mississippi 

2347.  A  bank  has  appointed  a  female 
employee  as  notary  public,  and  desires  an 
opinion  as  to  the  legality  of  a  woman  acting 
as  notary.  Opinion:  At  common  law  a 
woman  could  not  be  a  notary  (Opinion  of 
Justices,  165  Mass.  599.  Opinion  of  Jus- 
tices, 73  N.  H.  621.  State  v.  Davidson,  92 
Tenn.  531,  534),  but  could  be  made  eligible 
by  statute,  in  the  absence  of  constitutional 
prohibition.  (Van  Dorn  v.  Mengedoht, 
[Neb.]  59  N.  W.  800).  In  some  states,  as 
in  Mississippi,  the  constitution  restricts  the 
holding  of  office  to  qualified  electors,  and 
such  provisions  have  disqualified  women 
from  holding  the  office  of  notary.  (In 
matter  of  House  Bill  No.  166,  9  Colo. 
628;  Miss.  Constitution,  Sees.  106,  250.) 
But,  under  the  recent  amendment  of  the 
Federal  Constitution,  women  citizens  be- 
come quahfied  electors,  and  as  such  are 
eligible  to  hold  the  office  of  notary  under 
such  constitutional  provisions.  (See  Miss. 
Code  2780  et  seq.)  (Inquiry  from  Miss., 
Dec,  1920,  Jl.) 

Disqualification    by    relationship    or 
where  party  to  instrument 

Brother  of  mortgagee  taking  acknowledgment 

2348.  B  and  his  wife  executed  a  mort- 
gage to  A.  A's  brother,  having  no  pecuniary 
interest  in  the  transaction,  took  the  ac- 
knowledgments as  notary  public.  Opinion: 
The  relationship  of  the  notary  to  the  mort- 
gagee did  not  disqualify  the  notary  and  the 
acknowledgment  is  valid.  Welsh  v.  Lewis, 
71  Ga.  387.  Benson  Bk.  v.  Hove,  45  Minn. 
40.  Helena  First  Nat.  Bk.  v.  Roberts,  9 
Mont.  323.  Lynch  v.  Livingston,  6  N.  Y. 
422.    McAllister  v.  Cornell,  124  N.  C.  262. 


Holmes  v.  Carr,  163  N.  C.  122.  Horbach  v. 
Tyrrell,  48  Neb.  514.  Bank.  House  v. 
Stewart,  70  Neb.  815.  (Inquiry  from  Neb., 
Nov.,  1915,  Jl.) 

Disqualification  of  notary-trustee 

2349.  A  Mayor  of  a  city,  authorized  to 
take  acknowledgments,  is  disqualified  to 
take  the  acknowledgment  of  the  grantor  to 
a  deed  of  trust  in  which  he  is  named  as 
trustee.  Bowden  v.  Parrish,  86  Va.  67. 
Dail  V.  Moore,  51  Mo.  589.  Muense  v. 
Harper,  70  Ark.  309.  Holden  v.  Brimage, 
72  Miss.  228.  Wasson  v.  Connor,  54  Miss. 
351.  Stevens  v.  Hampton,  46  Mo.  404. 
Brown  v.  Moore,  34  Tex.  645.  Tavenner  v. 
Barrett,  21  W.  Va.  656.  Am.  &  Eng.  Ency. 
L.,  Vol.  1,  p.  145.  Contra:  Bennett  v. 
Shipley,  82  Mo.  448.  Darst  v.  Gale, 
83  111.  136.  (Inquiry  from  Miss.,  April, 
1917,  Jl.) 

Form   of  acknowledgment 

Certificate  valid  where  in  substantial  compli- 
ance with  statute 

2350.  A  notary  public  in  making  out  an 
acknowledgment  to  a  deed  used  the  words 
"and  has  duly  acknowledged  to  me,"  etc., 
instead  of  "and  he  duly  acknowleged  to 
me,"  etc.  Opinion:  Where  the  statute,  as  in 
case  in  California  requires  that  a  certificate 
of  acknowledgment  must  be  substantially 
in  a  form  therein  provided,  the  certificate 
will  be  valid  though  not  in  the  precise  lan- 
guage of  the  statute  if  it  substantially  com- 
plies therewith.  Civ.  Code  Cal.,  (1909)  Art. 
Ill,  Sec.  1189.  People  v.  Harrison,  8  Barb. 
(N.  Y.)  560.  Davar  v.  Cardwell,  27  Ind. 
478.  Musgrove  v.  Bouser,  5  Ore.  313.  Tew 
V.  Henderson,  116  Ala.  545.  Bowles  v. 
Lowery  (Ala.,  1913)  62  So.  107.  Canandar- 
qua  Academy  v.  McKechnie,  19  Hun  (N. 
Y.)  62.  Smith  v.  Boyd,  101  N.  Y.  472. 
Holland  v.  Hotchkiss,  (Cal.,  1912)  123  Pac. 
258.    (Inquiry  from  Cat.,  Aug.,  1914,  Jl.) 

Acknowledgynent  over  telephone 

2351.  Is  an  acknowledgment  taken  over 
the  telephone  valid?  Opinion:  Acknowl- 
edgment of  mortgage  or  other  instrument 
taken  by  notary  over  telephone  would  be 
invalid,  as  law  requires  personal  (physical) 
appearance  of  person  making  acknowl- 
edgment. Russell  V.  Whiteside,  5  111. 
7.  Brunswick-Balke  Collender  Co.  v.  Brack- 
ett,  37  Minn.  58.  Hoboken  Land  Co.  v. 
Kerrigan,  31  N.  J.  L.  13.  Pierce's  Wash. 
Code  (1905)  Sec.  4455.    Mays  v.  Hedges,  79 


537 


2352-2359] 


DIGEST  OF  LEGAL  OPINIONS 


Ind.  288.  St.  Nat.  Bk.  v.  Mee,  (Okla.)  136 
Pac.  758.  Barnard  v.  Schuler,  100  Minn. 
289.    {Inquiry  from  Wash.,  March,  1915,  Jl.) 

2352.  An  acknowledgment  taken  by  a 
notary  over  the  telephone  where  the  statute 
requires  a  certificate  that  the  person  "per- 
sonally appeared"  before  the  notary  has 
been  held  invalid  in  several  states;  but  in 
CaHfornia  its  vaHdity  has  been  upheld  in  the 
absence  of  fraud,  duress  or  mistake.  Ques- 
tion not  decided  in  West  Virginia.  Barnard 
V.  Schuler,  100  Minn.  289.  Wester  v.  Hurt, 
123  Tenn.  508.  Shannon's  Code  Tenn.,  Sec. 
3753.  Sullivan  v.  First  Nat.  Bk.,  37  Tex. 
Civ.  App.  228.  Banning  v.  Banning,  80 
Cal.  271.  West  Va.  Code,  Sees.  3806,  3807, 
3808.    {Inquiry  from  W.  Va.,Feh.,  1917,  Jl.) 

Fees 

Notary's  fee  in  Alabama 

2353.  A  fee  of  $5.11  charged  by  a  notary 
in  Alabama  for  protesting  a  check  is  excess- 
ive and  is  in  violation  of  Section  5174  of  the 
Alabama  Code.  {Inquiry  from  Ala.,  June, 
1918,  Jl.) 

Right  to  charge  for  notice  of  dishonor  given  to 
collecting  hank 

2354.  Has  a  notary  acting  for  a  collect- 
ing bank  the  right  to  make  a  charge  for 
notice  to  the  bank  which  holds  the  item  for 
collection?  Opinion:  The  Arkansas  Stat- 
utes allow  notaries  public  fees,  "for  notice  to 
indorsers  and  other  parties."  It  is  custom- 
ary to  give  notice  of  dishonor  to  the  col- 
lecting agent  as  well  as  to  other  indorsers. 
Section  97  of  the  Negotiable  Instruments 
Act  provides  that  "Notice  of  dishonor  may 


be  given,  either  to  the  party  himself  or  to 
his  agent  in  that  behalf."  That  it  is  com- 
petent to  give  the  notice  to  a  collecting  agent 
is  indicated  by  the  rule  of  law  as  to  time  of 
giving  notice  between  successive  indorsers, 
which  rule  applies  to  indorsers  or  agents  for 
collection  as  well  as  to  indorsers  for  value. 
It  seems  from  this  that  the  fee  allowed  by 
statute  for  notice  to  indorser  would  be 
chargeable.  See  Oakley  v.  Carr,  66  Neb. 
751,  92  N.  W.  1000,  60  L.  R.  A.  431.  {In- 
quiry froin  Ark.,  Oct.,  1919.) 

Notary's  fee    in   Iowa 

2355.  Can  a  notary  collect  a  fee  for 
protesting  a  check  given  in  Iowa  on  an 
Iowa  bank  which  bears  no  foreign  in- 
dorsements? Opinion:  While  protest  is 
absolutely  necessary  only  in  case  of  foreign 
bills  of  exchange,  the  Negotiable  Instru- 
ments Act  authorizes  protest  of  any  nego- 
tiable instrument.  A  check  drawn  and  pay- 
able in  Iowa  is,  therefore,  protestable  and 
notary  entitled  to  fees,  there  being  parties 
contingently  Hable  on  the  check.  {Inquiry 
from  Iowa,  Aug.,  1916.) 

Right  of  bank  to  share  notary's  fee 

2356.  A  notary  employed  by  a  bank 
agreed  to  accept  for  his  services  to  the  bank 
in  protesting  its  negotiable  paper  and  that 
held  by  it  for  collection,  in  full  payment, 
one  half  the  usual  and  legal  fees  charged  for 
such  work.  Can  the  bank  charge  the  statu- 
tory fee  and  retain  one  half  of  same?  Opin- 
ion: Such  an  agreement  is  void  for  want  of 
consideration,  and  also  upon  the  ground  that 
it  is  against  public  policy.  {Inquiry  from 
N.  Y.,  June,  1920.) 


NOTES 


Date 


Post-dated  note 

2357.  If  a  bank  takes  a  post-dated  note 
and  the  maker  dies  or  becomes  bankrupt 
before  the  day  of  its  date,  can  the  bank  en- 
force collection?  Opinion:  A  post-dated 
note  is  negotiable  before  its  date  and  if 
before  maturity  the  maker  dies  or  becomes 
bankrupt,  the  bank  would  have  the  same 
recourse  against  his  estate  as  in  the  case  of 
any  other  note  which  it  acquires  before  ma- 
turity.    {Inquiry  from  Minn.,  Nov.,  1915.) 

Requirement  as  to  writing 

Two  kinds  of  handwriting  in  body  of  note 

2358.  Is  a  note  legal  the  body  of  which 


is  in  part  in  the  handwriting  of  one  person 
and  in  part  in  the  handwriting  of  another 
person?  Opinion:  A  negotiable  promissory 
note  must  be  in  writing,  but  a  note  is  not 
illegal  because  the  body  over  the  signature 
of  the  maker  is  in  the  handwriting  of  two 
different  persons.  Zimmerman  v.  Rote,  75 
Pa.  St.  188.  Neg.  Inst.  Law,  Sec.  14.  See 
also  Seibel  v.  Vaughn,  69  111.  257  and  Har- 
vey V.  Smith,  55  111.  224.  {Inquiry  from  Pa., 
Aug.,  1919.) 

Blank  spaces 

Unfilled  blank  for  personal  pronoun  referring 
to  maker 

2359.     A  note  contains  a  provision  for 


538 


NOTES 


[2360-2365 


confession  of  judgment,  attorney's  fees, 
waiver  of  exemption,  etc.  Is  validity  of  the 
note  affected  by  leaving  unfilled  therein  at 
the  time  of  the  issuance  thereof  blanks  for 
personal  pronouns  referring  to  the  maker 
and  for  the  amount  of  the  attorney's  fees? 
Opinion:  The  leaving  of  the  spaces  blank 
does  not  affect  the  validity  of  the  note.  {In- 
quiry from  Pa.,  May,  1916.) 

Name  of  payee  missing 

2360.  A  customer  offers  for  sale  a  note 
in  which  the  name  of  the  payee  is  missing. 
Is  the  note  payable  to  bearer?  Opinion: 
A  note  wherein  no  payee  is  named  or  in- 
dicated with  reasonable  certainty  is  incom- 
plete and  not  negotiable.  But  where  the 
note  contains  a  blank  for  the  name  of  the 
payee  which  is  unfilled,  under  the  law  mer- 
chant the  instrument  was  payable  to  bearer 
and  negotiable  and  carried  impliedly  au- 
thority to  a  bona  fide  purchaser  to  fill  the 
blank  and  complete  the  instrument;  how- 
ever, under  the  Negotiable  Instruments  Act 
the  blank  must  be  filled  strictly  in  accord- 
ance with  the  authority  given,  and  if  the 
holder  negotiates  such  an  instrument  with- 
out authority,  the  purchaser  is  put  on  in- 
quiry and  it  is  subject  to  defenses  in  his 
hands.  Mcintosh  v.  Lytle,  26  Minn.  336. 
Holborn  v.  Pa.  Cement  Co.,  129  N.  Y.  S. 
957.  Hartington  Nat.  Bk.  v.  BresUn, 
(Neb.)  128  N.  W.  658.  Guerrant  v.  Guer- 
rant,  7  Va.  Law  Reg.  639.  {Inquiry  from 
Minn.,  Aug.,  1918,  Jl.) 

Blank  space  filled  in   "in  accordance  with 
authority" 

2361.  B  and  C  signed  a  note  in  blank 
with  A  as  principal  maker,  authorizing  A 
to  fill  in  the  note  for  $100.  A,  in  violation 
of  the  agreement,  borrowed  S2,500  from  a 
bank  upon  the  note,  and  the  bank  fills  in 
that  amount.  Upon  default  of  A,  the  bank 
seeks  to  recover  from  B  and  C,  who  claim 
their  liability  is  only  for  $100.  Opinion: 
The  bank  was  put  on  inquiry  as  to  the 
extent  of  the  authority  of  A  and  cannot  re- 
cover from  the  accommodation  makers  the 
full  face  value  of  the  note,  but  only  the 
amount  authorized.  Section  14  of  the  Nego- 
tiable Instruments  Act  provides  that  the 
blank  must  be  filled  up  "strictly  in  accord- 
ance with  the  authority  given,"  and  when 
the  bank  received  the  note  in  that  condition, 
it  was  put  on  notice  that  it  must  proceed  at 
its  peril.  Frank  v.  Lilhenfield,  33  Gratt 
(Va.)  377.  Neg.  Inst.  L.  (Comsr's.  dft.), 
Sec.  14.     Guerrant  v.  Guerrant,  7  Va.  L. 


Reg.  639.  Boston  Steel,  etc.,  Co.  v.  Steurer, 
183  Mass.  140.  Vander  Ploeg  v.  Van 
Zuuk,  135  Iowa  350.  {Inquiry  from  W.  Va., 
Feb.,  1919,  Jl.) 

Signature 

Third  maker  signing  under  bottom  line 

2362.  Is  the  signature  of  the  third  maker 
of  a  note  which  is  placed  under  the  bottom 
line,  because  there  is  no  room  above,  binding 
on  him?  Opinion:  The  third  maker  is  bound 
although  his  signature  is  outside  the  border 
of  the  note.  {Inquiry  from  Pa.,  March,  1916.) 

Signature  to  partnership  note 

2363.  A  bank  incloses  two  notes  with 
its  inquiry  as  to  signatures.  The  first  one 
has  the  name  of  a  partnership  printed  or 
written  by  some  third  person,  and  under  it 
is  the  signature  of  a  partner.  The  second  is 
signed  complete  by  a  partner  in  the  follow- 
ing form:  "Hamblet  and  FiHmon  (and 
thereunder)  Harold  Hamblet."  Is  each 
form  of  signature  binding  on  the  partner- 
ship? Opinion:  The  signature  is  binding 
in  both  cases.  The  fact  that  the  name  of 
the  firm  in  the  first  form  is  printed  is  im- 
material. It  would,  however,  be  better  to 
prefix  the  word  "by"  in  both  cases.  {In- 
quiry from  N.  Y.,Feb.,  1921.) 

2364.  Is  it  correct  for  a  firm  to  sign  a 
note  "Jones  &  Smith,"  or  should  the  indi- 
vidual name  of  one  of  the  members  be  added 
thereto,  preceded  by  "per"?  Opinion:  The 
signature  "Jones  &  Smith"  is  perfectly  valid 
without  the  suffix  "per  John  Smith"  to  in- 
dicate the  particular  member  who  signs  the 
firm  name.  But  in  view  of  the  likelihood  of 
the  signature  being  disputed,  it  might  be 
preferable  to  have  the  suffix  to  make  it 
easier  to  prove  genuineness.  {Inquiry  from 
N.  Y.,  March,  1917.) 

Signature  to  corporate  note 

2365.  Is  the  officer  of  a  corporation  who 
signs  its  note  for  it  in  the  ordinarj^  way 
hable  personally  thereon?  Opinion:  The 
courts  quite  generally  hold  a  note  signed 
"Indiana  Coal  &  Clay  Company,  George 
W.  Hana,  President,"  to  be  a  corporation 
note  alone  and  not  the  joint  note  of  the 
corporation  and  Hana.  In  a  few  states,  how- 
ever, such  form  of  signature  is  held  to  bind  not 
only  the  corporation  but  also  the  president 
individually.  For  example,  see  McCandless 
V.  The  Beile  Plaine  Canning  Co.,  75  Iowa 
161.  In  Indiana  a  note  signed  simply  John 
Smith,  President,  without  the  name  of  the 


539 


2366-2371] 


DIGEST  OF  LEGAL  OPINIONS 


corporation,  has  been  held  to  be  the  individ- 
ual obligation  of  Smith  and  parol  evidence 
is  inadmissible  to  show  an  intention  to  bind 
the  corporation.  Hayes  v.  Brubaker,  65 
Ind.  27.  But  if  the  signature  had  been 
"Smith,  President  for  A.  B.  Mfg.  Co.",  it 
would  then  import  a  corporate  obligation. 
Prescott  V.  Hixon,  22  Ind.  App.  139.  There- 
fore, if  an  officer  of  a  corporation  wishes  to 
escape  personal  liability,  as  a  joint  obligor 
with  the  corporation,  he  should  take  care, 
after  signing  the  name  of  the  corporation, 
to  prefix  the  words  "by"  or  "per"  before  his 
official  signature  as  president.  (Inquiry 
from  Ind.,  March,  1919.) 

Omission   of  prefix    "by" 

2366.  An  order,  note  or  agreement  was 
signed  "John  Smith  Company,  John  Smith, 
Treasurer,"  without  the  prelix  "by"  before 
"John  Smith."  Opinion:  Such  form  of 
signature  is  generally  held  to  be  the  signa- 
ture of  the  corporation  alone  (such  is  the 
case  in  Maine)  although  in  one  or  two  states 
it  has  been  held  to  import  an  obligation 
both  of  the  company  and  John  Smith  indi- 
vidually. Castle  V.  Belford  Foundry,  72 
Me.  167.  Draper  v.  Mass.  Steamheating 
Co.,  87  Mass.  338.  (Inquiry  from  Me., 
May,  1913;  Jl.) 

Signature  by  "A  Corporation,  B,  Treasurer" 

2367.  A  corporation  note  was  executed 
as  follows: 

$1,000        Buffalo,  N.  Y.,  June  4,  1911. 

On  demand  after  date,  we  promise  to  pay 
to  the  order  of  ourselves  at  the  First  Nation- 
al Bank,  Buffalo,  N.  Y.,  one  Thousand  Dol- 
lars. Value  received  with  interest.  Home 
Hardware  Co.  H.  I.  Jones,  Treas.  Indorsed 
Home  Hardware  Co.,  H.  I.  Jones,  Treas. 
The  question  was  raised  as  to  the  personal 
liability  of  H.  I.  Jones  thereon.  Opinion: 
A  note  reading  "We  promise  to  pay"  signed 
"Home  Hardware  Co.,  H.  I.  Jones,  Treas." 
is  generally  held  to  be  the  note  of  the  cor- 
poration alone  equally  as  if  the  word  "by" 
were  prefixed  to  the  name  of  the  treasurer 
and  the  latter  is  not  personally  liable.  The 
point  has  not  yet  been  decided  in  New  York. 
Casco  Nat.  Bk.  v.  Clark,  139  N.  Y.  307. 
Bk.  V.  Wallace,  150  N.  Y.  455.  Dunbar 
Box  &  Lumber  Co.  v.  Martin,  103  N.  Y.  S. 
91.  Megowan  v.  Peterson,  173  N.  Y.  1. 
(Inquiry  from  N.  Y.,  Nov.,  1911,  Jl.) 

Signature  "John  Jones,  Treasurer" 

2368.  Where  the  name  of  the  corpora- 
tion is  not  designated  as  the  sole  promisor 


in  the  body  of  the  note  and  it  is  signed 
merely  "John  Jones,  Treasurer,"  the 
weight  of  authority  is  that  the  word  "Treas- 
urer" is  merely  descriptive  of  the  person 
and  not  of  the  character  of  the  liability  and 
that  Jones  will  be  personally  liable.  Had 
John  Jones  in  the  above  case  signed  "As 
treasurer,"  without  disclosing  hisprincipal  he 
would  not  have  been  shielded  from  personal 
liabihty.  (Inquiry  from  N,  Y.,Feb.  1911,  Jl.) 

Proper  form  of  signature  of  corporation  note 

2369.  Where  a  corporation  note  simply 
reads  "I"  or  "We"  promise  to  pay,  with- 
out reciting  in  the  body  of  the  promise  that 
"The  Smith  Manufacturing  Co."  promises 
to  pay,  the  form  of  the  signature  which 
should  be  used  by  an  officer  authorized  to 
sign,  in  order  to  free  himself  from  personal 
liability,  should  be  either  "The  Smith  Man- 
ufacturing Co.  by  John  Jones,  Treasurer," 
or  "For  the  Smith  Manufacturing  Co.,  John 
Jones,  Treasurer."  Heffner  v.  Brownell,  70 
Iowa  591,  75  Iowa  341.  Shaver  v.  Ocean 
Mining  Co.,  21  Cal.  45.  Day  v.  Ramsfell, 
52  N.  W.  (Iowa)  208.  Casco  Nat.  Bk.  v. 
Clark,  139  N.  Y.  307.  (Inquiry  from  N.  ¥., 
Feb.,  1911,  Jl.) 

Signature   "Doe   Company,   John   Doe, 
President" 

2370.  According  to  the  weight  of  au- 
thority a  note  signed  "Doe  Manufacturing 
Company,  John  Doe,  President,  Jim  Doe, 
Treasurer."  is  held  to  be  the  obligation  of  the 
corporation  alone,  although  the  word  "by" 
or  "per"  is  not  prefixed  to  the  signature  of 
the  officers,  but  in  a  few  states  where  the 
form  of  the  note  reads  "we  promise  to  pay" 
the  signature  would  be  prima  facie  evidence 
binding  both  corporation  and  officers  in- 
dividually. Bean  v.  Pioneer  Mining  Co., 
66  Cal.  453.  Miers  v.  Coates,  57  111.  App. 
216.  Castle  v.  Belfast  Foundry  Co.,  72 
Me.  167.  Draper  v.  Mass.  Steamheating 
Co.,  87  Mass.  338.  English,  etc.,  Inv.  Co. 
V.  Globe  Loan  &  Tr.  Co.,  97  N.  W.  (Neb.) 
612.    (Inquiry  from  N.  C,  Dec,  1914,  Jl.) 

Individual    liability    of   officer   signing 
corporation  note 

2371.  A  bank  inquires  whether,  in  a  case 
where  the  president  and  secretary  of  a 
corporation  signed  to  borrow  money,  the 
president  and  secretary  would  be  personally 
liable  for  the  payment  of  the  obhgation  in 
case  the  company  failed.  Opinion:  Wheth- 
er the  president  and  secretary  would  be 
personally  liable  depends  upon  whether  the 


I 


540 


NOTES 


[2372-2378 


note  they  signed  for  the  borrowed  money 
was  executed  in  the  name  of  the  corporation 
by  them  as  president  and  secretary  or  was 
signed  as  their  personal  obhgation.  If  it 
was  a  corporation  note,  they  would  not  be 
personally  liable;  if  it  was  their  individual 
note  they  would  be.  It  would  depend  upon 
the  form  of  the  signature  and  the  character 
of  the  obligation.  {Inquiry  from  Idaho, 
Oct.,  1917.) 

Corporation   note    to    own   order   signed    by 

treasurer  and  secretary  and  indorsed  by 

secretary 

2372.  A  bank  receives  a  note  drawn  by 
a  company  to  its  own  order,  indorsed  by  the 

},  secretary,  and  individually  indorsed  by  the 
directors  of  the  company.  The  bank  in- 
quired whether  the  signature  of  the  treasurer 
on  the  back  is  necessary.  Opinion:  If  the 
signature  of  both  treasurer  and  secretary 
were  necessary  to  drawing  checks,  as 
evidenced  by  the  face  of  the  instrument,  the 
same  signature  would  be  necessary  for  the 
indorsement  of  the  corporation.  The  ques- 
tion as  to  who  is  authorized  to  sign  the  cor- 
poration name  is  generally  regulated  by  the 
board  of  directors  or  by  by-laws.  It  would, 
of  course,  be  legal  in  any  case  for  a  corpora- 
tion to  indorse  with  the  name  of  its  secre- 
tary alone  if  the  by-laws  or  resolution  of  the 
directors  so  provided;  but  where  the  signa- 
ture on  the  face  of  the  check  is  made  by 
both  secretary  and  treasurer  it  would  seem 
prima  facie  that  the  same  officials  should 
both  indorse  the  name  of  the  corporation. 
(Inquiry  from  N.  J.,  Dec,  1915.) 

Seal 

Seal  does  not  destroy  negotiability 

2373.  Does  the  attachment  of  a  seal  to 
the  signature  of  the  individual  maker  of  a 
note  (i.  e.  non-corporate)  render  it  non- 
negotiable?  Opinion:  Although  at  common 
law  an  instrument  under  seal  was  not  nego- 
tiable, the  Uniform  Negotiable  Instruments 
Act  (applicable  in  Florida)  expressly  pro- 
vides that  "the  validity  and  negotiable 
character  of  an  instrument  are  not  affected 

by  the    fact   that   it bears  a  seal." 

{Inquiry  from  Fla.,  Aug.,  1911,  Jl.) 
{Similar  Inquiry  from  S.  C,  Oct.  1913,  Jl. 
[citing  Weyman  v.  Perry,  S.  C.  415.  Bank 
V.  R.  Co.,  5  S.  C.  156]) 

2374.  Is  a  note  under  seal  a  negotiable 
instrument?  Opinion:  The  common  law 
rule  that  an  instrument  under  seal  was  not 
negotiable  was  held  generally  inapplicable 


to  notes  of  corporations.  Under  the  pro- 
vision of  the  Negotiable  Instruments  Act 
both  individual  and  corporate  notes  under 
seal  are  negotiable.  {Inquiry  from  Pa., 
^eb.,  1913,  Jl.) 

Seal  of  corporation 

2375.  How  does  the  presence  or  absence 
of  a  seal  affect  a  note?  Opinion:  Unless 
the  charter  or  governing  statute  requires  it, 
the  act  of  a  corporation  need  not  be  evi- 
denced by  its  corporate  seal,  except  where 
a  seal  would  be  required  in  the  case  of  indi- 
viduals, and  of  course  an  individual  note 
does  not  require  a  seal.  Under  the  Negotiable 
Instruments  Act  the  vahdity  and  negotia- 
bility of  a  note  is  not  affected  by  the  pres- 
ence of  a  seal.  10  Cyc.  1006.  Hamilton  v. 
Lycoming  Mut.  Ins.  Co.,  5  Pa.  339.  {In- 
quiry from  Pa.,  Feb.,  1913,  Jl.) 

Seal  to  signature  of  judgment  note 

2376.  Attached  to  the  signatures  of  the 
two  first  makers  of  a  judgment  note  were 
seals,  but  there  was  none  to  the  signature 
of  an  accommodation  maker.  Is  he  hable? 
Opinion:  The  validity  of  a  judgment  note 
is  not  affected  by  the  fact  that  it  is  not  given 
under  seal.  The  accommodation  maker  is 
Uable.  Hazelton  Nat.  Bk.  v.  Kintz,  24  Pa. 
Super.  Ct.  456.  Alexander  v.  Alexander, 
85  Va.  353.  {Inquiry  from  Pa.,  Sept.,  1911, 
Jl.) 

Seal  to  signature  of  indorser  of  judgment  note 

2377.  Where  a  power  of  attorney  to 
confess  judgment  appears  on  the  back  of  a 
note  should  the  signatures  of  all  the  indorsers 
be  under  seal  or  does  the  seal  affixed  to  the 
signature  of  the  first  indorser  suffice  for  the 
other  indorsers?  Opinion :  The  seal  applies 
only  to  the  single  signature  of  the  indorser 
to  which  it  is  affixed.  However,  in  Pennsyl- 
vania a  judgment  note  need  not  be  under 
seal.  Hazelton  Nat.  Bank  v.  Kintz,  24 
Pa.  Super.  Ct.  456.  Kneedler's  Appeal,  92 
Pa.  St.  428.    {Inquiry  from  Pa.,  July,  1919.) 

Joint     and     several     notes 

Form  of  joint  or  joint  and  several  notes 

2378.  What  form  should  a  bank  use  in 
notes  to  secure  the  joint  and  several  Ha- 
bihty  of  the  makers?  Opinion:  At  common 
law,  a  note  drawn  "We  promise,"  etc., 
signed  by  two  or  more  is  joint  only,  but  one 
drawn  "1"  promise,  so  signed,  is  joint  and 
several,  both  at  common  law  and  under  the 
Negotiable  Instruments  Act.     By  statute 


541 


2379-2382] 


DIGEST  OF  LEGAL  OPINIONS 


in  some  states  a  note  joint  in  form  is  made 
joint  and  several.  In  absence  of  statute,  a 
bank  desiring  a  joint  and  several  note  should 
have  it  read  "We  or  either  of  us,"  or  ''We 
jointly  and  severally"  promise.  Barnett  v, 
Juday,  38  Ind.  86.  Peaks  v.  Dexter,  82  Me. 
85.  Palmer  v.  Stevens,  1  Den.  (N.  Y.)  47L 
Farmers  Exch.  Bk.  v.  Morse,  129  Cal.  239. 
Kaestner  v.  First  Nat.  Bk.,  170  111.  322. 
Sully  V.  Campbell,  99  Tenn.  434.  Monson 
V.  Drakeley,  40  Conn.  552.  Ely  v.  Clute, 
19  Hun  (N.  Y.)  35.  Warren  First  Nat.  Bk. 
v.  Fowler,  36  Ohio  St.  534.  Higerty  v. 
Higerty,  1  Phila.  (Pa.)  232.  Dodge  v. 
Chessman,  10  Pa.  Super.  Ct.  604.  Kinsley 
V.  Shenberger,  7  Watts  (Pa.)  193.  Leith  v. 
Bush,  61  Pa.  395.     {Inquiry  from  Ga.,  Sept., 

1913,  Jl.)  {Similar  inquiry  from  III.  Aug., 
1912,  Jl.  citing  Pogue  v.  Clark,  25  III.  33; 
Ky.,  Aug.,  1914.) 

Note  "we  promise  to  pay"  signed  by  A, 
Principal,  and  B,  Surety 

2379.  What  is  the  liability  of  the  makers 
of  a  note,  the  body  of  which  reads:  "We 
promise  to  pay,"  and  which  is  signed  A, 
Principal,  B,  Surety,  C,  Surety?  Opinion: 
The  note  is  joint  only,  in  the  absence  of  a 
statute  making  it  joint  and  several,  and 
all  the  makers  must  be  joined  in  an  action 
thereon,  but  each  maker  is  liable  for  the  full 
amount.  Barnett  v.  Juday,  38  Ind.  86. 
Sharpe  v.  Baker,  (Ind.)  99  N.  E.  44.  Bart- 
lett  V.  Eraser,  (Cal.)  105  Pac.  130.  Salamon 
V.  Hopkins,  61  Conn.  49.  Maiden  v.  Web- 
ster, 30  Ind.  317.  Hunt  v.  Adams,  5  Mass. 
358.  Latham  v.  Flour  Mills,  68  Tex.  130. 
Birch  Tree  St.  Bk.  v.  Brown,  (Mo.)  133 
S.  W.  860.     {Inquiry  from  W.  Va.,  May, 

1914,  Jl.) 

Note  "I"  promise  to  pay  signed  by  two  or 
more 

2380.  In  making  a  note  is  it  necessary 
to  use  the  form  "I,  or  we,  or  either  of  us 
promise  to  pay"  or  does  the  word  "I"  cover 
the  case  just  as  well,  making  same  a  joint 
and  several  note?  Opinion:  Where  a  note 
containing  the  words  "I  promise  to  pay"  is 
signed  by  two  or  more  persons  they  are 
jointly  and  severally  liable  thereon.  Ullery 
V.  Brohm,  (Colo.)  79  Pac.  180.  Dill  v. 
White,  52  Wis.  456.  {Inquiry  from  Wis., 
March,  1920,  Jl.) 

Joint  note  of  corporation  and  individual 

2381.  Does  a  note  reading :  "We  prom- 
ise to  pay,"  and  signed  by  a  corporation, 
"The  Johnson  Co.,  Inc.,  H.  Johnson,  Pres." 


and  by  John  Smith  and  Henry '  Jones, 
create  only  a  joint  liability  of  the  corpora- 
tion and  the  two  individuals?  Opinion:  It 
is  generally  held  by  the  courts  that  a  note 
signed  by  more  than  one  person  and  begin- 
ning "We  promise"  is  joint  only.  Bartlett 
Estate  Co..  11  Cal.  App.  373.  Farmers' 
Exch.  Bk.  V.  Morse,  129  Cal.  242.  Barrett 
V.  Funay,  36  Ind.  86.  Sharp  v.  Baker, 
(Ind.  App.)  99  N.  E.  44.  Taylor  v.  Roger, 
18  Ind.  App.  466.  Dusenbury  v.  Albright, 
31  Neb.  345.  Humphreys  v.  Guillow,  13 
N.  H.  385.  Elinger's  Appeal,  114  Pa.  St. 
505.  Thompson  on  Bills,  156.  Daniel  on 
Negotiable  Instruments  (6th  Ed.),  Sec. 
94.  It  would  seem,  therefore,  that  this 
note  is  a  joint  note  of  the  corporation  Smith 
and  Jones.  The  common  law  rule  is  that 
parties  who  are  jointly  liable  on  a  bill 
or  note  must,  in  general,  be  jointly  sued,  but 
in  some  states  the  joint  makers  are  made 
severally  liable  by  statute,  and  may  be  sued 
separately.  Unless  there  is  some  statute  in 
New  Jersey  such  as  above,  the  action  on  the 
note  must  be  against  all  the  makers.  {In- 
quiry from  N.  J.,  June,  1915.) 

Right  of  joint  maker  taking  up  note  to  enforce 
against  co-maker 

2382.  A  joint  note  made  by  A  and  B 
contains  a  clause  aathorizing  confession  of 
judgment  against  both  or  either  maker  in 
favor  of  the  holder.  It  bears  an  indorse- 
ment, dated  after  its  maturity,  signed  by  the 
payee  bank,  reading:  "For  a  valuable 
consideration  we  hereby  sell  and  assign  the 
within  note  without  recourse  to  B."  Can 
B  secure  a  valid  judgment  by  confession 
against  his  joint  maker.  A?  Opinion:  The 
rule  i.=  well  settled  that  the  note  is  extin- 
guished by  pajnnent,  as  a  joint  maker  can- 
not purchase  or  acquire  title  to  the  instru- 
ment. Hence  B  cannot  sue  A  on  the  note, 
nor  enter  up  judgment  by  confession,  but 
his  right  against  A  is  limited  to  an  action  for 
contribution.  Exch.  Nat.  Bank  v.  Chapline, 
(Ark.)  158  S.  W.  151.  Davenport  v.  Green 
River,  etc.,  Bank,  (Kv.)  128  S.  W.  88.  Ste- 
vens v.  Hannan,  (Mich.)  49  N.  W.  874. 
Williams  v.  Gerber,  75  Mo.  App.  18.  Were 
B  an  accommodation  maker  another  ques- 
tion would  be  presented.  It  is  held  in  some 
jurisdictions  that  such  a  maker  is  secondari- 
ly liable  only,  and  that  where  an  instrument, 
is  paid  by  a  party  secondarily  liable,  it  is  not 
discharged,  but  that  the  accommodation 
maker,  being  a  surety,  is  entitled  to  be  sub- 
rogated to  all  the  rights  and  remedies  of  the 
creditor.    (Pease  v.  Tyler,  [Wash,]  138  Pac. 


542 


m 


NOTES 


[2383-2386 


310.)  In  other  jurisdictions  it  is  held  that 
an  accommodation  maker  is  not  secondarily 
but  primarily  hable,  so  that  his  sole  recourse 
upon  his  co-maker  is  not  upon  the  note,  but 
in  an  independent  action  for  contribution. 
(Richards  v.  Market  Exch.  Bank,  [Ohio]  90 
N.  E.  1000.  Ohio  Rev.  St.  Sec.  3178a. 
[Neg.  Inst.  Law].)  {Inquiry  from  Ohio, 
Oct.,  1920,  Jl.) 

Corporations    as    parties 

Note    of   municipal    corporation 

2383.  A  bank  asks  for  a  form  of  short- 
term  note  to  be  used  by  a  municipality  for 
borrowed  money.  Opinion:  There  seems 
to  be  no  standard  form  of  note  for  use  in 
such  cases.  In  the  loaning  of  money  to  a 
municipality  it  would  be  necessary  to  in- 
vestigate its  statutory  power  to  borrow 
money  and  to  give  its  notes  payable  in  the 
future;  such  powers  are  not  implied  from  the 
usual  powers  of  administration  or  from  the 
power  to  levy  taxes  to  defray  necessary  cor- 
porate expenditures.  It  would  seem  necessa- 
ry to  investigate  just  what  municipal  officers 
were  authorized  to  execute  the  corporate 
obligation  in  such  cases.  (Inquiry  from 
N.  J.,  Aug.,  1918.) 

Indorsement  by  corporation  of  renewal    note 

2384.  A  gave  a  note  to  B  Corporation 
for  goods  sold,  and  at  maturity,  by  ar- 
rangement with  B  for  renewal  of  part  of  the 
debt,  paid  the  note  to  the  holding  bank  and 
executed  a  new  note  for  a  less  amount.  The 
B  Corporation  indorsed  and  discounted  the 
renewal  note.  Opinion:  The  transaction 
constituted  a  renewal  and  not  a  payment, 
and  the  new  note  is  based  on  the  same  con- 
sideration as  the  old  note.  The  indorsement 
of  the  B  Corporation  is  therefore  not  for 
accommodation,  and  the  bank  can  hold  the 
corporation  in  the  event  of  non-payment  by 
the  maker.  Flanagin  v.  Hambleton,  54  Md. 
222.  McElwee  v.  Met.  Lumber  Co.,  69 
Fed.  302.  Lee  v.  Hollister,  5  Fed.  752. 
(Inquiry  from  Wis.,  Oct.,  1915,  Jl.) 

By-law  of  co-operative  association  providing 
for  members  sharing  liability  on  its  notes 

2385.  A  bank  inquires  as  to  the  effect  of 
the  following  by-law  of  a  co-operative  asso- 
ciation as  limiting  the  liability  of  the  maker: 
"These  notes  shall  be  the  property  of  the 
Association  and  shall  be  used  by  the  Board 
of  Directors  as  collateral  security  with  which 
to  l3orrow  needed  money  for  the  Association's 
business.     Whenever  these  notes   are   de- 


posited as  security  for  a  loan  all  the  members 
shall  individually  share  the  liability  in  pro- 
portion to  the  face  value  of  their  respective 
notes."  Opinion:  If  the  bank  took  the 
collateral  notes  without  knowledge  of  the 
by-law,  there  would  be  no  question  as  to 
their  enforceability  for  the  full  amount  due 
on  the  note  of  the  co-operative  association. 
A  pei'son  to  whom  negotiable  securities  are 
pledged  as  collateral  is  a  holder  for  value  to 
the  extent  of  the  amount  due  to  him.  Fifth 
Nat.  Bank  v.  McCrory,  177  S.  W.  (Mo.) 
1058.  But  even  assuming  knowledge  on  the 
part  of  the  bank  of  the  by-law,  it  is  to  be  con- 
strued as  regulating  the  liability  on  the 
notes  between  the  members  and  is  not  in- 
tended to  limit  the  right  of  the  holder  of  any 
of  these  notes  as  collateral  to  enforce  pay- 
ment from  the  maker  up  to  the  full  amount 
thereof.     (Inquiry  from  Wash.,  Feb.,  1918.) 

Collateral  notes 

Form  of  collateral  note 

2386.  A  bank  submits  a  form  of  collat- 
eral note  which  it  desires  to  use  in  connec- 
tion with  a  stock  and  bond  power  form  for 
registered  bonds  and  stocks.  It  contains 
clauses  on  the  following  subjects:  increased 
interest  after  maturity;  waiver  of  present- 
ment, protest,  etc.;  guaranty  of  payment 
by  each  signer  and  indorser;  charge  of  per- 
sonal and  separate  estate  of  each  party  with 
payment  of  note;  transfer  of  specified  col- 
lateral for  security;  power  of  bank  or  its 
assigns  to  sell  collateral  in  case  of  deprecia- 
tion in  value,  with  or  without  notice;  power 
to  apply  surplus  of  collateral  or  proceeds  to 
any  other  liability  of  maker;  deduction  of 
expense  of  realizing  on  collateral  and  appli- 
cation of  net  proceeds  only;  right  of  bank  or 
assignees  to  purchase  collateral;  and  other 
minor  provisions.  The  bank  asks  if  this  is 
a  good  form.  Opinion:  The  form  submitted 
would  seem  to  give  the  ]:)ank  ample  protec- 
tion. Although  probably  not  essential  in  the 
particular  case,  some  forms  provide  that 
the  collateral  is  delivered  to  secure  "any 
note  given  in  extension  or  renewal."  Some 
forms  also  provide  that  the  note  and  all 
other  obhgations  of  the  maker  to  the  bank 
shall  become  forthwith  due  and  payable 
upon  failure  to  make  part  payment  or  de- 
hver  additional  securities  upon  three  days' 
notice  that  the  collateral  has  depreciated 
in  value,  upon  the  failure  or  insolvency  of 
the  maker  or  upon  non-payment  of  any  of 
the  liabilities  of  the  maker  to  the  bank.  It 
might  be  well  to  add  some  provision  of  this 
kind.    (Inquiry  from  Neb.,  Dec,  1918.) 


543 


2387-2392] 


DIGEST  OF  LEGAL  OPINIONS 


Clause  maturing  note  upon  failure  to  deposit 
additional  collateral 

2387.  Does  a  provision  in  a  collateral 
note  authorizing  the  holder  to  demand  ad- 
ditional security  from  time  to  time  and  in 
default  thereof  immediately  maturing  the 
note  render  it  non-negotiable?  Opinion: 
Such  a  clause  destroyed  negotiability  under 
the  majority  of  earlier  decisions,  as  it  made 
the  note  uncertain  as  to  amount  and  time  of 
payment.  Since  the  enactment  of  the  Ne- 
gotiable Instruments  Law,  the  question  of 
negotiability  is  still  doubtful,  except  in 
Wisconsin,  where  a  special  provision  of  the 
Negotiable  Instruments  Law  makes  such 
a  note  negotiable,  and  it  would  be  safer  for 
a  bank  to  regard  such  note  non-negotiable 
until  the  question  is  decided.  Where  such  a 
note  is  held  negotiable  and  is  indorsed,  the 
question  of  precise  date  of  maturity,  whether 
the  note  immediately  matures  upon  default 
or  only  at  the  option  of  the  holder,  is  impor- 
tant (1)  as  respects  the  rights  of  subsequent 
purchasers;  (2)  as  to  charging  indorsers. 
There  is  a  difference  between  the  Wisconsin 
and  federal  courts  upon  this  question. 
Lincoln  Nat.  Bk.  v.  Perry,  66  Fed.  887.  Bk. 
V.  McGeoch,  73  Wis.  332.  Smith  v.  Marhn, 
59  Iowa  645.  Bk.  v.  Carson,  60  Mich.  432. 
Kimball  v.  Mellon,  80  Wis.  133.  Bk.  v. 
Brew.  Co.,  16  App.  D.  C.  186,  17  App.  D.  C. 
100.  Hodge  V.  Wallace,  129  Wis.  84. 
Gillette  v.  Hodge,  170  Fed.  313.  {Inquiry 
from  Pa.,  June,  1910,  Jl.) 

2388.  What  is  the  effect  on  negotia- 
bihty  of  the  clause  in  a  collateral  note  that, 
upon  failure  to  deposit  additional  security 
to  cover  decline  in  value,  the  note  shall 
become  instantly  due  and  payable?  Opin- 
ion: An  examination  of  Virginia  cases  fails 
to  bring  to  Hght  any  in  which  such  a  clause 
has  been  passed  upon.  There  is  a  decision 
in  Kansas  (HolHday  State  Bank  v.  Hoffman, 
116  Pac.  239)  upon  the  following  clause  in 
a  collateral  note  which  is  substantially 
similar  to  the  one  submitted:  ''If,  in  the 
judgment  of  the  holder  of  this  note,  said 
collateral  depreciates  in  value,  the  under- 
signed agrees  to  dehver,  when  demanded, 
additional  security  to  the  satisfaction  of 
said  holder;  otherwise  this  note  shall  ma- 
ture at  once."  The  court  held  under  the 
Negotiable  Instruments  Act  that  the  clause 
destroyed  the  negotiability  of  the  note  be- 
cause (1)  it  contained  a  promise  to  do  an  act 
in  addition  to  the  payment  of  money  and 
(2)  the  date  when  it  is  to  become  due  is 
uncertain.  See,  also,  Bank  v.  Dresser,  132 
La.  532.    Reyonds  v.  Vint,  114  Pac.   526. 


There  are  cases  of  somewhat  contrary  im- 
port in  the  Federal  Court,  i.  e.,  Kenedy  v. 
Broderick,  216  Fed.  137  (1914)  and  Smith 
V.  Nelson  Land  &  Cattle  Co.,  224  Fed.  56 
(1914).  It  seems,  however,  that  in  case  the 
note  was  held  non-negotiable,  the  accommo- 
dation indorser  would  be  liable  as  guarantor 
of  its  payment.  {Inquiry  from  Va.,  Dec, 
1915.) 

Clause  maturing  note  if  collateral  depreciates 
or   additional    security  not    deposited 

2389.  Is  negotiability  of  a  note  affected 
by  the  clause  that  it  shall  mature  if  in  the 
opinion  of  the  holder  the  collateral  de- 
posited as  security  depreciates  or  becomes 
insufficient  and  the  maker  or  indorsers  re- 
fuse to  give  additional  satisfactory  security 
without  a  provision  that  the  holder  must 
first  make  demand  therefor?  Opinion:  The 
note  is  apparently  non-negotiable.  In 
HoUiday  State  Bank  v.  Hoffman,  85  Kan. 
71,  a  similar  clause,  providing,  however,  for 
demand  by  the  holder,  was  held  to  render 
the  instrument  non-negotiable  because  (1) 
it  contained  a  promise  to  do  an  act  in  addi- 
tion to  the  payment  of  money;  (2)  the  day 
when  it  is  to  become  due  is  uncertain.  It 
has  also  been  held,  under  the  Negotiable 
Instruments  Act,  that  a  note  providing  that 
whenever  the  payee  deems  himself  insecure 
he  may  declare  it  due,  even  before  maturity, 
is  non-negotiable.  Reynolds  v.  Vint,  144 
Pac.  (Ore.)  526.  Bright  v.  Offield,  143  Pac. 
(Wash.)  159.  {Inquiry  from  Miss.,  Aug., 
1917.) 

Clause  permitting  sale  of  collateral 

2390.  Is  negotiability  of  a  note  affected 
by  the  clause  that  the  holder  may  sell  the 
collateral  at  public  or  private  sale  and  apply 
the  proceeds  to  payment  of  the  note  and 
that  the  holder  may  himself  become  the 
purchaser?  Opinion:  Negotiability  is  not 
affected.    {Inquiry  from  Miss.,  Aug.,  1917.) 

Authority  to  sell  collateral  on  non-payment 

2391.  Is  negotiability  of  a  note  affected 
by  a  provision  authorizing  the  sale  of  collat- 
eral if  it  is  not  paid  at  maturity?  Opinion: 
Negotiability  is  not  affected.  {Inquiry 
from  Okla.,  May,  1918,  Jl.) 

Provision  authorizing  holder  to  take  and  sell 
mortgaged  property 

2392.  Is  a  combined  note  and  chattel 
mortgage  negotiable  where  it  contains, 
among  other  things,  a  provision  that  if  the 
holder  shall  at  any  time  feel  himself  unsafe 


544 


NOTES 


[2393-23 


he  may  seize  and  sell  the  mortgaged  proper- 
ty? Opinion:  The  provision  referred  to 
renders  the  note  non-negotiable  in  Iowa. 
See  Iowa  Nat.  Bank  v.  Carter,  123  N.  W. 
(Iowa)  237.  {Inquiry  from  Iowa,  Aug., 
1914.) 

Combined  note  and  chattel  mortgage 

2393.  Is  it  proper  to  use  in  Iowa  an 
instrument  in  the  nature  of  a  combined  note 
and  chattel  mortgage?  Opinion:  There  is 
nothing  illegal  or  invalid  about  a  contract 
of  this  nature  and  if  it  was  duly  filed  it 
would  secure  the  pledged  chattels.  Its 
negotiability  is  treated  infra,  opinion  2392. 
{Inquiry  from  Iowa,  Aug.,  1914') 

Illinois  Central  stock  interest  certificates 

2394.  For  many  years  a  bank  has  carried 
Illinois  Central  stock  interest  certificates, 
payable  with  certain  provisions  and  options, 
in  the  bond  account  with  the  approval 
of  the  bank  examiner.  The  bank  inquires 
whether  they  should  be  classed  as  stock  or  as 
collateral  notes.  Opinion :  It  seems  these  cer- 
tificates might  be  classed  as  collateral  notes 
more  properly  than  as  stock.  The  holder 
thereof  does  not  receive  dividends,  but  a 
fixed  rate  of  interest.  A  certificate  of  stock 
represents  a  share  in  the  ownership,  while 
an  interest  certificate  is  a  promise  to  pay. 
It  seems,  therefore,  that  these  certificates 
should  not  be  classed  as  stock,  but  as 
promises  to  pay.  {Inquiry  from  III.,  Oct., 
1919.) 

Assignment  of  collateral 

2395.  Does  the  simple  indorsement  of 
the  payee  of  a  collateral  note  thereon  trans- 
fer the  collateral  to  the  indorsee  and  give 
him  the  right  to  enforce  the  lien  on  the 
property?  Opinion:  It  is  a  general  rule 
that  an  assignment  of  a  note  secured  by 
collateral  operates  as  a  transfer  of  the 
security  unless  there  is  an  express  agreement 
to  the  contrary.  Campbell  v.  Roeder,  44 
Mo.  App.  324.  Tilden  v.  Stilson,  49  Neb. 
382.  Langdon  v.  Buel,  9  Wend.  (N.  Y.) 
80.  It  would  be  well,  however,  to  make 
specific  provision  that  the  "assigns"  of  the 
payee  have  the  same  power  as  he  is  given  to 
declare  the  note  due  before  maturity  and 
to  sell  the  collateral  and  apply  the  proceeds 
on  the  note,  as  it  is  not  entirely  clear  that  the 
assignee  would  otherwise  have  the  power. 
{Inquiry  from  hid.,  Jan.,  1913.) 

Judgment  notes 

Advantages  of  judgment  notes 

2396.  What  advantages,  if  any,  has  a 


judgment  note  over  a  plain  promissory  note? 
What  action  is  necessary  in  Illinois  on  a  past 
due  judgment  note?  Does  the  note  have  to 
be  a  matter  of  record?  Opinion:  1.  The 
obvious  advantage  of  a  judgment  note  over 
a  plain  promissory  note  is  the  celerity  with 
which  the  holder  of  the  former  can  have  his 
judgment  entered,  as  compared  with  the 
drawing  and  service  of  pleadings  and  the 
trial  of  the  action  in  the  latter  case.  2.  The 
note,  of  course,  must  be  made  a  matter  of 
record .  In  Illinois,  during  the  vacation  of  court, 
judgments  by  confession  can  be  entered  only 
by  the  clerk. Noorder  by thejudgeis required; 
and  in  fact  the  judge  has  no  po\yer  during 
the  vacation  to  order  the  entry  of  judgments 
by  confession.  But  during  the  term  such 
judgments  can  be  entered  only  in  open  court. 
Starr  &  Curtis  Anno.  111.  Stat.,  Chap.  110, 
Sec.  66,  also,  Conklin  v.  Ridgely,  112  111. 
36.  Ling  v.  King,  91  111.  571.  Durham  v. 
Brown,  24  111.  93.  Ottawa  First  Nat.  Bk. 
v.  Daly,  34  111.  App.  173.  Anderson  v. 
Field,  6  111.  App.  307.  {Inquiry  from  III, 
Sept.,  1913.) 

Validity  of  judgment  note 

2397.  Is  a  note  containing  a  clause 
waiving  presentment,  etc.,  ^  and  con- 
fessing judgment  if  payment  is  not  made 
at  maturity  valid?  Opinion:  The  note  is 
vaHd.     {Inquiry  from  Del.,  Feb.,  1912,  Jl.) 

Clause  authorizing  confession  of  judgment  at 
any  time 

2398.  The  following  clause  appears  in  a 
note:  "We,  the  makers  and  indorsers  of  this 
note  herebj^  irrevocably  authorize  and  consti- 
tute any  attorney  at  la  w,  for  us  and  in  our  name 
and  stead,  at  any  time  hereafter  in  any  court 
of  record,  during  term  time  or  vacation  to 
waive  service  of  process  and  confess  judg- 
ment herein  and  to  file  a  cognovit  therefor, 
releasing  all  errors,  waiving  the  right  of 
appeal  and  writ  of  error  therein,  and  con- 
senting to  the  immediate  issue  of  execution, 
and  we  hereby  ratify  and  confirm  all  our 
said  attorney  may  do  by  virtue  hereof." 
Does  the  clause  affect  negotiabihty?  Opin- 
ion: The  Negotiable  Instruments  Act 
provides  that  the  negotiable  character  of  an 
instrument  otherwise  negotiable  is  not 
affected  by  a  provision  which  "authorizes  a 
confession  of  judgment  if  the  instrument  be 
not  paid  at  maturity."  But  this  instrument 
authorizes  confession  at  any  time,  and  this 
would  probably  be  held  to  destroy  the  ne- 
gotiabihty of  the  note.  Wisconsin  Yearly 
Metting  v.  Babler,  115  Wis.  289,  91  N.  W. 


545 


2399-2404] 


DIGEST  OF  LEGAL  OPINIONS 


678.  Milton  Nat.  Bank  v.  Beaver,  25  Pa. 
Super.  Ct.  494.  {Inquiry  from  Colo.,  Oct., 
1915.) 

2399.  Does  a  clause  in  a  note  authorizing 
confession  of  judgment  "at  any  time" 
destroy  its  negotiability?  Opinion:  Nego- 
tiability is  destroyed.  See  preceding  opin- 
ions^   {Inquiry  from  Pa.,  Nov.,  1914,  JI-) 

2400.  Does  the  provision  in  a  note  that 
the  maker  will  "confess  judgment  for  the 
above  sum  with  5  per  cent,  added  for  col- 
lection fees"  affect  negotiability?  Opinion: 
Where  a  promissory  note  contains  a  clause 
authorizing  confession  of  judgment  without 
the  restriction  "if  not  paid  at  maturity" 
so  that  thereunder  judgment  may  be  entered 
at  any  time,  negotiabiUty  of  the  note  is 
destroyed.  The  Negotiable  Instruments  Act 
declares  that  negotiability  is  not  affected  by 
a  provision  which  authorizes  confession  of 
judgment  if  the  instrument  is  not  paid  at 
maturity  and  a  note  confroming  to  this 
provision  would  be  negotiable.  Pa.  Laws, 
1909,  p.  260,  No.  169  et  seq.  Milton  Nat. 
Bk.  V.  Beaver,  25  Pa.  Super.  Ct.  494.  Hippie 
V.  Stoner,  14  Pa.  Co.  Ct.  631.  Pa.  Laws, 
1901,  p.  194.  Neill  &  Co.  v.  Dawson,  11  Pa. 
Co.  Ct.  633.  Elgin  First  Nat.  Bk.  v.  Russell 
124  Tenn.  618,  139  S.  W.  734.  Wisconsin 
Yearly  Meeting  v.  Babler,  115  Wis.  289,  91 
N.  W.  678.  {Inquiry  from  Pa.,  June,  1919, 
Jl.)  {Similar  inquiry  from  Pa.,  Dec.  1911, 
Jl.) 

Authority  to  confess  judgment  if  not  paid  at 
maturity 

2401.  Is  negotiability  of  a  note  affected 
by  authorization  therein  to  confess  judgment 
if  payment  is  not  made  at  maturity?  Opiii- 
ion:  Such  authorization  does  not  render  the 
note  non-negotiable.  {Inquiry  from  Del., 
Feb.,  1912,  Jl.) 

Unfilled  blanks  in  confession  of  judgment 
clause 

2402.  A  bank  submits  a  note  containing 
the  following  clause  with  the  blanks  un- 
filled :     "And  further do  hereby  empower 

any  Attorney  of  any  Court  of  Record  within 
the  United  States  or  elsewhere  to  appear  for 
....  and  after  one  or  more  declarations  filed, 

confess  judgment  against as  of  any 

term  for  the  above  sum  with  Costs  of  suit 
and  Attorney's  commission  of  ....  per  cent 
for  collection  and  release  of  all  errors,  and 
without  stay  of  execution,  etc."  Does  the 
clause  in  that  form  affect  negotiability? 
What  if  the  blanks  were  properly  filled  out? 
Opinion:     If  the  blanks  are  not  filled,  ne- 


gotiability of  the  note  is  not  affected.  How- 
ever, if  the  blanks  are  filled,  the  rule  is 
applicable  that  a  clause  authorizing  the 
confession  of  judgment  before  maturity 
destroys  negotiability,  for  the  clause  seems 
to  authorize  the  confession  of  judgment 
at  any  time.  Sweeney  v.  Thickstun, 
77  Pa.  131.  Overton  v.  Tyler,  3  Barr  (Pa.) 
346.  Wisconsin,  etc.,  Meeting  v.  Babler, 
115  Wis.  289.  {Inquiry  from  Pa.,  May, 
1915.) 

Negotiability  of  judgment  note 

2403.  A  promissory  note  contains  a 
clause  empowering  any  attorney  of  record 
"to  appear  for  and  confess  judgment  for  the 
above  sum,  with  or  without  declaration, 
with  costs  of  suit,  release  of  errors,  without 
stay  of  execution."  Opinion:  The  provi- 
sion would  destroy  negotiability  of  the  note, 
as  thereunder  judgment  could  be  entered  up 
before  maturity.  Such  notes  were  held  non- 
negotiable  in  Pennsylvania  before  the  Nego- 
tiable Instruments  Act,  and  that  act  makes 
the  note  negotiable  only  where  the  clause 
authorizes  confession  of  judgment  "if  the 
instrument  be  not  paid  at  maturity."  Over- 
ton V.  Tyler,  3  Barr  (Pa.)  346.  Milton  Nat. 
Bk.  V.  Beaver,  25  Pa.  Super.  Ct.  494.  Wis- 
consin, etc..  Baptists  v.  Babler,  115  Wis.  289. 
First  Nat.  Bk.  v.  Russell,  (Tenn.)  139  S.  W. 
734.    {Inquiry  from  Pa.,  May,  1915,  Jl.) 

Suggestion  of  negotiable  form  of  confession  of 
judgment 

2404.  Judgment  notes  in  the  following 
form  are  held  non-negotiable  in  Wisconsin: 
"I  hereby  authorize  any  attorney  of  any 
Court  of  Record  to  appear  for  me  in  such 
Court  at  any  time  hereafter,  and  confess  a 
judgment  without  process,  in  favor  of  the 
holder  of  this  note,  for  such  amount  as  may 
appear  to  be  unpaid  thereon,  whether  due 
or  to  become  due,  etc."  Clark  v.  Tallmadge, 
176  N.  W.  (Wis.)  906.  A  bank  asks  for  a 
form  which  will  be  negotiable.  Opinion: 
Under  the  Negotiable  Instruments  Act  the 
negotiability  of  an  instrument  is  not  affected 
by  a  provision  which  "authorizes  a  confes- 
sion of  judgment  if  the  instrument  be  not 
paid  at  maturity."  The  trouble  with  the 
above  form  is  that  it  authorizes  a  confession 
"at  any  time  hereafter,"  and  the  courts  of 
Wisconsin  hold  that  a  note  authorizing  a 
confession  of  judgment  before  maturity  is 
not  negotiable.  Clark  case,  supra;  Wiscon- 
sin Yearly  Meeting,  etc.,  v.  Babler,  115  Wis. 
289,  91  N.  W.  678.  To  render  the  form 
negotiable  it  should  be  changed  to  read  as 


546 


NOTES 


[2405-2409 


follows:  "I  hereby  authorize  any  attorney 
of  any  court  of  record  to  appear  for  me  in 
such  court  at  any  time  after  maturity  and 
confess  a  judgment  without  process  in  favor 
of  the  holder  of  this  note  for  such  amount  as 
iD.a,y  appear  to  be  unpaid  thereon."  {In- 
quiry from  Wis.,  Jan.,  1921.) 

Power  of  attorney  on  back  hinds  first  indorser 
only 

2405.  On  the  back  of  a  note  there  is  an 
assignment  thereof  with  power  of  attorney 
to  confess  judgment  which  form  is  entirely 
enclosed  in  a  box  or  border.  Can  judgment 
be  entered  against  other  indorsers  than  the 
person  signing  the  assignment  under  seal 
and  within  the  box?  Opinion:  It  seems 
that  even  without  the  border  line  the  con- 
fession of  judgment  would  Innd  only  the 
indorser  signing  the  same  and  not  subse- 
quent indorsers.  This  is  in  analogy  to  the 
provision  of  the  Negotiable  Instruments 
Act  that  where  a  waiver  is  embodied  in  the 
instrument  itself,  it  is  binding  upon  all  the 
parties  thereto,  but  where  it  is  written  above 
the  signature  of  an  indorser  it  binds  him 
only.  A  power  of  attorney  to  confess  judg- 
ment is  strictly  construed  against  the  party 
in  whose  favor  it  is  given.  Morris  v.  Bank 
of  Commerce,  4  S.  W.  (Tex.)  246.  Vincent 
v.  Herbert,  2  Houst.  (Del.)  425.  Kahn  v. 
Lesser,  72  N.  W.  (Wis.)  739.  It  would  be 
well  that  the  face  of  the  note  contain  a  clause 
authorizing  confession  of  judgment  against 
all  makers  and  indorsers.  (inquiry  from  Pa., 
July,  1919.) 

Entry  of  judgment  against  indorser 

2406.  Can  judgment  be  entered  against 
the  indorser  of  a  judgment  note  without 
suit?  Opinion:  Whether  judgment  can  Ije 
entered  against  the  indorser  depends  upon 
whether  the  power  of  attorney  so  provides 
or  is  limited  to  the  entry  of  judgment  against 
the  maker.    {Inquiry  from  III.,  March,  1919.) 

Discharge    of    surety 

2407.  Is  a  surety  who  consents  to  the 
entr}'  of  judgment  on  a  judgment  note  prior 
to  maturity  discharged  by  such  entry? 
Opinion:  The  liability  of  the  surety  is  not 
affected  by  the  entry.  {Inquiry  from  Pa., 
Nov.,  1914,  JI-) 

Judgment  note  does  not  cover  new  loan 

2408.  A,  who  borrowed  $5,000  from  a 
bank,  executed  a  promissory  note  for  §5,000 
and  also  a  judgment  note  for  a  like  sum 
which  was  duly  filed  with  the  prothonotary 


of  the  county.  After  he  had  paid  $3,000,  he 
requested  a  new  loan  of  $3,000.  The  bank 
questions  the  advisability  of  taking  a  new 
judgment  note  or  of  permitting  the  old 
judgment  note  to  cover  the  old  and  new 
debts.  Opinion:  The  old  judgment  note 
would  not  be  enforceable  for  the  amount  of 
the  new  loan,  and  a  new  judgment  note 
should  be  taken.  Stew.  Pur.  Pa.  Dig.  (13th 
Ed.),  Vol.  2,  2036,  2037.  Borough  v.  Hallett 
(Pa.)  83  Atl.  66.  Philadelphia  v.  Johnson, 
208  Pa.  645.  Ely  v.  Karmany,  23  Pa.  314. 
Neff  V.  Barr,  14  Serg.  &  R.  (Pa.)  166.  Martin 
V.  Rex.  6  Serg.  &  R.  (Pa.)  296.  Fraley's 
Appeal,  76  Pa.  42.  Sweeney  v.  Thickstun, 
77  Pa.  131.  Overton  v.  Tyler,  3  Barr  Pa. 
346.  Pearce  v.  Walters,  (Pa.)  78  Atl.  832. 
Citizens  Nat.  Bk.  v.  Hileman,  (Pa.)  82  Atl. 
770.    {Inquiry  from  Pa.,  Sept.,  1916,  Jl.) 

Installment  notes 

Transferee  of  note  where  installment  overdue 
not  a  holder  in  due  course 

2409.  A  note  reads  as  follows:  "In 
installments  of  850  per  month,  beginning 
with  August  1,  1918,  I  promise  to  pay  to  the 
order  of  John  Doe  the  amount  of  $2,000, 
with  interest  at  the  rate  of  6  per  cent,  per 
annum,  payable  monthh^  Value  received. 
(Signed)  Wm.  Smith."  The  reverse  side  of 
the  note  showed  that  the  installment  due 
September  1,  1918,  was  not  paid  until 
September  15,  1918,  and  that  the  payment 
due  January  1,  1919,  was  not  paid  until 
January  28,  1919.  Would  the  subsequent 
purchaser  of  this  note  be  considered  a 
holder  in  due  course?  What  procedure 
would  have  to  be  taken  to  preserve  the 
liability  of  the  indorser  who  indorsed  un- 
qualified in  case  one  or  several  of  the  install- 
ments should  not  be  paid  at  their  respective 
maturities?  In  other  words,  would  notice 
have  to  be  given  to  the  indorser  immediately 
upon  the  failure  of  the  maker  of  the  note  to 
meet  the  installment  when  due?  Opinion: 
In  the  case  of  a  note  payable  in  installments, 
if  an  installment  is  overdue  at  the  time  the 
instrument  is  transferred,  the  purchaser 
takes  the  whole  note  as  ov^erdue  paper  and 
is  not  a  holder  in  due  course.  Hall  v.  Wells, 
24  Cal.  App.  238,  141  Pac.  53.  Field  v. 
Tibbetts,  57  Me.  358.  Vinton  v.  King,  4 
Allen  (Mass.)  562.  Blank  River  Sav.  Bank 
V.  Edwards,  10  Gray  (Mass.)  387;  McCorkle 
V.  Miller,  64  Mo.  App.  153.  Norwood  v. 
Leevos,  (Tex.  Civ.  App.)  115  S.  W.  53.  In 
case  the  defaulted  installment  is  paid  before 
the  transfer  of  the  note,  some  authorities 
indicate  that  a  subsequent  purchaser  for 


547 


2410-2413] 


DIGEST  OF  LEGAL  OPINIONS 


value  before  the  due  date  of  the  note  is  a 
holder  in  due  course  (Vette  v.  LaBarge,  64 
Mo.  App.  179);  but  under  the  Negotiable 
Instruments  Law,  which  provides  that  a 
holder  must  have  acquired  the  instrument 
without  notice  that  it  had  been  previously 
dishonored,  the  question  is  uncertain.  An 
indorser  is  released  by  failure  to  give  notice 
of  dishonor  upon  non-payment  of  an  in- 
stallment, but,  according  to  some  authori- 
ties, the  release  applies  only  to  the  particu- 
lar installment  and  not  to  subsequent  in- 
stallments, notice  of  non-payment  of  which 
is  given.  {Inquiry  from  Colo.,  Nov.,  1919, 
Jl.) 

Note  payable  to  order  of  bank  to  be  paid  into 
maker's  industrial  savings  account 

2410.  A  note  promising  to  pay  to  order 
of  a  bank  a  stated  amount,  in  installments, 
contains  on  its  back  a  provision  for  payment 
into  the  maker's  "Industrial  Savings  Ac- 
count No $ in  the  manner 

and  on  the  dates  following And 

I  do  hereby  assign  and  transfer  all  my 
right,  title  and  interest  in  an  to  said  Savings 

Account  No to  the  said  bank,"  with 

the  right  in  it  to  apply  all  money  in  the 
account  upon  the  note  until  fully  paid." 
Is  such  note  legal  and  negotiable?  Opin- 
ion: The  note  no  doubt  is  an  enforceable 
legal  contract  according  to  its  terms,  but  it 
probably  would  be  held  not  sufficiently  defi- 
nite and  certain,  as  to  time  and  manner  of 
payment,  to  comply  with  the  requirements 
of  negotiability.  It  is  made  payable  to  the 
bank,  but  this  is  qualified  by  making  the 
money  payable  into  the  maker's  account, 
and  by  the  right  in  the  bank  to  take  it  out 
of  the  account  at  any  time.  {Inquiry  from 
Wis.,  July,  1917.) 

Conditional  sales  notes 

Filing  of  copy 

2411.  Is  it  necessary  in  order  to  preserve 
the  lien  to  file  an  original  conditional  sales 
note  with  the  county  register  of  deeds  or 
will  a  certified  copy  of  the  note  do  as  well? 
Opinion:  A  true  copy  will  do  as  well  as  the 
original  under  the  law  of  Minnesota.  {In- 
quiry from  Minn.,  Feb.,  1921.) 

Live-stock  notes 

Negotiability  affected  by  provisions   as  re- 
taking   possession,    keeping    and    non- 
removal  of  stock 

2412.  A  note  given  for  the  purchase 
price   of  live-stock  contains   the  following 


provisions:  "This  note  is  given  for  the  pur- 
chase of which  are  to  remain 

the  property  of  The  Peoples  State  Savings 
Bank  until  this  note  is  paid  in  full.  In  case 
of  any  default  of  mine  in  the  performance  of 
any  condition  herein,  the  owner  of  this  obli- 
gation is  entitled  to  retake  possession  of  said 
property  without  notice  or  demand.     Said 

are  to  be  kept  on  the  farm  of 

in  the  Township  of 

Lenawee  County,  Michigan,  and  are  not  to 
be  removed  without  the  written  consent  of 
said  Peoples  State  Savings  Bank,"  The 
Federal  Reserve  Bank  holds  the  note  non- 
negotiable.  Is  it  negotiable?  The  Peoples 
State  Savings  Bank  desires  a  form  of  note 
which  will  hold  the  stock  as  security  and 
still  be  negotiable.  Opinion:  The  state- 
ment of  the  consideration  for  the  note  does 
not  affect  its  negotiability,  nor  does  the 
statement  that  the  title  to  the  property  is  to 
remain  in  the  payee  until  full  payment. 
Chicago  Railway  Equipment  Co.  v.  Mer- 
chants National  Bank,  136  U.  S.  268.  The 
objectionable  features  on  the  score  of  ne- 
gotiability are  doubtless  the  provisions  re- 
specting retaking  of  possession,  the  place  of 
keeping  the  stock  and  the  non-removal 
without  consent.  The  Negotiable  Instru- 
ments Act  provides  that  an  instrument  which 
contained  an  order  or  promise  to  do  any  act 
in  addition  to  the  payment  of  money 
is  not  negotiable,  and  the  features  last 
mentioned  are  doubtless  deemed  by  the 
Federal  Reserve  Bank,  and  might  be  held 
by  the  courts,  to  destroy  the  negotiability 
of  the  note. 

It  might  be  wise  to  frame  an  ordinary 
form  of  negotiable  note  and  then  have  a 
separate  document  containing  the  agree- 
ment as  to  these  other  matters.  {Inquiry 
from  Mich.,  Feb.,  1921.) 

Considera  tion 

Note  signed  by  A  and  proceeds  credited  to  B 

2413.  A  building  contractor  asked  if  the 
owner  had  made  a  deposit  of  $1500  for  him, 
stating  that  the  owner  owed  him  that 
amount,  and  was  informed  by  the  bank 
that  there  had  been  no  such  deposit.  Two 
or  three  days  later  the  owner  told  the  bank, 
"I  want  to  sign  up  a  note  for"  the  contractor 
for  $1500.  The  note  was  signed  by  the 
owner  and  the  amount  credited  to  the  con- 
tractor. The  contractor  defaulted  and  when 
the  bank  notified  the  owner  that  his  note 
was  coming  due,  the  latter  denied  liability 
because  of  the  omission  of  the  contractor's 
signature,    notwithstanding    that    nothing 


548 


NOTES 


[2414-2418 


had  been  said  as  to  his  signing  the 
note.  Can  the  bank  enforce  the  note? 
Opinion:  Assuming  the  facts  can  be 
estabhshed  as  stated,  the  case  is  simply 
one  where  A  owed  B  $1500,  borrowed  the 
money  from  the  bank,  giving  his  note  there- 
for and  the  bank  paid  the  proceeds  to  B, 
virtually  by  his  direction.  The  transaction 
was  not  of  such  a  character  as  would  call 
for  B  signing  the  note  as  surety,  and  there 
would  be  no  defense  on  the  ground  that  the 
note  was  not  completed  because  B  did  not 
sign  it.  The  sole  controversy  in  the  case  will 
be  over  the  question  of  fact  whether  the 
bank  was  authorized  by  A  to  place  the 
money  to  B's  credit.  If  so,  A  could  make  no 
defense  against  the  note  of  want  of  consider- 
ation.   {Inquiry  from  Mont.,  Sept.,  1918.) 

Negotiability 

Necessity  that  note  he  payable  to  order  or 
hearer 

2414.  An  agent  took  orders  for  books  and 
magazines  in  the  following  form:     "Please 

enter  my  subscription  for  120  copies  H ■ 

Weekly  and  World's  Great  War  Book,  for 
which  I  promise  to  pay  $13.00  six  months 
after  date."  These  orders  were  discounted 
at  a  bank,  which  on  maturity  of  the  orders 
notified  the  signers  to  pay.  No  magazine 
and  no  book  was  ever  received.  The  com- 
pany for  which  the  subscriptions  were  taken, 

The    G W Circulation 

Company,  had  gone  out  of  business.  Are 
the  signers  of  the  orders  liable  to  the  bank? 
Opinion:  The  test  of  liability  is  whether 
or  not  the  orders  are  negotiable.  Assuming 
that  they  name  a  payee,  namely,  the  one 
to  whom  addressed,  still  they  lack  that 
essential  of  negotiability  which  is  that  the 
instrument  should  be  payable  to  order  or  to 
bearer.  The  signers  of  the  order  may  make 
any  defense  against  the  bank  which  they 
could  have  made  against  the  original  payee, 
and  can  make  the  defense  of  failure  of  con- 
sideration.   {Inquiry  from  Wis.,  Feb.,  1921.) 

Negotiability  of  note  payable  to  ''order  of 
myself 

2415.  Is  a  note  payable  "to  the  order 
of  myself"  and  indorsed  over  to  another  by 
the  maker-payee  negotiable?  Opinion: 
Where  the  maker  makes  a  note  paj^able  to 
his  own  order  and  indorses  it  over  to  an- 
other, it  is  equally  negotiable  as  where  it  is 
made  payable  and  delivered  to  such  other 
person  in  the  first  instance.  A  note  drawn 
payable  to  the  order  of  the  "drawer  or 
maker"  is  expressly  made  negotiable  by  the 


Uniform  Negotiable  Instruments  Act,  which 
further  provides  that  "where  a  note  is 
drawn  to  the  maker's  own  order,  it  is  not 
complete  until  indorsed  by  him."  {Inquiry 
fromFla.,  Aug.,  1911,  Jl.) 

Word   "non-negotiable"   written   across  face 

2416.  Does  a  note  otherwise  negotiable 
become  non-negotiable  by  the  writing  of  the 
word  "non-negotiable"  across  its  face  before 
delivery?  Is  payment  thereof  to  be  had 
only  between  the  payor  and  payee?  Opin- 
ion: Negotiability  is  destroyed.  The  words 
"order"  or  "bearer"  confer  negotiabihty, 
but  in  this  case  their  effect  is  negatived  by 
expressly  writing  across  the  face  of  the 
instrument  a  statement  to  the  effect  that  it 
is  non-negotiable.  The  note  would  still  be 
assignable  by  the  payee  but  it  would  be  a 
mere  non-negotiable  contract  subject  in  the 
hands  of  the  assignee  to  equities  between 
the  original  parties.  {Inquiry  from  Ida., 
Feb.,  1921.) 

Recital  of  consideration 

2417.  Is  negotiability  of  a  note  de- 
stroyed by  a  recital  therein  of  the  considera- 
tion therefor?  Opinion:  Negotiabihty  is 
not  affected.  {Inquiry  from  Mich.,  Feb., 
1921.) 

Statement    of    transaction 

2418.  A  promissory  note  had  the  fol- 
lowing clause  added,  "The  foregoing  note  is 
made  and  delivered  in  pursuance  of  the 
escrow  agreement  between  John  Smith  and 
John  Brown,  dated  the  31st  day  of  May, 
1917."  Does  the  clause  affect  the  nego- 
tiabihty of  the  instrument?  Opinion:  A 
note  promising  to  pay  the  amount  "in  pur- 
suance of  escrow  agreement"  between  A  and 
B  would  probably  be  held  negotiable  on  the 
ground  that  the  quoted  phrase  was  a  mere 
statement  of  the  transaction  giving  rise  to 
the  instrument  rather  than  one  making  pay- 
ment subject  to  the  terms  of  the  escrow 
agreement.  Klotz  Throwing  Co.  v.  Mfg. 
Commer.  Co.,  179  Fed.  813.  McComas  v. 
Haas,  107  Ind.  512.  Amer.  Exch.  Bk.  v. 
Blanchard,  7  Allen  (Mass.)  333.  Post  v. 
Kinzua  Hemlock  R.  Co.,  171  Pa.  615. 
Parker  v.  American  Exch.  Bk.,  (Tex.)  27. 
S.  W.  1071.  Dilley  v.  Van  Wie,  6  Wis. 
209.  Sherman  Bk.  v.  Apperson,  4  Fed.  25. 
Newberry  v.  Wentworth,  218  Mass.  30. 
Taylor  v.  Curry,  109  Mass.  36.  Bates  v. 
Independent  School  Dist.,  25  Fed.  192. 
Independent  School  Dist.  v.  Stone,  106  U. 
S.  183.    {Inquiry  from  Okla.,  May,  1918,  Jl.) 


549 


f 


2419-2424] 


DIGEST  OF  LEGAL  OPINIONS 


Recital  of  executory  consideration 

2419.  A  note  contained  the  provision: 
"this  note  is  given  for  six  drain  heads  to 
be  delivered  in  good  condition  at  (name  of 
place)."  The  note  was  negotiated  to  a  pur- 
chaser for  value.  The  drain  heads  were 
never  delivered.  Opinion:  The  holder  can 
enforce  against  the  maker,  because  the  note 
is  negotiable.  The  provision  above  quoted 
is  a  statement  of  the  transaction  which  gives 
rise  to  the  instrument,  and  the  fact  that  it  is 
an  executory  contract  which  may  never  be 
performed  does  not  make  the  promise  to  pay 
conditional,  nor  destroy  negotiability  ac- 
cording to  the  weight  of  authority.  Sears  v. 
Wright,  24  Me.  278.  Siegel  v.  Chicago  Tr., 
etc.,  Bk.,  (111.,  1890)  23  N.  E.  417.  Bk.  v. 
Cason,  39  La.  Ann.  865.  Henneberry  v. 
Morse,  56  111.  294.  (Inquiry  from  Minn., 
Oct.,  1914,  Jl.) 

2420.  A  note  contains  the  following 
promise,  "Please  enter  my  name  for  110 
weeks'  subscription  to  (certain  publications 
named),  for  which  I  promise  to  pay  to  your 
order  $5.50  six  months  from  date.  Signed, 
John  Smith."  Is  it  negotiable?  Opinion: 
Where  a  note  recites  that  it  is  given  for  a 
consideration  to  be  performed  in  the  future, 
a  majority  of  courts  hold  that  such  recital 
does  not  affect  negotiability  nor  prevent  the 
indorsee  from  enforcing  free  from  defenses, 
unless  at  the  time  of  acquiring  the  note  he 
has  knowledge  of  the  breach  of  the  executory 
agreement.  The  courts  in  a  few  states  hold, 
to  the  contrary,  that  the  indorsee  takes  sub- 
ject to  the  performance  of  the  executory 
consideration.  McKnight  v.  Parsons,  136 
Iowa  390.  Jennings  v.  Todd,  118  Mo.  296. 
Miller  v.  Finley,  26  Mich.  249.  Rublee  v. 
Davis,  33  Neb.  283.  Porter  v.  Steel  Co., 
122  U.  S.  267.  Sumter  Co.  St.  Bk.  v.  Hayes, 
(Fla.)  67  So.  109.  Heard  v.  Shedden,  "113 
Ga.  162.  (Inquiry  from  Tenn.,  Oct.,  1917, 
Jl.) 

2421.  A  bank  discounted  a  note  for  $900 
given  by  A  to  B.  The  bank  gave  B  for  this 
a  past  due  note  of  $500,  fully  secured,  and 
400  cash,  less  discount.  The  $900,  note  bore 
this  notation:  "For  part  payment  of  pecan 
trees  to  be  delivered  in  November."  How 
does  the  defense  of  payment  to  B  affect  the 
bank?  Opinion:  The  words  quoted  con- 
stitute a  promise  to  pay  upon  a  considera- 
tion to  be  executed  in  the  future.  The 
majority  of  courts  hold  that  such  recital  of 
consideration  does  not  affect  the  negotia- 
bility. Assuming  the  note  of  $900  negotiable 
and  that  the  bank  acquired  same  before 
maturity,  it  having  given  full  value  therefor, 


the  bank  would  be  a  holder  in  due  course, 
and,  it  seems,  could  recover  from  A  thereon 
free  from  his  defense  that  he  had  paid  B  the 
$900.    (Inquiry  from  Ark.,  Feb.,  1919.) 

2422.  A  bank  presents  a  form  of  note 
wherein  the  maker  promises  to  pay  to  the 
order  of  a  specified  payee  a  sum  certain  on 
or  before  a  definite  date.  It  also  contains 
an  order  for  delivery  of  merchandise  which 
constitutes  the  consideration  thereof,  and 
inquires  whether  the  same  contains  all  the 
elements  of  a  negotiable  promissory  note. 
Opinion:  The  note  contains  all  the  elements 
of  a  negotiable  promissory  note,  and  the 
fact  that  it  also  contained  an  order  for  de- 
livery of  merchandise  which  constitutes  the 
consideration  did  not,  it  seems,  destroy  its 
negotiability.  There  has  been  conflict  of 
authority  whether  a  note  based  on  an  execu- 
tory consideration  is  negotiable,  but  the 
weight  of  authority  is  to  the  effect  that 
where  a  note  is  given  in  consideration  of  an 
executory  agreement  or  contract  of  the 
payee  which  has  not  been  performed,  this 
will  not  deprive  the  indorsee  of  the  character 
of  a  bona  fide  holder  unless  he  also  has 
notice  of  the  breach  of  the  agreement  or 
contract.  See  Davis  v.  McCready,  17  N.  Y. 
230.     (Inquiry  from  N.  Y .,  Jan.,  1920.) 

Note  payable  to  "-4  and  others'^  non-negotiable 

2423.  A  note  is  made  payable  to  "A,  B, 
C,  and  others"  because  there  is  not  room 
enough  to  insert  the  names  of  all  the  payees. 
The  negotiability  of  the  note  is  questioned 
and  it  is  also  asked  how  a  negotiable  form 
of  note  could  be  drawn  to  cover  such  case. 
Opinion:  The  note  is  not  negotiable  be- 
cause of  uncertainty  as  to  the  payee.  Where 
it  is  desirable  to  draw  a  note  to  a  number  of 
payees  and  the  blank  form  of  the  note  does 
not  provide  sufficient  space  for  their  names, 
a  special  blank  form  with  sufficient  space 
should  be  provided.  Gordon  v.  Anderson, 
83  Iowa  224.  (Inquiry  from  Del.,  Jan., 
1913,  Jl.) 

Negotiability  of  note  not  payable  at  bank 

2424.  Is  a  note  not  payable  at  a  bank 
negotiable?  Opinion:  Under  the  law  of 
Indiana,  differing  from  the  rule  under  the 
Uniform  Negotiable  Instruments  Law,  a 
note  to  be  negotiable  must  be  payable  at  an 
Indiana  bank.  (Inquiry  from  Ind.,  Jan., 
1913.) 

Note:  Subsequently  to  the  rendition  of 
this  opinion  the  LTniform  Negotiable  In- 
struments Law  was  adopted  in  Indiana  and 
the  statutory  requirement  that  a  note,  to  be 


550 


NOTES 


[2425-2429 


negotiable,  must  be  payable  at  a  bank  in  the 
state  is  no  longer  in  force. 

"Payable  at  hank"  clause  not  necessary  to 
negotiability 

2425.  Bank  presents  a  form  of  note  and 
desires  to  know  whether,  under  the  Nego- 
tiable Instruments  Law,  it  is  best  to  have 
incorporated  in  the  note  "Payable  at  the  S 
Bank,"  or  would  it  be  best  to  leave  this 
clause  out,  and  whether  the  note  would  be 
negotiable  were  the  clause  omitted.  Opin- 
ion: The  clause  "payable  at  S  Bank"  is  not 
necessary  to  the  negotiability  of  the  note. 
If  the  clause  is  retained,  the  note  would  be 
payable  at  the  bank.  Under  the  Negotiable 
Instruments  Law,  if  A  makes  his  note  to 
order  of  B,  payable  at  C  Bank,  and  B  or  his 
indorsee  presents  the  note  to  the  bank  for 
payment  at  maturity,  the  bank  is  not  only 
authorized  but  is  obliged  to  pay  the  note, 
the  same  as  it  would  A's  check,  without 
first  obtaining  A's  express  instructions  to  do 
so.  If  the  note  was  not  paj^able  at  the  bank, 
it  would  be  necessary  to  make  demand  at 
the  place  of  business  or  residence  of  the 
maker,  while,  if  the  note  was  made  payable 
at  the  bank,  the  having  it  in  bank  at  maturi- 
ty would  be  sufficient  presentment  and 
demand.     {Inquiry  from  Miss.,  July,  1916.) 

Compound  interest  clause 

2426.  Is  negotiability  of  a  note  de- 
stroyed by  the  clause  that  if  any  of  the  in- 
terest shall  not  be  paid  when  due  it  shall 
itself  bear  interest  from  such  time?  Opin- 
ion: It  has  been  held  in  several  cases  that  a 
note  is  not  rendered  uncertain  in  amount  or 
non-negotiable  because  of  such  a  provision. 
Gilmore  v.  Hurst,  56  Kan.  626,  Brown  v. 
Vassen,  112  Mo.  App.  676.  Barker  v. 
Sartori,  66  Wash.  260.  {Inquiry  from  Iowa, 
May,  1918.)  {Similar  inquiry  from  Iowa, 
Feb.,  1919;  Okla.,  Dec,  1917.) 

Effect  of  extension  clause  on  negotiability 

2427.  A  note  provides  that  "the  makers, 
sureties,  indorsers  and  guarantors  of  this 
note  hereliy  severally ....  consent  that  time 
of  payment  may  be  extended  without  notice 
thereof."  Does  this  destroy  negotiability? 
Opinion:  There  are  cases  in  a  few  states 
holding  that  a  stipulation  to  the  effect  that 
the  indorser's  consent  that  the  time  of 
payment  may  be  extended  without  notice 
makes  the  time  of  payment  uncertain  and 
destrovs  negotiability.  Giddcn  v.  Henrv, 
104  Iiid.  278.  Roseville  Bk.  v.  Heslet,  84 
Kan.  315.    Union  Stock  Yards  Nat.  Bk.  v. 


Bolan,  14  Idaho,  87.  Bk.  v.  Wheeler,  75 
Mich.  546.  On  the  other  hand,  it  is  held 
that  as  such  a  stipulation  neither  confers 
upon  the  maker  the  right  to  demand  an 
extension,  nor  imposes  upon  the  payee  or 
indorsee  any  duty  to  grant  one,  it  cannot 
have  such  effect.  Longmont  Nat.  Bk.  v. 
Lonkonen,  53  Colo.  489.  De  Groot  v. 
Focht,  37  Okla.  267.  First  Nat.  Bk.  of 
Pomeroy  v.  Buttery,  17  N.  D.  326,  116 
N.  W.  341.  Stitzel  v.  Miller,  157  111.  App. 
290.  According  to  the  weight  of  authority 
and  the  better  reasoning,  the  stipulation  in 
the  note  would  not  affect  negotiability. 
Cudahy  Packing  Co.  v.  Bank  of  St.  Louis, 
134  Fed.  538,  City  Nat.  Bk.  v.  Goodlo,  etc., 
Co.,  93  Mo.,  A  125,  Nat.  Bank  of  Commerce 
V.  Kenny,  98  Tex.  293.  {Inquiry  frovi 
Ariz.,  Oct.,  1918.)  {Similar  opinions  rendered 
to  inquiries  from:  La.,  Sept.,  1912,  Jl.; 
N.  Y.,  July,  191A:  S.  D.,  Feb.,  1911,  JL: 
Utah,  Oct.,  1915.) 

Extension  clause  in  Arizona 

2428.  Does  the  clause  in  a  note  that 
"each  party  signing  or  indorsing  this  note 
consents  that  time  of  payment  may  be 
extended  without  notice"  destroy  negotia- 
bility? Opinion:  While  there  are  apparent- 
ly no  Arizona  cases  on  the  question,  Navajo 
County  Bank  v.  Dolson,  163  Cal.  485,  126 
Pac.  123,  construing  the  Negotiable  In- 
struments Law  of  Arizona,  held  that  an 
extension  agreement  limited  by  the  phrase 
"after  maturity"  did  not  affect  negotia- 
bility. If  the  provision  submitted  here 
should  l^e  construed  as  limited  to  an  exten- 
sion "after  maturity,"  the  decision  referred 
to  would  be  exactly  in  point.  {Inquiry 
from  Ariz.,  May,  1920.) 

Extension   clause   in   Colorado 

2429.  A  note  provides  that  "after  ma- 
turity the  time  of  paj^ment  may  be  extended 
at  the  request  of  anyone  liable  hereon  with- 
out releasing  any  maker  or  indorser  hereof." 
Does  this  affect  ncgotiabihty?  Opinion: 
In  Colorado  such  a  clause  does  not  destroy 
negotiability.  Longmont  Nat.  Bk.  v.  Lon- 
konen, 53  Colo.  489,  held  that  the  negotia- 
biUty  of  a  note  in  the  ordinary  form  is  not 
destroyed  by  a  stipulation  therein  that  the 
makers  and  indorsers  will  consent  to  an 
extension  of  time  of  payment  and  partial 
payments,  before  or  after  maturity,  as  a 
definite  time  when  the  holder  may  demand 
payment  is  stated,  and  the  period  of  ma- 
turity fixed,  and  there  is  nothing  in  the  note 
which  gives  the  maker,  or  anyone  else,  a 


551 


2430-2436] 


DIGEST  OF  LEGAL  OPINIONS 


m 


right  to  demand  an  extension  or  which  binds 
the  holder  to  give  it.  {Inquiry  from  Colo., 
May,  1918.) 

Extension    clause   in   Idaho 

2430.  Is  negotiabiUty  of  an  Idaho  note 
affected  by  the  provision  that  "the  drawers 
and  indorsers  severally  waive  ....  all 
defense  on  the  grounds  of  extension  that  may 
be  given  by  the  holder  or  holders  or  either 
of  them?"  Opinion:  Under  the  Idaho  law 
the  provision  destroys  negotiability.  Union 
Stock  Nat.  Bk.  v.  Bolan,  93  Pac.  (Ida.)  508. 
{Inquiry  from  Utah,  Oct.,  1915.) 

Extension    clause    in    Iowa 

2431.  Does  an  extension  clause  affect 
the  negotiability  of  a  note?  Opinion:  A 
clause  in  a  promissory  note  that  indorsers 
and  guarantors  agree  to  an  extension  of 
time  without  notice  does  not  destroy  its 
negotiability  under  Iowa  decisions  (Farmer 
v.  Bank  of  Graettinger,  130  Iowa  469), 
differing  from  a  clause  whereby  all  parties 
consent  to  such  extension,  which  is  held  in 
Iowa  to  destroy  negotiability.  (Cedar  Rap- 
ids Nat.  Bank  v.  Weber,  [Iowa,  1917]  164 
N.  W.  233.  Quinn  v.  Bane,  [Iowa,  1917]  164 
N.  W.  788).  {Inquiry  from  Iowa,  Jan., 
1920,  Jl.) 

2432.  Is  negotiability  of  a  note  affected 
by  a  clause  providing  that  the  makers,  in- 
dorsers, etc.,  consent  to  extensions  of  time 
of  payment  without  notice  "but  not  for  a 
period  or  periods  aggregating  more  than 
ten  years  from  this  date?"  Opinion:  Under 
the  Iowa  decisions,  it  would  seem  that 
negotiability  is  destroyed,  unless  it  could  be 
held  that  the  words  within  the  quotation 
marks  make  the  time  of  payment  sufficiently 
certain  to  preserve  negotiability.  See  State 
Bank  v.  Bilstad,  162  Iowa  433,  where  the 
court  stated:  "If  the  contract  made  is 
certainly  to  be  performed  at  some  definite 
time  in  the  future  its  negotiabihty  is  not 
destroyed."  {Inquiry  from  Iowa,  May, 
1918.) 

2433.  Does  the  following  clause  in  a 
note  affect  its  negotiability?  "We  further 
agree  to  the  extension  of  this  note  on  pay- 
ment of  the  interest  by  either  of  us."  Opin- 
ion: Presumably  one  of  the  makers  is 
principal  and  the  others  sureties,  but,  how- 
ever this  may  be,  it  provides  a  consent  by 
the  makers  that  time  of  payment  may  be 
extended  on  payment  of  interest.  The  ex- 
tension clause  does  not  give  the  holder,  of 
his  own  motion,  an  absolute  right  to  extend 


the  time  of  payment,  but  contemplates  a 
future  agreement  of  extension  between  the 
holder  and  some  one  of  the  makers.  Under 
the  reasoning  of  the  Supreme  Court  of  Iowa 
the  clause  would  destroy  the  negotiabiUty  of  M 
the  note,  because  the  time  of  payment  is  un-  I 
certain  to  all  of  the  makers  save  one.  The 
clause,  "The  indorsers  and  guarantors  of 
this  note  consent  that  time  of  payment  may 
be  extended  without  notice  thereof,"  would 
not  destroy  the  negotiability  of  the  note 
because  neither  the  maker  nor  the  holder 
could  of  his  own  motion  postpone  the  time 
of  payment.  Woodbury  v.  Roberts,  59 
Iowa  348.  Farmer  v.  Bk.  of  Graettinger, 
130  Iowa  469.  Cedar  Rapids  Nat.  Bk.  v. 
Weber,  (Iowa,  1917)  164  N.  W.  233.  Quinn 
V.  Bane,  (Iowa,  1917)  164  N.  W.  788.  {In- 
quiry from  Iowa,  March,  1918,  Jl.) 

Extension  clause  in  Kansas 
2434.  A  note  contains  the  clause: 
"We,  the  makers,  sureties  and  indorsers 
hereof  severally  ....  consent  that  that  the 
maturity  may  be  extended  without  notice 
thereof  to  any  of  the  sureties."  Does 
this  affect  negotiability?  Opinion:  Con- 
sent that  maturity  may  be  extended  with- 
out notice  to  any  of  the  sureties  destroys 
negotiability  in  Kansas.  In  Bank  v.  Guther, 
67  Kan.  227,  followed  in  Sykes  v.  Bank,  69 
Kan.  134  and  78  Kan.  688,  a  provision  that 
the  makers  and  indorsers  agreed  to  all 
extensions  before  or  after  maturity  was 
held  to  destroy  negotiabihty.  An  agree- 
ment to  extension  after  maturity  would  not 
affect  negotiability.  Roseville  State  Bank 
V.  Meslet,  84  Kan.  315.  {Inquiry  from 
Kan.,  March,  1919.) 


Extension  clause  in  Missouri 

2435.  A  note  provides  that  "all  indorsers 
hereto  jointly  and  severally'' ....  agree  to 
all  extensions  and  partial  payments,  before 
or  after  maturity."  Does  this  provision 
affect  negotiability?  Opinion:  Under  the 
law  of  Missouri,  negotiability  is  not  affected. 
Davis  V.  McColl,  179  Mo.  App.  198.  City 
Nat.  Bank.  v.  Goodloe-McClelland  Co.,  93 
Mo.  App.  123.  The  phrase  "before  or  after 
maturity"  deserves  special  attention  be- 
cause in  some  jurisdictions,  notably  Kansas, 
such  clause  destroys  negotiabihty,  while  a 
clause  worded  simply  "after  maturity" 
would  not  have  such  an  effect.  Roseville 
State  Bank  v.  Meslet,  84  Kan.  315.  {In- 
quiry from  Mo.,  Jan.,  1919.) 

2436.  Is  negotiability  of  a  Missouri 
note  affected   by  the  provision  that  "the 


552 


NOTES 


[2437-2441 


makers  and  indorsers  each ....  severally 
agree  that  the  time  may  be  extended  with- 
out notice?"  Opinion:  Under  the  Missouri 
law  negotiability  is  not  affected.  Davis  v. 
McColl,  179  Mo.  App.  198.  {Inquiry  from 
Missouri,  May,  1918,  Jl.) 

Extension    clause    in    Oklahoma 

2437.  Is  negotiability  of  a  note  affected 
by  the  provision  that  "the  drawers,  in- 
dorsers, sureties  and  guarantors  severally 
....  agree  that  the  time  of  payment  may  be 
extended  without  notice  to  them  or  without 
their  consent  and  without  affecting  their 
liability?"  Opinion:  This  provision  does 
not  affect  negotiability  in  Oklahoma.  City 
Nat.  Bank  v.  Kelly,  151  Pac.  (Okla.)  1172. 
This  rule  does  not  apply  in  all  jurisdictions. 
{Inquiry  from  Okla.,  Dec,  1917.)  {Similar 
inquiry  from  Okla.,  May,  1918,  Jl.) 

>'  Extension  clause  in  Tennessee 

\  2438.  Is  negotiabihty  of  a  note  affected 
^  by  an  indorsement  providing  that  the 
makers  and  indorsers  agree  to  all  exten- 
sions before  or  after  maturity  without 
prejudice  to  the  holder?  Opinion:  The 
note  would  be  negotiable  under  the  law  of 
Tennessee.  In  Bank  of  Whitehouse  v. 
White,  191  S.  W.  332,  decided  by  the  Su- 
preme Court  of  Tennessee,  the  note  con- 
tained a  clause  as  follows;  "We  authorize 
the  holder  hereof  to  extend  the  payment 
of  the  same,  or  any  part  thereof,  without 
impairing  our  joint  and  several  liabilities, 
and  the  sureties  agree  to  waive  notice  of  any 
extension  of  time."  The  court  held  that  the 
negotiability  of  the  note  was  not  destroyed 
by  the  above  provision.  It  said:  "We 
construe  the  clause  in  the  note,  quoted  above, 
to  relate  and  to  give  assent  to  extensions 
that  may  be  granted  at  or  after  maturity, 
the  date  of  which  is  set  forth  with  certainty 
in  the  note;  or  to  an  extension  which,  if 
made  prior  to  maturity,  has  operative  effect 
as  from  the  time  when  the  note  falls  due 
according  to  tenor;  and  we  are  of  opinion 
that  when  so  construed  the  clause  should 
not  render  the  note  non-negotiable,  whether 
we  view  the  question  from  a  standpoint  of 
principle,  precedent,  or  policy.  {Inquiry 
from  Tenn.,  Sept.,  1918.) 

Clause  that  sureties  agree  to  renew 

2439.  A  bank  desires  to  know  if  the 
following  clause  in  a  promissory  note  will 

affect  its  negotiabihty:    "The sureties 

agree  to  renewal  of  same  without  notice  to 
them."    Opinion:   In  Kansas  a  distinction 


has  been  drawn  in  at  least  one  decision  be- 
tween provisions  which  authorize  an  exten- 
sion of  time  of  payment  "after"  maturity 
and  those  which  authorize  an  extension  of 
time  "before"  maturity,  it  being  held  that 
the  authority  to  extend  the  time,  where  it 
can  be  exercised  only  after  maturity,  does 
not  affect  negotiabihty,  but,  if  the  authority 
is  to  extend  "before"  or  "before  or  after" 
maturity,  the  instrument  is  not  negotiable. 
(Rossville  State  Bank  v.  Heslet,  84  Kan. 
315,  113  Pac.  1052.  And  see  City  Nat. 
Bank  v.  Gunter,  67  Kan.  227,  72  Pac.  842.) 
A  renewal,  as  distinguished  from  a  mere 
extension,  is  usually  evidenced  by  a  new 
note  or  other  instrument.  If  "renewal," 
as  used  in  the  form  of  note  under  considera- 
tion, is  to  be  held  synonymous  with  "ex- 
tension" then,  under  authority  of  84  Kan. 
315,  113  Pac.  1052,  this  note  would  be  held 
non-negotiable  in  Kansas.  In  order  to 
render  this  form  of  note  negotiable  beyond 
any  cavil  or  question,  the  clause  with  re- 
gard to  extension  might  be  made  to  read: 
"And  the  makers,  sureties  and  indorsers  of 
this  instrument  severally  agree  to  any 
renewal  of  same  at  or  after  maturity  with- 
out notice  to  them.  {Inquiry  from  Kan., 
Nov.,  1920.) 

Negotiability   of  note   containing   statement 
that  instrument  is  renewal  note 

2440.  A  form  of  note  is  submitted  con- 
taining the  following  clause:  "This  note 
is  executed,  delivered  and  accepted,  not  in 
payment,  but  for  the  purpose  of  extending 
the  time  for  payment  of  a  certain  note  dated 

,  which  note  is  secured  by  a  chattel 

mortgage"  *  *  *  A  bank  desires  to  know 
its  effect  as  to  negotiability  and  validity. 
Opinion:  Such  form  of  note  has  apparently 
not  come  before  the  courts  for  interpretation. 
The  Negotiable  Instruments  Act  provides 
that  the  promise  to  pay  is  unconditional 
and  the  note  negotiable  "though  coupled 
with  *  *  *  a  statement  of  the  transaction 
which  gives  rise  to  the  instrument."  The 
note  appears  to  be  negotiable.  {Inquiry 
from  S.  D.,  Feb.,  1919.) 

Provision  that  unpaid  interest  and  principal 
shall  bear  increased  rate  after  maturity 

2441.  Is  negotiabihty  of  a  note  affected 
by  a  provision  that  unpaid  interest  and 
principal  shall  bear  interest  at  a  greater 
rate  after  than  before  maturity?  Opinion: 
Such  a  stipulation  does  not  affect  negotia- 
bilitv.  Merrill  v.  Hurley,  6  S.  D.  592,  62 
N.  W.  958.  {Inquiry  from  S.  D.,  Aug., 
1919,  Jl.) 


553 


2442-2447] 


DIGEST  OF  LEGAL  OPINIONS 


Clause  giving  justice  of  peace  jurisdiction  up 
to  8300 

2442.  What  effect  has  the  provision  in 
a  note  consenting  that  any  justice  of  the 
peace  may  have  jurisdiction  up  to  the 
amount  of  $300?  Opinion:  This  clause 
does  not  affect  negotiabiHty  but  is  useless 
and  might  well  be  omitted,  as  jurisdiction 
cannot  be  conferred  by  the  consent  of  the 
parties.  However,  in  the  present  instance, 
justices  of  the  peace  have  jurisdiction  up  to 
the  stated  amount  under  the  Iowa  code. 
{Inquiry  from  Iowa,  May,  1918.)  {Similar 
inquiry  from  Iowa,  Feb.,  1919.) 

Option  to  holder  to  declare  note  due  before 

maturity 

2443.  A  note  contains  a  clause:  "It  is 
agreed  that  failure  to  pay  any  one  note  at 
maturity  shall,  at  the  option  of  the  holder, 
mature  all  unpaid  notes  of  this  series." 
Opinion:  There  is  conflict  of  authority  as  to 
the  effect  this  clause  has  upon  the  negotia- 
bility of  the  note,  and  it  would  not  be  safe 
for  a  bank  to  treat  it  as  negotiable  unless 
located  in  a  jurisdiction  where  the  law  was 
known  to  be  favorable.  Chicago  Ry.  Co.  v. 
Merchants  Bk.,  136  U.  S.  268.  Ackley 
School  Dist.  V.  Hall,  113  U.  S.  135.  Story 
Prom.  Notes,  Sec.  27.  Cota  v.  Buck,  7 
Mete.  (Mass.)  588.  Clark  v.  Skeen,  61 
Kan.  526.  First  Nat.  Bk.  v.  Garland,  160 
111.  App.  407.  Pierce  v.  Talbot,  (Mass. 
1913)  100  N.  E.  553.  Stutts  v.  Silva,  119 
Mass.  137.  Nat.  Bk.  v.  Cartes,  (Iowa)  123 
N.  W.  237.  {Inquiry  from  Md.,  May,  1913, 
Jl.) 

2444.  Does  the  clause:  "Both  the 
maker  and  indorser  agree  it  may  become  due 
on  demand  at  the  option  of  the  holder" 
destroy  the  negotiability  of  a  note?  0pm- 
ion:  A  clause  giving  the  holder  the  option 
to  mature  the  note  upon  demand  probably 
destroys  the  negotiability  of  the  note  in 
Iowa.  Bank  v.  Arthur,  163  Iowa  205.  Iowa 
Nat.  Bank  v.  Carter,  144  Iowa  715.  But 
see  State  Bank  v.  Bilstad,  136  N.  W. 
(Iowa)  204.  So  far  as  other  jurisdictions 
are  concerned,  a  certain  line  of  decisions 
indicates  that  the  giving  of  such  uncondi- 
tional power  to  the  holder  renders  the  note 
non-negotiable.  Mahoney  v.  Fitzpatrick, 
133  Mass.  151.  Richards  v.  Barlow  6  N.  E. 
(Mass.)  68.  A  like  rule  has  been  applied 
where  the  holder  is  given  the  option  to 
declare  the  whole  note  due  whenever  he 
deems  himself  insecure.  New  Windsor,  etc., 
Bank  v.   Bynum,   84   N.   C.   24,   Machine 


Co.  V.  Burnett,  82  Ore.  174,  161  Pac.  384. 
Continental  Nat.  Bank  v.  McGeoch,  73 
Wis.  332.  Kimpton  v.  Studebacker  Bros. 
Co.,  14  Ida.  552,  94  Pac.  1039.  Puget 
Sound  Nat.  Bank  v.  Nat.  Pa\dng  Co.,  94 
Wash.  504,  162  Pac.  870.  CarroU  County 
Sav.  Bk.  V.  Strother  28  S.  C.  504.  Contra: 
Heard  v.  Dubuque  County  Bank,  8  Neb. 
10.  {Inquiry  from  Iowa,  Jan.,  1920,  Jl.) 

Option  to  declare  note  due  on  non-payment  of 
interest 

2445.  A  note  contained  the  following 
provision :  "Said  interest  payable  quarterly, 
and  if  not  paid  when  it  becomes  due,  the 
principal  and  all  accrued  interest  shall  at 
the  election  of  the  payee  immediately 
become  due  and  paj^able."  Opinion:  In 
California  this  provision  destroys  the  nego- 
tiability of  the  note,  but  this  is  contrary  to 
the  weight  of  authority.  Smiley  v.  Watson, 
(Cal.)  138  Pac.  367.  {Inquiry  from  Cal, 
Oct.,  1914,  Jl.) 

Note:  The  Uniform  Negotiable  Instru- 
ments Act,  adopted  in  California  in  1917 
(subsequent  to  the  above  opinion),  expressly 
provides  that  "the  sum  payable  is  a  sum 
certain  wdthin  the  meaning  of  this  act,  al- 
though it  is  to  be  paid  *  *  *  3,  by  stated  in- 
stallments, with  a  provision  that  upon  de- 
fault in  payment  of  any  installment  or  of 
interest,  the  whole  shall  become  due."  This 
Act  changes  the  previous  rule  in  California. 

2446.  Does  the  clause  in  a  note  that 
"the  holders  may  elect  to  consider  the  whole 
amount  due  and  collectible  at  once  if  the 
interest  is  not  paid  at  the  time  specified" 
destroy  negotiability?  Opinion:  The 
option  to  hasten  maturity  upon  default  in 
the  payment  of  interest  does  not  affect 
negotiability.  Merrill  v.  Hurley,  6.  S.  D. 
592,  62  N.  W.  958.  {Inquiry  from  S.  D., 
Aug.,  1919.) 

Negotiability  of  note  payable  "In  New  York 
Exchange" 

2447.  A  bank  is  offered  for  discount 
three  notes  payable  at  Richmond,  Virginia, 
"in  New  York  exchange,"  and  questions 
whether  this  phrase  makes  the  notes  non- 
negotiable.  Opinion:  It  would  be  safer 
for  the  bank  to  proceed  on  the  theory  that 
the  notes  were  non-negotiable,  as  the  de- 
cisions conflict  upon  the  negotiability  of 
notes  so  payable.  Chandler  v.  Calvert,  87 
Mo.  App.  362.  Hogue  v.-  Edwards,  9  111., 
App.  153.  Security  Tr.  Co.  v.  Des  Moines 
County,  198  Fed.  331.  {Inquiry  from  Va., 
Jan.,  1916,  Jl.) 


554 


NOTES 


[2448-2453 


Negotiability  of  note  'payable  'Vn  or  before" 
specified  date 

2448.  Is  a  note  payable  "on  or  before" 
a  specified  date  negotiable?  Opinion:  It  is 
a  negotiable  instrument  and  to  hold  the 
indorser  must  be  presented  at  maturity  and 
the  indorser  notified.  The  provision  "on 
or  before"  gives  the  maker  an  option  to  pay 
before  maturity  and  possibly  save  interest. 
{Inquiry  from  N.  F.,  Nov.,  1909,  Jl.) 

Clause  agreeing  that  sureties  shall  be  liable  as 

principals  and  consenting  that  holder  may 

release  other  makers  on  renewals 

2449.  A  bank   desires  to    be   informed 
whether  the  following  clause  would   affect 
the  negotiability  of  a  promissory  note:     "It 
is  further  agreed   that  the   signers  of  this 
note,  whether  sureties  in  fact  or  not,  shall 
all  be  regarded  as  principals  as  between  them 
and  the  holders  hereof,  and  we  hereby  con- 
sent that  any  or  all  other  makers,  sureties, 
guarantors  or  indorsers  may  be  released  by 
the  holder  hereof  on  renewal  notes  without 
previously    securing    our    consent    to    that 
effect."    Opinion:    In  Hatch  &  Co.  v.  Nat. 
Bk.  of  Chambersburg,  79  Ga.  542,  it  was 
held  that  a  clause  in  a  promissory  note  pro- 
viding that  the  indorsers  contract  as  makers 
and  agree  as  to  the  holders  to  be  held  liable 
as  makers  did  not  affect  negotiability.    With 
respect  to  the  release  of  prior  parties,  the 
rule  is,  both  under  the  law  merchant  and 
the  Negotiable  Instruments  Act,  that  if  the 
maker,  the  acceptor,  or  any  other  party  is 
released  by  the  holder  of  the  paper,  this 
will  operate  as  a  discharge  of  all  subsequent 
parties    to    the    instrument,     unless    they 
consent  thereto.     Mulnix    v.    Spratlin,    10 
Colo.    App.   390,   50Pac.    1078.    Rockville 
Nat.  Bk.  V.  Holt,  58  Conn.  526.    Ludwig  v. 
Inglehart,  43  Md.  39.    Arlington  Nat.  Bk. 
V.  Bennett,  214  Mass.  352.    Bruen  v.  Mar- 
quard,    17  Johns,    (N.   Y.)   58.     Davis  v. 
Gutheil,  87  Wash.  596.     Since  this  rule  is 
obviously  for  the  protection  of  the  obligor, 
it  may  undoubtedly  be  waived  by  the  obli- 
gor, and  there  is  no  reason  why  the  consent 
may  not  be  given  in  advance.    The  clause  in 
question,  it  would  seem,  would  not  affect  the 
negotiability  of  the  instrument.     {Inquiry 
from  Iowa,  June,  1910.) 

Note    retaining    vendor's    lien 
2450.     Negotiatility  of  the  following  note 
is  questioned:     "This  note  is  secured  by  a 
vendor's  lien  retained  on  the   (description 
of  real  estate) 

Jan 1917. 


On   or  before after 

date  I  promise  to  pay  to  the  order  of 

S500.00  Five    Hundred 

and  no/ 100  Dollars  with  interest  from  date 

at  the  rate  of per  cent,  until  paid. 

Value  received. 

Signed •" 

Opinion:  In  most  jurisdictions,  including 
Arkansas,  a  provision  in  a  note  reserving 
title  or  retaining  lien  upon  the  property  for 
which  the  note  is  given,  until  payment,  does 
not  destroy  negotiabihty.  But  a  provision 
that  the  note  is  subject  to  a  certain  deed 
would  make  the  instrument  non-negotiable, 
South  Bend  Iron  Works  v.  Paddock,  37 
Kan.  510.  Killam  v.  Schoeps,  26  Kan.  310. 
Montgomery  First  Nat.  Bk.  v.  Slaughter,  98 
Ala.  602.  Exch.  Nat.  Bk.  v.  Steele,  109 
Ark.  107.  Farmer  v.  First  Nat.  Bk.,  89 
Ark.  132.  Pyson  v.  Ruohns,  120  Ga.  1060. 
Fleetwood  v.  Dorsey  Mach.  Co.,  95  Ind.  491. 
Ex.  p.  Bledsoe,  180  Ala.  586.  Jenkins  v. 
Caddo  Parish,  7  La.  Ann.  559.  Sherman 
Bk.  V.  Apperson,  4  Fed.  25.  Wilson  v. 
Campbell,  110  Mich.  580.  {Inquiry  from 
Ark.,  April,  1917,  Jl.) 

Negotiability  not  affected  by  waiver  of  pre- 
sentment, protest  and  notice 

2451.  Does  a  clause  in  a  note  waiving 
presentment,  protest  and  notice  destroy 
negotiabihty?  Opinion:  Under  the  nego- 
tiable Instrument  Law  such  a  clause  does 
not  affect  negotiability.  {Inquiry  from  Del., 
Feb.,  1912,  Jl.)  {Similar  replies  to  inquiries 
from  Iowa,  May,  1918;  Kan.,  March,  1919; 
La.,  Sept.,  1912,  Jl;  Mo.,  Jan.,  1919,  May, 
1918;  N.  Y.,  July,  1914;  Okla.,  Dec,  1917 
{citing  City  Nat.  Bank  v.  Kelly,  151  Pac, 
{Okla.)  1172;  S.  C,  Feb.,  1918,  S.  D.,  Feb., 
1911;  Utah,  Oct.,  1915.) 

Negotiability  not  affected  by  waiver  of  home- 
stead  and  exemption  rights 

2452.  Does  a  waiver  of  homestead  and 
exemption  rights  affect  the  negotiabihty  of 
a  note?  Opinion:  The  Negotiable  Instru- 
ments Act  expressly  provides  that  negotia- 
bility is  not  affected  by  a  provision  which 
"waives  the  benefit  of  any  law  intended  for 
the  advantage  or  protection  of  the  obhgor." 
The  provision  in  question  does  not  destroy 
negotiability.  {Inquiry  from  Fla.,  Aug., 
1911,  Jl.)  {Similar  inquiries  from  Colo, 
Oct.  1916;  La.,  Sept,  1912,  Jl;  Utah,  Oct. 
1916.) 

Reasonable  time  for  negotiation  of  demand 
note 
2453.     Is   it   a  good   defense  against  a 


555 


2453] 


DIGEST  OF  LEGAL  OPINIONS 


demand  note  by  one  who  purchased  it  four 
months  after  its  date  that  it  had  been  paid 
to  the  payee  who  was  not  required  to  sur- 
render it?     As  evidence   of  payment  the 
maker  has  his  returned  check  for  the  amount 
of  the  note,  without  interest,  dated  twelve 
days  after  the  issuance  of  the  note  and  his 
testimony  that  he  did  not  take  up  the  paper 
because  he  beheved  the  payee's  statement 
that  it  had  been  destroyed.    Is  this  sufficient 
proof  of  payment  where  the  note  does  not 
bear  interest?     Is  the  maker  estopped  be- 
cause of  his  failure  to  take  up  the  note? 
Opinion:     The  right  of  recovery  both  at 
common    law    and    under    the    Negotiable 
Instruments  Act  depends  upon  whether  the 
negotiation  of  the  note  four  months  after 
its  date  is  within  a  reasonable  time  so  as  to 
constitute  the  purchaser  a  holder  in  due 
course  free  from  such  defenses  as  that  set  up. 
Under  the  act,  in  determining  what  is  a 
reasonable  time,  regard  is  to  be  had  to  the 
nature  of  the  instrument  and  the  facts  of  the 
particular     case. ;.     The     authorities     vary 
greatly  as  to  the  time  at  which  a  demand 
note  becomes  overdue.    For  example,  paper 
payable  on  demand  has  been  held  not  to  be 
overdue,   under  the   circumstances   of  the 
particular   case,    when   transferred   in   one 
day,  (Poorman  v.  Mills,  39  Cal.  345);  two 
days,    (Dennett  v.   Wyman,   13  Vt.  485); 
five  days,  (Stewart  v.  Smith,  28  111.  397); 
seven  days,   (Seaver  v.  Lincoln,  21  Pick. 
[Mass.]  267);  twenty-three  days,  (Mitchell 
v.    Catchings,    23    Fed.    71);    one    month 
(Ranger  v.  Gary,  1  Mete.  [Mass.]  369) ;  five 
weeks,  (Wethey  v.  Andrews,  3  Hill  [N.  Y.] 
582);  five  months,    (Sanford  v.  Mickels,  4 
Johns.  [N.  Y.]  224);  ten  months,  (Chartered 
Mercantile  Bank  v.  Dickson,  L.  R.  3  P.  C. 
574) ;  or  two  years,  (Tomlinson  Carriage  Co. 
v.  Kinsella,  31  Conn.  268).     On  the  other 
hand,  such  paper  has  been  held  overdue  in 
two  months,  (Camp  v.  Scott,  13  Vt.  387); 
ten   weeks,    (Losee    v.    Dunkin,    7    Johns. 
[N.    Y.]    70);    three    months,    (Herrick    v. 
Woolverton,  41  N.  Y.   581);  four  months, 
(La  Due  v.  Kasson  First   Nat.   Bank,    31 
Minn.   33);  five   months,   (Bull  v.    Kasson 
First  Nat.  Bank,   14   Fed.  612   [rev'd    123 
U._  S.  105,  on  ground  that  drawer  was  not 
injured]);  six  months,  (Thompson  v.  Hale, 
6  Pick.  [Mass.]  259);  eight  months,  (Ameri- 
can Bank  v.  Jenness,  2  Mete.  [Mass.]  288) ; 
ten  months,  (Emerson  v.  Crocker,  5  N.  H. 
159);  one  year,  (McAdam  v.  Grand  Forks 
Mercantile  Co.,  24  N.  D.  645,   140  N.  W. 
725,  [holding  that  "it  is  well  estabhshed  that 
a  note  payable  on  demand  is  due  within  a 


reasonable  time  after  its  date,  and  there  are 
practically  no  authorities  which  hold  that 
such  reasonable  time  can  be  extended  be- 
yond a  year."]);  thirteen  months,  (Cross  v. 
Brown,  51  N.  H.  486);  fourteen  months, 
(Wylie  V.  Cotter,  170  Mass.  356);  two  years, 
(Loomis  V.  Pulver,  9  Johns.  [N.  Y.]  244); 
three  years,  (Shirley  v.  Todd,  9  Me.  83); 
four  years,  (Miller  v.  Del  Rio  Min.,  etc.,  Co., 
25  Ida.  83,  136  Pac.  448);  or  six  years, 
(Gregg  V.  Union  County  Nat.  Bank,  87 
Ind.  238).  No  West  Virginia  cases  have  been 
found  upon  the  point. 

Whether  negotiation  of  a  demand  note 
six  months  after  date  was  within  a  reason- 
able time  has  been  held  a  question  of  fact. 
Philpott's  Estate,  169  Iowa  555,  151  N.  W. 
824.  So  in  the  present  case  negotiation  four 
months  after  the  date  of  the  demand  note 
presents  a  question  for  the  jury,  dependent 
upon  the  circumstances  of  the  particular 
case.  The  decision  of  this  point  by  the  jury 
would  seem  to  be  the  decisive  one  in  the 
case,  for  the  proof  of  payment  would  ap- 
parently be  sufficient  for  the  jury,  especially 
since  the  non-inclusion  of  the  interest  would 
not  be  material  as  the  note  did  not  bear 
interest.  The  maker  is  not  estopped  because 
of  his  failure  to  take  up  the  note.  {Inquiry 
from  W.  Va.,  May,  1921,  Jl.) 

Negotiable  advantage  of  demand  note  over 
note  payable  one    day  after  date 

2454.  Is  it  better  for  a  bank  to  have 
paper  from  its  customers  payable  on  demand 
or  one  day  after  date?  Opinion:  The 
only  obvious  advantage  of  demand  paper 
over  paper  payable  one  day  after  date — 
and  in  many  instances  it  may  prove  of  great 
importance — is  that  the  former  may  be 
freely  transferred  for  a  reasonable  time 
after  its  execution  and  deHvery  without 
being  subject  to  equities  in  the  hands  of  a 
bona  fide  holder;  whereas  an  instrument 
payable  one  day  after  date  is  subject  to  any 
defenses  in  the  hands  of  a  holder  to  whom  it 
is  transferred  two  days  after  its  date  that  it 
would  be  subject  to  in  the  hands  of  the  payee; 
such  holder  not  being  a  holder  in  due  course, 
since  it  was  transferred  to  him  after  its 
maturity.  The  Negotiable  Instruments 
Act  provides  that  where  an  instrument 
payable  on  demand  is  negotiated  an  un- 
reasonable length  of  time  after  its  issue,  the 
holder  is  not  deemed  a  holder  in  due  course; 
and  further  that  in  determining  what  is  a 
reasonable  time,  regard  is  to  be  had  to  the 
nature  of  the  instrument  and  the  facts  of 
the  particular  case.    See  McLean  v.  Bryer, 


556 


^i 


NOTES 


[2455-2458 


24  R.  I.  599,  54  Atl.  373.  See,  also,  Easley 
V.  Bank,  138  Tenn.  369,  198  S.  W.  66. 
{Inquiry  from  Kan.,  June,  1919.) 

Rights     of    holder 

Enforceahility  of  homestead  exemption  waiver 
clause  against  bankrupt 

2455.  The  maker  of  a  note  containing  a 
homestead  exemption  waiver  clause,  at 
once  upon  fiUng  his  petition  in  bankruptcy, 
prayed  that  his  homestead  be  set  aside  as 
exempt.  The  petition  was  granted.  There- 
upon the  maker  assigned  the  property  in 
good  faith  to  be  applied  on  pre-existing 
debts,  thus  leaving  the  holder  of  the  note 
with  no  better  security  than  other  creditors. 
What  are  his  rights?  Opinion:  The  right 
of  a  bankrupt  to  assign  exempt  property 
was  upheld  in  Taylor  Company  v.  WilHams, 
139  Ga.  581,  and  the  petition  of  a  holder  of 
notes  containing  the  homestead  exemption 
clause  for  an  injunction  to  prevent  the 
assignment  was  denied.  The  bankrupt 
has  an  assignable  interest  in  his  exempt 
property,  and  the  title  to  such  property 
obtained  by  a  bona  fide  purchaser  cannot 
be  set  aside  at  the  instance  of  the  holder  of 
homestead  waiver  notes.  The  only  course 
for  the  holder  of  such  notes  to  take  in  order 
to  protect  his  interest  is  to  present  his  claim 
against  the  exempt  property  immediately 
upon  the  filing  of  the  bankruptcy  petition, 
and  by  his  vigilance  defeat  the  possibility 
of  an  assignment  of  such  property  by 
the  debtor  to  a  bona  fide  holder.  {Inquiry 
from  Ga.,  June,  1915.) 

Recital  that  note  secured  hy  vendor's  lien  as 
notice  of  contents  of  deed 

2456.  The  purchaser  of  a  note  reciting 
that  it  was  secured  by  a  vendor's  hen  took 
without  notice  that  the  deed  allowed  the 
grantee  of  the  land  to  make  payments 
before  they  were  due  and  thus  save  interest. 
Is  he  chargeable  with  notice  because  of  the 
recital  and  hence  compelled  to  accept 
payments  and  allow  interest  in  accordance 
with  the  terms  of  the  deed,  which  was 
recorded.  Opinion:  This  point  does  not 
appear  to  have  been  decided  in  West 
Virginia.  It  has,  however,  been  held  in 
some  states  that  where  a  note  recites  that 
it  is  secured  by  a  mortgage,  the  purchaser 
is  bound  to  make  inquiry  and  is  put  on 
notice  of  the  terms  of  the  mortgage.  See, 
for  example.  National  Warehouse  Co.  v. 
Sherwood,  165  Cal.  1,  to  the  effect  that  such 
a  note,  although  negotiable  in  form,  is  not 
negotiable  in  law,  and  that  the  purchaser 


takes  it  subject  to  equities.  But  see,  contra. 
Thorp  V.  Mindeman,  123  Wis.  149;  and 
there  are  other  conflicting  decisions.  From 
the  above  it  would  appear  that  the  question 
is  doubtful  in  that  in  some  states  the  pur- 
chaser of  the  note,  such  as  the  one  referred 
to,  would  take  subject  to  the  agreement  in 
the  recorded  deed,  while  in  other  states  the 
purchaser  before  maturity  could  enforce  the 
note  free  from  equities.  {Inquiry  from  W. 
Va.,  Dec,  1916.) 

Maker's  defense  against  payee  not  available 

against  discounting  bank,  holder  in  due 

course 

2457.  A  bank  discounted  a  note  for 
$312,  given  by  A  to  the  B  corporation  for 
the  purchase  price  of  stock  in  the  corpora- 
tion. Upon  maturity  of  the  note  A  refuses 
to  pay  same,  claiming  that  he  had  an  agree- 
ment with  the  corporation,  the  payee,  that 
they  would  furnish  him  enough  medical 
examination  to  pay  for  said  note  before  its 
maturity,  and  in  case  they  did  not,  the  note 
would  be  deHvered  back  to  the  maker.  Can 
the  bank  legally  collect  this  note?  Opinion: 
If  the  note  was  in  negotiable  form,  and  the 
bank  acquired  same  before  maturity,  for 
value,  without  notice  of  the  agreement 
between  the  maker  and  the  payee,  it  would 
have  a  right  to  recover  the  full  amount  from 
the  maker,  free  from  any  defense  which  he 
might  have  against  the  payee  corporation. 
(Neg.  Inst.  Law  S.  D.,  Sees.  52,  57.)  {In- 
quiry from  S.  D.,  March,  1917.) 

Bank  holding  note  not  obliged  to  charge  to  in- 
dorser's  account  in  relief  of  maker 

2458.  A  bank  discounted  for  its  custom- 
er three  notes,  the  proceeds  of  wliich  were 
credited  to  the  indorser's  account.  At  ma- 
turity of  the  notes  payment  was  refused  by 
the  makers,  who  claimed  fraud.  The  in- 
dorser  checked  out  the  credit  he  had  received 
from  the  bank,  but  has  a  deposit  with  the 
bank  sufficient  to  meet  the  notes.  Opinion: 
The  bank  at  maturity  of  the  notes  can 
require  payment  from  the  makers  free  from 
the  defense  of  fraud  in  procurement,  pro- 
vided the  proceeds  credited  to  the  indorser 
were  withdrawn  prior  to  maturity.  The 
bank  is  not  obliged  to  apply  a  sufficient 
deposit  of  the  indorser  in  satisfaction  of  the 
notes,  in  preference  to  suing  the  makers. 
Citizens  Bk.  v.  Carson,  32  Mo.  191.  Cho- 
teau  Tr.,  etc.,  Co.  v.  Smith,  (Ky.)  118  S.  W. 
279.  Martin  v.  Mechanics  Bk.,  6  Harr. 
&  J.  (Md.)  235.  Fredonia  Nat.  Bk.  v. 
Tommei,    131  Mich.  674.    First  Nat.  Bk. 


557 


2459-2463] 


DIGEST  OF  LEGAL  OPINIONS 


V.  McNairy,  122  Minn.  215.  Dreilling  v. 
Bk.,  43  Kan.  197.  Shawmut  Nat.  Bk.  v. 
Manson,  168  Mass.  425.  Sec.  Nat.  Bk. 
V.  Weston,  170  N.  Y.  250.  Oppenheimer 
V.  Radke  &  Co.,  20  Cal.  App.  518. 
McCasland  v.  South.  111.  Nat.  Bk.,  127 
111.  App.  37.  Symonds  v.  Riely,  188 
Mass.  470.  Merchants  Nat.  Bk.  v.  Santa 
Maria  Sugar  Co.,  147  N.  Y.  S.  498.  Md. 
Neg.  Inst.  L.,  Sec.  78.  {Inquiry  from  Med., 
Feb.,  1916,  Jl.) 

Right  of  hank  to  enforce  notes  obtained  by 
payee  in  fraudulent  deal 

2459.  Notes  were  obtained  by  the  payee 
in  a  fraudulent  deal  and  were  turned  over  to 
a  bank.  The  maker  refuses  to  pay  one  of  the 
maturing  notes.  Can  the  bank  enforce 
payment  from  the  maker?  Opinion:  The 
right  of  the  bank  to  recover  will  depend  on 
whether  it  was  a  bona  fide  purchaser  for 
value  without  notice  of  the  fraudulent 
consideration.  If  so,  it  will  be  able  to  re- 
cover; but  if  it  had  knowledge  of  the  fraudu- 
lent consideration,  the  notes  would  be 
subject  to  the  defense  of  fraud  in  its  hands 
(Inquiry  from  Me.,  May,  1917.) 

Enforceability  by  holder  in  due  course  where 
note  procured  by  trickery 

2460.  A  note  was  obtained  by  trickery, 
the  maker  being  under  the  impression  that 
he  was  signing  a  receipt.  Can  a  purchasing 
bank  enforce  payment?  Would  it  be  differ- 
ent were  the  note  signed  under  duress? 
Opinion:  At  common  law  there  was  con- 
siderable diversity  of  decision  as  to  the  en- 
forceable rights  of  a  bona  fide  holder  of  a 
negotiable  instrument  the  signature  to  which 
had  been  procured  from  the  maker  in  the 
belief  that  he  was  signing  an  instrument  of  a 
different  character;  (see  Putnam  v.  Sullivan, 
4  Mass.  45;  Walker  v.  Ebert,  29  Wis.  96, 
pro.  and  see  Ort  v.  Fowler,  31  Kan.  478, 
contra);  but  under  the  Negotiable  Instru- 
ments Law  the  title  of  a  person  who  obtains 
a  signature  to  a  negotiable  instrument  by 
fraud  or  duress  is  not  wholly  void,  but  is 
defective  only,  and  a  holder  in  due  course 
can  enforce  such  instrument  against  the 
maker.  (Sec.  55  Neg.  Inst.  Law;  Gen.  Stat. 
Kan.  Sec.  6582.)  {Inquiry  from  Kan., 
Jan.,  1920,  Jl.) 

Knowledge  of  director  from  whom  note  pur- 
chased not  chargeable  to  purchasing  hank 

2461.  A  bank  purchased  a  note  from  one 
of  its  directors,  who  had  knowledge  of  an 
infirmity  which  would  ordinarily  render  the 


instrument  unenforceable.  Opinion:  The 
bank  is  not  chargeable  with  knowledge 
possessed  by  its  director  in  a  case  such  as 
this  where  it  is  to  his  personal  interest  to 
conceal  his  knowledge  from  the  bank.  City 
Bk.  of  Wheeling  v.  Bryan,  78  S.  E.  (W.  Va.) 
400.  Citizens  St.  Bk.  v.  Garceau,  134  N.  W. 
(N.  Dak.)  882.  {Inquiry  from  N.  D.,  Aug., 
1913,  Jl.) 

Liability  of  parties 

Indorsement  of  note  without  recourse 

2462.  Question  is  asked  as  to  the  extent 
of  liability  of  a  bank  indorsing  a  note  with- 
out recourse,  wherein  it  has  participated  in 
the  benefits  through  receiving  a  lower  rate 
at  the  time  of  discount,  or  accommodating 
a  customer  for  an  excessive  amount  loaned. 
Opinion:  An  indorsement  without  recourse 
relieves  the  indorser  from  liability  in  case  of 
dishonor  of  the  instrument,  but  the  indorser 
warrants  the  genuineness  of  the  note  and 
that  he  has  knowledge  of  no  fact  which 
would  impair  its  validity  or  render  it  value- 
less. If  a  bank  loans  money  on  a  note  at 
ten  per  cent.,  assuming  this  to  be  a  legal 
rate,  and  rediscounts  it  with  another  bank 
at  six  per  cent.,  indorsing  it  without  re- 
course, it  seems  the  bank  would  not  be 
liable  on  its  indorsement.  If  the  national 
bank  in  so  doing  makes  excess  loans  to  its 
customer,  beyond  the  10%  limit  of  capital 
and  surplus  to  any  one  borrower,  this  is  a 
violation  of  the  National  Bank  Act.  The 
penalty  for  violation  is  the  liability  which  the 
bank  incurs  of  forfeiture  of  its  franchise; 
but  the  note  is  not  invalidated  for  this 
reason  and  the  full  amount  may  be  re- 
covered from  the  borrower.  {Inquiry  from 
Okla.,  Feb.,  1917.) 

Note  broker's  liability 

2463.  Is  a  note  broker  liable  to  a  pur- 
chaser through  him  of  a  note  which  the 
treasurer  of  a  corporation,  who  was  not 
authorized  to  borrow  money  for  it,  drew  in 
the  name  of  the  corporation  payable  to  it, 
and  indorsed  also  in  the  corporate  name? 
Opinion:  The  law  makes  the  note  broker 
liable  for  genuineness  of  the  note  and  for 
capacity  of  prior  parties  to  contract  and 
for  guilty  knowledge,  unless  the  broker  "dis- 
closes the  name  of  his  principal  and  that  he 
is  acting  only  as  agent."  Otherwise,  to 
procure  his  personal  liabihty,  his  indorse- 
ment should  be  required;  except,  it  may  be 
presumed,  he  would  be  held  liable  in  any 
event  if  he  knew  the  paper  was  fraudulent. 
{Inquiry  from  N.  Y.,  April,  1917.) 


558 


NOTES 


[2464-2468 


Provision  that  all  parties  he  regarded  as 
principals 

2464.  A  bank  sends  form  of  note  con- 
taining this  clause:  "It  is  agreed  by  any 
person,  firm  or  corporation  who  writes  his, 
her  or  its  name  on  the  face  or  back  of  this 
instrument,  whether  they  are  makers,  in- 
indorsers,  sureties  or  guarantors  or  not,  that 
they  or  any  of  them  shall  be  regarded  as 
principals  as  between  them  or  either  of  them 
and  the  holder  hereof."  The  bank  asks 
whether  under  this  clause  it  can  hold  all  the 
parties,  whether  they  sign  on  face  or  back, 
at  any  reasonable  time  after  maturity 
without  necessity  of  same  being  protested. 
Opinion:  Many  forms  of  note  contain  an 
express  waiver  of  protest  by  the  parties 
contingently  liable,  and  the  courts  have  held 
that  such  waiver  printed  on  the  face  of  the 
note  binds  the  parties  who  sign  on  the  back. 
In  the  instant  form  of  note  there  is  an  agree- 
ment on  the  face  that  indorsers,  sureties  or 
guarantors  shall  be  regarded  as  principals 
as  between  them  and  the  holder.  This 
agreement  would  be  binding  on  those  sign- 
ing either  on  the  face  or  back,  and  the  same 
would,  it  seems,  be  construed  as  waiving  the 
necessity  of  protest  as  it  is  not  necessary  to 
make  protest  or  give  notice  of  dishonor  to 
hold  liable  the  principal  on  a  note.  {Inquiry 
from  Ark.,  Dec,  1914.) 

Extension  and  renewal 

Binding    nature    of    extension 

2465.  Is  a  note  which  has  been  extended 
pa^t  due  paper  or  has  it  the  standing  of  a 
renewal  note?  Opinion:  Where  there  is  a 
binding  agreement  supported  by  a  vahd 
consideration  between  the  holder  and  maker 
to  extend  the  time  of  payment  of  a  note,  the 
extension  is  just  as  binding  if  the  contract  is 
evidenced  by  indorsement  on  the  note  and 
the  giving  of  a  receipt  for  the  interest  for  the 
extended  period,  as  if  a  new  note  is  taken  in 
renewal.  The  effect  of  such  an  agreement 
indorsed  on  the  note  is  to  postpone  the 
holder's  right  of  action  and  the  commence- 
ment of  the  running  of  the  statute  of  limi- 
tations until  expiration  of  the  period  for 
which  extension  is  granted.  Ferguson  v. 
Hill,  3  Stew.  (Ala.)  485.  Bridge  v.  Conn. 
Mut.  L.  Ins.  Co.,  167  Cal.  774.  Gledden 
V.  Henry,  104  Ind.  278.  Pearl  v.  Wells,  6 
Wend.  (N.  Y.)  291.  Condon  Nat.  Bk.  v. 
Rogers,  60  Ore.  189.  Com.  Bk.  v.  Hart,  10 
Wash.  303.  Jones  v.  Fleming,  15  La.  Ann. 
522.  Warren  Academy  v.  Starrett,  15  Me. 
443.  Cook  V.  Landoum,  26  Ky.  Law  Rep. 
813.    {Inquiry  from  Fla.,  Feb.,  1918,  Jl.) 


Extension   of  demand  note   by   payment     of 
interest  in  advance 

2466.  Where  interest  has  been  paid  in 
advance  on  a  demand  note,  may  the  holder 
demand  payment  prior  to  the  date  to  which 
interest  is  paid?  Opinion:  Although  there 
is  some  conflict,  payment  of  interest  in  ad- 
vance is  generally  held  prima  facie  evidence 
of  an  extension  of  the  time  of  payment. 
Most  of  the  cases  so  holding  involve  time 
notes.  Bank  of  British  Columbia  v.  Jeffs, 
18  Wash.  135.  Skelly  v.  Bristol  Savings 
Bank,  63  Conn.  83,  holds  the  general  rule 
applicable  to  a  demand  note.  Crosby  v. 
Wyatt,  10  N.  H.  318,  holds  the  general  rule 
appUcable  to  a  time  note  and  states  by  way 
of  dictum  that  it  applies  to  demand  notes 
except  where  the  advance  interest  is  paid 
at  the  time  of  execution  of  the  note  and  is 
not  indorsed  thereon,  invoking,  to  support 
the  exception,  the  rule  that  a  parol  contem- 
poraneous agreement  may  not  be  admitted 
to  contradict  a  written  contract.  Even 
should  the  exception  in  the  dictum  in  the 
Crosby  case  be  good  law  its  applicablity  in 
actual  practice  would  be  very  hmited. 
{Inquiry  from  Fla.,  Nov.,  1917.) 

Release  of  accommodation  iyidorser  by  holder 
receiving    interest    in    advance 

2467.  Does  the  extension  of  a  note  by 
paying  up  the  interest  for  a  definite  period  in 
advance  affect  the  liabiHty  of  a  joint  ac- 
commodation maker  or  an  accommodation 
indorser?  Opinion:  Under  the  Negotiable 
Instruments  Act  an  extension  of  time  to  the 
principal  debtor  without  the  consent  of  the 
accommodation  joint  maker  does  not  dis- 
charge him  as  he  is  primarilj^  liable.  An 
accommodation  indorser  is  only  secondarily 
hable  and  is  discharged  under  the  express 
provisions  of  the  act.  If  the  receipt  of 
interest  in  advance  be  held  a  binding  agree- 
ment to  extend  for  the  period  for  wliich 
interest  is  paid,  the  indorser  but  not  the 
maker  is  discharged.  {Inquiry  from  S.  C, 
Feb.,  1918.) 

Receipt  of  past  due  interest  after  maturity  not 
an  extension 

2468.  A  bank,  holding  a  note  on  which 
the  liability  of  the  indorser  had  been  duly 
fixed,  allowed  it  to  remain  unpaid  for  some 
two  years  without  attempting  to  collect  it, 
although  several  payments  of  past  due 
interest  were  received  from  the  maker.  Is 
the  indorser  discharged  because  of  an  "ex- 
tension of  time?"  Opinion:  There  was  no 
extension  of  time  such  as  would  release  the 


559 


2469-2474] 


DIGEST  OF  LEGAL  OPINIONS 


indorser.  However,  had  the  payments  of 
interest  been  made  in  advance  they  might 
have  been  prima  facie  evidence  of  an  agree- 
ment to  extend  the  time  of  payment.  (In- 
quiry from  Wis.,  Oct.,  1918.) 

Receipt  of  accrued  interest  not  an  extension 

hut  'payment  of  advance  interest  prima  facie 

evidence  of  extension 

2469.  Does  an  indorsement  on  a  note  of 
accrued  interest  operate  as  an  extension  of 
time,  when  accompanied  by  a  partial  pay- 
ment of  principal?  Does  payment  of 
interest  in  advance  after  maturity  operate 
as  an  extension  of  time  of  payment?  Opin- 
ion: The  indorsement  of  accrued  interest 
would  not  be  construed  as  an  extension  of 
the  note  although  accompanied  by  a  partial 
payment  of  the  principal.  As  to  the  second 
question,  according  to  the  consensus  of 
judicial  opinion,  proof  that  the  holder,  after 
maturity,  received  interest  in  advance  for  a 
period  beyond  its  maturity  is  not  conclusive 
evidence  of  an  agreement  extending  the 
time  of  payment.  Uniontown  Bk.  v.  Mack- 
ey,  140  U.  S.  220.  The  general  rule,  how- 
ever, is  that  such  payment  is  prima  facie 
evidence  of  such  an  agreement.  St.  Paul 
Trust  Co.  V.  St.  Paul  Chamber  of  Com- 
merce, 64  Minn.  439,  holding  that  a  con- 
tract to  extend  the  time  of  payment  of  a 
note  need  not  be  an  express  one,  but  may  be 
implied.    {Inquiry  from  Minn.,  Feb.,  1917.) 

Extension  to  assignee  of  mortgaged  property 

2470.  Before  maturity  of  a  note  secured 
by  a  mortgage  the  maker  (mortgagor)  sold 
the  property  and  had  the  purchaser  assume 
the  obligation.  The  holder  asks  whether  the 
making  of  an  indorsement  on  the  note,  that 
payment  be  extended,  subject  to  all  the 
conditions  of  the  mortgage  securing  the 
same,  would  release  the  maker.  Opinion: 
The  extension  of  time  to  the  indorser  would 
not  discharge  the  maker  of  the  note.  The 
maker  would  remain  bound  for  the  full 
statutory  period.  Whiting  v.  Western 
Storage  Co.,  20  Iowa,  554.  {Inquiry  from 
Colo.,  Aug.,  1919.) 

Surety  makers  not  discharged  hy  extension 

2471.  A  note  contained  the  following 
words:  "The  joint  signers  agree  to  waive 
any  extension  of  time  without  notice." 
Opinion:  Such  clause  constitutes  an  express 
consent  by  the  surety-makers  to  the  ex- 
tension. But  even  though  consent  were  not 
given  by  the  surety-makers  they  are  pri- 
marily liable  under  the  Negotiable  Instru- 


ments Act,  and  are  not  released  by  the 
extension.  Edmondston  v.  Ascough,  43  Colo. 
55.  Vanderford  v.  Farmers  Bk.,  105  Md. 
164.    {Inquiry  from  III.,  July,  1916,  Jl.) 

Non-discharge  of  surety-maker  hy  extension 

2472.  A  joint  and  several  note  of  $150 
was  executed  by  two  makers,  one  of  whom 
was  a  surety.  $75  was  paid  on  the  note 
after  maturity,  in  consideration  of  which 
an  extension  of  time  was  given  the  principal 
maker  to  pay  the  balance.  The  principal 
maker  did  not  pay  as  agreed  and  became 
insolvent.  Opinion:  The  surety  was  not 
released  by  such  extension  of  time  because 
(1)  the  agreement  was  not  binding,  being 
without  valid  consideration,  and  even  if 
otherwise,  (2)  under  the  Negotiable  In- 
struments Act  a  surety-maker  is  not  dis- 
charged by  the  extension  given  the  principal 
maker  without  his  consent.  The  Statute  of 
Limitations  (five  years  in  Kentucky,  where 
the  note  was  made)  begins  to  run  from  the 
date  of  maturity  of  the  note.  Liening  v. 
Gould,  13  Cal.  598.  Halhday  v.  Hart,  30 
N.  Y.  474.  Sully  v.  Childress,  106  Tenn. 
109.  Ky.  St.,  1909,  Ch.  80,  Sec.  2515. 
Walden  v.  Crafts,  2  Abb.  Pr.  (N.  Y.)  301. 
Horner  v.  Speed,  2  Pat.  &  Hen.  (Va.)  616. 
Cooper  V.  Cooper,  61  Miss.  676.  {Inquiry 
from  Tenn.,  Aug.,  1914,  Jl.) 

2473.  Is  a  surety  bound  by  an  extension 
of  time  without  notice  where  the  note  con- 
tains the  following  clause:  "Sureties  con- 
sent that  time  of  payment  may  be  extended 
without  notice  thereof?"  Opinion:  The 
quoted  provision  is  binding  upon  the  surety 
and  an  extension  of  time  without  notice  to 
him  does  not  discharge  him  from  liability. 
{Inquiry  from  Iowa,  Sept.,  1917.)  {Similar 
inquiry  from  Kan.  March,  1919.) 

Indorsers  consenting  to  extension  after 

maturity  released  by  extension  before 

maturity 

2474.  A  note  contains  a  waiver  of  pro- 
test and  an  extension  clause  providing  that 
"after  maturity  the  time  of  payment  may  be 
extended,"  etc.,  so  worded  to  remove  any 
question  of  negotiabiUty  of  note.  The 
question  arises  whether,  if  a  bank  extends 
the  note  before  maturity,  the  other  makers 
and  indorsers  would  be  released.  Opinion: 
The  consent  to  extension  appHes  only  when 
made  after  maturity,  and  extension  by  the 
holder  to  the  principal  debtor  before  ma- 
turity would  release  the  sureties,  except 
those  who  signed  on  the  face  as  makers. 
Richards  v.  Market  Exch.  Bk.  Co.,  (Ohio)  90 


560 


NOTES 


[2475-2479 


N.  E.  1000.  Edmonston  v.  Ascough,  43 
Colo.  55,  95  Pac.  313.  Vanderford  v.  Farm- 
ers Bk.,  105  Md.  164,  66  Atl.  47.  Lane 
V.  Hyder,  (Mo.)  147  S.  W.  514.  Wolsten- 
holme  V.  Smith,  (Utah)  97  Pac.  329.  Cellers 
V.  Meachem,  (Ore.)  89  Pac.  426.  Northern 
St.  Bk.  V.  Bellamy,  (N.  Dak.)  125  N.  W. 
888.     {Inquiry  from  Okla.,  Nov.,  1915,  Jl.) 

Release  of  non-consenting  indorser   hy 
extension 

2475.  A's  note  was  indorsed  by  B  and  C 
who  guaranteed  payment.  The  holder  ex- 
tended the  time  of  payment  of  the  note  in 
consideration  of  A's  payment  of  30  days' 
interest  in  advance.  Opinion:  The  ex- 
tension of  the  time  of  payment  by  the  holder 
without  the  consent  of  B  and  C  released 
them  from  liability.  If  B  and  C  had  signed 
the  note  as  surety-makers  they  would  not 
have  been  released  from  liability  under  the 
Negotiable  Instruments  Law.  Cellers  v. 
Meachem,  49  Ore.  186,  89  Pac.  426.  Van- 
derford v.  Farmers  Bk.,  105  Md.  164,  66 
Atl.  47.  Bradley  Engineering  Co.  v.  Hey- 
burn,  56  Wash.  628.  Rouse  v.  Wooten,  140 
N.  C.  557.  North  St.  Bk.  v.  Bellamy, 
(N.  Dak.)  125  N.  W.  888.  {Inquiry  from 
Okla.,  Aug.,  1911,  Jl.) 

2476.  A  gave  B  his  negotiable  promis- 
sory note,  due  in  six  months,  payment  of 
which  was  guaranteed  by  B,  who  discounted 
it  at  the  bank.  At  maturity  the  bank  ex- 
tended A's  time  of  payment  thirty  days. 
The  note  also  contained  the  accommodation 
indorsement  of  C.  Opinion:  An  indorser 
who  guarantees  payment  is  secondarily  liable 
under  the  Negotiable  Instruments  Act  and 
if  a  binding  extension  of  time  is  granted  to 
the  principal  maker  without  his  consent  he 
is  discharged  from  liability.  Under  the 
Negotiable  Instruments  Act  a  surety  who 
signs  as  maker  is  not  discharged  by  such 
extension,  the  common  law  being  changed  in 
this  particular.  Gen.  Laws  Ore.,  Sec.  5953. 
North  St.  Bk.  v.  Bellamy,  (N.  Dak.)  125 
N.  W.  888.  Cellers  v.  Meachem,  (Ore.)  89 
Pac.  426.    {Inquiry  from  Ore.,  Feb.,  1917,  Jl.) 

Surety-makers    not    discharged  by  extension 
granted  on  forgery  of  their  consent 

2477.  A's  note  in  payment  of  a  loan  was 
signed  on  its  face  by  B  and  C.  There  was  no 
waiver  of  demand  and  protest.  After 
maturity  A,  upon  a  forged  order  purporting 
to  be  signed  by  B  and  C,  obtained  an  exten- 
sion of  the  time  of  payment,  which  was  duly 


granted  by  the  holder.  B  and  C  contest 
UabiHty  because  as  indorsers  they  were  dis- 
charged for  failure  to  protest  the  note,  and 
because  of  the  extension  agreement  given 
without  their  consent.  Opinion:  B  and  C 
signed  as  makers  and  were  not  entitled  to 
protest.  Under  the  Negotiable  Instruments 
Act  the  surety-makers  of  a  note  are  pri- 
marily Hable  and  are  not  discharged  by  the 
extension  of  the  time  of  payment  granted 
to  the  principal  maker  without  their  consent. 
Stones  River  Nat.  Bk.  v.  Walter,  104  Tenn. 
11.  Reeder  v.  Bk.,  2  Tenn.  Civ.  App.  713. 
Dwinnell  v.  McKibben,  93  Iowa  331.  Red 
River  Nat.  Bk.  v.  Bray,  (Tex.)  132  S.  W. 
968.  Cowan  v.  Ramsey,  15  Ariz.  533. 
Union  Tr.  Co.  v.  McGinty,  212  Mass.  205. 
Vanderford  v.  Farmers  Bk.,  105  Md.  164, 
66  Atl.  47.  First  St.  Bk.  v.  Wilhams,  165 
Ky.  143.  Cellers  v.  Meachem,  49  Ore.  186, 
89  Pac.  426.  Hardy  v.  Carter,  (Tex.)  163 
S.  W.  1003.  Wolstenholme  v.  Smith,  34 
Utah  300,  97  Pac.  329.  Bradley,  etc.,  Co. 
v.  Hey  burn,  56  Wash.  628.  Richards  v. 
Washington  Exch.  Bk.,  81  Ohio  St.  348. 
{Inquiry  from  Tenn.,  Aug.,  1916,  Jl.) 

Stamping  original  "paid"  on  taking  of  renewal 

2478.  Where  a  note  is  renewed  in  full 
or  in  part,  is  it  wise  to  stamp  the  old  note 
"paid?"  Opinion:  In  some  cases  it  is  held 
that  the  receipt  and  acceptance  of  the  re- 
newal note  and  the  surrender  and  cancella- 
tion of  the  former  note  constitute  a  payment 
of  the  former.  This  is  subject,  however,  to 
proof  as  to  the  intention  of  the  parties  and 
the  more  general  rule  is  that  the  delivery 
or  surrender  to  the  maker  of  the  old  note, 
upon  its  being  renewed,  does  not  in  itself 
raise  a  presumption  of  its  extinguishment 
by  the  new,  it  being  considered  as  a  condi- 
tional surrender  and  that  its  obligation  is 
restored  and  revived  if  the  new  note  be  not 
duly  paid.  Assuming  the  foregoing  to  be 
the  rule  in  Connecticut,  it  would,  neverthe- 
less, be  best  not  to  stamp  the  original  note 
"paid"  as  this  would  be  an  indication  that 
the  old  note  was  extinguished  and  it  might 
be  important,  in  some  cases,  to  preserve  the 
obligation  as  evidenced  by  the  old  note. 
{Inquiry  from  Conn.,  Feb.,  1916.) 

Renewal  note  taken  without  signature  of  surety 
on  retained  original  note 

2479.  A  renewal  of  a  note  is  taken 
without  the  signature  of  a  surety  on  the 
original  note,  but  the  old  note  is  held  as 
collateral  to  the  new  one.    The  original  note 


561 


2480-2483] 


DIGEST  OF  LEGAL  OPINIONS 


provides  that  an  extension  of  time  shall  not 
release  any  parties  to  the  note.  Does  the 
surety  remain  liable?  Opinion:  An  original 
note  left  as  collateral  for  a  renewal  note  is 
not  considered  as  paid.  Chattanooga  Sav. 
Bank  v.  Lumby,  185  111.  App.  111.  East 
River  Bank  v.  Butterworth,  45  Barb.  (N. 
Y.)  476.  Greening  v.  Patten,  51  Wis.  146 
See  also  Merchants'  Trust,  etc.,  Co.  v.  Jones, 
95  Me.  335,  50  Atl.  48.  Hence  the  only 
effect  of  the  renewal  note  is  to  postpone  the 
time  for  paj^ment;  the  original  debt  is  not 
extinguished.  According  to  the  express 
provision  of  the  note  the  extension  of  time 
does  not  release  the  surety  on  the  original 
note,     (hiquiry  from  Iowa,  Jan.,  1921.) 

Additional    surety    signing    at    maturity    as 
condition  for  renewal 


2480.  A  loans  B  $10,000,  and  C  signs 
the  note  as  surety.  When  the  same  be- 
comes due,  A  becomes  dissatisfied  with  the 
loan  and,  upon  the  bank's  demand  for  an 
additional  surety,  B  procures  D  to  sign 
same  as  a  condition  for  its  renewal.  The 
bank  asks  whether  D,  the  last  signer,  would 
be  hable  on  the  note.  Opinion:  There 
being  a  sufficient  consideration  for  the 
additional  signature,  i.  e.,  the  renewal  of  the 
note,  D  became  bound  as  a  surety  and  is 
liable  thereon.  Ellis  v.  Clark,  110  Mass. 
389.    {Inquiry  from  Okla.,  April,  1920.) 

Taking  new  note  and  retaining  old 

2481.  A,  B  and  C  were  makers  of  a  note 
held  b}^  a  bank.  The  bank,  not  wishing  to 
carry  the  note  as  overdue  paper,  caused  A 
and  B  to  execute  a  new  note  in  renewal  of 
the  indebtedness,  which  C,  because  of  sick- 
ness, was  unable  to  sign.  The  bank  did  not 
destroy  the  old  note  but  kept  both.  Opin- 
ion: Where  a  new  note  is  given  in  renewal 
of  an  old  note  and  the  latter  is  retained,  the 
weight  of  authority  is  to  the  effect  that  the 
old  note  is  not  extinguished  unless  the  in- 
tention is  to  acccept  the  new  note  in  satis- 
faction and  discharge  of  the  first.  Kendrick 
V.  Lomax,  2  Cromp.  &  J.  405.  Bishop  v. 
Rowe,  3  Maule  &  S.  362.  Cumber  v.  Wayne 
1  Strange  462.  Woods  v.  Woods,  127  Mass. 
141.  McQuire  v.  Gadsby,  3  Cal.  234.  Hart 
V.  Boiler,  15  Serg.  &  R.  (Pa.)  162.  East 
River  Bk.  v.  Butterworth,  45  Barb.  (N.  Y.) 
476.  Moses  v.  Price,  21  Gratt.  (Va.)  556. 
Slaymaker  v.  Gundacher,  10  Serg.  &  R. 
(Pa.)  75.  Phoenix  Ins.  Co.  v.  Church,  81 
N.  Y.226.  {Inquiry  from  Pa.,  Oct.,  1913,  Jl.) 
{Similar  inquiry  from  Mich.,  June,  1915,  JL, 
citing    Ellis     v.   Ballou,    129    Mich.    303; 


Koons  V.  Vanconstant,  129  Mich.  260; 
McMorran  v.  Murphy,  68  Mich.  24.6; 
Riverside  Iron  Works  v.  Hall,  64  Mich. 
165;  Mich.  Mut.  L.  Ins.  Co.  v.  Bowes,  42 
Mich.  19;  Sage  v.  Walker,  12  Mich.  4:25.) 

Taking  new  and  holding  old  note  o.s  collateral 

2482.  Is  it  good  practice  for  a  bank  in 
renewing  a  note  secured  by  chattel  or  real 
estate  mortgage  to  take  a  new  note  and  hold 
the  old  note  as  collateral  to  the  new,  marking 
the  old  note  "collateral"  and  holding  the 
original  mortgage  as  security?  Opinion: 
It  is  a  general  rule  that,  where  a  new  note 
is  given  in  renewal  of  the  original  which  is 
retained  and  not  surrendered,  the  new  note 
does  not  operate  as  payament  of  the  original, 
but  only  as  a  suspension  of  the  debt  evi- 
denced thereby.  It  seems  that  the  practice 
of  taking  a  new  note  and  holding  the  old  note 
is  proper.  It  was  held  (Hull  v.  Diehl,  21 
Mont.  71)  that  the  renewal  of  a  note  secured 
by  mortgage  is  not  payment  thereof  and  in 
the  absence  of  some  agreement,  or  plain 
manifestation  of  a  contrary  intention,  the 
security  will  remain  intact.  {Inquiry  from 
Mont.,  Nov.,  1915.) 

Death  of  maker  after  execution  of  renewal  hut 
before  maturity  of  original  note 

2483.  A  bank  writes:  "A  renews  a  note 
30  days  before  it  comes  due,  but  dates  his 
renewal  note  the  day  the  old  note  is  due. 
The  bank  releases  the  old  note  to  A,  Suppose 
A  should  die  within  the  30  days,  can  the 
bank  reahze  on  the  new  note  before  the  30 
days  are  up?  If  the  new  note  is  marked 
renewal  can  the  bank  realize  on  it?"  Opin- 
ion: If  the  debt  was  evidenced  by  the  old 
note  and  the  acceptance  of  the  renewal  was 
only  provisional,  to  take  effect  at  the  time 
the  old  note  matured,  it  seems  the  bank 
could  realize  on  the  amount  at  the  date  of 
maturity  of  the  old  note  but  it  would  seem 
that,  by  the  surrender  of  the  old  note  and  the 
acceptance  of  the  new,  a  valid  renewal  was 
effected,  so  that  the  debt  would  not  be  due 
and  payable  until  the  time  of  maturity  of 
renewal  note.  If  this  conclusion  be  correct, 
then  the  death  of  the  maker  would  not  en- 
title the  bank  to  collect  the  renewal  note 
before  its  maturity.  The  general  rule  is  that 
claims  against  a  decedent  which  are  not  yet 
due  but  run  to  a  certain  maturity  must  be 
presented  for  allowance  within  the  statutory 
period  for  filing  claims  against  the  estate; 
but  the  death  of  the  maker  of  a  note  does 
not  ipso  facto  mature  the  note  so  as  to  make 
it  immediately  payable.     If  the  bank  held 


562 


1 


NOTES 


[2484-2487 


the  deposit  of  a  maker,  a  different  question 
would  be  presented;  whether  it  would  have 
the  right,  upon  the  death  of  the  maker,  to 
apply  his  deposit  in  payment  of  the  dece- 
dent's unmatured  note.  Upon  this  question 
there  is  very  little  satisfactory  authority  and 
what  there  is  seems  to  be  in  conflict.  (In- 
quiry from  W.  Va.,  Sept.,  1920.) 

Guaranty  of  payment 

Letter    construed    as    guaranty    of    payment 

2484.  Sam  Jensen  sent  to  a  bank  the 
following  letter:  "I  stand  good  for  any  note 
my  daughter  ]\Iay  signs  and  will  paj^  same  in 
full  if  she  don't,  in  proper  time."  What  is 
the  effect  of  this?  Opinion:  The  letter  is  a 
guaranty  of  payment  of  any  note  signed  or 
indorsed  by  May  Jensen,  upon  which  the 
bank  advanced  value.  He  is  liable  to  pay 
any  such  note  at  maturity  if  his  daughter 
does  not.     {Inquiry  from  Wis.,  May,  1920.) 

Guaranty  of  payment  by  separate  instrument 

2485.  A  bank  discounts  many  small 
notes  for  a  corporation,  which  are  generally 
not  paid  at  maturity  but  require  renewals. 
The  bank  desires  an  agreement  which  will 
bind  two  individuals  to  direct  liability  for 
payment  of  principal  and  interest  in  full  of 
any  notes  thus  discounted,  before  or  after 
renewal.  Opinion:  Guaranties  of  payment 
of  bills  and  notes  may,  of  course,  be  by 
separate  instrument  as  well  as  on  the  in- 
strument guaranteed.  There  is  no  known 
pubhshed  form  which  would  exactly  fit  the 
transaction  in  instant  case.  Tidionte  Sav. 
Bank  v.  Libbey,  101  Wis.  193,  77  N.  W.  182, 
indicates  a  form  of  guaranty  whereby  "in 
consideration  of  $100  to  each  of  them  in 
hand  paid  and  in  consideration  of  the  grant- 
ing of  credit  and  discount  by  W.  T.  R.  &  Co. 
(bankers)  to  F.  &  L.  Co.,  L  and  others 
guaranteed  to  the  said  W.  T.  R,  Co.,  their 
heirs,  executors,  administrators  and  assigns 
the  pa3^ment  of  any  and  all  indebtedness  now 
due  or  hereafter  to  become  due  to  AV.  T.  R. 
&  Co.  growing  out  of  or  occasioned  by 
any  or  through  any  act  or  acts  of  the  said 
"F.  &  L.  Co."  This  was  held  to  be  a  general 
continuing  guaranty  which  enured  to  the 
benefit  of  any  parties  to  whom  W.  T.  R.  & 
Co.  subsequently  transferred  notes  of  third 
persons  which  the  F.  k  L.  Co.  had  dis- 
counted with  them.  The  opinion  in  this 
case  gives  an  instructive  statement  of  the 
law  of  guaranties.  {Inquiry  from  Wis., 
June,  1916.) 


Guaranty  of  payment  by  payee  after  indorsing 
note  without  recourse 

2486.  Is  the  guaranty  of  payment  by  a 
payee  of  a  note  binding  when  it  is  made 
after  he  has  indorsed  the  note  without  re- 
course? Opinion:  The  effect  of  the  indorse- 
ment without  recourse  is  to  constitute  the 
indorser  a  mere  assignor  of  the  note,  with 
warranty  of  genuineness  but  without  any 
liability  to  pay  in  the  event  of  dishonor  by 
the  maker.  The  guaranty  is  not  enforceable 
if  given  subsequent  to  the  discount  of  the 
paper,  as  it  would  be  without  consideration, 
but  if  given  as  part  of  the  same  transaction, 
contemporaneously  or  even  subsequently,  if 
in  pursuance  of  a  previous  promise,  the  dis- 
counting would  constitute  a  sufficient  con- 
sideration, and  the  guaranty  might  then  be 
enforceable  although  it  virtually  nullifies 
the  indorsement  without  recourse.  (In- 
quiry fro7n  Kan.,  Feb.,  1914-) 

Liability  of  guarantor  when  cashier  buys  his 
own    note    for    bank 

2487.  The  cashier  of  a  bank  gave  his 
own  two-year  note  for  a  personal  indebted- 
ness to  John  Doe,  and  then  used  the  bank's 
funds  to  buy  the  note,  which  contained  a 
guranty  of  payment  by  John  Doe.  The 
cashier  died  almost  six  3^ears  after  the  ma- 
turity of  the  note,  which  had  never  been 
paid,  and  the  bank  seeks  to  hold  Doe  liable. 
Opinion:  John  Doe  would  be  held  hable  to 
the  bank  on  his  guaranty  of  payment,  which 
right  could  be  enforced  within  six  years 
after  the  date  of  maturity  of  the  note.  Up- 
on the  question  whether  Doe  could  be  held 
upon  the  note  as  participant  in  a  breach  of 
trust,  it  is  likely  that  the  discount  of  the  note 
by  the  Imnk  for  Doe  with  his  personal 
guaranty  thereon,  especially  as  Doe  was  an 
innocent  party  free  from  actual  fault,  would 
be  held  a  sufficiently  legitimate  transaction 
to  make  him  not  chargeable  as  constructive 
trustee.  Pomerov  Equity,  Vol.  2,  Sec. 
1079.  Gale  v.  Chase  Nat.  Bk.,  104  Fed.  214. 
Home  Sav.  Bk.  v.  Otterbach,  135  Iowa  157. 
Kitchens  v.  Teasdale  Com.  Co.,  105  Mo. 
App.  463.  Hier  v.  Miller,  68  Kan.  258. 
Conyngham's  Appeal,  57  Pa.  474.  Klein  v. 
Kern,  94  Tenn.  34.  Irvine  v.  Grassfield,  10 
Heisk.  (Tenn.)  425.  Tavlor  v.  Ross,  3 
Yerk.  (Tenn.)  230.  Cowan  v.  Roberts,  134 
N.  C.  415,  46  S.  E.  979.  Miller  v.  Lewiston 
Nat.  Bk.,  (Ida.)  108  Pac.  901.  Sentinel  Co. 
v.  Smith,  (Wis.)  127  N.  W.  943.  (Inquiry 
from  Tenn.,  Jan.,  1914,  Jl.) 


563 


2488-2494] 


DIGEST  OF  LEGAL  OPINIONS 


Guaranty  of  payment   by  a  president 

2488.  A  note  executed  by  a  corporation 
by  its  president  and  secretary  is  indorsed  as 
follows:  "For  value  received  we  hereby 
guarantee  the  collection  and  payment 
of  the  within  note  and  consent  to  any 
extension  of  time  of  payment,  waiving  de- 
mand of  payment,  protest,  presentment  and 
notice  of  non-payment."  Signature,  Presi- 
dent— Signature,  Secretary.  Does  the  addi- 
tion of  the  title  make  the  indorser  free  from 
personal  liabihty  in  the  state  of  Utah? 
Opinion:  There  are  no  decisions  in  Utah  on 
the  subject.  The  decisions  elsewhere  hold 
that  persons  signing  a  guaranty  on  the  back 
of  a  corporation  note  as  president  and  secre- 
tary would  be  personally  liable.  It  has  been 
held  that  the  abbreviation  and  letters 
"Treas."  and  "V.  P."  following  the  names 
respectively  of  two  indorsers  on  a  promissory 
note  were  mere  words  of  description,  and 
the  obligation  incurred  by  such  indorsement 
was  personal.  (Inquiry  from  Utah,  Oct., 
1915.) 

Payment 

Provision  for  payment  in  gold  coin 

2489.  Can  the  holder  of  a  note  payable 
in  "United  States  gold  coin  of  the  present 
standard  of  weight  and  fineness"  require 
payment  in  that  medium?  Opinion:  Ap- 
parently the  provision  for  payment  in  gold 
coin  is  specifically  enforceable.  Bronson  v. 
Rodes,  7  Wall.  (U.  S.)  229  and  subsequent 
cases  in  Supreme  Court  of  United  States. 
{Inquiry  from  Ala.,  April,  1917.) 

Designation   of  place   of  payment 

2490.  Should  a  place  of  payment  be 
designated  in  demand  notes  received  by  a 
bank  as  collateral  for  a  loan?  Opinion:  It 
would  be  preferable  as  a  matter  of  conven- 
ience to  have  the  demand  notes  payable  at 
the  bank  to  which  pledged.  {Inquiry  from 
N.  Y.,  June,  1919,  Jl.) 

Provision   for    payment — ''With    exchange" 

2491.  What  is  the  effect  of  the  term 
"with  exchange"  in  a  note  payable  in  the 
same  place  in  which  it  is  drawn,  where  there 
is  no  provision  that  such  exchange  is  on 
another  place?  Opinion:  The  words  "with 
exchange"  in  the  note  were  meaningless 
and  no  exchange  charges  were  collectible 
from  the  payor  bank.  Hill  v.  Todd,  29  111. 
101.  Clauser  v.  Stone,  29  lU.  114.  Bk.  v. 
Goode,  44  Mo.  App.  129.  Chandler  v. 
Calvert,  87  Mo.  App.  368.    Garrettson  v. 


Bk.,  47  Fed.  867.  {Inquiry  from  Ind.,  May, 
1914,  Jl.) 

Provision   "with  exchange"   and  "with 

exchange  on   New   York"  __ 

2492.  What  is  the  effect  of  the  words      || 
"with  exchange"  or  "with  exchange  on  New 
York"    appearing    in    a    note?      Opinion: 
When  a  note  is  made  payable  "exchange  on 
New  York"  or  "with  New  York  exchange" 

the  holder  is  entitled  to  receive  payment  of 
the  face  of  the  note  plus  the  amount  of  the 
exchange.  Where,  however,  an  instrument 
is  issued  and  payable  at  the  same  place 
"with  exchange"  it  has  been  held  in  several 
cases  that  the  words  "with  exchange"  are 
surplusage  and  have  no  effect.  Hill  v.  Todd, 
29  111.  101.  Clauser  v.  Stone,  29  1111.  114. 
Christian  County  Bank  v.  Goode,  44  Mo. 
App.  129.  Chandler  v.  Calvert,  87  Mo. 
App.  368.  Garrettson  v.  Bank,  47  Fed.  867. 
{Inquiry  from  S.  D.,  Feb.,  1921.) 

Payment  by  indorser 

2493.  A  bank  owns  several  notes  of  a 
single  maker  corporation,  some  of  which 
are  indorsed  by  a  certain  person  and  others 
not.  The  corporation  has  failed,  and 
will  pay  about  30  or  40  cents  on  the  dol- 
lar. The  indorser  who  is  responsible 
wants  to  take  up  the  notes  on  which  his 
name  appears.  The  idea  of  the  bank  is  not 
to  surrender  those  but  to  hold  all  the  notes 
and  thus  get  30  or  40  %  on  the  total  amount, 
— whereas  if  the  indorser  took  them  up  the 
bank  would  only  get  30  or  40%  on  the 
remainder.  Can  the  indorser  insist  on  pay- 
ing the  particular  notes  on  which  he  is 
indorser?  Opinion:  It  is  the  general  rule 
of  law  that  any  party  to  a  bill  or  note  may 
pay  it  and  when  an  indorser  tenders  pay- 
ment of  notes  which  have  matured  and  are 
unpaid  by  the  maker,  it  would  seem  that  the 
bank  would  be  compelled  to  accept  payment 
or  else  reHeve  him  from  liabihty.  But  it 
may  be  that  the  notes  are  not  yet  due.  In  the 
case  of  an  unmatured  note  it  is  the  general 
rule  that  payment  can  be  made  only  by  the 
consent  of  both  debtor  and  creditor.  It 
may  be  possible  that  the  insolvency  of  the 
maker  of  an  unmatured  note  would  give  the 
indorser  a  right  to  tender  payment,  but  this 
is  not  certain.  {Inquiry  from  N.  J.,  Nov., 
1913.) 

Time  of  payment  where  grace  abolished 
before  maturity 

2494.  What  effect  has  the  abolition  of 
days  of  grace  by  the  enactment  of  the 


564 


NOTES 


[2495-2500 


Mississippi  Negotiable  Instruments  Act  on 
a  note  executed  before  but  maturing  after 
the  law  becomes  operative?  Opinion:  The 
Negotiable  Instruments  Act  of  Mississippi, 
which  abolished  the  three  days  of  grace 
formerly  allowed,  would  not  affect  the  terms 
of  a  contract  entered  into  before  the  Act 
took  effect.  A  note  executed  before  but  not 
due  until  after  the  Act  became  operative 
would  carry  three  days  of  grace  in  time  of 
payment.  Barker  v.  Parker,  6  Pick.  (Mass.) 
80.  Button  V.  Belding,  48  N.  Y.  S.  981. 
{Inquiry  from  Miss.,  Aug.,  1916,  Jl.) 

Agreement  hy  holder  with  indorser  to  receive 
■:  payment  of  protested  note  in  installments 

"i  does  not  discharge  prior  indorser 

2495.  A  bank  purchased  a  note  made  by 
Smith,  payable  to  Jones's  wife,  indorsed 
both  by  her  and  Jones.  At  maturity  it  is 
protested  for  non-payment  and  the  indorser 
regularly  notified.     Two  years  later  Jones 

1^  agrees  with  the  holder  to  make  weekly  pay- 
I'  ments  of  $10  each.  The  bank  asks  if  agree- 
ment will  affect  the  wife's  liability.  Opin- 
ion: An  agreement  by  the  holder  of  a  pro- 
tested note  with  the  last  indorser  to  accept 
payment  by  weekly  installments  does  not 
discharge  a  prior  indorser  from  liability.  Had 
the  agreement  been  made  by  the  holder  with 
the  maker  the  wife  would  have  been  released. 
Veazie  v.  Carr,  3  Allen  (Mass.)  14.  Dorlon 
V.  Christie,  39  Barb.  (N.  Y.)  610.  Wood  v. 
Jefferson  County  Bk.,  9  Cow.  (N.  Y.)  194. 
Hubly  V.  Nichols.  16  Johns.  (N.  Y.)  70. 
St.  Bk.  V.  Wilson,  12  N.  C.  484.  Union  Bk.  v. 
McClung,  9  Humphr.  (Tenn.)  98.  First 
Nat.  Bk.  V.  Diehl,  (Pa.)  67  Atl.  897.  Wright 
V.  Independence  Nat.  Bk.,  (Va.)  32  S.  E. 
459.     (Inquiry  from  N.  Y.,  Dec,  1917,  Jl.) 

Time  of  payment  of  note  having  impossible 
date 

2496.  A  bank  receives  for  collection  a 
note  reading  "February  30th  after  date 
I  promise  to  pay."  The  collecting  bank 
inquires  as  to  the  liability  of  the  maker,  and 
whether,  if  collection  is  made  and  the  maker 
later  discovers  the  error  in  date  and  con- 
tends that  it  was  collected  illegally,  the 
collecting  bank  would  be  liable.  Opinion: 
The  note  is  not  illegal  or  void,  but  is  payable 
on  the  nearest  date  of  the  same  month, 
namely,  February  28.  Daniel  Neg.  Inst., 
Sec.  625.    {Inquiry  from  Ga.,  May,  1909,  Jl) 

Rules  for  determining  date  of  maturity 

2497.  What  are  the  general  rules  for 
determining  the  date  of  maturity  of  notes? 


Opinion:  The  rule  of  the  law  merchant  is 
that  the  term  "month"  in  a  bill  or  note 
means  a  calendar  and  not  a  lunar  month. 
A  note  dated  January  31st,  payable  one 
month  after  date,  matures  on  February  28. 
The  common  law  rule  is  that  when  the  date 
of  maturity  falls  on  a  Sunday  or  holiday  it 
is  payable  on  the  next  succeeding  business 
day,  but  if  the  instrument  carries  grace, 
it  must  be  presented  on  the  business  day  pre- 
ceding. The  due  date  of  hoUday  maturing 
paper  is  now  quite  generally  regulated  by 
statute.  Capital  Nat.  Bk.  v.  Amer.  Exch. 
Nat.  Bk.,  51  Neb.  707.  {Inquiry  from  Wis., 
Feb.,  1909,  Jl.) 

2498.  What  is  the  rule  for  determining 
the  date  of  maturity  of  a  note  payable  at  a 
specified  period  after  date?  Opinion:  Under 
the  law  merchant  and  the  Negotiable  In- 
struments Act,  in  computing  the  time  an 
instrument  has  to  run,  the  day  of  the  date  is 
excluded  and  the  day  of  the  payment  is 
included.  A  note  dated  January  1,  1915, 
given  for  one  year,  is  payable  January  1, 
1916,  not  December  31,  1915.  Roehner  v. 
Knickerbocker  L.  Ins.  Co.,  63  N.  Y.  163. 
Henry  v.  Jones,  8  Mass.  453.  Ammidown 
V.  Woodman,  31  Me.  580.  Taylor  v. 
Jacoby,  2  Pa.  495.  Hill  v.  Norvell,  3  Mc- 
Lean (U.  S.)  583.  {Inquiry  from  Neb., 
May,  1914,  Jl.) 

Date  of  maturity  where  no  corresponding  day 
in  month  of  maturity 

2499.  What  is  the  date  of  maturity  of  a 
note  payable  a  specified  number  of  months 
after  date  when  there  is  no  day  of  the  month 
of  maturity  corresponding  with  the  date  of 
the  instrument?  Opinion:  A  note  dated 
December  29,  30  or  31,  payable  two  months 
after  date,  falls  due  on  February  28,  or,  in 
leap  year,  February  29.  It  is  the  rule  of  the 
law  merchant  that  when  a  note  payable  one 
or  more  months  after  date  is  dated  on  a  day 
of  the  month  which  has  no  corresponding 
day  in  the  month  of  maturity,  the  day  of 
maturity  is  not  carried  over  to  the  following 
month  but  falls  on  the  last  day  of  the  month 
in  which  it  is  payable.  Daniel  Neg.  Inst., 
Sec.  624.  N.  Y.  Gen'l  Construction  Law, 
Sees.  30,  31.  {Inquiry  from  N.  Y.,  April, 
1918,  Jl.) 

Payment  to  agent  without  authority 

2500.  The  purchaser  of  a  cream  sepa- 
rator gave  the  company  selling  the  same  his 
note  of  S60.  The  company's  agent,  who  had 
authority  only  to  sell,  collected  payments 
on  the  note,  receipted  therefor,  but  did  not 


665 


2501-2504] 


DIGEST  OF  LEGAL  OPINIONS 


account  to  his  principal.  The  company 
sought  to  hold  the  purchaser  on  the  note. 
Opinion:  Authority  to  the  agent  to  scii 
did  not  include  implied  authority  to  collect 
the  note  unless  the  company  intrusted  the 
agent  with  the  possession  of  the  note.  Pay- 
ment to  the  agent  was  at  the  purchaser's 
risk,  unless  he  can  prove  that  the  agent  had 
actual  or  ostensible  authority  to  receive 
payment  without  having  possession  of  the 
note.  Meyer  v.  Hehner,  96  111.  400.  Doyle 
V.  Corey,  170  Mass.  337.  Lawson  v.  Carson, 
50  N.  J.  Eq.  370.  Cent.  Tr.  Co.  v.  Folsom, 
167  N.  Y.  285.  Ward  v.  Smith,  7  Wall. 
(U.  S.)  447.  Ortmeier  v.  Ivory,  208  111. 
577.  West.  Sec.  Co.  v.  Douglass,  14  Wash. 
215.  Walton  Guano  Co.  v.  McCall,  111  Ga. 
114.  Paris  v.  Moe,  60  Ga.  90.  Harrison  v. 
Legore,  109  Iowa  618.  Springfield  Sav.  Bk. 
V.  Kjaer,  82  Minn.  180.  Reid  v.  Kellogg, 
8  S.  Dak.  596.  Thornton  v.  Lawther,  169 
111.  228.  Walker  v.  Hale,  (Neb.  1913)  139 
N.  W.  658.  Koen  v.  Miller,  (Ark.  1912) 
150  S.  W.  41 1.  Sumrall  v.  Kitselman,  (Miss. 
1912)  58  So  594.  {Inquiry  from  Okla.,  July, 
1914,  Jl.) 

Payment  before  maturity  without  requiring 
surrender 

2301.  A  negotiable  note  payable  to  a 
national  bank  is  rediscounted  with  a  Federal 
Reserve  Bank  and  the  maker,  without 
knowledge  thereof  and  before  maturity,  pays 
the  note  to  the  national  bank,  which  mis- 
appropriates the  money  and  two  days  later 
closes  its  doors.  The  maker  did  not  obtain 
a  surrender  of  the  note.  The  Federal  Re- 
serve Bank  demands  payment  of  the  note. 
Opinion:  The  maker  is  liable  on  the  note  to 
the  Federal  Reserve  Bank,  which  is  a  holder 
in  due  course,  but  is  probably  entitled  to 
preferred  payment  for  the  full  amount  from 
the  assets  of  the  failed  national  bank. 
Oneonta  Tr.  &  Bk.  Co.  v.  Box,  (Ala.)  73  So. 
759.  Astoria  St.  Bk.  v.  Markwood,  (S.  Dak.) 
161  N.  W.  815.  Lucas  Co.  v.  Jamison,  170 
Fed.  338.  Massey  v.  Fisher,  62  Fed.  958. 
{Inquiry  from  Cat.,  April,  1919,  Jl.) 

Payment  without  requiring  surrender  of  note — 
Liability  to  transferee 

2502.  X  gives  his  note  for  $200  to  Bank 
A  for  borrowed  money;  Bank  A  indorses 
same  and  pledges  it  to  Bank  B  as  collateral 
for  a  note.  Afterwards  X  pays  Bank  A 
$100  on  the  note  and  takes  cashier's  receipt 
for  same.  Bank  A  does  not  advise  Bank  B 
to  make  proper  credit  on  note.  Bank  A  be- 
comes insolvent.  Opinion:  Assuming  the  note 


was  transferred  by  Bank  A  to  Bank  B 
before  maturity,  the  payment  by  the  maker 
to  Bank  A  was  ineffective  against  Bank  B, 
which  can  recover  the  full  amount  of  the 
note  from  the  maker,  or  so  much  thereof  as 
is  necessary  to  satisfy  the  lien.  Prim  v. 
Hammel,  (Ala.)  32  So.  1006.  Farmer  v. 
First  Nat.  Bk.,  (Ark.)  115  S.  W.  1141.  Davis 
V.  Miller,  14  Gratt.  (Va.)  1.  (Inquiry  from 
La.,  Aug.,  1915,  Jl.) 

Payment    by    application   of   deposit   before 
maturity 

2503.  A  bank  inquires  concerning  the 
effect  of  a  note  payable  90  days  after  date 
with  authority  to  the  payee  to  apply  "at 
any  time"  any  funds  in  the  bank  belonging 
to  any  of  the  makers  or  indorsers  to  the 
"payment  of  this  debt."  Opinion:  It 
might  possibly  be  construed  that  the  word 
"debt"  indicates  that  the  money  must  be 
due  before  the  right  of  application  would 
arise,  and  some  courts  have  held  that  a  debt 
is  a  sum  of  money  due  by  contract.  But 
it  seems  this  contention  would  not  hold. 
See,  for  example.  People  v.  Arguello,  37 
Cal.  524,  wherein  the  court  said:  "Standing 
alone  the  word  'debt'  is  as  applicable  to  a 
sum  of  mone}^  which  has  been  promised  at  a 
future  day  as  to  a  sum  now  due  and  payable. 
If  we  wish  to  distinguish  between  the  two 
we  say  of  the  former  that  it  is  a  debt  owing 
and  of  the  latter  that  it  is  a  debt  due  *  *  * 
Whether  a  claim  or  demand  is  a  debt  or  not 
is  in  no  respect  determined  by  a  reference  to 
the  time  of  payment."  It  seems  that  the 
note  must  be  construed,  therefore,  as  one 
pa3^able  ninety  days  after  date  with  a  pro- 
vision authorizing  the  payee  to  apply  a 
deposit  in  payment  thereof  at  any  time  be- 
fore or  after  maturity.  If  the  bank  made  the 
application  before  maturity  it  would  be 
compelled  to  rebate  the  unearned  interest 
which  it  had  previously  received  by  way  of 
discount.     {Inquiry  from  Ala.,  June,  1914.) 

Application  of  payment 

2504.  A  gave  his  note  to  a  bank  and  B 
signed  with  him.  After  maturity  A  tendered 
the  money  to  the  bank  with  the  request  that 
it  be  applied  on  such  note.  The  bank  applied 
the  money  on  other  notes  of  A.  Opinion: 
B  as  surety  has  a  perfect  defense  to  a  suit  on 
the  note  in  the  plea  of  payment.  A  debtor 
voluntarily  paying  money  to  his  creditor 
has  the  primary  and  paramount  right  to 
direct  the  application  of  his  money  to  such 
demands  as  he  chooses.  Lynn  v.  Bean,  141 
Ala.  236.    Messengale  v.  Pounds,  108  Ga. 


566 


NOTES 


[2505-2510 


762.  Middleton  v.  Frame,  21  Mo.  412. 
Oliver  v.  Phelps,  20  N.  J.  L.  180.  Seymour 
V.  Marvin,  11  Barb.  (N.  Y.)  80.  Patterson 
V.  Van  Loon,  186  Pa.  367.  Chapman  v. 
Conn,  25  Gratt.  (Va.)  721.  U.  S.  v.  Kirk- 
patrick,  9  Wheat.  (U.  S.)  720.  Buchanan 
V.  Findlay,  9  B.  &  C.  738.  Wilson  v.  Rvkert, 
14  Ont.  188.  Rev.  Codes  Mont.  (1907),  Tit. 
IV,  Ch.  1,  Sec.  4228.  {Inquiry  from  Mont, 
July,  1914,  JI-) 

2505.  A  bank  held  two  past  due  notes, 
one  insufficiently  secured  by  real  estate,  and 
the  other  over-secured  by  chattels.  In 
satisfaction  of  the  chattel  mortgage  note, 
the  debtor  tendered  his  check  marked  "for 
chattel  mortgage."  The  bank  refused  to 
apply  payment  as  specified  and  insisted  upon 
applying  payment  upon  the  real  estate  note. 
The  debtor  acquiesced  in  the  action  by  the 
bank.  Opinion:  The  debtor  had  the  pri- 
mary right  to  have  the  money  applied  in 
payment  of  the  chattel  mortgage  note,  but 
where  the  bank  applied  the  payment  upon 
another  debt,  acquiescence  by  the  debtor 
ratified  such  application.  Same  citations 
as  in  opinion  2504  supra,  and  also  see 
Milwaukee,  etc..  Store  v.  Katz,  (Wis.)  140 
N.  W.  1038.  Barnett  v.  Sipp,  (Ind.  1912) 
98  N.  E.  310.  Ross-Higgins  Co.  v.  Rock, 
(Wash.  1911)  118  Pac.  744.  Stone  Co.  v. 
Rich,  (N.  Car.)  75  S.  E.  1077.  Levystein 
v.  Whitman,  59  Ala.  345.  Jackson 
v.  Bailey,  12  111.  159.  Rundlett  v.  Small, 
25  Me.  29.  Steiner  v.  Jeffries,  118  Ala.  573. 
Cardnell  v.  O'Dowd,  43  Cal.  586.  Bird  v. 
Benton,  127  Ga.  371.  Spencer  Optical  Mfg. 
Co.  V.  Jump,  10  N.  Y.  St.  Rep.  130.  Sloan 
v.  Sloan,  46  Ore.  36.  (Inquiry  from  Wyo., 
July,  1914,  Jl.) 

Underpayment  by  mistake 

2506.  Through  an  erroneous  calculation 
a  bank  collected  less  on  a  note  than  was 
actually  due,  the  same  being  stamped  "paid" 
and  delivered.  The  bank  inquires  whether  it 
can  recover  the  balance  due  on  the  note. 
Opinion:  If  the  bank  can  prove  l)y  a  pre- 
ponderence  of  evidence  that  the  full  amount 
was  not  paid,  it  is  in  law  entitled  to  recover 
the  balance  duo,  although  it  acknowledged 
payment  and  surrendered  the  note.  The 
right  of  recovery  depends  upon  whether  or 
not  such  proof  can  be  made.  (Inquiry  from 
III,  Jan.,  1919.) 

Proof   of   payment 

2507.  A  credit  of  $1,000  on  a  note  as 
part  payment  was  in  the  maker's  hand- 


writing. The  executor  of  the  payee  doubts 
that  such  payment  was  ever  made,  and  in- 
quires how  to  proceed  to  overcome  the  in- 
dorsement. Opinion:  The  burden  of  proof 
is  on  the  maker  to  establish  the  fact  of  part 
payment,  unless  the  indorsement  is  in  the 
handwriting  of  the  creditor.  Blandv  v. 
Clock,  68  Mich.  201.  Bannister  v.  Wallace, 
14  Tex.  Civ.  App.  452.  Tarrentine  v. 
Grisby,  118  Ala.  380.  Rhodes  v.  Ashurst, 
176  111.  351.  Ferguson  v.  Dalton,  158  Mo. 
323.  Oil  Well  Supply  Co.,  127  Mo.  616. 
Yarnell  v.  Anderson,  14  Mo.  619.  Everrett 
V.  Lockhart,  8  Hun  (N.  Y.)  356.  Erhart 
V.  Dietrich,  118  Mo.  418.  Curry  v  Kurtz, 
33  Miss.  24.  Pfiel  v.  Vanbatenberg,  2  Camp. 
439.  Spann  v  Ballard,  Rice  (S.  C.)  440. 
(Inquiry  from  Mo.,  Feb.,  1913,  Jl.) 

Partial  payments  before  maturity  by  consent 

2508.  A  note  is  due  ten  years  from  date 
with  a  consent  to  partial  payments  after  five 
years,  not  exceeding  one-fifth  of  the  princi- 
pal in  any  one  year.  Can  the  note  be  paid 
in  full  after  five  years?  Can  the  maker  pay 
two-fifths  of  the  principal  in  one  payment? 
Opinion:  The  rule  is  elementary  that  the 
maker  of  a  note  has  no  right  to  pay  the  same 
before  maturity  without  the  consent  of  the 
holder,  unless  it  is  otherwise  provided  in 
the  instrument.  Under  the  express  provi- 
sions of  the  note  submitted,  the  maker  may 
pay  not  exceeding  one-fifth  of  the  principal 
in  any  one  year  after  the  fifth  year  without 
the  consent  of  the  holder.  (Inquiry  from 
Okla.,  March,  1917.) 

Law  of  pla^e  of  payment  governs 

2509.  What  law  governs  when  a  note 
made  in  one  state  is  payable  in  another? 
Opinion:  The  note  is  governed  by  the  law 
of  the  state  where  paval^le.  Brown  v. 
Worthington,  (Mo.)  142  S.  W.  1082.  W^ooley 
V.  Lyon,  117  111.  248.  Guernsey  v.  Im- 
perial Bk.,  188  Fed.  300.  (Inquiry  from 
III,  Sepl,  1913,  Jl.) 

Action  on  notes 

Action    on    demand    note 

2510.  When  does  a  demand  note  be- 
come due  for  purpose  of  suit?  Opinion: 
A  note  payable  on  demand  is  due  immediate- 
ly and  an  action  can  be  brought  against  the 
maker  at  any  time  without  any  demand 
other  than  the  suit  until  outlawed.  Sullivan 
V.  Ellis,  219  Fed.  694.  DeRaimes  v.  De- 
Raimes,  70  N.  J.  L.  15.  (Inquiry  from 
N.  J.,  Nov.,  1917.) 


567 


2511-2516] 


DIGEST  OF  LEGAL  OPINIONS 


Right  of  action  against  maker  and  indorser 

2511.  The  maker  and  indorser  of  a  note 
having  become  hable  thereon,  the  holder 
desires  to  know  which  to  sue  first  to  recover 
the  money.  Opinion:  Under  the  law  mer- 
chant, the  holder  of  an  indorsed  instrument 
upon  which  the  indorser  has  been  duly 
charged,  can  sue  both  maker  and  indorser  in 
separate  actions  at  the  same  time  or  can  sue 
either,  at  his  election,  but  cannot  join  both 
in  the  same  action  in  the  absence  of  statutes 
authorizing  such  joinder,  which  have  been 
passed  in  many  states.  The  Negotiable 
Instruments  Act  does  not  alter  the  rules  as 
to  remedy  by  suit.  The  Code  of  Mississippi 
denies  the  right  of  separate  action  against 
indorser  where  the  maker  is  a  resident  of  the 
state  and  requires  joinder  of  maker  and 
indorser  in  the  same  action.  Day  v.  Ridg- 
way,  17  Pa.  303.  Curtis  v.  Davidson,  (N. 
Y.)  109  N.  E.  481.  Carnegie  Tr.  Co.  v. 
Kistler,  152  N.  Y.  S.  420.  Miss.  Code,  Sec. 
4013.  2  Daniel  Neg.  Inst.,  Sec.  1202.  Bk. 
of  Cal.  v.  Union  Pack.  Co.,  (Wash.)  Ill  Pac. 
573.  Howe  v.  St.  Bk.  of  Smyrna,  (Fla.) 
55  So.  462.  Miss.  Code,  Sec.  4013.  {In- 
quiry from  Miss.,  Aug.,  1917,  Jl.) 

Indorser  can  he  sued  as  soon  as  liability  fixed 

2512.  Is  it  necessary  for  a  bank  holding 
a  note  to  exhaust  all  the  resources  of  the 
maker  before  proceeding  against  the  indors- 
er? Opinion:  As  soon  as  the  indorser 's 
liability  is  fixed  by  protest  and  notice,  he 
can  be  sued  the  same  as  the  maker,  and  most 
states  have  statutes  allowing  the  maker  and 
the  indorser  to  be  joined  in  one  action.  {In- 
quiry from  Md.,  June,  1915.) 

Action  by  executor  of  deceased  payee  upon 
note    and    deed    of    trust 

2513.  In  the  settlement  of  the  estate  of 
John  Doe,  a  note  was  found  payable  to  his 
order.  On  the  back  thereof  John  Doe  had 
indorsed  a  one-half  interest  therein  to 
Richard  Roe.  Further  investigation  showed 
that  the  note  was  secured  by  a  deed  of 
trust  on  property  in  the  name  of  the  maker 
of  the  note,  which  property  was  not  worth 
the  face  of  the  note,  but  he  had  no  other 
property.  Two  years  later  this  property 
was  conveyed  jointly  to  John  Doe  and 
Richard  Roe  but  the  note  was  not  returned 
to  the  maker,  nor  the  deed  of  trust  released. 
John  Doe  died  leaving  a  will  containing  no 
power  to  convey  the  property.  The  bank 
inquiries  what  course  should  be  pursued 
under  the  circumstances.  Opinion:  The 
deed  of  trust  to  John  Doe  in  this  case  not 


being  released,  it  would  take  precedence,  of 
course,  over  the  later  conveyance  of  the 
property  jointly  to  John  Doe  and  Richard 
Roe.  The  indorsement  on  the  note  might 
indicate  that  Richard  Roe  had  a  half  in- 
terest therein,  but  the  note  was  never  de- 
hvered  to  Richard  Roe,  and  the  legal  title 
thereto  is  in  the  estate  of  John  Doe.  It 
seems,  therefore,  the  proper  procedure  would 
be  for  the  executor  to  bring  an  action  on  the 
note  and  to  foreclose  the  deed  of  trust,  in 
which  action  Richard  Roe  should  be  made  a 
party.    {Inquiry  from  W.  Va.,  April,  1916.) 

Suit  against  maker  who  has  removed  to  another 
state 

2514.  A,  a  resident  of  Minnesota,  loaned 
money  to  B,  and  a  note  was  executed  in 
Illinois,  payable  at  the  inquirer's  bank  in 
Minnesota.  B  subsequently  moved  to 
California.  The  note  is  five  years  overdue. 
The  bank  asks  in  what  state  suit  should  be 
brought.  Opinion:  The  holder  of  the  note 
in  Minnesota  cannot  sue  the  maker  in  Cali- 
fornia because  the  action  would  be  outlawed 
in  four  years  and  the  note  is  five  years  past 
due.  He  can,  however,  sue  the  maker  in 
Minnesota,  where  the  statute  is  six  years,  and 
serve  the  defendant  by  publication  which 
would  give  the  court  jurisdiction  if  the 
maker  of  the  note  had  left  the  state  to  avoid 
his  creditors  or  to  avoid  service;  or  if  the 
maker  has  property  in  the  state  which  can 
be  subjected  to  the  payment  of  the  debt. 
If,  however,  the  maker  has  no  property  in 
Minnesota  and  has  not  removed  from  the 
state  with  fraudulent  intent,  the  holder  of 
the  note  seems  to  have  no  remedy.  {In- 
quiry from  Cal.,  Nov.,  1915.) 

Statute  of  limitations 

Outlaw   of  demand  note   in  California 

2515.  When  is  a  demand  note  outlawed 
in  California  as  against  the  maker?  Opin- 
ion: In  California  the  statute  of  limita- 
tions begins  to  run  against  the  maker  from 
the  date  of  a  demand  note,  not  from  the 
date  of  its  apparent  maturity,  and  the  note 
is  outlawed  four  years  from  date.  Cal.  Civ. 
Code,  Sees.  3135,  3131,  3125.  Jones  v. 
Nichol,  82  Cal.  32.  Cousins  v.  Partridge,  79 
Cal.  228.  Boummagin  v.  Tallant,  29  Cal. 
504.  Bell  v.  Sackett,  38  Cal.  407.  CoUins 
v.  Driscoll,  69  Cal.  552.  O'Neill  v.  Magner, 
81  Cal.  631.  Dussol  v.  Bruguiere,  50  Cal. 
456.     {Inquiry  from  Cal.,  April,  1917,  Jl.) 

Outlaw    of   demand    note  in  Louisiana 

2516.  When  is  a  demand  note  outlawed 


568 


NOTES 


[2517-2522 


in  Louisiana?  Opinion:  In  Louisiana  the 
statute  of  limitations  begins  to  run  from 
the  date  on  a  demand  note  and  not  from 
demand,  such  being  the  rule  in  most  other 
states,  and  the  note  is  outlawed  unless  an 
action  is  brought  within  five  years  from  the 
date.  Merrick's  Rev.  Civ.  Code  La.,  (1912) 
Art.  3540.  Darby  v.  Darby,  120  La.  847. 
(Inquiry  from  La.,  May,  1914,  Jl.) 

Outlaw  of  demand  note  in  New  Jersey 

2517.  A  corporation  issued  its  demand 
note  in  1911,  there  being  several  indorsers 
each  waiving  presentment,  demand  and 
notice  of  protest.  No  demand  upon  the  the 
instrument  was  made  until  1918.  Are  the 
indorsers  liable?  Opinion:  The  six  year 
limitation  provided  by  the  New  Jersey  stat- 
ute of  limitations  will  bar  recovery 
not  only  from  the  makers  but  also  from  the 
indorsers.  The  statute  begins  to  run  from 
the  date  of  the  instrument,  whether  or 
not  it  draws  interest.  De  Raismes  v.  De 
Raismes,  70  N.  J.  L.  15,  71  N.  J.  L.  650. 
{Inquiry  from  N.  J.,  Sept.,  1918,  Jl.) 

Outlaw  of  demand  note  in  New  York 

2518.  How  long  is  a  demand  note  good 
in  New  York?  Opinion:  The  statute  of 
limitations  begins  to  run  upon  a  demand 
note  from  its  date  and  an  action  is  barred 
after  six  years.  Mills  v.  Davis,  113  N.  Y. 
243.  McMullen  v.  Rafferty,  89  N.  Y.  456. 
Wheeler  v.  Warner,  47  N.  Y.  519.  Herrick 
V.  Woolverton,  41  N.  Y.  581.  Shults  v. 
Fingar,  100  N.  Y.  539.  N.  Y.  Code  Civ. 
Proc,  (1915)  Sec.  382.  (Van  Vliet  v.  Katner. 
124  N.  Y.  Supp.  63.  Ledyard  v.  Bull,  119 
N.  Y.  62,  23  N.  E.  444.  Lawrence  v.  Church 
128  N.  Y.  324.  Bishop  v.  Sniffin,  1  Daly 
N.  Y.  155.  Chester  v.  Jumel,  125  N.  Y.  327. 
In  re  Wilhams  Est.,  118  N.  Y.  S.  562.) 
(Inquiry  from  N.  Y.,  June,  1919,  Jl.) 

Outlaw  of  demand  note  in  Pennsylvania 

2519.  When  is  a  demand  note  outlawed 
in  Pennsylvania?  Opinion:  It  appears  to 
be  well  settled  in  Pennsylvania  that  on  an 
obligation  for  the  payment  of  money  on  de- 
mand, the  statute  of  limitations  begins  to 
run  at  once,  and  the  suit  is  a  sufficient  de- 
mand and  must  be  brought  within  six  years. 
Swearingen  v.  Sewickley  Dairy  Co.,  198  Pa. 
St.  68.  Dominion  Trust  Co.  v.  Hildner,  243 
Pa.  St.  253.  Messmore  v.  Morrison,  172 
Pa.  St.  300.  Boustead  v.  Cuylcr,  116  Pa. 
St.  551.  Hall  V.  Toby,  110  Pa.  St.  318. 
Byles  on  Bills,  p.  342.  (Inquiry  from  Pa., 
Oct.,  1918.) 


N.  Y.  statute  of  limitations  on  guaranty  of 
payment 

2520.  What  period  of  limitation  is 
apphcable  in  New  York  to  a  guaranty  of 
the  payment  of  a  note?  Opinion:  Under 
the  statute  of  limitations  in  New  York 
the  person  who  guarantees  payment  of  a 
note  and  any  renewal  of  the  same  is  liable 
for  six  years  from  the  time  the  cause  of 
action  accrues,  which  would  be  the  date  of 
maturity  of  the  note  or  of  the  renewal  as  the 
case  may  be.  The  guaranty  of  payment  of  a 
demand  note  would  run  six  years  from  the 
time  of  dehvery.  N.  Y.  Code  Civ.  Proc, 
Sees.  380,  382.  Bartholomew  v.  Seaman, 
25  Hun  (N.  Y.)  619.  Van  Vliet  v.  Kanter, 
119  N.  Y.  S.  187.  (Inquiry  from  N.  Y., 
July,  1911,  Jl.) 

Partial  payment  hy  joint  maker  as  affecting 
running  of  statute  as  to  co-maker 

2521.  What  is  the  effect  on  the  period  of 
limitations  of  a  partial  payment  made  by 
one  of  several  joint  debtors?  Opinion: 
The  courts  are  not  in  harmony  on  this  ques- 
tion. The  weight  of  authority  supports  the 
rule  that  such  payment,  made  without  the 
acquiescence,  consent,  or  ratification  of  the 
other  joint  debtor,  will  not  operate  to 
suspend  the  running  of  the  statute  of  limi- 
tations as  to  him.  In  several  jurisdictions, 
however,  a  contrary  view  obtains,  and  a  pay- 
ment made  by  one  before  the  bar  is  com- 
plete is  regarded  as  the  act  of  all  and  sus- 
pends the  running  of  the  statute  as  to  all, 
provided  the  payment  is  made  in  good  faith. 
(Inquiry  from  Ariz.,  Aug.,  1916.) 

2522.  Is  the  running  of  the  statute  of 
limitations  against  the  surety-maker  of  a 
note  suspended  by  payment  of  interest  or 
by  partial  payment  of  principal,  before  the 
expiration  of  such  period,  by  the  principal 
maker  without  the  knowledge  or  consent  of 
the  surety?  Opinion:  The  question  does 
not  seem  to  have  been  passed  upon  by  the 
courts  of  New  Mexico  and  the  question  de- 
pends upon  which  of  two  conflicting  rules 
will  be  adopted  by  those  courts.  Authori- 
ties holding  that  the  statute  is  suspended  are 
Harris  v.  Stewart,  196  S.  W.  (Mo.)  1033. 
Houser  v.  Fayssoux,  83  S.  E.  (N.  C.)  692. 
Slagle  V.  Box,  186  S.  W.  (Ark.)  299.  Au- 
thorities to  the  contrary  are  Nichols  v. 
Porter  103  N.  E.  (Ind.)  842.  Hurley  v. 
Gray,  173  Pac.  (Kan.)  919.  Dwire  v. 
Gentry,  145  N.  W.  (Neb.)  350.  (Inquiry 
from  N.  M.,  March,  1920,  Jl.) 


569 


2523-2526] 


DIGEST  OF  LEGAL  OPINIONS 


Acknowledgment  as  reviving  debt 

2523.  Inquiry  is  made  concerning  a  note 
held  by  a  bank's  customer  made  in  New 
York  which  has  run  more  than  six  years 
from  maturit}'-  and  to  which  the  owner  holds 
a  letter  acknowledging  the  debt  but  not 
making  promise  of  payment.  Opinion:  It 
may  be  under  the  law  of  New  York  that  the 
letter  contains  sufficient  promise  to  revive 
the  debt  although  no  express  promise  of 


payment  is  contained  therein.  Under  the 
New  York  statute  the  acknowledgment  or 
promise  must  be  in  writing  and  signed  by 
the  party  to  be  charged  thereby,  and  under 
the  New  York  cases,  although  there  is  no 
express  promise  of  payment,  a  promise  may 
be  implied  if  there  is  a  clear,  unconditional 
admission  of  the  existence  of  the  debt  at  the 
time  of  such  admission.  {Inquiry  from 
Tenn.,  Oct.,  1914.) 


NOTES  PAYABLE  AT  BANK 


Section  87  of  the  Negotiable  Instru- 
ments Act 

2524.  Note:  The  Negotiable  Instru- 
ments Act.,  Sec.  87,  provides:  "Where  the 
instrument  is  made  payable  at  a  bank  it  is 
equivalent  to  an  order  to  the  bank  to  pay 
the  same  for  the  account  of  the  principal 
debtor  thereon."  The  Negotiable  Instru- 
ments Act  has  been  passed  in  all  the  states 
except  Georgia.  As  passed  in  Illinois, 
Nebraska,  and  South  Dakota,  however,  the 
above  provision  is  omitted;  in  Kansas  the 
section,  while  originally  enacted,  was  re- 
pealed by  chapter  94,  Laws  of  1915;  in 
North  Dakota  the  section  was  likewise 
repealed  by  Act  approved  March  2,  1921, 
and  in  Minnesota  the  word  "not"  was  in- 
terpolated. In  those  states,  therefore,  the 
bank  is  not  authorized  or  obliged  to  pay  its 
customer's  note,  made  payable  at  the  bank 
(as  indicated  in  the  opinions  digested  below), 
without  express  instructions  from  him.  In 
all  other  Negotiable  Instruments  Law  states 
it  is  so  authorized  and  obliged.  In  Missouri 
the  legislature,  by  amendment  in  1909,  added 
the  following  at  the  end  of  the  section: 
"But  where  the  instrument  is  made  payable 
at  a  fixed  determinable  future  time,  the 
order  to  the  bank  is  limited  to  the  day  of 
maturity." 

Obligation  of  bank  to  pay 

Note   made   payable   at  California  bank   is 
order  to  pay 

2525.  Notes  made  payable  at  a  Califor- 
nia bank,  where  the  maker  had  sufficient 
funds,  were  forwarded  to  the  bank  for  col- 
lection. The  bank  inquired  of  the  maker 
by  mail  and  telephone  whether  it  should  pay 
or  refuse  payment  but  received  no  response. 
Opinion:  The  law  in  California  is  uncertain 
whether  the  note  operates  as  an  order  or  au- 
thority to  the  bank  to  pay  and  charge  to  the 
maker's  account,  or  whether  the  bank  has 


no  right  to  do  so  in  the  absence  of  express 
instructions  from  the  maker.  Indig  v.  Nat. 
Bk.,  80  N.  Y.  100.  Com.  Nat.  Bk.  v. 
Henninger,  105  Pa.  496.  Kerbaugh  v.  Nu- 
gent, 48  Ind.  App.  43.  Grisson  v.  Com.  Bk., 
87  Tenn.  350.  Wood  v.  Merchants  Sav., 
etc.,  Co.,  41  111.  267.  {Inquiry  from  Cal., 
Dec,  1914,  JI-) 

Note:  In  1917  California  passed  the 
Negotiable  Instruments  Act,  Sec.  87  of 
which  (Civ.  Code  §3168)  provides:  "Where 
the  instrument  is  made  payable  at  a  bank 
it  is  equivalent  to  an  order  to  the  bank  to 
pay  the  same  for  the  account  of  the  principal 
debtor  thereon." 

Connecticut  bank's  duty  to  pay   (1)   where 

presented  by  holder;  {2)  where  owned  by 

bank 

2526.  An  opinion  is  asked  respecting  the 
authority  and  responsibility  of  a  paying 
bank  with  reference  to  charging  notes  to 
customers'  accounts  where  note  is  payable 
at  the  bank  where  customer's  account  is 
kept:  first,  as  to  collection  notes  coming 
from  different  banks,  given  for  merchandise, 
or  for  anything,  the  bank  not  necessarily 
knowing  for  what  debt  the  note  was  given. 
They  come  in  ordinary  course,  either  ma- 
turing on  date  received  or  some  future  date, 
the  depositor's  balance  being  sufficient.  The 
bank  asks  if  it  is  not  obligatory  on  the  paj'^- 
ing  bank  to  charge  same  against  the  cus- 
tomer's account  at  maturity,  either  with 
notice  from  the  customer,  or  even  without 
notifying  the  makers  in  advance  that  the 
note  is  held  for  collection.  The  second  case 
presented  is  where  a  note,  accepted  from 
a  customer  under  discount,  matures  at  a 
certain  date,  notice  of  which  may  or  may 
not  have  been  given  to  the  maker  of  the 
note,  but  his  balance  is  sufficient  to  cover 
obligation  on  maturity  date.  The  question 
asked  is  whether  it  is  compulsory  on  the 
bank  to  charge  the  note  against  the   de- 


570 


NOTES  PAYABLE  AT  BANK 


L2527-2529 


positor's  account.  Opinion:  As  to  first 
question:  The  Negotiable  Instruments  Act 
provides:  "Where  the  instrument  is  made 
payable  at  a  bank,  it  is  equivalent  to  an 
order  to  the  bank  to  pay  the  same  for  the 
account  of  the  principal  debtor  thereon." 
Under  this  it  becomes  the  duty  and  obliga- 
tion to  pay  the  customer's  note  made  pay- 
able at  the  bank  at  maturity,  the  same  as  it 
would  his  check,  and  the  bank  is  bound  to 
pay  the  note  and  charge  it  to  its  customer's 
account  without  any  express  instructions  so 
to  do  from  its  customer;  nor  can  there  be 
seen  any  legal  obligation  to  do  so  where  the 
note  is  held  in  advance  for  collection.  In 
the  second  case  stated,  the  bank  owns  a  note 
of  its  customer  which  has  matured,  and  the 
account  is  sufficient  to  meet  the  obligation. 
If  the  note  is  made  payable  at  the  bank,  it 
should  be  charged  up.  If  it  is  not  made 
payable  at  the  bank,  it  does  not  seem  to  be 
compulsory  upon  the  bank  to  pay  the  note 
out  of  the  account,  except  that  having  the 
right  to  do  so,  if  the  note  is  not  charged  up, 
it  would  probably  release  the  indorsers. 
Inquiry  from  Conn.,  Jan.,  1917.) 

Duty  of  Florida  hank  to  pay  note  and  dishonor 
later  presented  checks 

2527.  May  a  bank  at  the  maturity  of  a 
note  charge  it  to  the  maker's  checking  ac- 
count without  his  consent  and  without  noti- 
fication and  return  his  checks  previously 
written  which  when  presented  overdraw  the 
account?  Opinion:  Under  the  Negotiable 
Instruments  Act  "where  the  instrument  is 
made  payable  at  a  bank  it  is  equivalent  to 
an  order  to  the  bank  to  pay  the  same  for  the 
account  of  the  principal  debtor  thereon." 
Under  this  provision,  even  where  the  bank 
is  not  the  owner  of  the  note,  it  is  its  duty, 
when  the  note  is  duly  presented  at  maturity, 
if  the  maker's  funds  are  sufficient,  to  pay 
the  note,  even  without  notifying  the  maker 
or  obtaining  his  consent.  Where  the  bank 
owns  the  note,  it  has  the  independent  right 
to  set  off  a  matured  note  against  the  maker's 
account.  The  checks  later  presented  which 
overdrew  the  account  may  be  returned 
because  of  insufficient  funds.  {Inquiry  from 
Fla.,  Nov.,  1917.) 

Note  payable  at  Idaho  hank  is  order  to  pay 
at  maturity 

2528.  Inquiry  is  made  whether  a  note  or 
accepted  draft,  made  payable  at  a  certain 
bank  in  the  state,  acts  the  same  as  a  check 
on  the  same  bank  when  it  matures.  Opin- 
ion:    The   Idaho  Revised  Codes,   Section 


3544  (Negotiable  Instruments  Act),  pro- 
vide: "Where  the  instrument  is  made 
payable  at  a  bank  it  is  equivalent  to  an 
order  to  the  bank  to  pay  the  same  for  the 
account  of  the  principal  debtor  thereon," 
Under  this  a  note  or  accepted  draft  made 
paj^able  at  a  bank  is  an  order  to  the  bank 
to  pay  at  maturity  the  same  as  a  check.  The 
only  question  which  might  arise  is  whether, 
if  the  instrument  is  not  presented  until  after 
maturity,  instead  of  on  the  precise  day  of 
maturity,  there  is  a  duty  of  the  bank  to  pa3% 
This  is  a  somewhat  doubtful  question,  not 
yet  decided  in  this  countr3^  The  safer 
course  seems  to  be  for  the  bank  to  refuse  to 
pay  without  express  instruction  from  the 
depositor  where  the  instrument  is  not  pre- 
sented until  after  maturity.  (Inquiry  from 
Ida.,  Oct.,  1917.) 

Note    ''payable   to"   and   "payable   at" 
Indiana  bank 

2529.  (1)  When  a  note  or  trade  ac- 
ceptance, which  has  been  made  payable 
direct  to  a  bank  and  been  discounted  by  it, 
falls  due,  is  it  the  duty  or  the  right  of  the 
bank  to  charge  the  instrument  direct  to  the 
maker's  or  the  acceptor's  checking  account? 
(2)  When  such  an  instrument  has  been  sent 
for  collection  and  falls  due  is  it  the  duty  or 
right  of  the  bank  to  charge  such  collection 
direct  to  such  account,  or  are  additional 
instructions  from  the  maker  or  acceptor 
necessary?  (3)  Is  it  material  whether  the 
instrument  is  payable  "at"  or  "to"  the  bank? 
Opinion:  (1)  When  a  note  or  trade  accept- 
ance which  has  been  made  payable  direct 
to  the  bank  and  has  been  discounted  by  the 
bank  falls  due,  it  is  the  right  of  the  bank  to 
charge  the  instrument  direct  to  the  maker's 
or  acceptor's  checking  account.  Were  the 
note  also  made  payable  at  the  bank,  it  would 
be  the  duty  of  the  bank  to  charge  the  ac- 
count and  if  it  did  not  do  so,  the  indorsers 
on  the  note  would  he  discharged.  Some 
cases  also  hold  that  where  the  note  is  made 
payable  to  the  bank  but  not  at  the  bank,  it  is 
the  duty  of  the  bank  so  far  as  the  indorsers 
are  concerned  to  charge  the  note  to  the 
account;  that  where  it  has  funds  in  its  pos- 
session sufficient  to  pay,  it  should  appl}^  such 
funds  on  the  note  and  if  it  does  not  they 
cannot  be  held  further  liable.  (2)  When  a 
note  or  trade  acceptance  is  made  payable 
at  a  bank,  it  is  the  duty  of  the  bank  to  charge 
the  account  of  the  maker  or  acceptor,  when 
the  paper  is  presented  at  maturity,  and 
additional  instructions  from  the  maker  or 
acceptor  are  not  necessary.    Neg.  Inst.  Act- 


671 


2530-2535] 


DIGEST  OF  LEGAL  OPINIONS 


Sec.  87,  provides :  "Where  the  instrument  is 
made  payable  at  a  bank  it  is  equivalent  to  an 
order  to  the  bank  to  pay  the  same  for  the 
account  of  the  principal  debtor  thereon." 
Under  this  section  it  is  the  duty  of  the  bank 
to  charge  up  the  note  when  presented  at 
maturity.  (3)  Is  covered  by  (1)  and  (2). 
{Inquiry  from  Ind.,  Feb.,  1921.) 

Note  payable  at  Michigan  bank  is  order  to  pay 

2530.  A  bank  asks  an  opnion  upon  the 
following:  John  Jones  has  a  commercial 
account  with  the  bank;  his  note  comes  in 

from  the  S bank  of  Detroit  made 

payable  May  1,  1913,  and  payable  at  our 
bank.  The  depositor  has  sufficient  funds  to 
pay  it,  and  he  used  same  as  a  check,  charging 
his  account  without  presentation.  We  find 
that  he  did  not  intend  to  pay  this  note. 
Can  he  recover,  or  make  us  credit  back  his 
account?  Opinion:  It  was  the  bank's 
right  and  duty  to  pay  and  charge  its  de- 
positor's account  with  the  note  on  the  day 
of  maturity,  the  same  as  if  it  were  his  check, 
and  the  customer  cannot  complain  because 
the  bank  did  not  first  receive  its  customer's 
express  instruction  so  to  do.  The  Negotiable 
Instruments  Law  (Sec.  89  Mich.  Act)  pro- 
vides: "Where  the  instrument  is  made 
payable  at  a  bank  it  is  equivalent  to  an  order 
to  the  bank  to  pay  the  same  for  the  account 
of  the  principal  debtor  thereon."  Under 
this  no  special  instruction  from  the  bank's 
depositor  was  necessary.  {Inquiry  from 
Mich.,  Sept.,  1913.) 

Note  payable  at  Mississippi  bank  is  order  to 
pay  since    Negotiable  Instruments  Act 

2531.  In  states  having  the  Negotiable 
Instruments  Law  (with  a  few  exceptions) 
a  note  payable  at  the  maker's  bank  is 
equivalent  to  an  order  on  the  bank  to  pay 
the  same  for  his  account.  In  Mississippi  the 
point  has  not  yet  been  decided,  but  the  safer 
practice  is  for  the  bank  to  refuse  to  pay  in 
the  absence  of  instructions.  Grisson  v.  Com. 
Bk.,  87  Tenn.  350.  {Inquiry  from  Miss., 
Aug.,  1912,  Jl.) 

Note:  The  Negotiable  Instruments  Act 
was  passed  in  Mississippi  in  1916;  see  note 
under  heading  "Notes  payable  at  bank." 

Note  payable  at  Missouri  bank  is  order  to  pay 

2532.  Under  the  rule  of  the  Negotiable 
Instruments  Law  a  man  who  makes  his  note 
payable  at  his  bank  thereby  orders  it  to  pay 
it  at  maturity  and  the  bank  is  obliged  to 
carry  out  this  order,  when  in  sufficient  funds. 


the  same  as  if  the  order  was  by  check. 
Mo.  Neg.  Inst.  Act,  Sec.  87.  {Inquiry  from 
Mo.,  Nov.,  1910,  Jl.) 

2533.  Under  Negotiable  Instruments 
Act,  except  where  modified  in  certain  states, 
it  is  the  duty  of  a  bank  whose  depositor  has 
made  his  note  payable  at  the  bank  to  pay 
the  same  at  maturity,  the  funds  being  suffi- 
cient, although  there  is  no  other  express 
instruction  from  the  depositor  to  pay.  Mo. 
Neg.  Inst.  Act,  Sec.  87.  Indig  v.  Nat.  City 
Bk.,  80  N.  Y.  100.  Bedford  Bk.  v.  Acoam, 
125  Ind.  584.  Grisson  v.  Com.  B.,  87 
Tenn.  350.  {Inquiry  from  Mo.,  Jan.,  1914, 
Jl.) 

Duty  of  New  Jersey  bank  to  pay  note  at 
maturity 

2534.  A  bank  received  a  complaint  from 
one  of  its  depositors  because  it  charged  his 
note  made  payable  to  the  bank  to  his  ac- 
count on  date  of  maturity.  The  note  was  a 
a  collection  item  received  for  another  bank 
on  date  of  maturity.  Did  the  bank  act 
within  its  rights  in  charging  the  note  in  such 
manner?  Opinion:  Section  87  of  the  Ne- 
gotiable Instruments  Act  of  New  Jersey, 
passed  in  1902,  and  amended  in  1909,  reads 
as  follows:  "Where  the  instrument  is  made 
payable  at  a  bank  it  is  equivalent  to  an 
order  to  the  bank  to  pay  the  same  for  the 
account  of  the  principal  debtor  thereon. 
But  where  the  instrument  is  made  payable 
at  a  fixed  or  determinable  future  time,  the 
order  to  the  bank  to  pay  is  limited  to  the 
day  on  which  the  instrument  is  payable." 
The  section  just  quoted  was  enacted  to 
make  the  rule  uniform,  and  to  make  it  the 
duty  of  the  bank  to  which  a  note  or  accept- 
ance was  made  payable  to  pay  the  same 
without  any  special  order  from  the  customer, 
and,  therefore,  the  bank  acted  within  its 
rights  in  charging  the  note  to  the  customer's 
account,  and  the  depositor  has  no  vahd 
claim.     {Inquiry  from  N.  J.,  March,  1919.) 

Ohio  bank  must  pay  at  maturity 

2535.  A  depositor  gave  a  note  to  an  out- 
side party,  making  the  same  payable  at  the 
bank,  and  when  presented  by  the  owner  of 
the  note,  the  same  was  duly  paid  out  of  the 
maker's  funds.  The  maker  claims  the  bank 
had  no  right  to  pay  the  note.  Opinion: 
The  Negotiable  Instruments  Act  of  Ohio 
(Sec.  8192,  Page  &  Adams  Anno.  Ohio  Code) 
provides:  "When  the  instrument  is  made 
payable  at  a  bank,  it  is  equivalent  to  an 
order  to  the  bank  to  pay  it  for  the  account 


572 


n 


NOTES  PAYABLE  AT  BANK 


[2536-2541 


of  the  principal  debtor  thereon."  This 
clearly  not  only  authorizes  but  requires  the 
bank  when  it  has  the  funds  to  pay  the  note 
of  its  customer  made  payable  at  the  bank, 
when  presented  at  maturity.  See  also  de- 
cision in  Francis  v.  Bank,  1  0.  (N.  P.)  281, 
3  0.  D.  (N.  P.)  383,  in  which  it  is  held:  A 
note  which  is  made  payable  at  a  bank  at 
which  the  maker  is  a  depositor,  the  deposit 
being  subject  to  check,  is  to  be  regarded  as 
authority  to  such  bank  to  pay  such  note  out 
of  such  deposit.  {Inquiry  from  Ohio,  April, 
1916.) 

Duty  and  obligation  of  Oklahoma  hank  to  pay 
note  at  maturity 

2536.  A  holds  note  of  B  payable  to  order 
of  A  at  C  bank.  B  has  money  on  deposit  at 
C  bank  at  maturity  of  note.  C  bank  is 
uncertain  of  its  right  and  duty  to  pay  when 
presented  at  maturity.  Opinion:  The 
Negotiable  Instruments  Law  provides: 
"Where  the  instrument  is  made  payable  at 
a  bank  it  is  equivalent  to  an  order  to  the 
bank  to  pay  the  same  for  the  account  of  the 
principal  debtor  thereon."  (Inquiry  from 
Okla.,  Oct.,  1911,  Jl.) 

2537.  In  Oklahoma,  under  the  rule  of 
the  Negotiable  Instruments  Law,  a  depositor 
who  issues  his  note  payable  at  the  bank 
wherein  he  keeps  an  account  thereby  orders 
the  bank  to  pay  the  same  at  maturity.  It 
becomes  the  duty  of  the  bank,  if  in  funds, 
to  pay  the  note,  and  the  bank  incurs  no  lia- 
bihty  to  the  depositor  for  so  doing,  even 
though  he  afterwards  objects  to  the  payment 
and  claims  he  had  good  reason  for  having 
payment  of  the  note  refused.  Grissom  v. 
Com.  Bk.,  87  Tenn.  350.  {Inquiry  from 
Okla.,  Dec,  1910,  Jl.) 

Pennsylvania  hank  must  pay  note  at  maturity 

2538.  A  note  is  made  payable  at  a  bank. 
At  maturity  the  account  is  good  for  the 
amount.  No  order  has  been  given  not  to 
pay.  The  bank  inquires  whether  a  specific 
notice  must  be  given  the  bank  by  the  maker 
to  entitle  it  to  pay  the  note.  Opinion:  Un- 
der the  Negotiable  Instruments  Law  it  is  the 
authority  and  duty  of  a  bank  to  pay  a  cus- 
tomer's note  made  payable  at  the  bank  with- 
out express  instructions  from  the  customer. 
{Inquiry  from  Pa.,  Nov.,  1911,  Jl.) 

Purpose  of  statute  making  instrument  payahle 
at  hank  equivalent  of  order  to  pay 

2539.  The  purpose  of  the  section  of  the 
Negotiable  Instruments  Law  making  a  note 


payable  at  a  bank  equivalent  to  an  order  to 
pay  for  the  account  of  the  maker  is  to 
oblige  as  well  as  to  authorize  the  bank  to 
pay  when  in  funds,  and  it  was  enacted  to 
clear  up  a  conflict  in  decisions.  Elliott  v. 
Worcester  Tr.  Co.,  189  Mass.  542.  {In- 
quiry from  W.  Va.,  Nov.,  1911,  Jl.) 

Duly  of  West   Virginia   hank  to  pay  note 
payable  at  bank 

2540.  Where  a  note  is  made  payable  at 
a  bank  in  West  Virginia  should  it  charge  the 
instrument  at  its  maturity  to  the  account  of 
the  maker?  Opinion:  Negotiable  Instru- 
ments Act.  Sec.  87,  provides:  "Where  the 
instrument  is  made  payable  at  a  bank  it  is 
equivalent  to  an  order  to  the  bank  to  pay 
the  same  for  the  account  of  the  principal 
debtor  thereon."  This  section  has  been 
omitted  in  some  states,  but  wherever  it  is  in 
force,  as  it  is  in  West  Virginia,  it  is  the  obU- 
gation  of  the  bank  to  charge  the  note  to  the 
customer's  account  at  maturity  the  same  as 
it  would  his  check.  {Inquiry  from  W.  Va., 
July,  1916.) 

Payment  after  maturity 

Overdue  note  presented  to  Arkansas  bank  for 
payment 

2541.  A  note  was  payable  at  bank  and 
on  the  day  it  fell  due  there  were  sufficient 
funds  on  deposit  to  meet  same.  The  note 
was  not  presented  for  payment  until  a  day 
or  two  after  it  fell  due,  when  there  were  still 
sufficient  funds  to  meet  same.  The  bank 
asks  whether  it  was  compelled  to  pay  this 
note  if  not  presented  on  its  due  date,  but 
presented  on  a  later  date.  Opinion:  The 
Negotiable  Instruments  Act  provides  that, 
"Where  the  instrument  is  made  payable  at 
a  bank  it  is  equivalent  to  an  order  to  the 
bank  to  pay  the  same  for  the  account  of  the 
principal  debtor  thereon."  The  safest 
course  for  the  bank  would  be  to  construe  this 
order,  in  case  of  a  time  note,  as  limited  to  the 
due  date  and  not  as  a  continuing  order  or 
authority  to  pay  the  note  not  presented  on 
its  due  date  but  on  a  'ater  date.  It  seems 
safer  not  to  pay  the  note  afterwards 
presented  without  express  instructions  from 
the  maker,  as  it  would  be  virtually  paying 
overdue  paper.  There  are,  of  course,  some 
things  to  be  said  on  the  other  side  of  the 
proposition.  The  point  has,  it  seems,  never 
been  passed  upon  by  any  court  in  this 
country,  but  the  EngUsh  Bills  of  Exchange 
Act,  which  contains  a  similar  provision,  was 
construed    by    a    court    in    Australia    as 


573 


2542-2547] 


DIGEST  OF  LEGAL  OPINIONS 


authorizing  the  bank  to  pay  at  a  later  date, 
although  there  was  wide  difference  of  opinion 
among  members  of  the  Austrahan  bar. 
{Inquiry  from  Ark.,  Dec,  1915.) 

Authority   to   'pay   after   maturity   uncertain 

2542.  Under  the  Negotiable  Instru- 
ments Law  it  is  undecided  and  uncertain 
whether  the  authority  of  a  bank  to  pay  a 
time  instrument,  payable  at  the  bank,  is 
hmited  to  the  day  of  maturity  only.  The 
point  has  not  yet  been  passed  upon  in  this 
country.  Wine  v.  Bk.  of  New  South  Wales, 
4  Australian  Jurist  Rep.  78.  {Inquiry  from 
N.  C,  March,  1911,  Jl.) 

Note:  The  Missouri  statute  (N.  I.  Act) 
expressly  limits  the  authority  of  the  bank 
to  pay  a  time  instrument  payable  at  bank, 
to  the  day  of  maturity. 

Clause  waiving  presentment  does  not  confer 
authority    to    pay    after    maturity 

2543.  A  bank  has  been  dechning  to  pay 
notes  presented  after  maturity  and  asks 
whether  such  payment  should  be  made  in 
cases  where  the  notes  contain  this  clause: 
"The  drawers  and  indorsers  severally  waive 
presen'meni  for  payment,  protest,  etc." 
Opinion:  It  is  doubtful  if  the  clause  by 
which  the  maker  of  the  note  waives  pre- 
sentment would  be  construed  as  enlarging 
the  authority  o*"  the  bank  to  pay  beyond  the 
date  of  maturity.  Presentment  is  not  re- 
quired to  hold  the  maker  in  any  event  and 
the  waiver  is  more  especial'y  with  reference 
to  the  indorser.  The  point  has  not  been  de- 
cided—nor, in  fact,  has  it  ever  been  decided 
in  this  country  that  the  bank  has  no  au- 
thor'ty  to  pay  a  note  payable  thereat  after 
maturity —  but  it  is  safer  in  the  absence  of 
decision  for  the  bank  to  assume  that  its 
authority  is  limited  to  the  terms  of  the 
note,  i.  e,  to  refrain  from  honoring  over- 
due notes  until  the  question  is  definitely 
decided  in  the  courts.  {Inquiry  from  N.  C, 
Oct.,  1913.) 

Charging   note   against   deposit    mnde   after 
maturity 

2544.  A  bank  received  for  collection  a 
note  payable  at  the  same  bank  and  the 
maker's  account  is  insufficient  at  maturity. 
The  maker  made  a  subsequent  deposit, 
sufficient  to  meet  the  past  due  instrument. 
Opinion:  The  bank  should  not  charge  the 
instrument  against  the  subsequent  deposit 
without  express  instructions  from  the  maker. 
Neg.  Inst.  A.,  Sec.  87  (Comsr's.  dft.).  (In- 
quiry from  Ohio,  Nov.,  1912,  Jl.) 


Doubtful  authority  of  bank  to  pay  after 
maturity 

2545.  Should  a  bank  pay  a  note  payable 
at  its  banking  instiiution  when  presented 
after  maturity,  without  special  instructions 
from  the  maker?  Opinion:  The  safer 
course  is  for  the  bank  not  to  pay  without 
express  instructions  from  the  maker.  The 
same  question  is  involved  as  where  trade 
acceptances  payable  at  a  bank  are  presented 
after  maturity.  See  opinion  2551.  {Inquiry 
from  S.  C,  Feb.,  1919.) 

Doubtful  authority  of  bank  to  pay  overdue  and 
dishonored  note  and  accrued  interest 

2546.  A  bank  inquires:  (1)  If  a  note  is 
presented  on  the  due  date  and  there  are  not 
sufficient  funds  in  bank  to  pay  same  and  pay- 
ment is  refused  for  that  reason,  and  the  note 
is  presented  on  a  subsequent  day  when  there 
are  sufficient  funds  to  meet  it,  should  the 
note  then  be  paid?  (2)  In  case  the  note  is 
not  presented  on  date  of  maturity  and  is 
presented  on  a  later  date,  does  the  bank,  in 
the  event  it  is  then  required  to  pay  the  note, 
have  the  right  to  pay  the  holder  thereof  past 
due  interest  thereon  and  charge  same  to 
maker  in  addition  to  face  of  note?  Opinion: 
(1)  When  a  note  is  presented  at  maturity 
and  refused  because  of  insufficient  funds,  it 
is  dishonored  and,  if  presented  after  maturity 
at  a  time  when  the  funds  are  sufficient,  the 
best  course  would  be  not  to  pay  in  the  ab- 
sence of  express  instructions  from  the  de- 
positor. It  is  very  doubtful  if  its  au- 
thority extends  to  a  payment  of  paper  not 
only  overdue  but  dishonored.  (2)  The  bank, 
if  it  pays  an  overdue  note  payable  at  the 
bank  when  presented  after  maturity,  would 
not,  it  seems,  in  any  event  have  the  authority 
to  pay  interest  which  has  accrued  after  ma- 
turity, without  express  authority  from  the 
depositor.  {Inquiry  from  S.  C.,  March, 
1917.) 

Joint    parties    and    accounts 

No  authority  to  pay  A^s  individual  note  out 
of  joint  savings  account  of  A  and  B 

2547.  Where  A  and  B  have  a  joint 
account  in  bank  payable  on  presentation  of 
pass-book,  and  A  makes  her  individual  note 
pa3''able  at  bank.  Opinion:  That  bank, 
holding  note  for  collection  at  maturity,  has 
no  right  to  charge  same  to  joint  account,  but 
should  protest  unless  funds  to  pay  note  are 
taken  out  of  joint  account  by  A  on  presen- 
tation of  pass-book  or  are  otherwise  provided 


574 


NOTES  PAYABLE  AT  BANK 


[2548-2551 


by  A  for  purpose  of  meeting  the  note.    {In- 
quiry from  Cal,  Aug.,  WIS,  Jl.) 


Joint  and  several  note  payable  at  hank  which 
carries  account  of  only  one  maker 

2548.  A  bank  presents  a  copy  of  a  joint 
and  several  note  bearing  the  names  of  two 
makers,  and  states  that  payment  was  re- 
fused on  the  ground  that  only  one  maker 
had  an  account  with  it  and  this  maker  had 
not  instructed  the  bank  to  pay  same,  it  being 
admitted  that  there  were  sufficient  funds  to 
pay  the  note.  The  bank  inquires  whether 
the  refusing  bank's  attitude  is  in  accordance 
with  law.  Opinion:  The  Negotiable  In- 
struments Act  of  Ohio  (Section  3174  e)  pro- 
vides that  "Where  the  instrument  is  made 
payable  at  a  bank  it  is  equivalent  to  an 
order  to  the  bank  to  pay  the  same  for  the 
account  of  the  principal  debtor  thereon." 
Under  this,  where  a  customer  has  an  account 
in  bank  and  makes  his  note  payable  at  the 
bank,  the  bank  has  a  right  and  it  is  its  dutj^, 
when  it  has  sufficient  funds,  to  pay  the  note, 
upon  presentation  at  maturity,  without 
specific  instructions  from  the  maker.  In  the 
case  presented  a  note  bears  the  names  of 
two  makers.  There  is  nothing  on  the  note 
to  indicate  that  one  of  these  makers  is  the 
principal  debtor  and  the  other  is  his  surety. 
From  all  that  appears,  both  may  have  received 
consideration  for  the  note.  The  note  is  in 
joint  and  several  form;  that  is,  it  is  not  only 
a  joint  note  of  both  makers  but  also 
several  obligation  of  each.  The  rule  in  such 
a  case  is  not  exactly  clear  and  there  appears 
to  be  no  decision  on  the  point.  If  the  bank 
owned  a  note  of  two  makers  and  kept  an 
account  with  one  of  them,  it  would  be  very 
doubtful  if,  at  maturity,  the  bank  could  set 
off  its  debt  to  the  individual  on  the  deposit 
account  against  the  joint  indebtedness  of 
parties  on  the  note.  But  in  this  case,  the  note 
being  several  as  well  as  joint,  so  as  to  consti- 
tute the  individual  obligation  of  the  maker 
who  keeps  the  account,  it  might  be  held  that 
the  bank  would  have  the  right  to  pay  it  and 
charge  it  to  his  account  without  his  express 
instructions.  At  the  same  time  there  is 
uncertainty  upon  this  point,  and,  in  the 
absence  of  judicial  precedent,  the  action 
taken  by  the  bank  was  probably  the  safest 
under  the  circumstances.  Of  course,  if  the 
note  only  had  had  a  single  maker,  the  bank's 
duty  to  pay  without  special  instructions 
would  be  clear.  {Inquiry  from  Ohio,  June, 
1911) 


Where  bank  cannot  pay  without  express 
instructions 

Illinois  bank  without  authority  to  pay  cus- 
tomer's  note,   payable   at  bank,   unless 
expressly  instructed 

2549.  In  Illinois  the  Negotiable  Instru- 
ments Law  omits  the  provision,  "Where  the 
instrument  is  made  payable  at  a  bank  it  is 
equivalent  to  an  order  to  the  bank  to  pay 
the  same  for  the  account  of  the  principal 
debtor  thereon,"  which  is  contained  in  the 
uniform  law  of  other  states.  Under  the 
judicial  decisions  of  Illinois  it  would  seem  that 
a  bank  has  no  authority  to  pay  its  customer's 
note  made  payable  at  the  bank,  unless  ex- 
pressly ordered  to  do  so  by  its  customer,  the 
note  itself  not  constituting  such  order. 
Wood  V.  Merchants  Sav.,  etc.,  Co.,  41  111. 
267.  Ridgely  Bk.  v.  Patton,  109  111.  479. 
Contra:  Home  Nat.  Bk.  v.  Newton,  8  111. 
App.  563.    {Inquiry  from  III,  Dec,  1920,  Jl.) 

2550.  A  bank  received  a  note  for  col- 
lection with  instructions  to  protest,  and 
same  was  duly  presented  to  the  bank  where 
payable,  and  payment  thereof  was  refused 
on  the  stated  ground  that:  "We  have  not 
been  directed  by  the  maker  to  pay  this  note 
on  presentment";  and  further,  that  the  bank 
had  no  right  to  charge  the  amount  due  there- 
on to  the  maker  in  the  absence  of  specific 
instructions  so  to  do.  Inquiry  is  made 
whether  or  not  it  was  the  duty  of  the  refus- 
ing bank  to  pay  same  and  charge  the  maker's 
account.  Opinion:  The  Negotiable  In- 
struments Act  contains  the  provision  that 
"Where  an  instrument  is  made  payable  at 
a  bank  it  is  equivalent  to  an  order  to  the 
bank  to  pay  the  same  for  the  account  of  the 
principal  debtor  thereon."  In  a  few  states, 
however,  this  provision  has  been  omitted, 
and  IlKnois  is  one  of  such  states.  In  view 
of  this,  the  refusing  bank  is  right  in  its 
contention  that  it  was  not  its  duty  to  pay 
and  charge  the  note  to  the  maker's  account 
without  specific  instructions  so  to  do.  {In- 
quiry from  III.,  June,  1915.) 

Minnesota  bank  cannot  pay  without  special 
order 

2551.  Where  customer  makes  note  pay- 
able at  bank  it  is  bank's  duty,  under  Ne- 
gotiable Instruments  Act,  to  pay  and  charge 
same  up  to  customer's  account  without 
special  order.  In  a  few  states,  however, 
including  Minnesota,  the  rule  of  the  Nego- 
tiable Instruments  Act  has  been  changed 
and  bank  should  not  pay  without  special 
order    from    customer.      Gen.    St.    Minn., 


575 


2552-2555] 


DIGEST  OF  LEGAL  OPINIONS 


(1913)   Sec.   5899.      {Inquiry  from  Minn., 
June,  1918,  Jl.) 

Extent    of   maker's    obligation 

Maker's  readiness  to  pay  stops  interest 

2552.  A  made  his  note  payable  at  a 
bank  on  demand  after  date.  The  note  was 
not  presented  at  the  bank  where  the  maker 
always  had  sufficient  funds.  Opinion:  The 
maker  is  liable  in  an  action  by  the  payee, 
but  if  the  maker  pleads  and  proves  that  he 
had  sufficient  funds  in  the  bank  at  maturity 
and  pays  the  money  into  court,  he  is  liable 
only  for  the  principal  without  interest  after 
maturity  or  costs.  Okla.  Neg.  Inst.  Act. 
Sec.  70.  Armistead  v.  Armistead,  10  Leigh 
(Va.)  525.  Daniel  Neg.  Inst.,  Sec.  643. 
Binghamton  Pharmacy  v.  First  Nat.  Bk., 
(Tenn.)  176  S.  W.  1038.  (Inquiry  from 
Okla.,  Dec,  1918,  Jl.) 

2553.  Where  maker  has  funds  in  bank 
at  maturity,  failure  of  bank  owning  note 
payable  at  bank  to  charge  to  account,  or  of 
outside  holder  to  present  for  payment,  will 
stop  the  running  of  interest.  Daniel  Neg. 
Inst.,  Sec,  643.  {Inquiry  from  Iowa,  June, 
1913,  Jl.) 

Where  hank  not  obliged  to  pay  note  at  maturity, 
interest  does  not  stop 

2554.  A  bank  writes  that  in  the  June 
issue  of  the  Journal  (1913)  there  is  a  "de- 
cision" stating  that  "where  a  maker  has  funds 
in  bank  at  maturity,  failure  of  bank  owning 
note  to  charge  account,  *  *  *  will  stop  run- 
ning of  interest,"  and  asks  if  the  bank 
would  be  legally  able  to  collect  interest  if  the 
bank  failed  to  charge  up  the  note  at  maturity 
supposing,  of  course,  that  the  maker  had 
sufficient  funds  on  deposit,  and  did  not  call 
at  the  bank  until  the  paper  was  15  to  30  days 
past  due.  Opinion:  The  opinion  in  the 
June  Journal  that,  where  a  note  is  made 
payable  at,  and  is  owned  by,  the  bank  and 
there  are  sufficient  funds  in  bank  at  maturi- 
ty, the  failure  of  the  bank  to  charge  up  the 
note  would  stop  the  running  of  interest  was 
based  on  the  provision  of  the  Negotiable 
Instruments  Act  that,  where  a  note  is  made 
payable  at  a  bank  it  is  equivalent  to  an 
order  to  the  bank  to  pay  the  same  for  the 
account  of  the  principal  debtor  thereon. 
But  the  Nebraska  Act  omits  this  provision. 
Therefore,  in  your  state,  unless  the  maker 
expressly  instructed  the  bank  to  charge  up 
the  note  at  maturity,  the  interest  would 
continue  to  run  after  maturity  until  paid. 
{Inquiry  from  Neb.,  Aug.,  1913.) 


Question  of  discharge  of  maker  of  note  payable 

at  bank  where  presentment  omitted  and 

bank  fails 

2555.  A  note  given  to  a  bank  has  as 
collateral  three  notes  of  third  persons  pay- 
able at  another  bank.  The  holder  of  the 
notes  had  nothing  to  do  with  the  selection  of 
the  bank  of  payment.  On  the  day  that  the 
collateral  notes  fell  due  the  makers  left 
sufficient  funds  at  the  bank  of  payment  to 
meet  them.  The  notes  were  not  presented 
on  the  day  of  maturity  and  thereafter,  be- 
fore they  were  presented,  and  while  the 
money  was  still  on  deposit  to  pay  the  notes, 
the  bank  of  payment  failed.  Are  the  makers 
of  the  collateral  notes  relieved  from  lia- 
bility? Opinion:  Since  the  holders  of  the 
notes  had  nothing  to  do  with  the  selection  of 
the  bank  of  paj^ment,  it  cannot  be  regarded 
as  their  agent,  and  hence  the  makers  cannot 
escape  hability  on  the  theory  that  when  the 
bank  failed  it  held  the  proceeds  of  the  notes 
as  the  agent  of  the  holders.  The  mere 
naming  of  a  bank  in  a  note  as  the  place  of 
payment  thereof  and  the  depositing  of  funds 
for  payment  do  not  make  the  bank  an  agent 
of  the  holder. 

The  sole  theory  upon  which  the  makers 
can  escape  liability  is  that  the  holders  of  the 
notes  were  under  the  same  duty  as  the 
holders  of  a  check  to  present  promptly, 
failing  which  the  holders  and  not  the  makers 
take  the  risk  of  continued  solvency  of  the 
bank.  The  Negotiable  Instruments  Act, 
Sec  87,  provides  that  "where  the  instrument 
is  made  payable  at  a  bank  it  is  equivalent 
to  an  order  to  the  bank  to  pay  the  same  for 
the  account  of  the  principal  debtor  thereon." 
Baldwins  Bank  v.  Smith,  109  N.  E.  (N.  Y.) 
138,  contains  a  dictum  supporting  the  theory 
of  the  duty  of  the  note-holder  to  present 
promptly.  In  that  case  the  payor  bank  had 
been  constituted  agent  of  the  holders  be- 
cause the  note  had  been  sent  to  it  for  "col- 
lection and  remittance,"  and  the  ruling  was 
that  the  note  was  paid  at  maturity.  Also 
in  New  England  Nat.  Bank  v.  Dick,  114 
Pac.  (Kan.)  378,  a  statement  is  found  sup- 
porting the  theory,  but  the  decision,  itself, 
seems  to  go  on  the  ground  that  when  the 
payor  bank  failed,  it  held  the  money  as 
agent  of  the  holder  of  the  note.  To  the 
contrary  of  these  statements  is  the  well 
reasoned  decision  in  Binghamton  Phar- 
macy V.  First  Nat.  Bank,  176  S.  W.  (Tenn.) 
1038.  The  court  quoted  Sec.  70  of  the 
Negotiable  Instruments  Act  providing  that 
"Presentment  for  payment  is  not  necessary 
in  order  to  charge  the  person  primarily  liable 


576 


OVERDRAFTS 


[2556-2557 


on  the  the  instrument;  but  if  the  instrument 
is,  by  its  terms,  payable  at  a  special  place, 
and  he  is  able  and  willing  to  pay  it  there  at 
maturity,  such  ability  and  willingness  are 
equivalent  to  a  tender  of  pa3Tnent  upon  his 
part.  But,  except  as  herein  otherwise  pro- 
vided, presentment  for  payment  is  necessary 
in  order  to  charge  the  drawer  and  indorsers." 
The  reasoning  of  the  court  is  to  this  effect: 
the  difference  between  the  drawer  of  a 
check  and  the  maker  of  a  note  is  that  the 
former  is  secondarily  liable  while  the  latter 
is  primarily  liable.  Hence  presentment  for 
payment  is  necessary  to  charge  the  drawer 
of  a  check  but  not  the  maker  of  a 
note.  Sec  18G  of  the  Negotiable  Instruments 
Act,  providing  that  "a  check  must  be  pre- 
sented for  payment  within  a  reasonable 
time  after  its  issue  or  the  drawer  will  be 
discharged  from  liabihty  to  the  extent  of 
the  loss  caused  by  the  delay,"  has  no  appli- 
cation to  notes.  Section  87  of  the  Negotia- 
ble Act,  declaring  an  instrument  payable  at 
a  bank  the  equivalent  of  an  order  on  the 
bank,  was  onlj^  intended  to  settle  the  right 
of  bank,  without  specific  authority,  to  pay 
such  instrument  and  charge  it  to  the  ac- 
count of  the  principal  debtor.  This  latter 
case  seems  supported  by  the  better  reasoning 
and,  applying  the  principles  to  the  case 
submitted,  the  makers  of  the  collateral 
would  continue  liable  notwithstanding  the 
failure  of  the  payor  bank.  {Inquiry  from 
Colo.,  Feb.,  1921.) 

Maker's  liability  on  protest  of  note  payable  at 
bank  before  close  of  banking  hours 

2556.  A  note  payable  at  a  bank  was 
presented  for  payment  before  the  close  of 
banking  hours  on  the  day  of  maturity  and 
payment  was  refused  because  of  insufficient 
funds.  Later  and  before  the  close  of  banking 
hours  the  maker  of  the  note  deposited  more 
than  sufficient  funds  to  pay  it.    There  was 


no  further  presentation  and  the  note  was 
returned  as  unpaid.  Was  the  note  legally 
presented  for  pajonent?  Opinion:  The 
maker  was  not  in  default  when  the  note  was 
presented  for  pa3'ment  and  paj-ment  refused 
because  of  insufficient  funds,  and  when,  later 
in  the  day,  during  banking  hours,  he  de- 
posited sufficient  funds  to  pay  the  note,  this 
was  equivalent  to  a  tender  of  payment  on  his 
part.  He  was  not  obliged  thereafter  to  seek 
the  holder  of  the  note  and  the  collecting 
bank  should  have  presented  it  for  payment 
again  at  the  close  of  banking  hours.  Ger- 
man American  Bank  v.  Milliman,  65  N.  Y. 
Supp.  242,  which  carefully  reviews  the 
authorities  and  also  holds  that  where  the 
note  is  protested  for  non-payment  before 
the  close  of  banking  hours  on  the  day  of 
maturity  and  the  money  is  later  deposited, 
the  protest  is  of  no  avail  and  the  maker 
cannot  be  compelled  to  pay  the  protest  fees 
thus  incurred. 

It  is  not  entirely  clear,  in  the  case  of  a 
note  payable  at  a  bank,  whether  the  holder 
has  the  right  to  cause  protest  to  be  made 
immediately  upon  presentment  and  refusal 
for  lack  of  funds,  subject  to  nullification  of 
such  protest  if  a  sufficient  deposit  is  after- 
wards made  later  in  the  day,  or  whether 
such  protest  before  the  close  of  banking 
hours  is  to  be  deemed  premature  and  un- 
justifiable. It  would  seem,  however,  that 
the  note  cannot  be  regarded  as  dishonored 
so  as  to  justify  a  protest  which  might  un- 
necessarily damage  the  maker's  credit  where 
he  had  made  full  provision  to  take  care  of  his 
paper  during  the  day.  In  the  case  submitted, 
it  is  not  stated  whether  notice  of  dishonor 
was  given  or  protest  made  based  on  the 
refusal  to  pay  before  the  close  of  banking 
hours.  Whatever  may  be  the  precise  facts, 
it  would  seem  that  the  maker  was  not  in 
default  and  that  there  was  no  sufficient 
presentment  to  justify  notice  of  dishonor  or 
protest.     {Inquiry  from  N.  Y.,Feb.,  1921.) 


OVERDRAFTS 


Oasses  of  overdrafts  an  d  power  of 

comptroller  to  require  national 

banks  to  prohibit 


banks  comply  with  his  request?  Opinion: 
The  circular  may  be  regarded  from  two 
points  of  view:  (1)  as  a  compulsory  order; 
2557.  The  comptroller  of  the  currency  (2)  as  a  request  for  co-operation.  1. 
on  January  28th,  1915,  issued  a  circular  Apparently  the  comptroller  has  no  power  or 
letter  to  national  banks  stating  that  the    authority   to   compel   a   national   bank   to 


practice  of  permitting  overdrafts  should 
cease  entirely,  and  requesting  that  each 
national  bank  should  pass  a  resolution 
prohibiting  any  overdraft.    Should  national 


adopt  such  a  resolution.  He  is  charged 
with  the  execution  of  all  laws  passed  by 
congress  relating  to  national  banks,  and  in 
case  of  violation  of  any  of  the  provisions  of 


577 


2658-2560] 


DIGEST  OF  LEGAL  OPINIONS 


the  banking  act  the  franchise  may  be 
forfeited  by  proper  proceedings.  Rev.  St. 
Sec.  5239.  There  is  no  express  provision 
of  the  National  Bank  Act  which  is  violated 
by  the  granting  of  overdrafts.  Under  the 
general  power  of  making  loans  a  national 
bank  may  permit  overdrafts  and  even 
though  there  should  be  no  such  power,  the 
comptroller  could  not  compel  the  directors 
of  a  national  bank  to  pass  a  resolution  on 
the  subject.  The  only  consequences  that 
would  seem  to  follow  the  ignoring  of  the 
circular  would  be  that  the  comptroller 
might,  with  the  co-operation  of  the  secretary 
of  the  treasury,  have  it  in  his  power  t9 
deprive  a  non-complying  national  bank  of 
the  privilege  of  receiving  government  de- 
posits or  acting  as  the  financial  agent  of 
the  government. 

2.  As  a  request  for  co-operation,  the 
circular  may  well  be  given  attention,  for, 
although  in  particular  instances  it  may  be 
desirable  to  permit  overdrafts,  yet  there  are 
objectionable  features  to  the  practice  gener- 
ally. 

Overdrafts  may  be  divided  broadly  into 
three  distinct  classes:  (a)  fraudulent;  (b)  by 
mistake;  and  (c)  by  prearrangement.  Over- 
drafts of  the  first  class  are  expressly  made 
criminal  in  some  states  and  should  be  made 
such  in  all  jurisdictions,  (b)  In  cases  of 
mistake;  where  the  customer  is  responsible 
and  his  credit  would  be  injured  by  dis- 
honoring the  overdraft,  it  would  seem  good 
banking  policy  to  protect  his  credit  by 
paying  his  check,  and  at  the  same  time 
notify  him  that  his  account  is  overdrawn, 
(c)  The  third  class  is  the  overdraft  by 
prearrangement,  as  where  a  buyer  is  per- 
mitted to  draw  checks  for  his  purchases 
with  the  agreement  that  he  is  to  give 
a  note  and  necessarj'-  security.  The  last  two 
classes  of  overdrafts  are  forms  of  loans 
apparently  within  the  power  of  a  national 
bank,   {Inquiry  from  N.  Y .,  March,  1915,  Jl.) 

Payment  of  overdrafts 

Payment  to  bona  fide  holder  a  finality 

2558.  John  Smith  has  an  account  at 
Bank  A  and  presents  the  check  of  Jones 
drawn  on  the  same  bank  at  the  paying 
teller's  window  and  receives  cash  for  the 
same.  Jones  had  not  sufficient  deposit  to 
protect  the  check  and  the  bank  asks  if  it  can 
charge  back  the  overdraft  to  Smith's  ac- 
count. Opinion:  The  great  weight  of 
authority  is  to  the  effect  that  a  payment  of 
a  check  to  a  bona  fide  holder  in  the  ordinary 
course  of  business  by  the  bank  upon  which 


it  is  drawn,  under  the  mistaken  belief  that 
the  drawer  has  funds  in  bank  subject  to 
check,  is  final  and  irrevocable  and  not  such 
payment  under  mistake  of  fact  as  will 
permit  the  bank  to  recover  the  money  so 
paid.  Bank  A  having  paid  .[ones'  overdraft 
to  Smith  in  cash,  the  latter  is  not  liable  to 
refund  the  money  and  the  bank  cannot 
charge  the  same  to  his  account.  {Inquiry 
from  Wis.,  March,  1914,  Jl.) 

Mistaken  charge  of  overdraft  received  by  mail 
to  depositor's  account 

2559.  Bank  A  receives  an  overdraft 
through  the  mail  from  bank  B.  After  the 
check  has  been  entered  on  the  bank's 
books  and  charged  to  the  drawer's  account 
it  is  discovered  that  the  account  is  over- 
drawn. Can  the  check  be  returned  to  bank 
B?  Opinion:  In  this  case  the  charging  of 
the  account  was  by  mistake,  and  some 
courts  might  hold  that  this  was  an  inadver- 
tence which  might  be  corrected.  At  the 
same  time  the  rule  is  quite  well  settled  that 
when  an  overdraft  is  paid,  it  is  a  finality 
and  cannot  be  recovered.  If  the  cash  is 
paid  over  the  counter  to  a  holder,  even 
before  charge  to  the  account,  it  is  too  late 
to  recall  the  payment,  but  in  the  case  of  a 
check  coming  by  mail  or  through  the 
clearing  house,  it  would  seem  that  the  point 
of  time  when  the  check  is  paid  is  when  it  is 
charged  to  the  account  of  the  drawer,  as 
such  charging  evidences  an  intention  to 
pay  the  check,  and  the  subsequent  remit- 
tance of  the  money  is  an  act  done  as  agent 
of  the  holder.  In  the  present  case  while  it 
would  appear  reasonable  that  the  bank 
might  undo  its  bookkeeping  where  it  had 
not  actually  remitted  the  money,  it  would 
seem  from  the  authorities,  which,  however, 
are  not  very  satisfactory  on  this  point,  that, 
when  the  overdraft  was  charged  against  the 
drawer's  account,  it  was  paid,  and  that  it 
would  be  too  late  to  return  the  check  to 
bank  B.     {Inquiry  from  N.  M.,  May,  1920.) 

Drawee  not  obliged  to  apply  insufficient 
balance  to  overdraft 

2560.  A  presents  to  B  bank  C's  check 
for  $125,  the  latter's  balance  at  the  time 
being  only  $45.  Would  the  bank  be  obligat- 
ed to  apply  this  $45  as  a  part  payment  of 
the  check,  and  if  not,  would  the  bank  be 
permitted  to  pay  subsequent  checks  within 
the  amount  of  the  balance,  or  would  A  have 
a  right  to  deposit  sufficient  to  the  credit  of 
C  to  make  the  check  good?  Opinion:  A 
bank  is  not  obliged  to  make  part  payment 
of  a  check  and  is  not  obliged  to  receive  from 


578 


OVERDRAFTS 


[2561-2563 


the  holder  sufficient  to  make  the  check  good. 
The  presentment  of  an  overdraft  and  refusal 
to  pay  same  do  not  create  any  lien  on  the 
balance  in  favor  of  the  holder.  The  bank 
may  rightfully  pay  any  subsequently  pre- 
sented checks  within  the  balance.  {Inquiry 
from  Kan.,  Nov.,  1916.) 

Payment  by  credit  to  depositor 

Credit    of   overdraft    to    account    of   another 
depositor 

2561.  John  Smith  deposits  with  the 
receiving  teller  of  his  bank  a  check  drawn 
on  the  same  bank  and  receives  credit  for  the 
same.  Later  it  appears  that  the  maker  of 
the  check  had  not  sufficient  funds  to  protect 
the  check.  The  bank  asks  if  it  can  right- 
fully charge  back  the  overdraft  to  Smith's 
account.  Opinion:  Where  an  overdraft  of 
one  depositor  is  offered  for  deposit  by  another 
and  credited  to  the  latter's  account,  the  legal 
effect,  according  to  a  number  of  authorities, 
is  the  same  as  if  the  mone}''  was  first  paid 
out  and  redeposited;  in  other  words,  the 
payment  by  credit  to  account  is  final  and 
irrevocable.  But  in  California  the  courts 
hold  that  a  bank  which  receives  a  deposit  of 
a  check  drawn  on  the  same  bank  takes  the 
same  for  collection  from  itself  and  can  cancel 
the  credit  upon  discovering  on  the  same  day 
that  it  is  an  overdraft.  And  (according  to  a 
Pennsylvania  case)  where  a  depositor  knows 
that  the  drawer  has  no  funds,  he  is  guilty  of 
fraud  which  will  justify  charging  the  check 
back.  Furthermore,  as  was  held  in  a  New 
York  case,  it  is  competent  for  the  bank  to 
credit  the  depositor's  account  conditionally, 
that  is,  upon  condition  that  if  upon  examina- 
tion the  check  is  found  not  good  it  will  be 
charged  back.  And  a  recent  decision  in  the 
Court  of  Appeals  of  Missouri  is  to  the  eftect 
that  where  the  bank  can  prove  a  custom  to 
charge  back,  this  will  entitle  the  bank  to 
cancel  the  credit.  In  the  light  of  the  forego- 
ing, Bank  A  cannot  charge  back  to  the  ac- 
count of  Smith  the  check  of  another  depositor 
which  has  been  placed  to  his  credit  upon 
later  discovering  such  check  is  an  overdraft 
unless  (1)  Smith  knew  that  the  check  was 
not  good  at  the  time  he  deposited  it,  or 
(2)  Bank  A  had  an  agreement  with  Smith 
that  the  deposit  should  he  conditional  upon 
examination  as  to  the  state  of  the  drawer's 
account,  or  (3)  Bank  A  can  prove  an  estab- 
hshed  custom  among  the  banks  of  the  city 
known  to  Smith  of  charging  back  later  in  the 
day  if  the  deposit  is  found  to  be  an  overdraft. 
The  latter  is  on  the  authority  of  the  Missouri 
case  and  may  not  be  universally  followed. 


To  protect  the  bank  in  such  cases  it  would 
seem  advisable  to  print  a  notice  in  the  pass- 
books or  on  the  deposits  slip  of  customers  to 
the  effect  that  such  deposits  will  be  credited 
conditionally  and,  if  not  found  good  at  the 
close  of  business,  will  be  charged  back  and 
depositors  notified.  {Inquiry  from  Wis., 
March,  1914,  Jl.) 

Deposit  of  overdraft  on  same  bank 

2562.  A  check  of  another  depositor  on 
the  same  bank  was  offered  for  deposit  and 
credited  in  the  depositing  customer's  pass- 
book. May  the  credit  be  revoked  upon 
discovering  the  check  to  be  an  overdraft? 
Opinion:  The  rule  adopted  by  the  majority 
of  courts  is  that  the  check  is  paid  equally 
as  if  the  money  had  been  first  paid  out  and 
redeposited,  and  the  bank  cannot  after- 
wards revoke  the  credit  upon  discovering 
the  check  to  be  an  overdraft.  Oddie  v. 
National  City  Bank,  45  N.  Y.  735. 
First  National  Bank  v.  Burkhardt, 
100  U.  S.  686.  In  Cahfornia,  how- 
ever, it  has  been  held  that  when  a 
check  on  the  same  bank  is  presented  by  a 
depositor  for  credit  and  entered  in  his  pass- 
book, there  is  no  presumption  that  the 
check  was  received  as  cash  or  otherwise 
than  for  collection  and  the  bank  has  until 
the  close  of  banking  hours  on  the  day  of 
deposit  in  which  to  ascertain  whether  the 
check  is  drawn  against  sufficient  funds. 
National  Gold  Bank  v.  MacDonald,  51 
Cal.  64.  Corn  Bank  v.  Rogers,  Cal.  92  Pac. 
879.  Authorities  in  Alabama,  lUinois,  New 
Jersey  and  Pennsylvania  hold  the  New  York 
rule  first  stated.  {Inquiry  from  Ky.,  April, 
1920.) 

Suggested  clause  in  pass-book  giving  bank  the 

right   to    charge   back   wrongly    credited 

overdraft  on  itself 

2563.  In  Oddie  v.  National  City  Bank, 
45  N.  Y.,  735,  the  court  held  that  where  the 
check  of  one  depositor  is  deposited  by 
another,  and  the  teller  gives  him  credit 
therefor,  such  credit  cannot  be  revoked 
upon  finding  the  check  was  not  good.  A  New 
York  bank  complains  that  this  decision  seems 
unfair  and  is  contrary  to  the  decisions  of 
other  states.  It  asks  if  this  decision  is  still 
law  in  New  York,  and  if  it  would  be  possible 
for  a  bank  to  protect  itself  by  some  sort  of 
contract  or  agreement  printed  in  its  pass- 
books or  on  its  deposit  slips,  or  both,  to  the 
effect  that  all  checks  received  on  deposit  are 
subject  to  final  payment.  Opinion:  The  rule 
established  in  Oddie  v.  National  City  Bank 


579 


2564-2567] 


DIGEST  OF  LEGAL  OPINIONS 


that  a  credit  in  a  depositor's  pass-book  of  an 
overdraft  of  another  depositor  is  final  and 
irrevocable  has  not  been  overturned  in  New 
York.  Decisions  in  other  states  conflict. 
The  same  rule  has  been  held  in  Alabama  and 
Pennsylvania.  On  the  other  hand,  in  Cali- 
fornia it  has  been  held  that  "when  a  check 
on  the  same  bank  is  presented  by  a  depositor 
with  his  pass-book  to  the  receiving  teller,  and 
he  merely  receives  the  check  and  notes  it  in 
the  pass-book,  nothing  more  being  said  or 
done,  this  does  not  of  itself  raise  the  pre- 
sumption that  the  check  was  received  as 
cash  or  otherwise  than  for  collection."  This 
rule  is  the  more  equitable  one,  but  it  cannot 
be  said  to  be  the  law  of  New  York;  therefore 
it  would  be  advisable  to  print  on  the  deposit 
slip  and  probably  also  in  the  pass-book  a 
properly  worded  clause  giving  the  bank  the 
right  to  charge  back  a  wrongly  credited  over- 
draft on  itself  at  any  time  before  the  close  of 
business  on  the  same  day.  Oddie  v.  Nat. 
City  Bk.,  45  N.  Y.  735.  City  Nat.  Bk.  v. 
Burns,  68  Ala.  267.  Bryan  v.  Bk.,  205  Pa. 
7.  Nat.  Gold  Bk.  v.  McDonald,  51  Cal.  64. 
Ocean  Park  Bk.  v.  Rogers,  (Cal.)  92  Pac. 
879.  James  River  Nat.  Bk.  v.  Weber, 
(N.  Dak.)  124  N.  W.  952.  Pollack  v.  Nat. 
Bk.  of  Com.,  (Mo.)  151  S.  W.  774.  (Inquiry 
from  N.  Y.,  March,  1913,  Jl.) 

Drawee  as  collection  agent  of  holder 

Drawee  'paying  subsequent  smaller  check  while 
overdraft  held  for  collection 

2564.  A  draws  a  check  for  $250  in  favor 
of  B  on  bank  C  where  he  has  a  balance  of 
only  $200.  On  presentation  by  B,  payment 
being  refused,  he  left  the  check  with  the 
bank  and  subsequently,  while  check  was 
still  in  the  bank's  possession,  another  check, 
drawn  by  A  in  favor  of  D,  for  $200  was  pre- 
sented and  paid.  Can  B  hold  bank  C 
responsible  for  the  $200?  Opinion:  Bank 
C  would  be  acting  in  a  dual  relation,  namely, 
as  B's  agent  for  collection  and  as  agent  of 
A  to  pay  his  "good"  checks.  As  the  bank 
would  be  under  no  duty  to  make  part  pay- 
ment of  the  $250  check  and  as  the  $200 
check  would  be  the  first  one  presented  which 
would  raise  the  duty  of  making  payment,  it 
being  within  the  balance,  bank  C's  duty 
would  be  to  pay  this  check,  and  the  fact 
that  the  bank  held  the  $250  check  as  agent 
for  collection  would  give  it  no  lien  on  the 
customer's  balance  which  would  operate  to 
prevent  its  paying  the  $200  check.  There 
would  be  no  neglect  of  duty  to  B,  and  no 
responsibility  to  him  because  of  bank  C's 
subsequent  payment  of  the  $200  check,  that 


being  the  only  check  within  the  balance. 
{Inquiry  from  Va.,  April,  1911.) 

Drawee  mailing  overdraft  for  collection  must 
pay  later  specific  deposit  as  directed 

2565.  Where  a  bank  holds  for  collection 
checks  upon  itself  without  a  deposit  against 
the  same  and  receives  a  specific  deposit 
from  its  customer  to  be  paid  upon  a  later 
described  check,  its  duty  is  to  obey  the 
instructions  and  in  so  doing  it  incurs  no  lia- 
bility to  the  owners  of  the  checks  which  it 
holds  for  collection.  Where  several  checks 
are  received  any  one  of  which  would  be  an 
overdraft,  the  bank  if  it  chooses  can  pay  an 
overdraft  and  apply  a  future  deposit  thereto. 
Drovers  Nat.  Bk.  v.  O'Hare,  119  111.  646. 
Parker  v.  Hartley,  91  Pa.  465.  Bk.  of 
British  N.  A.  v.  Cooper,  137  U.  S.  473. 
(Inquiry  from  Ala.,  April,  1916,  Jl.) 

Non-liahility  of  drawee  to  holder  of  overdraft 

2566.  A  gave  B  a  check  on  bank  C 
where  his  account  was  overdrawn  and  sold 
the  goods  for  which  the  check  was  given 
and  deposited  the  proceeds  with  the  bank. 
B  gave  the  check  to  D  who,  believing  it  not 
good,  returned  it  to  B  who  kept  it  six  months 
and  then  presented  it  to  bank  C  for  payment. 
The  bank  in  the  meanwhile  had  closed  A's 
account.  As  A  had  been  in  the  habit  of 
overdrawing  his  account  for  some  time, 
although  there  was  no  special  agreement  of 
the  bank  to  pay  this  check,  it  is  asked  if  the 
bank  is  under  obligation  to  pay  it  or  would 
have  been  if  it  had  been  presented  promptly. 
Opinion:  Under  the  Negotiable  Instruments 
Act  a  bank  is  not  liable  to  the  holder  of  a 
check  unless  and  until  it  accepts  the  same, 
which  acceptance  must  be  in  writing  and 
the  bank's  only  obhgation  to  pay  a  check 
when  in  funds  runs  to  the  drawer.  In  the 
present  case  the  check  was  an  overdraft 
and  the  bank  had  not  agreed  with  the 
drawer  to  honor  same.  Therefore,  there 
was,  or  is,  no  obligation  on  the  part  of 
bank  C  to  pay  the  check  to  B  whose  only 
recourse,  if  the  bank  refuses,  is  against  A, 
the  drawer.  (Inquiry  from  Kan.,  Sept., 
1914.) 

Deposit  of  overdraft  on  another  hank 

2567.  John  Smith  deposits  in  Bank  A 
a  check  of  Jones  drawn  on  a  New  York 
bank  and  receives  credit  for  the  same. 
Payment  of  the  check  is  refused  by  the  New 
York  bank.  Bank  A  asks  if  it  can  charge 
back  the  item  to  Smith's  account.  It  also 
asks  if  Smith  had  received  cash  could  his  ac- 


580 


OVERDRAFTS 


[2568-2572 


count  still  be  charged.  Opinion:  The  bank 
of  deposit  has  the  right  to  charge  the  amount 
back  to  Smith's  account,  but  care  must  be 
taken  to  preserve  Smith's  liability  as  in- 
dorser,  assuming  he  has  transferred  title  to 
the  bank  and  not  merely  deposited  it  for  col- 
lection. Smith,  being  duly  charged  as  in- 
dorser,  would  be  indebted  on  the  check 
to  the  bank  and,  even  though  cash  had  been 
paid  to  him,  the  bank  would  have  the  right 
to  set  off  such  indebtedness  to  his  account. 
Spokane,  etc.,  Tr.  Co.  v.  Huff,  (Wash.) 
115  Pac.  80.  Oddie  v.  City  Nat.  Bk.,  45  N. 
Y.  735.  Cons.  Nat.  Bk.  v.  First  Nat.  Bk., 
129  N.  Y.  App.  Div.  538.  City  Nat.  Bk.  v. 
Burns,  68  Ala.  267.  Amer.  Exch.  Nat.  Bk. 
V.  Gregg,  138  111.  596.  Titus  v.  Mechanics 
Nat.  Bk.,  35  N.  J.  L.  588.  Nat.  Gold  Bk. 
V.  McDonald,  51  Cal.  64.  Peterson  v. 
Union  Nat.  Bk.,  52  Pa.  206.  Lamsdon  v. 
Gilman,  81  Hun.  (N.  Y.)  526.  Pollack  v. 
Nat.  Bk.  of  Com.  (Mo.)  151  S.  W.  774. 
{Inquiry  from  Wis.,  March,  1914,  Jl.) 

Recovery  by  drawee 

Recovery  of  money  paid  on  overdraft  because  of 
erroneous  credit 

2568.  A  deposit  of  $105  made  by  one 
depositor  was  erroneously  credited  to  an- 
other depositor,  who  checked  out  the  amount. 
Opinion:  The  bank  has  a  right  of  action 
against  the  customer  to  recover  the  amount 
of  the  overdraft  with  interest  from  the  time 
overdrawn.  James  River  Nat.  Bk.  v. 
Weber,  (N.  Dak.)  124  N.  W.  952.  Citizens 
Tr.  Co.  V.  Levine,  147  N.  Y.  S.  737.  (In- 
quiry from  Pa.,  Jan.,  1915,  Jl.) 

Charge  of  overdraft  to  customer's  account  after 
transfer  of  credit  from  another  customer 

2569.  A  person  who  has  an  overdraft  at 
a  bank  asks  another  person  to  lend  him 
money  for  a  few  days  and  the  latter  tele- 
phones the  cashier  of  the  bank,  asking  it  to 
charge  the  lender's  account  with  the  amount 
and  give  the  borrower  credit  for  it,  and  to 
require  a  receipt  from  the  borrower.  The 
instructions  of  the  lender  are  followed. 
The  bank  then  applies  the  money  on  the 
overdraft.  Is  it  liable  to  the  lender? 
Opinion:  There  is  no  liability.  The 
instructions  of  the  lender  were  followed. 
The  bank  was  not  responsible  for  any 
misrepresentation  made  by  the  borrower  to 
the  lender  as  to  the  use  to  which  the  money 
was  to  be  put,  nor  was  it  a  trustee  of  the 
money  of  the  lender  to  see  that  it  was 
properly  applied  after  the  credit  to  the 
other  account.    After  the  credit  was  trans- 


ferred, the  bank  had  a  right  to  deal  with  it 
as  the  money  of  the  borrower  by  applying 
it  to  the  overdraft.  {Inquiry  from  Tex., 
Jan.,  1921.) 

Collection  of  overdrafts 

2570.  Inquiry  is  made  as  to  the  collecti- 
bility of  overdrafts.  Opinion:  The  courts 
have  held  that  an  overdraft  is  in  legal 
effect  an  irregular  loan  by  the  bank  to  the 
overdrawing  customer.  It  constitutes  an 
indebtedness  which  may  be  sued  for  the 
same  as  an  indebtedness  on  a  note,  or  the 
bank  may  apply  subsequent  general  deposits 
upon  the  overdraft.  {Inquiry  from  la., 
Dec,  1915.) 

Recovery  on  overdraft 

2571.  Can  a  bank  recover  on  overdraft 
of  depositor  where  his  pass-book  was 
balanced  and  cancelled  vouchers  returned 
and  the  pass-book  did  not  show  the  over- 
draft but  showed  a  credit  to  the  depositor? 
Opinion:  An  overdraft  is  held  by  the 
courts  to  be  in  the  nature  of  an  irregular 
loan  for  which  the  depositor  is  liable  to  the 
bank  and  even  though  the  balancing  and 
return  of  the  pass-book  might  constitute  an 
account  stated,  it  is  the  rule  of  law  that  an 
account  stated  is  not  conclusive  but  may  be 
corrected  upon  proof  of  mistake;  so  that  in 
any  event  the  bank  would  have  a  right  of 
action  to  recover  an  overdraft  granted  a  de- 
positor upon  proof  that  he  had  overdrawn 
his  account.  {Inquiry  from  N.  Y.,  Feb., 
1916.) 

Action  on  overdraft  against  maker  and  indorser 

2572.  Through  error  a  bank  paid  a 
check  for  $200,  given  by  W.  H.  B.  to  P.  B., 
his  brother,  after  the  former  had  closed  his 
account.  W.  H.  B.  was  notified  of  the 
overdrafts  and  he  declared  the  check  a 
forgery,  and  stated  his  intention  not  to  pay 
same.  When  P.  B.  was  notified  of  his 
brother's  statement,  the  former  declared 
the  check  regular  and  stated  he  would  not 
return  the  funds  and  that  the  bank  should 
collect  from  the  maker.  Opinion:  The 
best  procedure  would  be  to  bring  a  suit 
against  W.  H.  B.,  as  maker,  and  P.  B.,  as 
indorser,  of  this  check.  If  the  maker's  name 
is  forged,  which  the  indorser  denies,  that 
fact  can  be  proved  at  the  trial  and  the  bank 
can  recover  judgment  against  the  indorser 
and  he  will  probably  go  to  jail.  If,  on  the 
other  hand,  the  maker's  signature  is 
genuine,  then  both  parties  would  be  hable 
for  the  amount.  {Inquiry  from  N.  Y.^ 
May,  1916.) 


581 


2573-2577] 


PASS-BOOKS 


Pass-books 

Nature  of  pass-hook 

2573.  Bank  A  cashed  several  checks  for 
a  party  drawn  on  a  bank  at  Sulphur  Springs, 
Colorado,  upon  the  strength  of  a  pass-book, 
given  him  by  that  institution,  showing  a 
credit  of  $300.  The  Sulphur  Springs  bank 
refused  payment  of  the  checks,  stating  that 
credit  was  given  the  drawer  b}^  mistake  and 
the  entry  in  the  pass-book  was  invalid. 
Opinion:  The  pass-})ook  was  not  a  letter  of 
credit,  but  merely  prima  facie  evidence  of  a 
deposit  and  the  bank  may  show  that  credit 
was  given  by  mistake  or  for  an  invalid 
item.  A  check  not  being  an  assignment 
under  the  Negotiable  Instruments  Law, 
Bank  A  has  no  right  of  action  thereon  against 
the  drawee.  Talcott  v.  First  Nat.  Bk., 
53  Kan.  480.  Bk.  v.  Clark,  134  N.  Y.  368. 
Lucks  V.  Northwest  Sav.  Bk.,  (Mo.)  128 
S.  W.  19.  {Inquiry  from  Colo.,  Feb.,  1912,  Jl) 

Mistaken   entry   of  deposit   in   pass-book — 
Burden  of  proof 

2574.  After  entering  a  check  in  a  pass- 
book for  S57,  the  teller  discovered  that  it 
called  for  only  $51,  and  accordingly  charged 
the  depositor's  account  $6.  The  depositor, 
who  asserts  that  he  is  unable  to  produce 
the  check,  claims  that  it  calls  for  $57.  Is  the 
entry  in  the  pass-book,  a  receipt  by  the 
bank  for  the  amount  stated  or  a  mere 
memorandum,  subject  to  correction?  On 
whom  is  the  burden  of  proof ?  Opinion:  The 
entry  in  the  pass-book  is  in  the  nature  of 
a  receipt  and  is  prima  facie  evidence  that 
the  amount  stated  has  been  received. 
Although  the  entry  is  subject  to  change 
upon  proof  of  error,  the  burden  of  proof  is 
upon  the  party  alleging  the  error.  (Inquiry 
from  N.  Y.,  Dec.,  1917.) 

Signature  or  initials  of  receiving  officer  to  entry 
of  deposit 

2575.  Does  the  entry  of  deposit  in  a 
pass-book  have  to  be  signed  or  initialed  by 
receiving  officer  to  have  evidential  effect  of  a 
receipt?  Opinion:  The  courts  generally 
hold  that  the  entry  of  a  deposit  in  a  pass- 
book to  the  credit  of  the  depositor  is  in  the 
nature  of  a  receipt  and  is  prima  facie  evi- 
dence that  the  bank  has  received  the  amount 
from  the  depositor.  Quattorchi  v.  Farmers 
&    Merchants    Bank,    89    Mo.    App.    500. 


Talcott  V.  First  National  Bank,  53  Kan.  480. 
The  presumption  of  correctness  arising  from 
the  entry  may  be  rebutted  by  other  evidence. 
In  view  of  the  nature  of  the  entry,  it  is  very 
doubtful  whether  it  needs  to  be  initialed  to 
give  it  the  evidential  effect  of  a  receipt. 
In  some  banks  the  practice  exists.  Appar- 
ently the  question  has  not  come  before  the 
courts.  It  is  not  necessary  to  consider  the 
abstract  question  whether  or  not  a  signature 
is  necessary  to  the  validity  of  a  receipt, 
since  the  printed  name  of  the  bank  on  the 
pass-book  in  which  the  entry  is  made  would 
be  sufficient.  {Inquiry  from  Kan.,  March, 
1915.) 

Right  of  depositor  to  pass-book  and  paid  checks 

2576.  Where  a  balanced  pass-book  shows 
an  overdraft,  which  the  depositor  refuses  to 
pay,  has  the  bank  the  right  to  retain  it  and 
the  cancelled  checks,  until  payment  is  made? 
Opinion:  The  bank  should  return  the  pass- 
book but  retain  the  checks.  The  balanced 
pass-book  constitutes  a  statement  of  the 
account  and  the  depositor  is  probably 
entitled  to  it.  While  the  depositor  has  the 
ultimate  right  of  property  in  the  paid  checks, 
they  are  the  bank's  vouchers  and  it  has  a 
temporary  right  of  possession  until  the 
account  is  settled.  Such  checks  are  the 
bank's  evidence  of  its  payments  on  behalf 
of  the  depositor,  and  it  would  not  be  wise, 
in  the  case  of  an  overdraft,  for  the  bank  to 
part  with  such  evidence  of  its  payment 
until  the  account  had  been  adjusted.  In  a 
suit  to  recover  the  amount  of  the  overdraft 
the  check  would  be  the  best  evidence. 
{Inquiry  from  III.,  July,  1915.) 

Duty  of  depositor  to  examine  pass-book 

2577.  An  item  of  $50  credited  in  a 
pass-book  in  December,  1911,  was  not 
entered  on  the  bank's  ledger  to  the  credit 
of  the  depositor  and  was  omitted  in  the  bal- 
ancing of  the  account  in  Janurary,  1912,  and 
in  subsequent  balancing.  No  claim  was 
made  that  the  bank  had  made  an  error  until 
more  than  six  years  later,  and  then  by  the 
administrator  of  the  depositor.  In  the 
meantime  the  deposit  tickets  of  December, 
1911,  were  destroyed  and  the  administrator 
could  not  produce  the  checks  which  entered 
into  the  balance  of  January,  1912.  Is  the 
bank  liable  for  the  amount?  Opinion: 
In  this  case  it  would  undoubtedly  be  held 


582 


PASS-BOOKS 


[2578-2580 


that  the  failure  on  the  part  of  the  depositor 
to  examine  his  pass-book  and  returned 
vouchers  without  unreasonable  delay,  and 
to  report  errors  to  the  bank  will  free  the  bank 
from  hability.  It  is  the  duty  of  a  depositor 
to  examine  his  pass-book  and  report  errors 
within  a  reasonable  time  after  balancing 
and  his  failure  so  to  do  will,  according  to 
some  cases,  estop  him  from  thereafter 
questioning  its  correctness,  if  the  bank 
would  be  thereby  prejudiced,  while  other 
cases  hold  he  is  not  thereby  estopped,  but 
that  the  burden  of  showing  error  is  placed 
on  the  depositor.  Leather  Mfg.  Bk.  v. 
Morgan,  117  U.  S.  96.  Rettig  v.  South.  111. 
i  Nat.  Bk.,  147  111.  App.  193.  Critten  v. 
Chemical  Nat.  Bk.,  60  N.  Y.  App.  Div.  241. 
{Inquiry  from  W.  Va.,  Aug.,  1918,  Jl.) 

Validity  as  contract  of  pass-hook  notice  that 
^  checks  credited  conditionally 

2578.  What  is  the  legal  effect  of  printing 
in  a  depositor's  pass-book  the  following 
notice,  "Checks  on  this  bank  will  be 
credited  conditionally.  If  not  found  good 
at  close  of  business  they  will  be  charged 
back  to  depositors,  and  the  latter  notified 
of  the  fact.  Checks  on  other  city  banks  will 
be  carried  over  for  presentation  through  the 
clearing  house  on  the  following  day.  This 
bank,  in  receiving  checks  or  drafts  on  deposit 
or  for  collection,  acts  only  as  your  agent, 
and  beyond  carefulness  in  selecting  agents 
at  other  points,  and  in  forwarding  to  them, 
assumes  no  responsibility"?  Opinion:  The 
notice  printed  in  the  pass-book  is  binding  as 
a  contract  between  bank  and  depositor. 
Minneapolis  Sash  &  Door  Co.  v.  Metropoli- 
tan Bank,  76  Minn.  136,  78  N.  W.  980,  to 
the  effect  that  a  notice  in  a  pass-book  that 
the  bank  in  forwarding  items  to  other  points 
would  select  responsible  agents  but  would 
assume  no  risk  or  responsibility  on  account 
of  their  omissions,  negligence  or  failure, 
had  the  effect  of  limiting  the  liability  of  the 
bank  as  provided,  but  would  not  protect 
the  bank  where  it  negligently  mailed  an 
item  direct  to  the  drawee  for  collection. 
This  decision  stands  generally  for  the 
proposition  that  a  notice  in  a  pass-book  is 
binding  on  the  depositor,  where  the  contents 
of  the  notice  are  not  against  public  policj'. 
{Inquiry  from  Minn.,  Nov.,  1916.) 

Note:  Some  cases,  however,  hold  that 
the  printing  in  a  bank  pass-book  of  an 
agreement  limiting  the  liability  of  the  bank 
does  not  bind  the  depositor  unless  it  appears 
"affirmatively  that  he  consented  and  agreed 
to  it  either  by  being  required  to  sign  it  or  by 


having  his  attention  particularly  called  to 
it.  It  is  not  sufficient  merely  that  it  appear 
in  the  front  of  the  pass-book."  Los  Angeles 
Inv.  Co.  V.  Home  Sav.  Bank,  182  Pac.  (Cal.) 
293. 

Comparative  effectiveness  of  clause  on  pass- 
book and  on  deposit  slip 

2579.  Is  there  any  advantage  in  placing 
a  clause  limiting  the  liability  of  a  bank  on 
deposit  slips  as  well  as  in  the  pass-book? 
Opinion:  While  the  courts  generally  hold 
that  a  pass-book  clause  is  a  contract  binding 
on  the  depositor,  there  are  cases  where  the 
depositor  has  contended  that  he  has  never 
read  the  clause  and  that,  therefore,  it  was 
not  binding  on  him  as  a  contract  because 
there  had  been  no  assent  or  meeting  of 
minds.  (See  Elder  v.  Franklin  Nat.  Bank, 
55  N.  Y.  Supp.  576.)  Where  such  a  clause 
is  also  printed  on  the  deposit  slip  which  the 
depositor  fills  out  every  time  he  makes  a 
deposit,  it  is  quite  clear  such  a  claim  would 
be  held  untenable  and  the  placing  of  such 
clause  on  the  deposit  slip  might  be  of  value 
as  an  additional  protection.  {Inquiry  from 
N.  Y.,  Nov.,  1920.) 

Note:  See  also  Los  Angeles  Ins.  Co.  v. 
Home  Sav.  Bank,  182  Pac.  (Cal.)  293 
holding  that  a  depositor  is  not  bound  by  a 
pass-book  rule  unless  it  is  affirmatively 
shown  that  he  signed  it  or  had  his  attention 
called  to  it. 

Savings  pass-books 

Nature  of  savings  pass-books  and  rights 
of  assignee 

2580.  A  Massachusetts  banker  desires 
legislation  to  make  it  possible  for  the  owner 
of  a  lost  pass-book  to  withdraw  his  money 
without  the  four  months  delay  required  by 
Massachusetts  statutes,  and,  in  order  to 
ascertain  the  present  status  of  the  law, 
inquires — (1)  Is  the  form  of  pass-book 
ordinarily  used  by  mutual  and  stock 
savings  banks,  anything  more  than  a 
memorandum  of  transaction,  even  though 
the  by-laws  require  the  pass-book  to  be 
presented  whenever  a  deposit  or  payment 
is  made?  (2)  Does  an  assignment  or  transfer 
of  the  pass-book  transfer  anything  except 
the  amount  the  owner  of  the  book  actually 
has  on  deposit,  regardless  of  the  balance 
shown  by  the  pass-book  (3)  Has  the  holder 
of  the  pass-book  and  order  for  payment  on 
account  of  the  same  from  a  depositor  any 
more  right  to  action  against  the  bank  than 
the  holder  of  a  check  would  have  against  a 


583 


2581-2584] 


DIGEST  OF  LEGAL  OPINIONS 


commercial  bank?  Opinion:  (1)  The  pass- 
book is  simply  evidence  of  the  deposit  and 
is  not  a  negotiable  instrument.  Mills  v. 
Albany  Exchange  Savings  Bank,  28  Misc. 
(N.  Y.)  251,  and  cases  cited.  This  is  true 
although  the  by-laws  require  presentation 
of  the  pass-book  for  entering  of  a  deposit 
or  withdrawal.  If  the  pass-book  is  lost, 
some  courts  uphold  by-laws  of  a  bank 
which  require  indemnity  as  a  prerequisite 
to  payment.  Other  courts  deny  the  bank's 
right  to  indemnity  and  the  only  real 
necessity  for  indemnity  would  seem  to  be 
in  a  case  where  the  depositors  were  so 
numerous  that  the  bank  could  not  be  sure 
that  the  person  alleging  himself  to  be  the 
depositor  who  had  lost  his  book  was  in 
reality  the  depositor.  (2)  Assignment  of  the 
pass-book  transfers  to  the  assignee  simply 
the  amount  on  deposit,  regardless  of  the 
balance  shown  in  the  book.  The  theory  has 
been  denied  that,  as  the  bank's  contract  is  to 
pay  only  on  the  production  of  the  book  and 
enter  all  deposits  and  withdrawals  therein, 
the  assignee  has  the  right  to  rely  on  the 
conditions  stated  therein  and  that  the  bank 
is  estopped  as  against  the  assignee  to  show 
that  it  has  paid  the  original  depositor 
without  production  of  the  book.  As  the 
pass-book  is  not  negotiable,  the  assignee 
takes  simply  the  rights  of  his  assignor  therein 
and  unless  he  notifies  the  bank  of  the 
assignment,  it  would  be  protected  in  paying 
the  assignor  on  claim  of  loss  without  pro- 
duction of  the  book. 

There  seems  to  be  some  merit  in  the 
present  Massachusetts  statute  requiring 
four  months'  notice  before  payment  of  an 
account,  where  the  book  is  said  to  be  lost, 
from  the  standpoint  of  protecting  a  bona 
fide  assignee  of  the  book.  (3)  There  is  a 
difference  as  to  the  rights  of  the  holder  of 
a  check  on  a  commercial  bank  and  the 
holder  of  an  assigned  savings  pass-book. 
The  former  has  no  right  of  action,  but  the 
latter,  after  notice  of  the  assignment,  has 
a  right  of  action  against  the  bank  for  the 
deposit.     {Inquiry  from  Mass.,  Jan.,  1912.) 


Savings  pass-book  not  negotiable 

2581.  Is  a  savings  pass-book  a  negotiable 
instrument  in  Massachusetts?  Opinion: 
A  savings  pass-book  is  clearly  not  within  the 
definition  of  a  negotiable  instrument,  con- 
tained in  the  Negotiable  Instruments  Act. 
The  rule  that  it  is  not  such  an  instrument 
applies  in  Massachusetts  as  elsewhere. 
{Inquiry  from  Mass.,  May,  1917.) 


Binding  effect  of  pass-book  rules  without  signa^ 
ture  of  savings  depositor 

2582.  It  has  been  the  custom  with  a 
national  bank  having  a  savings  department 
to  require  the  signature  of  the  depositor  in 
the  pass-book  at  the  bottom  of  the  page 
following  the  rules.     It  asks  whether  the 

mere  statement:    "In  account  with  , 

who  makes  all  deposits  subject  to  the  Rules 
and  Regulations  of  the  Bank  which  will  be 
found  in  this  book,"  fully  binds  the  depositor 
to  those  rules.  Opinion:  The  printing  of 
the  rules  in  the  pass-book  seems  to  make 
them  binding  as  a  contract  between  the 
depositor  and  the  bank.  The  courts  have 
so  held  in  various  cases.  However,  the 
custom  of  requiring  the  signature  of  the 
depositor  is  to  be  commended.  {Inquiry 
from  Wis.,  Dec,  1916.) 

Note:  See,  however,  Los  Angeles  Inv. 
Co.  V.  Home  Say.  Bank,  182  Pac.  (Cal.) 
293,  in  which  it  is  held  the  pass-book  rule 
does  not  bind  the  depositor  unless  it  appears 
"affirmatively  that  he  consented  and  agreed 
to  it  either  by  being  required  to  sign  it  or  by 
having  his  attention  particularly  called  to 
it.  It  is  not  sufficient  merely  that  it  appear 
in  the  front  of  the  pass-book." 

Rule  of  national  bank  that  savings  pass-book 
must  accompany  check 

2583.  May  a  national  bank  provide  in 
its  by-laws  that  a  check  on  a  savings  account 
shall  be  accompanied  by  the  savings  pass- 
book when  withdrawals  are  made?  Opinion: 
A  by-law  of  a  national  bank  printed  in  the 
pass-book  is  a  contract  with  the  depositor 
and  it  may  enforce  the  rule  requiring  the 
pass-book  to  accompany  checks  on  savings 
accounts.  Such  a  by-law  is  not  contrary  to 
the  National  Bank  laws.  The  Federal 
Reserve  Act  recognizes  that  national  banks 
may  carry  savings  accounts  as  well  as  time 
deposits.  See  Section  19  F.  R.  Act  regulat- 
ing reserve,  and  circulars  of  the  Federal 
Reserve  Board  (Circular  No.  6,  Series  of 
1915,  and  Regulation  E,  Series  of  1915). 
{Inquiry  from  Ohio,  Oct.,  1915.) 

Assignment  of  savings  pass-book 

Assignee    of   savings    pass-book    takes    only 
depositor's  rights 

2584.  A  bank  has  been  in  the  custom  of 
returning  savings  pass-books,  upon  which 
there  is  no  credit  balance,  with  the  stamped 
statement,  "Account  Closed."  What  is  the 
Habihty  of  the  bank  when  the  depositor 
makes  fictitious  entries  and  transfers  the 


I 


584 


PASS-BOOKS 


[2586-2590 


book  to  an  innocent  holder  for  value? 
Opinion:  A  savings  pass-book  is  not  a 
negotiable  instrument,  and  no  transferee 
thereof  can  take  greater  rights  against  the 
bank  than  the  original  depositor.  In  the 
case  submitted  there  is  no  liability  because 
of  fictitious  entries.  {Inquiry  from  Ohio, 
Feb.,  1918.) 

2583.  A  savings  bank  or  savings  de- 
partment pass-book  is  not  a  negotiable 
instrument,  and  an  assignee  of  the  book  and 
account  from  the  depositor  takes  no  greater 
rights  than  the  latter  against  the  bank. 
MUls  V.  Albany  Exch.  Bk.,  59  N.  Y.  S.  149. 
{Inquiry  from  S.  D.,  July,  1910,  Jl.) 

Rights  of  assignee  of  savings  pass-book 
against  receiver 

2586.  Bank  A  loaned  an  individual 
$1,000  upon  the  collateral  security  of  a 
written  order  and  a  pass-book  connected 
with  a  savings  account  in  Bank  B.  Bank  B 
received  and  accepted  notice  of  the  assign- 
ment and  later  failed.  The  depositor  was 
also  a  stockholder  in  Bank  B,  liable  to  assess- 
ment. The  receiver  of  Bank  B  refused  to 
obey  the  written  order  given  by  its  depositor 
and  proposed  to  hold  the  account  to  secure 
the  depositor's  liability  as  stockholder.  Opin- 
ion: Bank  A  is  entitled  to  the  deposit  and 
such  right  is  superior  to  any  claim  of  lien 
by  the  receiver  for  B.  In  this  case  the  as- 
signment would  have  been  vaHd,  even  with- 
out the  notice  to  or  acceptance  by  Bank  B. 
Taft  V.  Bowker,  132  Mass.  277.  Gammond 
V.  Bowery  Sav.  Bk.,  15  Daly  (N.  Y.)  483. 
Kingman  v.  Perkins,  105  Mass.  111.  Jack- 
son V.  Hamm,  14  Colo.  58.  Allyn  v.  Allyn, 
154  Mass.  570.  Marsh  v.  Carney,  69  N.  H. 
236.  Pollard  v.  Pollard,  68  N.  H.  356. 
Forist  V.  Bellows,  59  N.  H.  229.  Jones  v. 
Lowery  Bk.  Co.,  104  Ala.  252.  Savage  v. 
Gregg,  150  111.  161.  Smith  v.  Clarke,  9 
Iowa  241.  Thayer  v.  Daniels.  113  Mass. 
129.  Ricker  v.  Cross,  5  N.  H.  570.  Lassiter 
v.  Jackman,  88  Ind.  118.  Krapp  v.  Eldridge, 
33  Kan.  106.  Rogers  Ins.  Co.  v.  Carrington, 
43  Mich.  252.  Brown  v.  Mansur,  64  N.  H. 
39.  Garland  v.  Harrington,  51  N.  H.  409. 
Conway  v.  Cutting,  51  N.  H.  407.  {Inquiry 
from  N.  H.,  Dec,  1915,  Jl.) 

Bank  caching  draft  on  faith  of  savings  pass- 
book, after  account  closed,  is  the  loser 

2587.  A  bank  closes  out  a  savings  ac- 
count without  requiring  a  return  of  the 
pass-book,  and  the  holder  of  the  book 
fraudulently  draws  a  draft  on  the  bank, 
attaching  the  savings  book  and  negotiates 


the  draft  to  a  bank,  which  cashes  the  same 
on  faith  of  the  book.  What  is  the  responsi- 
bihty  of  the  drawee  bank  to  the  cashing 
bank?  Opinion :  There  is  no  responsibihty. 
A  savings  pass-book  is  not  a  negotiable 
instrument,  but  is  a  mere  evidence  of  the 
receipt  of  the  deposits  therein  entered 
subject  to  exp'anation.  The  drawee  bank 
is  not  estopped  by  its  leaving  the  pass-book 
outstanding.  The  cashing  bank  has  no 
greater  rights  than  the  original  holder.  It  is 
incumbent  upon  any  bank  before  advancing 
cash  upon  a  savings  bank  book  to  make 
inquiry  of  the  issuing  bank  as  to  the  correct- 
ness of  the  account  therein  stated.  {Inquiry 
from  Mich.,  Apr, I,  1918.) 

Assignee  cannot  hold  bank  for  unentered 
withdrawals 

2588.  A  savings  bank  or  savings  de- 
partment pass-book  contains  a  rule  requiring 
its  presentment  when  money  is  withdrawn 
in  order  that  paj^ment  may  be  duly  entered 
therein.  A  check  was  cashed  without  such 
presentment  and  no  entry  of  the  withdrawal 
was  made  in  the  pass-book.  An  innocent 
assignee  or  pledgee  of  the  book  advanced 
value  thereon  upon  faith  of  the  entries 
shown.  Opinion:  A  savings  pass-book  is 
not  negotiable  and  the  assignee  cannot  hold 
the  bank  liable  where  the  withdrawals  have 
not  been  entered  as  provided  by  the  rules 
printed  in  the  book.  The  savings  bank  is 
not  estopped  to  show  the  true  state  of  the 
account.  {Inquiry  from  N.  C,  Nov.,  1914, 
Jl.) 

2589.  A  depositor  of  a  savings  bank 
withdrew  from  his  account  of  S500  the  sum 
of  $100,  but,  contrary  to  the  rules  printed 
in  his  pass-book,  the  withdrawal  was  not 
entered  therein.  He  then  assigned  the 
book,  showing  a  balance  of  $500,  to  Bank  A, 
which  cashed  his  check  for  $500.  The  sav- 
ings bank  admitted  liability  only  to  the 
extent  of  $400.  Opinion:  Bank  A  is  the 
loser  of  $100  unless  it  can  recover  that 
amount  from  the  depositor.  The  savings 
bank  is  not  hable,  because  the  pass-book  is 
not  a  negotiable  instrument  and  Bank  A 
took  no  greater  rights  than  the  depositor. 
{Inquiry  from  S.  D.  July,  1910,  Jl.) 

Payment  with  and  without  presen- 
tation of  pass-book 

Certification  of  depositor's  check  without 
presentation  of  savings  pass-book 

2590.  A  depositor  hav-ing  a  savings 
account  issued  his  check  to  the  order  of  B  in 


585 


2591-2593] 


DIGEST  OF  LEGAL  OPINIONS 


negotiable  form.  The  check  was  deUvered 
to  B  without  the  pass-book,  which  provided 
that  the  bank  will  not  honor  any  checks  on 
the  account  unless  accompanied  by  the 
pass-book.  B  indorsed  to  the  order  of  C, 
who  had  the  check  certified  by  the  bank. 
After  the  bank  charged  the  amount  to  the 
drawer's  account,  it  learned  that  B  obtained 
the  check  through  fraud.  Opinion:  Pay- 
ment of  such  a  check  without  production  of 
the  pass-book  would  probably  be  vahd,  the 
condition  of  production  being  waived  by 
both  drawer  and  drawee;  and,  payment 
being  valid,  certification  of  the  check  in  the 
hands  of  a  bona  fide  holder  would  be 
equally  chargeable  to  the  depositor.  Cos- 
grove  V.  Provident  Sav.  Inst.,  64  N.  J.  L. 
658.  Times  Square  Auto  Co.  v.  Rutherford 
Nat.  Bk.,  (N.  J.)  73  Atl.  479.  {Inquiry 
from  Pa.,  Feb.,  1913,  Jl.) 

National  hank  may,  under  its  rules,  refuse 
check  unaccompanied  by  savings  pass-book 

2591.  A  check  drawn  on  the  D  national 
bank  was  cashed  by  a  bank  and  presented 
to  the  drawee,  which  refused  payment, 
stating  that  the  drawer  had  a  savings  ac- 
count which  was  good  for  the  amount  but 
the  rules  required  that  a  check  on  the  sav- 
ings department  must  be  accompanied  by 
the  customer's  bank-book.  The  holder 
questions  the  right  of  the  drawee  to  refuse 
payment  under  such  rules.  Opinion:  The 
rules  constitute  a  contract  between  bank 
and  depositor  under  which  the  bank  would 
have  a  right  to  refuse  to  pay  a  check  unless 
accompanied  by  the  book.  The  remedy  of 
the  holder  of  the  check  is  against  the  drawer 
and  prior  parties,  unless  the  book  can  be 
procured  from  the  depositor  to  accompany 
the  check.  (Inquiry  from  Pa.,  April,  1910, 
Jl.) 

Payment  of  savings  deposits  to  wrong  person 
on  presentation  of  pass-book 

2592.  What  is  the  liability  of  a  bank  if  a 
savings  pass-book  falls  into  the  hands  of  a 
person  not  the  owner,  who  presents  it  and 
is  paid  an  order  thereon?  Opinion:  It  is 
usual  for  savings  banks  to  pay  only  on 
presentation  of  the  book,  accompanied  by 
the  written  order  of  the  depositor,  and 
after  asking  a  number  of  test  questions  in 


order  to  assure  themselves  as  to  the  identity 
of  the  depositor.  If  a  person  not  the  true 
owner  presented  the  book,  he  would  have  to 
forge  the  depositor's  signature,  and  general- 
ly would  have  to  answer  the  test  questions 
correctly,  as  to  age,  parentage,  etc.  If, 
notwithstanding  these  precautions,  the  bank 
pays,  then  it  is  a  question  for  the  courts, 
whether  the  bank  has  used  reasonable  care. 
If  it  has,  it  is  protected  by  its  rules  although 
it  pays  on  a  forgery;  otherwise,  it  would  be 
liable.    {Inquiry  from  Mo.,  June,  1916.) 

Note:  For  an  important  recent  decision 
covering  the  duty  of  care  required  of  savings 
bank,  see  Bulakowski  v.  Philadelphia  Saving 
Fund  Society,  113  Atl.  (Pa.)  653,  which 
holds  that  a  savings  bank  is  not  responsible 
for  the  same  degree  of  care  required  of 
commercial  banks  and  the  mere  fact  of 
forgery  of  a  receipt  for  a  deposit  does  not 
render  the  savings  bank  hable  to  its  de- 
positor. 

Pass-book   rules   providing   non-liability  for 

payment  to  wrong  person  do  not  protect 

bank  in  absence  of  reasonable  care 

2593.  The  by-laws  contained  in  a  sav- 
ings bank  pass-book  provide:  "li  any 
person  shall  present  a  book  and  falsely  allege 
himself  or  herself  to  be  the  depositor  named 
therein,  and  thereby  obtain  the  amount  de- 
posited, or  any  part  thereof,  this  institution 
will  not  be  liable  to  make  good  any  loss  the 
actual  depositor  may  sustain  thereby,  unless 
previous  notice  of  his  or  her  book  having 
been  lost  or  taken  shall  have  been  given  at 
the  ofiice  of  the  bank."  A  book  of  a  depositor 
was  stolen,  presented  to  the  bank  and  pay- 
ment was  made  on  a  forged  signature.  The 
bank  received  no  notice  of  the  loss  of  the 
book  until  the  day  after  the  forgery  was 
perpetrated.  Under  the  above  rule  what  are 
the  bank's  rights?  Opinion:  A  rule  printed 
in  the  pass-book  of  a  depositor,  that  the  bank 
will  not  be  liable  for  payment  to  a  person 
presenting  the  book  who  falsely  alleges 
himself  to  be  the  depositor,  will  not  reheve 
the  bank  making  payment  to  such  person 
upon  forged  order  unless  it  uses  reasonable 
care.  Zuplkoff  v.  Charleston  Nat,  B., 
(W.  Va.)  88  S.  E.  116.  McKenna  v. 
Bowery  Sav.  Bk.,  157  N.  Y.  S.  16.  {Inquiry 
from  W.  Va.,  July,  1917,  Jl.) 


586 


[2594-2599 


PLEDGE  AND  COLLATERAL 


L 


What  constitutes  valid  pledge 

2594.  A  form  of  pledge  of  personal 
property  as  security  for  a  loan  is  legally  suffi- 
cient in  Tennessee  where  it  contains  a 
provision  constituting  the  pledgor  the  agent 
of  the  pledgee  to  retain  possession  and  care 
for  the  property  as  such  agent.  To  consti- 
tute a  vaHd  pledge  there  must  be  delivery  of 
the  property  to  the  pledgee  and  in  some 
states  (Georgia  and  Kentucky,  for  example) 
a  pledge  wherein  the  pledgor  retained  posses- 
sion as  agent  would  be  invahd  as  against  a 
bona  fide  purchaser  of  the  property  without 
notice  of  the  pledge.  But  in  Tennessee  it 
has  been  held  the  pledgor  can  hold  the  prop- 
erty as  agent  of  the  pledgee.  For  form  of 
pledge  see  5  A.  B.  A.  Jl.  108.  Memphis 
City  Bk.  V.  Smith,  110  Tenn.  337.  Macon 
First  Nat.  Bk.  v.  Nelson,  38  Ga.  391.  Bell 
V.  Ky.  Glass  Works  Co.,  106  Ky.  7.  Fourth 
St.  Bk.  V.  MilU^ourne  Mills,  172  Fed.  177. 
McCready  v.  Haslock,  3  Tenn.  Ch.  13. 
Johnson  v.  Smith,  11  Humph.  (Tenn.)  400 
{Inquiry  from  Tenn.,  Aug.,  1912,  Jl.) 

Trustee  cannot  borrow  on  security  of 
trust  funds  for  personal  uses 

2595.  May  a  trustee  for  a  minor,  who 
maintains  a  savings  account  in  his  name  as 
trustee  for  such  child,  pledge  the  deposit 
book,  accompanied  by  a  withdrawal  order, 
as  security  for  a  loan  to  himself  individually? 
Opinion:  It  is  elementary  law  that  a  trustee 
has  no  right  to  use  trust  funds  for  his 
personal  advantage.  See  Cal.  Civil  Code, 
Sec.  2229.  The  pledge  in  question  is 
clearly  unauthorized.  Jones'  Estate,  10 
N.  Y.  St.  176,  holds  that  a  trustee  cannot 
lawfully  borrow  trust  funds.  {Inquiry 
from  Cal,  Nov.,  1914.) 

Right  of  holder  of  depository  bond  to 

look  to  surety  before  resorting  to 

collateral  security 

2596.  A  public  official  holds  as  surety 
for  a  deposit  of  public  funds  both  surety 
bonds  and  collateral  municipal  bonds  and 
the  bank  asks  whether,  in  case  of  default  of 
the  depository,  the  depositor  could  require 
payment  in  full  from  the  surety  without 
first  attempting  to  realize  on  the  collateral. 
Opinion:  The  general  rule  is  that  the 
creditor  or  pledgee  is  not  compelled  to 
resort  first  to  the  collateral,  but  can  look  to 
the  surety  for  the  full  amount  of  the  loss 


to  the  extent  of  his  bond  and  the  surety  is 
entitled  to  be  subrogated  to  the  rights  of 
the  creditor  in  the  coUateral.  See,  for 
example,  Jones  on  Collateral  Securities, 
Sec.  686,  in  which  the  rule  is  stated  that  a 
surety  cannot  require  the  creditor  to  pro- 
ceed upon  the  collateral  security  before 
bringing  suit  against  the  suretJ^  Citing 
Brick  V.  Freehold  Nat.  Banking  Co.,  37 
N.  J.  L.  307.  The  bank  further  asks,  if  the 
depositor  could  have  recourse  on  either  or 
both  forms  of  security  at  his  option.  It 
seems  the  depositor  has  this  right,  there 
being  no  special  provision  in  the  surety 
bond  which  would  otherwise  regulate  the 
subject.     {Inquiry  from  Wash.,  Oct.,  1914-) 

Collateral  notes 

Sufficiency  of  single  signature  to  collateral  note 

2597.  A  bank  encloses  form  of  collateral 
note  and  inquires  whether  there  is  any 
necessity  for  more  than  one  signature  for  the 
note,  collateral  agreement  and  judgment 
clause.  Opinion:  The  usual  practice  in  a 
form  of  collateral  note,  such  as  the  one 
submitted,  is  to  have  one  signature  at  the 
bottom,  and  there  seems  to  be  no  particular 
reason  why  the  contract  should  be  spHt  up 
and  the  makers  sign  in  two  or  three  places. 
If  a  man  should  give  a  simple  form  of  promis- 
sory note  and  should  attach  thereto  a 
mortgage  as  security,  he  would,  of  course, 
sign  twice,  once  to  the  note  and  again  to 
the  mortgage.  But  where  the  note  and 
pledge  are  incorporated  in  the  same  instru- 
ment, it  has  been  customary  for  the  borrower 
to  sign  in  one  place  only.  {Inquiry  from  III., 
Dec,  1918.) 

Power  of  attorney  to  sell  collateral 

2598.  A  promissory  note  was  given  with 
collateral  security  coupled  with  a  power  of 
attorney  to  the  holder  to  sell  the  collateral. 
Before  the  sale  the  maker  died.  Opinion: 
The  power  of  sale,  being  an  authority 
coupled  with  an  interest,  is  not  revoked  by 
the  maker's  death.  Mansfield  v.  Mansfield, 
6  Conn.  559.  Bell  v.  Mills,  123  Fed.  24. 
Warrior  Coal,  etc.,  Co.  v.  Nat.  Bk.,  (Ala.) 
53  So.  997.  {Inquiry  from  Pa.,  Sept., 
1914,  Jl-) 

Power  of  sale  in  collateral  note 

2599.  A  bank  has  been  using  a  form  of 
collateral  note  containing  a  provision  giving 


587 


2600-2604] 


DIGEST  OF  LEGAL  OPINIONS 


it  power  to  sell  the  same  or  any  part  thereof, 
or  substitutes  therefor  or  additions  thereto, 
at  any  broker's  board,  or  at  public  or  private 
sale  upon  non-performance  of  any  of  the 
promises  or  demand.  The  bank  asks 
whether  it  is  proper  to  sell,  under  the  power 
so  conferred,  without  publication  or  recover- 
ing judgment.  Opinion:  It  appears  that 
the  bank  has  a  right  to  sell  without  going 
to  court  or  publishing  under  the  rule  that  it 
may  sell  the  collateral  securities  under  any 
power  of  sale  the  debtor  may  have  given. 
Brooklyn  Bk.  v.  Barnaby,  197  N.  Y.  210. 
Ocean  Nat.  Bk.  v.  Fant,  50  N.  Y.  474. 
Willoughby  v.  Comstock.  3  Hill  (N.  Y.) 
389.  Wallace  v.  Berdell,  24  Hun.  (N.  Y.) 
379.    {Inquiry  from  N.  Y.,  Aug.,  1919.) 

2600.  A  bank  submits  a  form  of  collateral 
note  providing  that  the  bank  has  power  and 
authority,  upon  the  non-performance  of 
the  promise  given  in  the  note,  to  sell  the 
collateral  either  at  private  sale  or  public 
auction  without  advertisement  or  notice. 
The  bank  asks  whether  the  collateral  may 
be  sold  without  going  to  court  for  an  order. 
Opinion :  This  procedure  might  be  necessary 
where  there  was  no  power  of  sale  given  in 
the  collateral  note,  but  where,  as  in  the 
present  case,  the  note  expressly  provides  a 
power  or  authority  to  the  bank,  upon  non- 
performance of  the  promise  given  in  the 
note,  there  seems  to  be  no  question  that  the 
bank  has  a  right  to  sell  the  collateral  without 
procuring  a  court  order  empowering  it  so  to 
do.    {Inquiry  from  Neb.,  Sept.,  1919.) 

Collateral  note  pledging  security  for 
"other  indebtedness" 

2601.  A  bank  submits  form  of  collateral 
note  containing  stipulation  that  the  collateral 
is  pledged  for  the  payment  "of  this  and  any 
other  hability  or  habihties  of  the  under- 
signed  to   the  Bank,    primary   or 

secondary,  absolute  or  conditional,  due  or 
to  become  due,  or  which  may  hereafter  be 
contracted."  The  bank  asks  whether  it  can 
hold  the  collateral  pledged  with  this  note  for 
an  indebtedness  upon  another  note  unless 
the  other  note  so  specifies.  Opinion: 
Collateral  notes  with  similar  clauses  are  in 
very  common  use,  and  it  is  quite  certain 
that  the  bank  could  apply  any  surplus 
collateral  upon  another  note  of  the  pledgor 
without  the  necessity  of  such  other  note 
containing  a  duphcation  of  this  language. 
{Inquiry  from  Tenn.,  Nov.,  1914.) 


Right  to  apply  collateral  upon  other 
indebtedness 

2602.  A  bank  presents  a  form  of  note 
containing  a  clause  not  only  for  the  payment 
of  this  particular  note  but  "also  for  the 
payment  of  any  other  hability  or  liabilities 
of  the  undersigned  to  the  said  bank  due  or  to 
become  due,  whether  now  existing,  or  here- 
after arising."  Opinion:  Under  the  fore- 
going quoted  provision  of  the  note,  the 
bank  will  be  entitled,  after  payment  of  the 
note  in  full,  to  hold  the  collaterals  and 
apply  upon  the  maker's  liability  on  the 
other  notes  owned  by  the  bank.  {Inquiry 
from  N.  J.,  March,  1918.) 

Contents  of  advertisement  for  sale  of  collateral 

2603.  A  bank  asks  whether  it  is  neces- 
sary, where  a  collateral  note  authorizes  a 
bank  to  make  pubhc  sale  upon  default,  that 
the  pubHshed  notice  or  advertisement  in 
the  newspaper  (1)  give  the  amount  and 
other  terms  of  the  collateral  note,  and  also 
(2)  the  name  of  the  pledgee  bank,  or,  as  to 
this  latter,  whether  "for  the  account  of 
whom  it  may  concern"  is  sufficient.  Opin- 
ion: Ordinarily  it  would  not  be  necessary 
in  the  published  advertisement  to  describe 
the  amount  and  other  terms  of  the  collateral 
note  and  to  give  the  name  of  the  pledgee 
bank  as  the  one  offering  the  collateral  for 
sale.  In  Earle  v.  Grant,  14  R.  I.  228  supra, 
the  court  said:  "The  complainant  also 
seeks  to  avoid  the  sale  because  the  advertise- 
ment, in  advertising  the  shares  for  sale,  did 
not  name  either  the  pledgor  or  pledgee.  It 
does  not  appear  that  it  is  customary  to 
give  names  in  such  advertisements.  No 
case  is  cited  which  holds  that  it  is  necessary 
to  give  them."  The  Laclede  case  (156  Mo. 
270),  holding  otherwise,  is  exceptional  upon 
this  point.  The  underlying  principle  is  that 
the  sale  must  be  made  fairly  and  in  good 
faith  to  protect  the  pledgor  or  it  will  be  set 
aside;  but  there  are  very  few  cases  which 
define  with  particularity  just  what  the 
pubhshed  advertisement  shaU  or  shall  not 
contain,  and  this,  it  seems,  will  depend 
upon  what  is  the  custom  in  the  locality  as 
well  as  the  nature  of  the  collateral  for  sale. 
{Inquiry  from  Ohio,  Aug.,  1916.) 

Purchase  of  collateral  by  pledgee  at  own  sale 

2604.  A  bank  asks  whether,  notwith- 
standing a  collateral  note  gives  the  bank 
power  to  sell  the  collateral  at  pubhc  or 
private  sale,  without  demand,  advertisement 
or  notice,  with  the  further  right  to  the  bank 


588 


PLEDGE  AND  COLLATERAL 


12605-2608 


of  becoming  the  purchaser,  the  law  of 
Pennsylvania  would  require  as  a  pre- 
requisite to  such  sale  an  advertisement  in  a 
local  paper  and  impose  as  a  condition  that 
the  sale  be  at  auction.  Opinion:  There 
seems  to  be  no  statute  in  Pennsylvania  or 
decisions  in  that  state  so  holding.  The 
courts  generally  recognize  the  vahdity  of  a 
contract  dispensing  with  notice  of  sale  and 
giving  the  pledgee  right  to  purchase  at  the 
sale.  For  example,  in  Fidelity,  etc.,  Co.  v. 
Roanoke  Iron  Co.,  81  Fed.  439,  the  holder 
of  collateral  was  given  by  the  terms  of  the 
pledge  full  power  upon  default  to  sell  the 
collateral  at  public  or  private  sale  without 
advertisement  or  notice.  It  was  held 
where  the  sale  was  conducted  in  good  faith, 
and  the  pledgee  purchased  the  collateral, 
that  he  acquired  good  title.  {Inquiry  from 
Pa.,  June,  1914.) 

Liability  of  maker  of  collateral  note  for 
deficiency 

2605.  A  bank  asks  whether  the  maker  of 
a  note,  with  collateral  security,  would  be 
held  responsible  for  the  balance  due  in 
case  the  collateral  depreciates  below  the 
face  amount  of  the  note.  Opinion:  When 
securities  are  sold  and  they  do  not  equal  the 
amount  of  the  note  for  which  they  are 
pledged  as  collateral,  the  holder  has  a  good 
cause  of  action  against  the  maker  for  the 
balance  due  on  the  note.  (Inquiry  from  Pa., 
March,  1919.) 

Collateral  to  note  of  foreign  corporation 
executed  in  state 

2606.  A  note  is  executed  by  a  Pennsyl- 
vania corporation  to  a  bank  for  a  loan,  the 
note  being  executed,  dehvered  and  made 
payable  in  New  Jersey,  and  a  further  note, 
pledging  collateral  for  the  payment  of  the 
first  note,  is  executed  by  a  third  person,  with 
the  usual  power  of  sale,  etc.,  this  second 
note  also  being  a  New  Jersey,  contract.  The 
question  is  whether,  when  the  bank  comes 
to  realize  on  the  collateral  under  the  power 
of  sale,  it  can  safely  do  so  under  the  New 
Jersey  law,  or  would  the  fact  that  the 
maker  of  the  first  note  was  a  Pennsylvania 
corporation  make  it  necessary  to  observe 
any  provision  of  the  Pennsylvania  law. 
Opinion:  The  Pennsylvania  law  would 
not  affect  this  transaction,  that  is  to  say, 
the  contract  pledging  the  collateral,  being  a 
New  Jersey  contract,  would  be  governed 
solely  by  the  New  Jersey  law  as  to  the 
enforcement  of  the  collateral;  this,  if  course, 
upon  the  assumption  that  the  Pennsylvania 


corporation  was  empowered  under  its  charter 
to  borrow  money.  {Inquiry  from  N.  J., 
Oct.,  1918.) 

Collateral  loans  at  any  rate  of  interest 

2607.  A  trust  company  inquires  whether 
the  debtor's  acquiescence,  after  receiving 
notice  that  he  will  be  charged  an  increased 
rate  of  interest  on  a  collateral  loan,  will 
operate  as  an  assent  on  his  part  and  con- 
stitute a  binding  agreement.  Opinion :  The 
bank  has  the  right  to  demand  immediate 
payment  and  sell  the  collateral  on  default, 
and  its  notice  that  the  rate  will  be  increased 
is  virtually  a  communication  to  the  debtor 
that  it  will  not  collect  the  loan  or  foreclose 
the  collateral  if  the  debtor  will  agree  to  pay 
an  increased  rate  of  interest.  It  seems 
that  the  debtor's  acquiescence  in  such  a 
notice  is  an  agreement  upon  his  part  to  the 
increased  rate;  for  if  he  should  dechne  to 
agree  to  the  increased  rate,  the  bank  would 
immediately  sell  the  collateral.  The  custom 
of  banks  of  sending  such  notices  and  the  ac- 
quiescence of  borrowers  in  paying  the 
increased  rate  would  have  a  governing 
effect  on  the  courts  so  that  the  notice  and 
acquiescence  would  be  held  binding  agree- 
ments. In  New  York,  call  loans  of  S5,000 
and  upwards  secured  by  collateral  can  be 
made  at  any  rate  of  interest.  {Inquiry 
from  N.  Y.,  April,  1917.) 

Liability  of  pledgee  to  pledgor  for  excess  of 
collateral  misappropriated  by  second  pledgee 

2608.  (1)  A  executes  a  negotiable  note  to 
B,  pledging  securities  exceeding  in  value 
the  amount  of  note.  B  sells  the  note  to  C, 
who  disposes  of  the  collateral  without 
authority,  keeps  the  proceeds  and  destroys 
the  note.  Is  B  liable  to  A  for  the  difference 
between  value  of  securities  and  amount  of 
note?  (2)  Assuming  that  B  is  hable  to  A, 
and  that  B  is  engaged  in  the  loan  brokerage 
business,  taking  paper  to  himself,  but 
intending  to  dispose  of  it  to  a  client,  of 
which  fact  A  had  knowledge,  would  the 
situation  be  changed?  (3)  Again  assuming 
B's  liabihty,  would  the  following  provision 
in  the  note  affect  the  matter:  In  case  of  a 
sale  of  this  debt  and  the  collateral  to  same, 
the  payee  of  this  note  shall  not  be  liable  for 
an  amount  in  excess  of  the  proceeds  of  such 
sale?  Opinion:  (1)  B  would  be  liable  to  A  for 
the  difference.  (2)  Knowledge  by  A  of  the 
fact  that  B  is  engaged  in  the  loan  brokerage 
business,  taking  paper  payable  to  himself 
with  a  view  of  solHng  it,  would  not  change 
the  habihty  of  B.    (3)  The  provision  in  the 


589 


2609-2612] 


DIGEST  OF  LEGAL  OPINIONS 


note  would  probably  relieve  B  in  case  C 
sold  the  collaterals  for  an  amount  greater 
than  the  debt  and  misappropriated  the 
entire  proceeds.  The  pledgee's  obligation 
to  care  for  the  pledge  may  be  modified  by 
the  express  contract  of  the  parties.  Jones, 
Collateral  Securities,  Section  406.  (Inquiry 
from  Ala.,  July,  1915.) 

Remedy  of  hank  on  hjl  collateral  held  for 
unpaid  draft 

2609.  As  collateral  security  for  an 
unpaid  draft  a  bank  holds  a  bill  of  lading 
covering  automobiles  with  the  following 
indorsement:  "For  value  received  we  here- 
by sell,  transfer,  assign  and  set  over  all  our 
right,  title  and  interest  in  the  within  b/1 
and  cars  shipped  thereunder  to  the  B  bank." 
When  the  drawer  becomes  insolvent  and 
the  purchaser  refuses  to  take  the  automo- 
biles bought,  may  the  bank  dispose  of  them 
without  advertising  and  offering  at  public 
sale?  Opinion:  The  common  law  rule  that 
a  pledgee  of  collateral  upon  default  of  the 
pledgor  in  payment  had  no  right  to  sell  the 
collateral  without  legal  authorization  would 
seem  to  apply  to  a  debt  secured  by  a  bill  of 
lading.  In  the  absence  of  statute  giving  a 
right  of  sale  of  pledged  goods  upon  default — 
the  lien  law  of  Indiana  does  not  seem  broad 
enough  to  give  the  right — it  seems  necessary 
to  take  the  usual  proceedings  to  obtain 
court  authorization  to  dispose  of  the  auto- 
mobiles, in  the  absence,  of  course,  of  a 
special  agreement. 

If  the  indorsement,  above  quoted,  is 
construed  as  a  contract  of  sale,  the  bank 
thereby  became  the  owner  of  the  cars  and  it 
could,  of  course,  dispose  of  its  own  property. 
But,  looking  at  the  entire  transaction  which 
is  one  of  discount  of  a  draft  to  which  is 
attached  a  bill  of  lading,  the  transfer  of  the 
bill  of  lading  might  be  construed  as  one  of 
pledge  rather  than  of  sale;  for  this  is  the 
usual  transaction  where  banks  purchase 
drafts  secured  by  bills  of  lading,  the  real 
buyer  of  the  goods  being  the  drawee  of  the 
draft  and  the  bank  being  merely  the  holder 
of  the  bill  as  collateral  until  the  draft  is 
paid.    {Inquiry  from  Ind.,  Dec,  1918.) 

Application  of  surplus  collateral 

Application  of  surplus  security  pledged  for 
specific  debt 

2610.  It  is  a  well  established  rule  at 
common  law  that,  in  the  absence  of  an 
agreement  to  the  contrary,  securities  pledged 
to  a  bank  to  secure  a  specified  demand  can- 


not be  held  for  other  demands  though  against 
the  same  debtor.  It  is  owing  to  such  rule 
that  clauses  are  inserted  in  collateral  notes 
making  the  provision  that  such  collateral  is 
not  only  pledged  for  a  particular  debt  but 
for  any  other  liability  of  the  pledgor. 
Trueber  v.  Dane,  (Mass.)  89  N.  E.  227. 
{Inquiry  from  Ala.,  July,  1910,  Jl.) 

Surplus  cannot  be  applied  on  other  indebted- 
ness without  agreement 

2611.  Bank  A  borrowed  $5,000  from 
Bank  B,  executing  its  note  therefor,  and 
pledging  $10,000  as  collateral  in  goods  receiv- 
able. The  note  did  not  provide  that  the 
collateral  was  to  secure  ''this  or  any  other 
indebtedness  that  may  be  incurred."  Bank 
A  overdrew  its  account  by  $5,000  and  be- 
came bankrupt.  Bank  B  desires  to  apply 
all  the  proceeds  of  the  $10,000  collateral  in 
payment  of  the  overdraft  as  well  as  the 
note.  Opinion:  The  collateral  being  pledged 
for  a  specific  debt.  Bank  B  cannot  in  the 
absence  of  an  agreement  apply  the  surplus 
to  another  indebtedness.  Bank  B  cannot 
olaim  the  surplus  under  the  doctrine  of 
banker's  lien,  because  the  collateral  was  not 
received  in  the  ordinary  course  of  business 
but  for  a  specific  purpose.  Reynes  v.  Du- 
mont,  130  U.  S.  354.  Bock  v.  Gorrissen, 
2  De  Gex  F.  &  J.  434,  443.  In  re  Medewe, 
26  Beav.  588.  Vanderzee  v.  Willis,  3  Brown 
Ch.  21.  Bk.  V.  Ins.  Co.,  104  U.  S.  54,  71. 
Russell  V.  Haddock,  3  Oilman  (111.)  233, 
238.  Duncan  v.  Brennan,  83  N.  Y.  487. 
Bk.  V.  Leland,  5  Mete.  (Mass.)  259.  Wyckoff 
V.  Anthony,  90  N.  Y.  442.  Lloyd  v.  Lynch- 
burg Nat.  Bk.,  86  Va.  690.  Bacon  v. 
Bacon,  94  Va.  686.  {Inquiry  from  Tenn., 
Sept.,  1915,  Jl.) 

Surplus   collateral  on  firm  note   cannot  be 

applied  on  partner's  note  in  absence  of 

agreement 

2612.  A  bank  held  a  firm  note  which 
was  secured  by  collateral  and  also  held  a 
past  due  note  of  a  third  person  which  bore 
the  indorsement  of  one  of  the  firm  members. 
The  firm  became  bankrupt  and  the  bank, 
after  selling  the  collateral  in  satisfaction  of 
the  firm  debt,  attempted  to  apply  the 
surplus  on  the  indorsed  note.  Opinion: 
The  bank  cannot  appropriate  the  surplus  of 
the  collateral  upon  the  independent  debt  of 
the  individual  member  of  the  firm,  in  the 
absence  of  an  agreement.  Mclntire  v. 
Blakeley,  (Pa.)  12  Atl.  325.  {Inquiry  from 
Pa.,  Dec,  1908,  Jl.) 


590 


PLEDGE  AND  COLLATERAL 


[2613-2617 


k 


Provision  in  collateral  note  as  to   application 
of  surplus  collateral 

2613.  The  following  clause  inserted  in  a 
note  is  legal  and  can  be  enforced:  "and  it  is 
hereby  agreed  that  such  surplus,  or  any- 
excess  of  collateral  upon  this  note,  shall  be 
applicable    to    any    other    note    or    claim 

against held  by  said  bank." 

This  form  would  be  improved  by  adding  a 
provision  that  the  collateral  might  be  held 
and  applied  upon  any  other  note  or  claim 
against  the  individual  maker  or  against  any 
firm  of  which  he  is  a  member.  Hollowell  v. 
Blackstone  Nat.  Bk.,  154  Mass.  359.  Bk.  v. 
Blocker,  77  Tex.  73.  (Inquiry  from  Pa., 
Sept.,  1912,  Jl.) 

Accounts  receivable  as  collateral 

Essentials  of  valid  assignment 

2614.  To  constitute  a  valid  pledge  of 
an  account  receivable  there  must  be  an 
assignment  in  writing,  mere  dehvery  of  a 
copy  of  the  account  being  insufficient.  In 
case  of  such  assignment  of  accounts,  the 
bank  is  safe  if  the  debtor  is  notified  before 
payment  to  the  assignor;  or  where  the 
borrower  acts  as  the  lender's  agent  to  collect 
the  accounts,  a  bond  or  security  for  the 
fidelity  of  the  agent  should  be  required. 
Where  the  assigmnent  is  for  the  purpose  of 
securing  credit  and  not  for  a  prior  debt,  the 
bank,  in  the  event  of  the  borrower's  bank- 
ruptcy, would  have  a  prior  claim  upon  such 
accounts  for  the  amount  of  its  advances; 
but  where  the  assignment  is  made  within 
four  months  of  the  borrower's  bankruptcy 
for  the  purpose  of  securing  an  existing 
debt,  such  assignment  would  probably  be 
void  as  a  preference.  Exch.  Nat.  Bk.  v. 
Fed.  Nat.  Bk.,  (Pa.)  75  Atl.  683.  In  re 
Cotton  Mfg.  Sales  Co.,  209  Fed.  629. 
(Inquiry  from  Pa.,  Jan.,  1916,  Jl.) 

Accounts  receivable  of  manufacturing  concern 

2615.  A  bank  asks  what  recourse  it  has 
against  a  manufacturing  concern  for  whom  a 
receiver  has  been  appointed  and  whose 
accounts  receivable  were  assigned  to  the 
bank  as  security  for  their  note  with  the 
understanding  that  they  would  collect  the 
accounts  and  remit  monthly.  Opinion:  If 
there  was  a  valid  assignment  of  these 
accounts  to  the  bank  and  the  proceeds  have 
gone  into  the  receiver's  hands,  the  bank 
would  be  entitled  to  such  proceeds  as  its 
property.  If,  on  the  other  hand,  there  was 
no  valid  pledge  of  the  accounts  to  the  bank, 
or  if  there  was  a  valid  pledge,  but  the  pro- 


ceeds were  used  by  the  concern  and  did  not 
go  into  the  hands  of  the  receiver,  then  the 
bank  would  be  limited  to  proving  claims  for 
the  amount  of  the  indebtedness  against  the 
manufacturing  concern  and  would  receive 
only  such  dividends  as  their  assets  might 
pay.  It  has  not  been  made  clear  just  how 
these  accounts  were  assigned  to  the  bank; 
simply  that  it  purchased  demand  paper 
secured  by  accounts  receivable.  In  view 
of  a  recent  decision  of  the  Supreme  Court  of 
Pennsylvania,  the  form  of  the  transaction  is 
important.  In  American  Exchange  National 
Bank  v.  Federal  Nat.  Bank,  75  Atl.  (Pa.) 
683,  a  manufacturing  concern  gave  a 
collateral  note  to  a  bank  which  recited  that 
there  was  deposited  as  collateral  certain 
accounts  receivable.  Copies  of  the  accounts 
were  delivered  to  the  bank.  The  manufac- 
turing concern  was  to  collect  the  accounts 
but  the  bank  never  got  the  proceeds.  The 
court  held  that  mere  delivery  with  the 
collateral  note  did  not  constitute  a  vahd 
pledge  or  give  the  bank  a  Hen  on  the  account. 
(Inquiry  from  Pa.,  Dec,  1915.) 

Assignment  of  accounts  for  past  indebtedness 

2616.  A  bank  wishes  to  be  advised  as  to 
its  position  where  a  customer  comes  to  the 
bank  and  assigns  to  it  a  list  of  accounts  and 
guarantees  their  genuineness,  said  accounts 
to  be  applied  on  his  indebtedness,  and  it 
subsequently  develops  that  some  of  the 
accounts  assigned  had  already  been  collected 
by  him,  and  later  he  collects  some  of  them 
and  refuses  to  turn  over  the  proceeds  to  the 
bank.  Opinion:  Assmning  the  accounts 
assigned  to  the  bank  were  security  for  an 
existing  indebtedness,  there  would  be  no 
criminal  hability  of  the  customer  because 
some  of  the  accounts  were  not  genuine  but 
had  been  collected  before  the  assignment. 
As  to  these,  he  would  not  be  ol^taining  any 
money  or  property  from  the  bank  under 
false  pretenses.  But  as  to  the  other  accounts 
he  would  be  criminally  liable.  (Inquiry 
from  Okla.,  Sept.,  1918.) 

Negotiable  notes  as  collateral 

Enforcement    of    negotiable    collateral    notes 

2617.  Bank  loaning  $250,  and  taking  as 
collateral  an  unmatured  negotiable  note  of 
third  person  for  S500,is  a  holder  for  value  to 
the  extent  of  the  amount  advanced  with 
interest  and  can  enforce  the  collateral  note 
for  that  amount,  free  from  defenses  available 
to  the  maker  against  the  payee.  If  the 
collateral  note  is  not  subject  to  defense,  the 


591 


2618-2621] 


DIGEST  OF  LEGAL  OPINIONS 


full  amount  is  recoverable,  the  bank  being 
accountable  for  the  surplus  to  the  pledgor. 
Swift  V.  Tyson,  16  Pet.  (U.  S.)  1.  Sears  v. 
Lantz,  47  Iowa  658.  Des  Moines  Nat.  Bk. 
V.  Chishokn,  71  Iowa  675.  31  Cyc.  888. 
Vos  V.  Chamberlain,  (Iowa)  117  N.  W.  268. 
Elk  Valley  Coal  Co.  v.  Third  Nat.  Bk., 
(Ky.)  163  S.  W.  766.  {Inquiry  from  Iowa, 
Nov.,  1916,  Jl.) 

Rights  of  pledgee  of  negotiable  note 

2618.  A  makes  his  note  payable  to  the 
bank  for  value  and  as  collateral  indorses 
over  to  the  bank  the  note  of  B  payable  to  A. 
The  bank  asks  if  the  maker  B  is  estopped 
from  setting  up  defenses  against  A.  Opinion: 
It  is  a  general  rule  that  one  taking  negotiable 
paper  before  maturity  as  collateral  security 
is,  for  all  practical  purposes,  the  owner  of  it 
and  a  bona  fide  holder  for  value  and  may 
collect  it,  at  least  to  the  extent  of  the  debt 
for  which  it  was  pledged,  without  regard  to 
the  equities  between  the  original  parties, 
whether  arising  out  of  the  original  trans- 
action or  from  subsequent  dealings.  It 
follows  that  B  could  not  set  up  a  defense 
against  A  in  an  action  by  the  bank  on  the 
collateral  note.  {Inquiry  from  Wash., 
July,  1915.) 

Right  of  pledgee  to  collect  negotiable  note  hut 
not  to  apply  until  debt  matures 

2619.  Where  a  bank  makes  a  loan  and 
accepts  as  collateral  security  the  note  of  a 
third  party,  does  it  become  the  duty  of  the 
bank  to  make  collection  of  any  principal  or 
interest  payment,  on  the  note  so  pledged, 
which  mature  before  the  note  accepted  by 
the  bank  from  the  borrower?  Opinion:  The 
following  extracts  from  Jones  on  Collateral 
Securities,  supported  by  citation  of  authority, 
seem  to  answer  the  question:  "The  pledgee 
may  enforce  payment  of  collateral  paper 
upon  its  maturity,  although  the  principal 
debt  has  not  then  matured.  Yet,  while  he  is 
entitled  to  collect  a  collateral  note  upon  its 
maturity,  he  has  no  right  to  apply  the 
proceeds  to  the  payment  of  his  loan  until 
after  default  in  the  payment  of  that.  The 
money  when  received  is  a  substitute  for  the 
note,  and  is  to  be  held  upon  the  same  terms, 
and  subject  to  the  same  rights  and  duties 
as  the  note.  If  the  debt  secured  is  payable  at 
a  definite  time,  no  application  of  the  pro- 
ceeds of  a  collateral  note  can  be  made  until 
that  time  arrives.  If  the  debt  secured  is 
payable  upon  demand,  a  demand  upon  the 
debtor  must  be  made  before  applying  the 
proceeds   of   a   collateral   note."     "If  the 


collateral  note  be  pledged  with  the  under- 
standing that  it  is  not  to  be  resorted  to 
unless  the  maker  of  the  principal  note  fails 
to  pay  that  at  maturity,  then  a  suit  upon 
the  collateral  note  cannot  be  maintained 
until  both  notes  are  due."  "But  a  pledgee 
is  not  bound  to  collect  the  collateral  security 
upon  its  maturity  before  the  maturity  of  the 
principal  debt,  except  upon  the  request  of 
the  pledgor,  or  in  pursuance  of  an  express 
contract  to  do  so."  {Inquiry  from  Fla., 
Oct.,  1915.) 

Enforcement  by  suit  and  by  public  or 
private  sale 

2620.  A  bank  asks  whether,  when  notes 
are  pledged  as  collateral  security,  it  has  a 
right  to  bring  suit  on  the  notes  even  though 
the  collateral  notes  also  give  the  power  to 
sell  the  security  at  public  or  private  sale; 
and  also  asks  what  is  the  procedure  at 
public  or  private  sale.  Opinion:  1.  Where 
notes  are  pledged  as  collateral  security  the 
bank  has  a  right  to  bring  suits  thereon  even 
though  the  collateral  note  gives  the  power 
to  sell  the  security  at  public  or  private  sale. 
In  fact,  except  for  the  special  power  of  sale, 
the  bank  could  not  sell  the  notes  but  could 
only  sue  to  enforce  them.  In  case  the  bank 
offered  the  notes  for  sale,  and  no  purchaser 
could  be  found,  the  bank  could  bring  suit. 
2.  As  to  the  procedure  at  pubhc  or  private 
sale.  In  case  of  public  sale,  unless  notice  is 
waived,  reasonable  notice  must  be  given  the 
pledgor  of  the  time  and  place  of  sale  and  the 
same  must  be  advertised  a  reasonable  time 
before  the  date  fixed.  Just  what  the  pub- 
lished notice  should  contain  is  somewhat 
of  local  custom  and  also  depends  on  the 
nature  of  the  collateral.  In  case  of  private 
sale,  a  purchaser  is  usually  obtained  by 
negotiation.  {Inquiry  from  Minn.,  Aug., 
1916.) 

Sale  before  maturity  of  note  pledged  as  collateral 
security 

2621.  A  note  for  $300,  payable  in  a  year, 
was  pledged  by  the  payees  as  collateral  for 
their  note  for  $80,  payable  in  four  months. 
Collateral  note  contained  the  usual  power  of 
sale.  Information  is  desired  as  to  whether, 
upon  the  dishonor  of  the  $80  note,  the 
pledgees  of  the  $300  note  can  sell  same  before 
its  maturity  at  less  than  its  face  value;  and 
if  so,  could  they  sell  to  the  maker  oJF  the 
note  or  his  representative,  and  would  they 
have  to  account  to  the  pledgors  for  the 
difference  between  the  face  value  of  the 
note  at  maturity  and  the  amount  reahzed 


592 


PLEDGE  AND  COLLATERAL 


[2622-2625 


by  them  upon  its  sale?  Opinion:  Where 
a  note  for  S300  is  pledged  for  a  loan  of 
$80  accompanying  a  collateral  note  giving 
the  pledgee  the  power  to  sell  at  public  or 
private  sale  without  notice,  upon  default, 
and  there  is  default  in  payment  of  the  $80 
note,  the  pledgee  has  the  right  under  the 
power  to  sell  the  $300  note  although  the 
same  is  not  due;  but  in  the  exercise  of  such 
right,  due  regard  must  be  given  to  the 
interests  of  the  pledgor;  the  sale  must 
be  bona  fide,  and  the  collateral  must  not  be 
sacrificed;  otherwise  such  sale  might  be 
held  invalid,  and  the  pledgee  liable  to  the 
pledgor  for  conversion.  (In  re  Litchfield 
Bank,  28  Conn.  575.  Joilet,  etc..  Steel  Co. 
V.  Scioto,  etc.,  Co.,  82  111.  548.  Gay  v.  Moss, 
34  Cal.  125.  Halleck,  etc.,  Co.  v.  Gray,  19 
Colo.  149.  Hunter  v.  Hamilton,  52  Kan. 
195  Cleghorn  v.  Minn.,  etc.,  Trust  Co., 
57  Minn.  341.  Fhcher  v.  Dickinson,  7  Allen 
[Mass.]  23  Minn.  Boswell  v.  Thigpen,  75 
Miss.  308.  Morris,  etc..  Bank  Co.  v.  Lewis, 
12  N.  J.  Eq.  323.  Garhck  v.  James,  12 
Johns.  [N.  Y.]  146.  Handy  v.  Sibley,  46 
Ohio  St.  9.  Dwight  v.  Singer,  27  Pa. 
Super,,  119.  Brightman  v.  Reeves,  21  Tex. 
70.  Whittiker  v.  Charleston  Gas.  Co.,  16 
W.  Va.  717.  Mowry  v.  First  Nat.  Bank, 
54  Wis.  38.)  The  sale  or  surrender  of  the 
$300  note  to  the  makers  thereof  for  less  than 
the  face  value  would  probably  not  be 
authorized  under  the  terms  of  the  power  of 
sale.  (Union  Trust  Co.  v.  Rigdon,  93  111. 
458.  Sparhawk  v.  Drexell,  12  Bank.  Reg. 
450) .    {Inquiry  from  Wis.,  Feb.,  1920,  Jl.) 

Enforceability  of  negotiable  machinery  notes 
pledged  as  collateral 

2622.  A  wholesale  house  delivered  ma- 
chinery to  a  retail  firm,  title  to  which  was 
to  remain  in  the  former  until  paid  for  by 
virtue  of  a  contract  which  was  put  on 
record.  The  firm  received  several  notes 
from  various  purchasers  of  the  machinery, 
which  notes  it  pledged  as  collateral  security 
for  a  loan  from  the  firm's  bank.  The  notes 
contained  statements  to  the  effect  that  they 
were  in  payment  for  a  plow  or  other  specified 
articles.  The  borrowing  firm  became  insol- 
vent. The  bank  seeks  to  enforce  the  notes, 
and  the  wholesale  house,  as  owner  of  the 
machinery,  makes  a  demand  on  the  bank  for 
a  portion  of  the  notes.  Opinion:  The  recital 
in  the  notes  that  they  were  given  in  payment 
for  certain  articles  of  machinery  does  not 
affect  their  negotiability.  The  notes  are 
enforceable  by  the  bank  free  from  any 
equities  and  the  bank  is  entitled  to  the  pro- 


ceeds as  against  the  claim  of  the  owner  of 
the  machinery.  The  fact  that  the  wholesale 
house  held  the  machinery  under  contract, 
which  wa^  recorded,  whereby  title  thereto 
should  remain  in  the  house  until  the 
machinery  was  paid  for,  would  not  affect 
the  rights  of  the  bank  as  holder  in  due 
course  of  the  collateral  notes.  Chicago  Ry. 
Equip.  Co.  V.  Merchants  Nat.  Bk.,  136  U. 
S.  268.  Mott  V.  Havana  Nat.  Bk.,  22  Hun 
(N.  Y.)  354.  Third  Nat.  Bk.  v.  Bowman, 
50  N.  Y.  App.  Div.  56.  Pope  v.  Lumber 
Co.,  162  N.  C.  206,  78  S.  E.  65.  {Inquiry 
from  Minn.,  Jan.,  1917,  Jl.) 

Part  payment  after  note  assigned  as  collateral 

2623.  X  issued  his  negotiable  note  of 
$200  payable  to  A,  which  was  indorsed  to 
B  as  collateral.  X  paid  A  $100  on  the  note, 
taking  A's  receipt,  but  A  failed  to  advise  B 
to  make  the  proper  credit  on  the  note.  A 
failed  and  B  seeks  to  collect  the  full  amount 
from  X.  Opinion:  Payment  by  X  to  A  was 
ineffective  against  B,  who  can  recover  the 
full  amount  of  the  note  or  so  much  thereof 
as  will  satisfy  his  lien.  Prim  v.  Hammel, 
(Ala.)  32  So.  1006.  Farmer  v.  First  Nat. 
Bk.,  (Ark.)  115  S.  W.  1141.  Davis  v.  Miller, 
14  Gratt.  (Va.)  1.  {Inquiry  from  La.,  Aug., 
1915,  Jl.) 

Government  securities  as  collateral 

Liberty  bond  as  collateral  security 

2624.  A  bank  loaned  its  depositor  $100, 
taking  his  note  therefor,  payable  October 
23,  1918,  and  holding  his  $100  Liberty 
bond  which  he  purchased  with  the  money 
borrowed  as  securit}^  for  the  note.  In  view 
of  the  fact  that  his  bond  is  a  little  below  par, 
the  bank  seeks  to  ho'd  $10  of  his  deposit 
balance  as  additional  security,  while  the  de- 
positor seeks  to  withdraw  the  entire  balance. 
Opinion:  A  bank  which  holds  the  unma- 
tured note  of  depositor  secured  by  a  Liberty 
bond,  purchased  with  proceeds  of  note, 
cannot  retain  a  portion  of  depositor's  bal- 
ance, before  maturity  of  note,  as  additonal 
security  for  its  payment,  in  the  absence  of 
express  contract.  {Inquiry  from  S.  D., 
April,  1918,  Jl.) 

Unindorsed  government  bond  as  collateral 

2625.  Some  time  ago  a  borrower  de- 
posited in  a  bank  a  registered  U.  S.  bond  as 
collateral  for  any  indebtedness  he  may  have, 
at  which  time  no  assignment  thereof  was 
procured.  The  bank  asks  whether  it  can 
apply   the  bond   to  present  indebtedness. 


593 


2626-2629] 


DIGEST  OF  LEGAL  OPINIONS 


Opin ion :  The  bank  has  title  to  the  bond  and 
is  a  holder  to  the  extent  of  its  Hen.  It  has 
a  right  to  have  the  indorsement  of  the 
bond  by  the  borrower,  Sees.  49  and  47  of 
Negotiable  Instruments  Act.  In  view 
thereof,  the  bank  would  have  the  right  to 
sell  the  bond,  upon  default,  at  public  auction, 
upon  giving  the  pledgor  reasonal)le  time  to 
redeem ;  or,  if  the  bank  has  a  special  form  of 
collateral  note  under  which  this  bond  has 
been  pledged  authorizing  pubhc  or  private 
sale  without  notice,  it  can  pursue  its  remedy 
under  this,  (hiquiry  from  W.  Va.,  June, 
1919.) 

Pledge  hy  bank  of  deposited  Liberty  bonds  for 
which  interest-bearing  certificate  issued 

2626.  Bank  A  issued  a  certificate  of 
deposit,  certifying  that  B  had  deposited 
five  hundred  dollars  par  value  in  U.  S. 
Second  Libert}'^  Loan  bonds  returnable  to 
him  or  his  order  on  surrender  of  certificate 
properly  indorsed,  the  interest  thereon  being 
payable  in  lieu  of  the  interest  on  such  bonds. 
Would  the  bank  have  the  right  to  pledge 
the-e  bonds  as  security  for  deposits,  etc.? 
Opinion:  If  the  bonds  deposited  under  this 
certificate  were  to  be  regarded  as  a  special 
deposit,  of  which  the  bank  was  bailee  and 
the  depositor  remained  owner,  the  bank 
would  have  no  right  to  pledge  the  bonds  as 
security  for  deposits,  etc.  But  under  the 
terms  of  the  certificate,  the  specific  bonds 
are  not  to  be  returned  and  interest  is  payable 
thereon  in  lieu  of  the  interest  on  such  bonds. 
It  would  seem  that,  thereunder,  the  bank 
could  treat  the  bonds  as  its  own  property, 
being  indebted  for  a  like  amount  of  bonds, 
and  if  so,  couM  pledge  them  as  security  for 
deposits  made  with  it.  It  might  be  better  if 
a  clause,  giving  the  specific  right  to  pledge, 
was  inserted  in  the  certificate.  (Inquiry 
from  N.  M.,  March,  1919.) 

War  Savings  certificates  as  collateral  security 

2627.  Several  customers  of  a  bank 
desire  to  pledge  their  War  Savings  stamps 
as  security  for  payment  of  notes  given  for 
the  balance  of  the  purchase  monej^  of  such 
stamps.  Opinion:  W^ar  Savings  certificates 
cannot  be  lawfully  pledged  to  a  bank  by  the 
owner  whose  name  appears  therein  as  col- 
lateral security  for  a  loan,  in  view  of  the  con- 
dition therein  that  the  certificate  is  "not 
transferable."  U.  S.  Rev.  St.,  Ch.  56,  Sec. 
6.  Sands  v.  Curfman,  (Tex.)  177  S.  W.  16L 
U.  S.  Rev.  St.,  Sec.  3477.  Price  v.  Forrest, 
173  U.  S.  410.  Ball  v.  Halsell,  161  U.  S.  72. 
Hagar  v.  Swayne,  149  U.  S.  242.    U.  S.  v. 


GilUs,  95  U.  S.  407.    Erwin  v.  U.  S.  97  U.  S. 
392.     (Inquiry  from  Miss.,  Sept.,   1918,  Jl.) 

2628.  A  bank  asks  whether  War  Savings 
certificates  can  be  lawfully  pledged  to  a 
bank  as  collateral  security  for  a  loan  by  the 
owner  whose  name  does  not  appear  there- 
on, but  on  which  the  space  for  owner's 
name  is  left  blank.  Opinion:  There  is 
nothing  to  prevent  the  certificate  passing 
from  hand  to  hand,  the  same  as  money  would, 
and  the  holder,  whoever  he  may  be,  could 
have  his  name  inserted  as  owner.  Never- 
theless, it  is  the  intention  of  the  law  that 
such  certificates  shall  not  be  transferred  but 
held  by  the  original  investor  and  it  is  express- 
ly provided  as  a  condition  that  they  are  not 
transferable.  Now,  if  the  holder  of  a  blank 
certificate  pledges  same  to  a  bank,  there  is 
evidence  from  the  mere  fact  of  pledge  that 
the  original  owner  has  transferred  the  same 
and  some  comphcation  might  possibly  arise 
as  to  the  validity  of  the  pledge  where  the 
bank  sought  to  realize  on  the  collateral.  At 
the  same  time,  a  blank  certificate  of  itself 
carries  no  more  evidence  of  prior  ownership 
than  a  postage  stamp  ancl  probably  the 
bank  might  safely  hold  such  blank  certificate 
as  collateral  for  a  loan.  It  seems  impossible 
to  answer  more  definitely.  (Inquiry  from 
Miss.,  Oct.,  1918.) 

Corporate  stock  as  collateral 

Sale  under  power  in  note 

2629.  A  bank  holds  certain  shares  of 
stock  as  security  for  a  collateral  note,  which 
contains  this  provision:  "Having  deposited 
with  said  bank,  as  collateral  security,  fifty 
shares  American  Telephone  &  Telegraph 
Company  stock,  with  authority  to  sell  the 
same  on  non-performance  of  this  promise,  in 
such  manner  as  they  in  their  discretion  m&y 
deem  proper,  without  notice,  either  at  the 
New  York  Stock  Exchange  or  at  public  or 
private  sale,  and  to  apply  the  proceeds 
thereon."  Bank  asks  whether  it  would  be 
justified  in  notifying  the  maker  that  unless 
the  note  is  taken  care  of  by  a  certain  date  it 
would  sell  the  collateral  on  the  Stock  Ex- 
change and  apply  the  proceeds  on  the  note. 
Bank's  attorney  advises  it  that,  in  his  opin- 
ion, this  procedure  would  not  be  upheld  bj'' 
the  court,  but  the  provisions  of  the  statute 
covering  foreclosure  of  a  lien  must  be 
followed.  Opinion:  The  rule  is  well  settled 
that  a  waiver  of  the  requirement  of  notice 
of  the  pledgee's  intention  to  sell,  and  of  the 
time  and  place  of  sale,  may  be  made  by 
agreement  of  parties.  (WilUams  v.  Hahn,  1 13 
Cal.  475.     Loomis  v.   Stave,   72  111.   623. 


594 


PLEDGE  AND  COLLATERAL 


[2630-2633 


McDowell  V.  Chicago  Steel  Works,  124  111. 
49L  Bryson  v.  Rayner,  25  Md.  424. 
Mowry  v.  Wood,  12  Wis.  413.)  And  where 
securities  are  pledged  with  a  bank  under  a 
collateral  note  which  authorizes  sale,  in 
case  of  non-payment,  without  notice,  either 
at  the  New  York  Stock  Exchange  or  at 
public  or  private  sale,  the  bank  is  entitled 
to  sell  the  collateral  on  the  Stock  Exchange, 
without  notice,  in  event  of  non-payment, 
and  apply  the  proceeds  on  the  note.  A 
notice  given  the  maker  that  unless  the  note 
is  taken  care  of  by  a  certain  date  the 
collateral  will  be  sold  on  the  Stock  Exchange, 
wliile  not  legally  necessary,  is  a  proper 
procedure.  Robinson  v.  Hurley,  11  Iowa 
410.  Hamilton  v.  State  Bank,  22  Iowa  306. 
Williams  v.  U.  S.  Trust  Co.,  133  N.  Y.  660. 
Baker  v.  Drake,  66  N.  Y.  518.  Genet  v. 
Rowland,  45  Barb.  (N.  Y.)  560.  Milliken 
v.  Dehon,  27  N.  Y.  364.  And  see  Toplitz 
v.  Bauer,  161  N.  Y.  325,  55  N.  E.  1059. 
Barber  v.  Hathaway,  169  N.  Y.  575. 
Ogden  v.  Lathrop,  65  N.  Y.  158.  Nelson  v. 
Edwards,  40  Barb.  (N.  Y.)  279.  Boyen  v. 
Baldwin,  52  N.  Y.  232.  Wheeler  v.  New- 
bould,  16  N.  Y.  392.  {Inquiry  from  N.  Y., 
Dec,  1919,  Jl) 

Sale  of  stock  collateral  on  outlawed  note 


2630.  A  bank  held  a  note  for 
secured  by  a  stock  certificate  with  power  of 
sale.  The  note  became  outlawed  by  the 
statute  of  limitations.  The  bank  wishes 
to  sell  the  collateral  and  apply  the  proceeds 
towards  payment  of  the  note  in  order  to  re- 
vive the  indebtedness.  Opinion:  The  bank 
has  the  right  to  sell  the  stock,  but  the  note 
once  outlawed  could  not  be  revived  by 
crediting  the  proceeds  on  the  note.  Conway 
V.  Caswell,  121  Ga.  254.  Shaw  v.  Silloway, 
145  Mass.  503.  Drake  v.  Wetmore,  67  Hun 
(N.  Y.)  77.  Sproul  v.  Standard  Plate  Glass 
Co.,  201  Pa.  St.  103.  Lyon  v.  St.  Bk.,  12 
Ala.  508.  Hartranft's  Est.,  153  Pa.  530. 
{Inquiry  from  N.  C,  Sept.,  1913,  Jl.) 

Certificate  of  stock  indorsed    "for  collateral 
purposes" 

2631.  A  bank  is  offered,  as  collateral  for 
a  note,  a  stock  certificate  indorsed  "for 
collateral  purposes,  John  Smith,"  and  the 
bank  asks  whether,  if  it  should  be  forced  to 
take  the  stock  in  payment  of  the  note,  it 
could  have  the  stock  transferred  to  its 
name.  Opinion:  It  seems  the  indorsement 
of  a  certificate  of  stock,  as  above  quoted,  is  a 
vahd  indorsement,  so  that,  if  the  bank  were 
forced  to  take  the  stock  in  payment  of  the 


note,  it  would  have  the  right  to  have  it 
transferred  to  its  name.  The  mere  indorse- 
ment "John  Smith"  would  be  suflacient  to 
assign  the  certificate  and  the  coupling  that 
it  is  for  collateral  purposes  would  not  affect 
the  validity  of  the  bank's  title  as  pledgee. 
{Inquiry  from  Cal.,  Oct.,  1916.) 

Transfer  of  unindorsed  stock  collateral  under 
power  contained  in  collateral  note 

2632.  A  collateral  note  contains  the 
following  provision:  "Upon  default  in  the 
payment  of  any  'obligations'  to  the  holder 
hereof,  such  holder  shall  have  full  power 
and  authority  to  sell  and  assign  all  or  any 
part  of  the  'collateral'  at  any  Brokers' 
Board,  or  at  pubhc  or  private  sale,  etc." 
Does  this  provision  authorize,  in  case  of 
default  in  payment  of  the  collateral  note, 
the  transfer  of  a  stock  certificate  attached  to 
the  note  as  collateral,  where  the  certificate 
is  not  signed  for  transfer  by  the  borrower? 
In  other  words,  does  this  provision  constitute 
a  power  of  attorney?  Opinion:  The 
Uniform  Stock  Transfer  Act,  which  is  in 
force  in  Mar3'land  provides  that  a  stock 
certificate  can  be  transferred  "(b)  By 
delivery  of  the  certificate  and  a  separate 
document  containing  ...  a  power  of  attorney 
to  sell,  assign  or  transfer  the  same  or  the 
shares  represented  thereby.  Such  .  .  .  power 
of  attorney  may  be  either  in  blank  or  to  a 
specified  person."  It  would  seem  that 
the  power  contained  in  the  collateral  note 
would  be  sufficient  without  the  signature 
of  the  borrower  to  the  power  of  attorney  on 
the  stock  certificate  itself.  At  the  same 
time,  the  latter  is  the  better  procedure.  See 
Uniform  Stock  Transfer  Act,  Sec.  4,  under 
which  the  rights  of  a  transferee  under  a 
separate  power  of  attorney  may  be  sub- 
ordinated to  those  of  a  person  taking  the 
certificate  in  good  faith  for  value  without 
notice  of  the  prior  transfer.  {Inquiry  from 
Md.,  March,  1921.) 

Right  of  unrecorded  pledgee  to  dividends  as 
against  attaching  creditor 

2633.  A  bank  held  as  collateral  certain 
stocks  of  a  company  indebted  to  the  bank, 
upon  which  a  dividend  was  declared.  After 
the  dividend  was  due  and  before  received 
by  the  bank,  the  funds  of  the  pledgor  with 
the  company  were  attached  by  one  of  its 
creditors.  Opinion:  The  bank  had  the 
right  as  unrecorded  pledgee  of  the  stock  to 
the  dividends  declared  thereon,  as  against 
an  attaching  creditor  of  the  pledgor. 
Donally    v.    Hearndon,    41    W.    Va.    519. 


595 


2634-2637] 


DIGEST  OF  LEGAL  OPINIONS 


Lipscomb's  Admr.  v.  Condon,  56  W.  Va. 
516.  Jones  on  Collateral  Securities.  {In- 
quiry from  W.  Va.,  Feb.,  1913,  Jl.) 

Necessity  of  hook  transfer  to  protect  pledgee 

against   attaching   creditor   of  corporate 

stock  in  Connecticut 

2634.  A  bank  asks  the  meaning  of  the 
opinion  of  the  Attorney  General  of  Connecti- 
cut to  the  Bank  Commissioner  as  to  the 
effect  of  the  amendment  made  by  Chapter 
149  of  the  Pubhc  Acts  of  1915  to  Section  20 
of  Chapter  194  of  the  Pubhc  Acts  of  1903 
concerning  the  pledge  of  stock  of  corpora- 
tions. Opinion:  The  Attorney  General 
refers  to  decisions  of  the  Supreme  Court  of 
Connecticut  construing  statutes  requiring 
transfers  of  stock  to  be  registered  on  the 
corporate  books,  so  as  to  give  attachment 
or  execution  precedence  over  a  prior  un- 
registered sale  or  pledge  of  the  certificate  of 
stock.  It  would  appear  that  the  legislature 
by  its  amendment  of  1915  attempted  to 
change  the  law  so  that  book  transfers  would 
not  be  required  to  protect  the  pledgee  against 
a  subsequent  attaching  creditor.  The 
purport  of  the  opinion  of  the  Attorney 
General  in  that  the  legislature  has  not  so 
effectively  changed  the  law  as  to  make  it 
clear  beyond  doubt  that  a  pledge  of  corpo- 
rate stock  as  collateral,  without  book  trans- 
fer, would  take  precedence  over  an  attaching 
creditor.  He  says  in  substance  that,  until 
the  Connecticut  courts  distinctly  and  specifi- 
cally hold  under  ithe  amended  statute  that 
the  unrecorded  pledge  takes  superior  rights 
to  the  attaching  creditor,  it  would  not  be 
entirely  safe  for  a  pledgee  bank  to  rely  on 
mere  delivery  of  the  shares  without  transfer 
upon  the  books  of  the  corporation.  {Inquiry 
from  Conn.,  Aug.,  1915.) 

Note:  The  Uniform  Stock  Transfer  Act 
was  passed  in  Connecticut  in  1918,  by 
Section  13  of  which  no  attachment  upon 
the  shares  is  valid  until  the  certificate  is 
actually  seized,  or  surrendered  to  the  issuing 
corporation,  or  transfer  by  the  holder  is 
enjoined. 

hien  of  corporation  on  stock  after  notice 
of  pledge 

2635.  A  bank  asks  whether,  where 
stock  of  a  corporation  is  pledged  to  the 
bank  as  collateral  and  notice  of  the  pledge 
served  on  the  corporation  which  afterwards 
failed,  the  bank's  claim  is  subordinate  to  a 
lien  of  the  corporation  for  an  indebtedness 
of  the  stockholder  created  after  notice  of 
the  pledge.    Opinion:    It  has  been  held  in 


quite  a  number  of  cases  that  where  the 
corporation's  claim  against  the  stockholder 
arises  after  notice  to  it  of  the  pledge  or 
assignment,  its  lien  is  subordinate  thereto. 
Ardmore  State  Bank  v.  Mason,  (Okla.  1911) 
120  Pac.  1080.  Hotchkiss  U.  Co.  v.  Union 
Nat.  Bank,  68  Fed.  76.  Curtice  v.  Craw- 
ford Co.  Bk.,  118  Fed.  390.  Bank  of 
Amer.  v.  McNeil,  10  Bush  (Ky.)  54.  Conant 
V.  Reed,  1  Ohio  St.  298.  White  River  Sav. 
Bank  v.  Capitop  Sav.  Bk.,  77  Vt.  123. 
Miles  V.  New  Zealand  Alford  Est.  Co.,  54 
L.  J.  Ch.  (N.  S.)  1035.  {Inquiry  from 
Minn.,  Jan.,  1915.) 

Right  of  pledgee  of  Georgia  hank  stock  where 
new  certificate  issued  to  pledgor 

2636.  A,  the  owner  of  a  certificate  of 
stock  in  a  Georgia  bank,  pledged  the  same 
as  security  for  a  loan  from  B,  who  held  his 
note  for  the  amount.  Afterwards  the  pledg- 
or obtained  a  new  certificate  of  stock  from 
the  bank  without  returning  the  original 
certificate.  A  defaults  on  his  note  and  B 
tenders  the  original  certificate  to  the  bank, 
requesting  the  issue  of  a  new  certificate  of 
stock.  The  bank  refused  on  the  ground  that 
another  certificate  had  been  issued  to  the 
original  stockholder.  Opinion:  In  issuing 
new  certificate  without  surrender  of  the 
original,  the  bank  took  the  risk  of  the 
original  certificate  being  outstanding  in  the 
hands  of  a  bona  fide  holder.  The  pledgee  is 
entitled  to  damages  against  the  bank  for 
such  refusal,  being  the  amount  of  his  loan 
and  interest  unless  he  has  bought  the  stock 
in,  in  which  case  the  measure  of  damages  is 
the  value  of  the  stock  at  the  time  of  refusal 
to  transfer.  Smith  v.  Slaughter  House  Co., 
30  La.  Ann.,  1378,  1383.  First  Nat.  Bk.  v. 
Lanier,  11  Wall.  (U.  S.)  369.  Ga.  Code, 
Sec.  2219.  Bk.  of  CuUoden  v.  Bk.  of 
Forsyth,  48  S.  E.  (Ga.)  226.  Hilton  v. 
Sylvania  &  G.  R.  Co.,  68  S.  E.  (Ga.)  746. 
{Inquiry  from  Ga.,  Jan.,  1919,  Jl.) 

Common  stock  pledged  as  collateral  depreciated 
hy  issue  of  preferred  stock 

2637.  A  bank  holds  fifty  shares  of 
common  stock  of  an  industrial  corporation 
as  collateral.  Some  time  later,  without 
knowledge  on  the  part  of  the  bank,  the 
corporation  issues  preferred  stock  to  the 
original  holder,  which  depreciates  the  value 
of  the  collateral.  The  bank  seeks  to  protect 
its  rights  as  pledgee.  Opinion:  Where 
common  stock  of  an  industrial  corporation 
is  pledged  with  a  bank  as  collateral,  the  bank 
to  protect  its  collateral  and  right  to  dividends 


596 


PLEDGE  AND  COLLATERAL 


[2638-2640 


should  either  have  the  stock  transferred  or 
notify  the  corporation  of  the  pledge;  for 
otherwise,  if  the  corporation,  without  notice 
of  the  pledge,  issues  preferred  stock  to  the 
original  holder  which  depreciates  the  value 
of  the  collateral  and  the  latter  negotiates  the 
stock,  the  transferee  or  pledgee  thereof 
would  have  a  superior  right  thereto  than  the 
original  pledgee.  Hunsaker  v.  Sturgis,  29 
Cal.  142.  McCrae  v.  Yule,  68  N.  J.  L.  465. 
Boyd  V.  Conshohocken  Mills  Co.,  149  Pa. 
363,  24  Atl.  287.  Guarantee  Co.  v.  East 
Rome  Town  Co.,  96  Ga.  511,  23  S.  E.  503. 
Fairbanks  v.  Merchants  Nat.  Bk.,  30  111. 
App.  28.  Herrman  v.  Maxwell,  15  J.  &  S. 
(N.  Y.)  347.  Skiff  v.  Stoddard,  63  Conn. 
198.  Fitchburg  Sav.  Bk.  v.  Torrey,  134 
Mass.  239.  Donnell  v.  Wyckoff,  49  N.  J.  L. 
48.  State  v.  Smith,  15  Ore.  98.  Brady  v. 
Irby,  (Ark.  1912)  142  S.  W.  1124.  Central, 
etc.,  Bk.  V.  Wilder,  32  Neb.  454.  Brisbane 
V.  Delaware,  etc.,  R.  Co.,  94  N.  Y.  204. 
Cleveland,  etc.,  R.  Co.  v.  Robbins,  35 
Ohio  St.  483.  Robinson  v.  Newberne 
Nat.  Bk.,  95  N.  Y.  637.  Timberlake  v. 
Shippers  Compress  Co.,  72  Miss.  273. 
Steel  V.  City  Island,  etc.,  Co.,  47  Ore.  293. 
Rose  V.  Barclay,  191  Pa.  594.  {Inquiry 
from  N.  Y.,  May,  1919,  Jl.) 

Surrender  of  collateral  to  -person  paying  note, 

where  hank  had  notice  of  rights  of  third 

person 

2638.  A  bank  gave  a  receipt  as  follows: 
"June  27,  1917.  Received  of  John  Doe, 
Trustee  for  the  Jenkins  Company,  the 
following  orders  for  stock  used  as  collateral 
on  notes  signed  by  the  following  parties  to 
be  delivered  to  him  as  soon  as  said  notes  are 
paid — John  Doe  50  shares,  John  Brown  75 

shares.    Jack    Clark    30    shares    

Bank    Cashier."      One    of    the 

signers.  Jack  Clark,  came  into  the  bank  and 
requested  that  the  stock  be  turned  over  to  a 
third  party,  and  the  request  was  granted, 
the  bank  officer  forgetting  that  the  bank 
held  an  order  for  the  delivery  of  the  stock. 
The  bank  asks  to  what  extent  it  is  bound  by 
the  order  and  whether  John  Doe  can  recover 
the  stock.  Opinion:  The  stock  in  question 
was  received  by  the  bank,  not  from  Clark, 
but  from  John  Doe,  trustee,  under  an  agree- 
ment to  deliver  the  stock  to  Doe,  trustee, 
as  soon  as  the  Clark  note  was  paid,  and  this 
was  coupled  with  an  order  by  Clark  that  on 
payment  either  by  Doe,  trustee,  or  by 
Clark,  of  the  note,  the  bank  should  deliver 
the  stock  to  Doe,  trustee,  or  to  his  successor 
or  appointee.     Without  knowledge  of  the 


facts  behind  these  documents,  they  would 
indicate  a  possible  equity  in  the  stock  in 
Doe,  trustee,  upon  its  redemption,  of 
which  the  bank  had  notice  and  which  it  had 
agreed  to  recognize.  Therefore,  if  Doe, 
trustee,  has  any  rights  in  the  stock,  after 
payment  of  the  note,  it  seems  the  bank 
would  be  liable  to  Doe,  trustee,  where  it 
turned  over  the  stock  to  Clark,  or  to  a 
third  person  by  order  of  Clark,  upon  receiv- 
ing payment  of  the  note.  {Inquiry  from 
Ky.,  April,  1917.) 

Husband  pledging  wife's  certificates  in 
District  of  Columbia 

2639.  A  married  woman  owns  certain 
stock  certificates  and  executes  as  a  detached 
instrument  an  irrevocable  power  of  attorney 
to  transfer  the  stock  signed  in  blank.  Her 
husband  pledges  the  stock  certificates  with 
these  blank  powers  of  attorney  to  bank  as 
security  for  a  loan  to  him.  The  bank  asks: 
(1)  Whether  or  not  the  bank  granting  the 
loan  is  put  on  notice  of  having  granted  a 
loan  to  a  married  man,  accepting  as  collateral, 
securities  which  appear  to  belong  to  the 
wife;  and  (2)  Whether  a  married  woman  has 
the  power  to  contract  as  surety-maker  or 
indorser  for  her  husband  or  for  any  one  even 
though  it  be  other  than  her  husband. 
Opinion:  (1)  The  courts  hold  that  where 
a  wife  pledges  her  property  for  a  considera- 
tion which  moves  to  her  husband,  she  will 
be  regarded  as  a  suret5^  Keller  v.  Orr,  106 
Ind.  406.  The  fact  that  the  husband  pledged 
this  stock  for  his  own  debt  would,  it  seems, 
put  the  bank  on  notice  that  the  stock 
belonged  to  the  wife  and  was  being  pledged 
to  secure  her  husband's  debt.  (2)  Married 
women  in  the  District  of  Columbia  are 
prohibited  from  maldng  a  contract  as  surety, 
etc.,  for  anyone  even  though  it  be  other 
than  her  husband.  {Inquiry  from  D.  C, 
June,  1920.) 

Pledgee's  right  to  dividends  on  pledged  stock 

2640.  A  loaned  B  $1,000  on  50  shares  of 
the  capital  stock  of  X  Company,  due  notice 
of  the  pledge  having  been  given  to  the 
company.  Dividends  have  accrued  on  the 
stock  and  are  due  and  payable.  Opinion: 
Dividends  accruing  on  the  pledged  stock  be- 
long to  the  pledgee,  and  the  company  after 
notice  is  Hable  to  the  pledgee  therefor.  If 
the  company  went  into  hquidation,  A  would 
be  entitled  to  liquidation  dividends.  Ga. 
Code  (1911),  Sec.  2219.  Southwestern  Ry. 
Co.  V.  Thomson,  40  Ga.  408,  411.  McCrea 
V.  Yale,  68  N.  J.  L.  405.    Guarantee  Co.  v. 


597 


2641-2645] 


DIGEST  OF  LEGAL  OPINIONS 


East  Rome  Town  Co.,  96  Ga.  511.  Gemmel 
V.  Davis,  75  Mo.  546.  Central  Neb.  Nat. 
Bk.  V.  Wilder,  32  Neb.  454.  {Inquiry  from 
Ga.,  April,  1913,  Jl.) 

Right  of  pledgee  to  dividends  on  unpaid  balance 
from  assets  of  bankrupt  borrower 

2641.  A  corporation  pledged  $10,000 
worth  of  bonds  with  a  bank  to  secure  a 
loan  from  the  bank  of  $7,000  as  well  "as  any- 
other  indebtedness."  Later  the  bank  loaned 
the  corporation  an  additional  $3,000  to  be 
paid  out  of  the  sale  of  its  product  in  prepa- 
ration. Before  the  sale  the  corporation 
became  bankrupt,  and  the  bank  realized 
$7,000  from  the  bonds.  The  bank  claims 
the  unpaid  balance  against  the  estate. 
Opinion:  The  bank  is  entitled  to  dividends 
on  the  unpaid  balance,  over  and  above  the 
amount  reahzed  upon  the  security.  National 
Bankruptcy  Law,  1898,  Sec.  57  h,  56  b,  57  e. 
Loveland  on  Bankruptcy  (3d  Ed.),  p.  611. 
{Inquiry  from  Tenn.,  Jan.,  1909,  Jl.) 

Insurance  poUcies  as  collateral 

Ldfe  insurance  policy  assigned  as 
collateral  security 

2642.  The  insured  and  the  beneficiary 
assigned  a  life  insurance  policy  to  a  bank  as 
collateral.  The  policy  contained  a  provision 
that  all  parties  must  join  in  any  settlement 
of  the  policy.  Opinion:  The  bank  holds 
the  pohcy  subject  to  the  right  of  the 
insurance  company  to  require  all  parties  to 
join  in  the  settlement  of  the  policy.  Where 
there  exists  a  disability  on  the  part  of  the 
beneficiary,  the  rule  varies  as  to  the  right  of 
the  insured  or  the  beneficiary  to  make  a  valid 
assignment  in  such  a  case.  McQuillan  v. 
Mut.  Reserve  Fund  Life  Ass'n,  112  Wis. 
665.  Moise  v.  Mut.  Reserve  Fund  Life 
Ass'n,  45  La.  Ann.  736.  Stevens  v.  Warren, 
101  Mass.  564.  Newman  v.  John  Hancock, 
etc.,  Ins.  Co.,  90  N.  Y.  S.  471.  Conn.  Mut. 
L.  Ins.  Co.  V.  Westervelt,  52  Conn.  586. 
Barry  v.  U.  S.  Equit.  L.  Assur.  Soc.  59  N.  Y. 
587.  Newcomb  v.  Mut.  L.  Ins.  Co.,  18 
Fed.  Cas.  No.  10147.  Lee  v.  Abdv.  17  Q. 
B.  D.  309.  Succ.  of  Miller,  110  La.  652, 
34  So.  723.  Milhous  v.  Johnson,  51  Hun 
(N.  Y.)  639.  Mut.  L.  Ins.  Co.  v.  Terry,  62 
How.  Pr.  (N.  Y.)  325.  Bunnell  v.  Shilling, 
28  Ontario  336.  Mut.  L.  Benev.  Ins.  Co. 
V.  Wayne  County  Sav.  Bk.,  68  Mich.  116. 
Elhson  V.  Straw,  116  Wis.  207.  {Inquiry 
from  Mich.,  March,  1913,  Jl.) 

Wife's  insurance  policy  as  collateral  to 
husband's  note 

2643.  Where  an  insurance  policy  paj^a- 


ble  to  wife  is  transferred  to  a  bank  to  secure 
note  of  husband  and  wife,  and  on  the 
husband's  death  the  bank  collects  the 
amount  of  the  note  out  of  the  proceeds  of 
the  policy  going  to  the  wife,  is  the  wife 
subrogated  to  the  rights  of  the  bank  so  as  to 
be  a  claimant  against  her  husband's  estate? 
Opinion:  Assuming  the  wife  was  a  surety 
on  the  notes  of  her  husband  and  wife  held 
by  the  bank,  which  were  paid  out  of  the 
proceeds  of  the  pledged  insurance  policy,  it 
seems  clear  that  she  would  have  the  right 
to  be  subrogated  to  the  rights  of  the  bank 
and  entitled  to  prove  her  claim  against  the 
estate  of  her  deceased  husband.  {Inquiry 
from  III.,  Oct.,  1917.) 

Oral  pledge  of  life  insurance  policy  as  collateral 

2644.  A  bank  inquires  whether  delivery 
of  a  life  insurance  policy  to  Brown  without 
written  assignment  was  sufficient  to  vest 
title  as  pledgee  in  him.  Opinion:  A  policy 
of  life  insurance  is  a  chose  in  action,  and  the 
insured,  if  the  insurance  is  payable  to  him, 
or,  in  the  event  of  his  death,  to  his  personal 
representatives,  may  assign  the  same,  unless 
the  assignment  is  prohibited  by  statute. 
According  to  the  authorities,  the  assignment 
to  Brown  was  valid,  and  he  would  be  entitled 
to  the  proceeds.  {Inquiry  from  Ark.,  May, 
1920.) 

Fire  insurance  policy  as  collateral 

2645.  A  bank  states  that  practically  all 
the  fire  insurance  policies  assigned  to  it 
contain  this  clause:    "Loss,  if  any,  payable 

to   Bank,    as   its   interest    may 

appear,"  and  is  assented  to  by  the  agent 
of  the  company.  The  bank  asks  whether 
this  form  fully  protects  it  "even  in  case  of 
bankruptcy  of  the  insured."  Opinion:  It 
seems  that  the  above  quoted  clause,  assented 
to  by  the  agent  of  the  company,  the  policy 
being  assigned  to  the  bank  by  the  insured 
as  security  for  his  indebtedness,  would  fully 
protect  the  bank,  even  in  case  of  bankruptcy 
of  the  insured.  In  the  latter  case,  however, 
the  assignment  of  the  policy  should  be  for  a 
present  consideration  moving  from  the 
bank  to  insured,  for  if  it  was  assigned  for  a 
past  indebtedness  within  four  months  of 
bankruptcy,  and  then  a  fire  should  occur,  the 
assignment  might  be  upset  as  preferential. 
The  bank,  however,  would  take  subject  to 
all  the  conditions  of  the  policy  such,  for 
instance,  as  the  provision  for  cancellation  on 
notice,  etc.  {Inquiry  from  Wash.,  July, 
1916.) 


598 


PLEDGE  AND  COLLATERAL 


[2646-2649 


Cancellation  of  fire  insurance  policy  held 
as  collateral 

2646.  A  bank  held  A's  note  which  was 
secured  by  A's  mortgage  covering  city  lots. 
Shortly  before  maturity  of  the  note,  and  as 
a  condition  of  renewal  thereof  for  12 
months,  A  procured  a  policy  of  fire  insurance 
covering  a  building  standing  on  said  lots 
wherein  the  loss,  if  any,  was  made  payable 
to  the  bank  "as  its  interest  may  appear." 
About  20  days  after  the  procurement  of  the 
policy  and  the  renewal  of  note,  A  notified 
the  bank  that  the  insurance  company  had 
given  notice  that  the  policy  had  been 
cancelled,  and  demanded  a  surrender  of  the 
policy.  The  bank  asks  whether  it  can  retain 
the  policy  and  recover  its  claim  in  case  the 
building  is  destroyed  by  fire.  Opinion: 
Assuming  the  company  had  the  right  to 
cancel,  then  the  condition  upon  which  the 
bank  made  the  loan  for  a  year  has  failed, 
and  this  would  give  it  the  right  to  rescind 
the  contract  of  extension  and  proceed  to 
collect  the  loan.  If  the  company  had  no 
right  to  cancel  for  non-payment  of  premium 
or  for  other  reason,  it  seems  the  bank  could 
hold  the  company  to  the  extent  of  its 
claim  in  case  of  loss  by  fire  during  the  year. 
{Inquiry  from  Fla.,  Feb.,  1915.) 

Real  estate  collateral 

Pledge  of  title  deeds  to  land 

2647.  Upon  a  loan  to  Akin  and  wife, 
instead  of  taking  as  security  a  mortgage  on 
the  town  property  and  placing  the  mortgage 
on  record,  the  bank  received  a  deposit  of  the 
title  deeds  with  power  of  sale  of  collateral 
upon  default.  The  bank  asks  whether  it 
has  power  to  sell  the  property,  or  if  the 
court  will  declare  the  same  a  mortgage  and 
compel  a  foreclosure  thereof.  Opinion:  In 
England  the  deposit  of  title  deeds  to  land  as 
security  for  debt  has  been  held,  in  equity,  to 
be  good  as  an  equitable  mortgage  on  the 
land.  Russell  v.  Russell,  1  Bro.  Ch.  269. 
This  doctrine  has  been  adopted  in  some  of  the 
states  though  in  others  the  courts  have  held 
such  a  doctrine  to  be  forbidden  by  the 
statute  of  frauds  and  that  it  is  inconsistent 
with  the  registry  laws  enacted  in  those 
states.  It  seems  that  Idaho  has  not  passed 
upon  this  question  one  way  or  the  other. 
Where  such  title  deeds  are  an  equitable 
mortgage  the  holder  would  have  to  bring 
proceedings  for  a  foreclosure  of  the  lien,  if  a 
purchaser  could  be  procured,  and  a  judg- 
ment would  order  the  execution  of  a  deed 
giving  legal  title  to  the  land.  It  seems  clear 
that  title  to  the  land  itself  cannot  be  con- 


veyed merely  by  a  assignment  of  the  title 
deeds  even  if  such  assignment  creates 
an  equitable  mortgage.  {Inquiry  from  Ida., 
Feb.,  1915.) 

Remedy  of  pledgee  on  building  and  loan 
collateral 

2648.  A  bank  has  a  customer  whose 
past  due  note  is  secured  by  building  and 
loan  stock  assigned  in  absolute  form  in 
blank.  The  bank  asks  whether  it  can  de- 
mand payment  of  the  association  or  will  the 
stock  have  to  be  advertised  and  sold 
publicly.  Opinion:  The  law  requires  en- 
forcement of  collateral  by  foreclosure  or  by 
sale  pursuant  to  contract,  but  it  makes  an 
exception  in  the  case  of  negotiable  paper 
and  similar  choses  in  action  which  the  law 
requires  the  pledgee  to  collect  rather  than 
to  sell.  The  reason  for  this  exception  to  the 
general  rule  in  relation  to  the  sale  of 
property  pledged  is  that  such  paper  has  no 
established  market  value,  and  it  cannot  be 
presumed  it  was  the  intention  of  the  parties 
to  so  deal  with  it.  Under  this  rule  it  has  been 
held  that  a  savings  bank  book  pledged  as 
collateral  must  be  collected  and  not  sold. 
In  the  case  of  building  and  loan  stock,  there 
seem  to  be  no  decisions,  but  if  the  stock  held 
as  collateral  by  the  bank  was  matured  so  as 
to  be  payable  by  the  association,  it  seems 
the  same  reasoning  and  rule  would  apply 
and  that  the  bank  could  realize  on  this 
collateral  by  demanding  payment  of  the 
association.    {Inquiry  from  III.,  July,  1915.) 

Bond  for  title  given  as  security 

2649.  A  purchased  a  farm  from  B,  giving 
him  cash  and  notes  therefor,  and  receiving 
from  B  a  bond  for  title.  A  transferred  the 
bond  to  a  bank  as  security  for  a  loan.  After 
the  bond  and  transfer  had  been  duly  re- 
corded, the  bank  temporarily  surrendered 
the  bond  to  A  but  A  wrongfully  disposed  of 
it.  B  was  notified  of  the  transfer  and  the 
recording  clerk  was  also  notified  not  to  can- 
cel the  entry.  Opinion:  The  bank  has  not 
lost  its  security  and  is  protected  in  such  bond 
as  against  a  subsequent  innocent  purchaser 
or  assignee  of  the  bond.  Ga.  Code,  Sees. 
6633,  6634,  6635.  Kendrick  v.  Colyar,  143 
Ala.  592.  Meesick  v.  Sunderland,  6  Cal. 
297.  Churchill  v.  Little,  23  Ohio  St.  301. 
Stevens  v.  Chaffee,  98  Wis.  42.  Carbine  v. 
Pringle,  90  111.  302.  Case  v.  Bumstead,  24 
Ind.  429.  Lehman  v.  Rice,  118  La.  975. 
South  Baltimore,  etc.,  Co.  v.  Smith,  85. 
j\Id.  537.  De  Camp  v.  Wallace,  45  ^lisc. 
(N.  Y.)  436.    Rhines  v.  Baird,  41  Pa.  256. 


599 


2650-2654] 


DIGEST  OF  LEGAL  OPINIONS 


Trogden  v.  Williams,  144  N.  C.  192. 
Walker  v.  Maddox,  105  Ga.  253,  31  S.  E. 
165.  Hackett  v.  Watts,  138  Mo.  502,  40 
S.  W.  113.  Casteel  v.  Baugh,  (Ky.)  66 
S.   W.    996.      Men-iam  v.    Polk,    5   Heisk. 


Tenn.)   717.     Middlestadt  v.   Gannon,    1 
Neb.  (Unoff)  286,  95  N.  W.  479.     Rosen- 
berger  v.  Jones,  118  Mo.  559,  24  S.  W.  203. 
Garr  v.  Hill,  9  N.  J.  Eq.  210.     (Inquiry 
fromGa.,  Aug.,  1912,  Jl.) 


PRESENTMENT,  PROTEST  AND  NOTICE 


Presentment  and  demand  for  payment 

Demand  and  notice  necessary  to  hold 
indorser  of  note 

2650.  What  steps  are  necessary  to  hold 
the  indorser  of  a  promissory  note?  Opinion: 
Due  demand  and  notice  of  dishonor  without 
protest  are  all  that  is  necessary  to  hold  the 
indorser,  although  protest  is,  of  course, 
permissible.  {Inquiry  from  Va.,  Dec,  1909. 
Jl.) 

Sufficiency   of  demand  and  notice   to   hold 
indorser 

2651.  A  note,  with  three  accommodation 
indorsers,  discounted  by  a  bank  was  renewed 
from  time  to  time.  Finally,  on  the  date  of 
the  maturity  of  a  renewal  note,  one  of  the 
indorsers  refused  to  indorse  a  further  renewal 
note  because  the  names  of  the  other  two 
indorsers  had  been  left  off  the  prior  renewal 
without  his  knowledge  or  consent.  Three 
days  after  the  maturity  of  the  last  renewal 
which  had  hecn  signed  by  the  indorser  it  was 
protested,  he  having  been  informed  of  its 
non-payment  on  the  day  of  maturity.  Can 
he  be  held  liable  on  that  renewal?  Opinion: 
The  protest  was  ineffectual  since  it  was  not 
made  on  the  day  of  dishonor  but  the  in- 
dorser would  be  liable  without  protest  if  it 
could  be  shown  that  there  was  due  demand 
and  notice  of  dishonor.  Upon  the  question 
whether  there  was  legal  demand  and  notice, 
if  the  note  was  payable  at  the  bank,  posses- 
sion of  the  note  by  the  bank  would  satisfy 
the  requirement  as  to  demand.  Even  if  not 
so  payable,  if  payment  was  in  any  way 
demanded  of  the  maker  on  the  day  of 
maturity,  this  would  suffice.  Unless  facts 
can  be  shown  as  above,  the  indorser  would 
be  discharged  by  failure  to  demand  pay- 
ment at  maturity.  Concerning  notice  of 
dishonor,  assuming  there  was  a  sufficient 
demand,  the  indorser  was  informed  on  the 
day  of  maturity  that  the  note  was  not  paid; 
this  information  and  the  request  to  sign  a 
renewal  might  be  held  sufficient  as  a  notice 
of  dishonor;  for  notice  of  dishonor  need  not 
be  given  in  writing  and  all  that  is  necessary 
is  information  to  the  indorser  that  the  note 
has  not  been  paid  and  that  he  is  looked  to 


for  payment.     {Inquiry  from  Del.,  March, 
1914.) 

Diligence  in  presentment 

2652.  A  check  was  drawn  on  an  insolvent 
bank,  and  inquiry  is  made  whether  the 
drawer  is  liable  to  the  holder  thereof. 
Opinion:  Assuming  that  a  check  is  present- 
ed with  due  diligence,  the  risk  of  the  failure 
of  the  bank  remains  with  the  drawer.  And, 
if  the  bank  fails,  the  drawer  remains  liable 
to  the  holder.  If,  however,  there  is  delay 
in  presenting  the  check  beyond  the  reason- 
able time  period  fixed  by  law,  and  the  bank 
fails  before  the  check  is  presented,  the 
drawer  is  discharged.  The  above  case 
must  not  be  confused  with  one  where  the 
check  has  been  received  by  the  bank  upon 
which  drawn  and  charged  to  the  drawer's 
account  before  its  failure.  In  such  case  the 
check  is  paid  and  this,  according  to  the 
weight  of  authority,  discharges  the  drawer. 
But  if  the  check  has  not  been  paid  by 
charge  to  account  at  the  time  of  failure  of 
the  bank,  the  drawer  remains  liable  provided 
there  has  been  diligence  in  presentment. 
{Inquiry  from  N.  Y.,July,  1919.) 

General  duty  of  collecting  hank 

2653.  What  is  the  usual  duty  of  a 
collecting  bank  as  regards  presentment, 
protest  and  notice  of  dishonor?  Opinion: 
It  is  the  duty  of  a  collecting  bank  to  exercise 
reasonable  diligence  and  care  in  obtaining 
payment  of  the  paper  and  if  refused  pay- 
ment, to  secure  the  rights  of  the  owner 
against  any  drawer  or  indorser  who  may  be 
secondarily  liable  thereon,  by  making  due 
presentment,  and  giving  notice  of  dishonor, 
and  causing  protest  to  be  made,  where 
protest  is  required  by  law;  also  to  follow 
instructions  of  its  principal  and  to  exercise 
good  faith.  For  any  loss  resulting  to  the 
principal  from  failure  to  perform  such  duty, 
the  collecting  bank  is  liable.  {Inquiry  from 
Okla.,  June,  1914.) 

Stopping  payment  does  not  excuse  demand  and 
notice  as  against  indorser 

2654.  Does  the  stopping  of  payment  of  a 
check    excuse    presentment,    protest,    and 


600 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2655-2661 


notice  of  dishonor?  Opinion:  Such  counter- 
mand does  not  excuse  presentment  and 
notice  to  the  indorser  nor  protest  in  case  the 
check  is  a  foreign  bill  of  exchange.  N.  Y. 
Neg.  Inst.  Act,  Sees.  139,  185,  267.  (In- 
quiry from  Md.,  May,  1909,  Jl.) 

Demand  and  notice  to  hold  accommoda- 
tion indorser 

2655.  Three  accommodation  notes  in- 
tended for  discount  were  drawn  as  follows: 
No.  1,  payable  to  and  indorsed  by  accommo- 
dation party  and  discounted  for  the  maker; 
No.  2,  payable  to  bank,  indorsed  by  the 
accommodation  party  and  discounted  for 
the  maker;  No.  3,  made  by  accommodation 
party  and  discounted  for  the  payee.  Opin- 
ion: The  bank  is  equally  protected  by 
notes  1,  2  or  3,  except  that  in  case  of  notes 
Nos.  1  and  2,  demand  and  notice  are  re- 
quired to  preserve  the  liability  of  the 
indorser,  unless  the  notes  contain  a  waiver. 
As  to  note  No.  3,  no  demand  and  notice  are 
necessary  to  hold  the  accommodation  party 
who  is  liable  as  maker.  Oppenheim  v. 
Simon  Reigel  Cigar  Co.,  90  N.  Y.  S.  355. 
(Inquiry  from  D.  C.  Oct.,  1914,  JI-) 

Presentment  not  necessary  to  hold  accommo- 
dated indorser 

2656.  A  made  his  note  payable  to  the 
order  of  B  which  was  indorsed  by  C  before 
delivery,  presumably  for  accommodation. 
C  negotiated  the  note  to  Y  bank.  The 
note  was  not  presented  on  the  day  of  ma- 
turity. Opinion:  Presentment  on  the  day  of 
maturity  and  notice  of  dishonor  are  required 
to  hold  B  and  C,  the  indorsers,  but  if  the  in- 
strument was  made  for  the  accommodation 
of  either  B  or  C,  and  such  indorser  had  no 
reason  to  expect  it  would  be  paid  if  presented, 
neither  presentment  nor  notice  is  required 
to  hold  such  indorser  liable.  Webster  v. 
Mitchell,  22  Fed.  781.  Amer.  Nat.  Bk.  v. 
Junk  Bros.,  (Tenn.)  30  S.  W.  753.  Brown 
v.  Crofton,  (Ky.)  76  S.  W.  372.  N.  C.  Neg. 
Inst.  Act,  Sec.  2229.  (Inquiry  from  N.  C, 
Oct.,  1915,  Jl.) 

Presentment  and  notice  not  necessary  to  hold 
surety-maker 

2657.  A  corporation  note  is  also  signed 
as  maker  by  three  sureties.  It  no  longer 
maintains  an  office  at  A,  where  note  is 
dated  and  payable,  the  parties  to  the  note 
are  now  widely  scattered,  and  it  is  practicall}'^ 
impossible  for  presentment  to  be  made  in 
person.  What  procedure  is  necessary  to 
hold  the  sureties?    Opinion:    No  present- 


ment or  notice  of  dishonor  is  necessary  to 
charge  a  surety  with  liability.  His  habihty 
to  pay  the  note  is  al)solute,  the  same  as 
that  of  the  principal  maker.  The  procedure 
to  obtain  payment  is  to  bring  suit  against 
the  sureties.  (Inquiry  from  Ind.,  April,  1915.) 

Indorser  on  forged  check  liable  without  demand, 
protest  or  notice 

2658.  What  steps  must  be  be  taken  to 
preserve  the  hability  of  an  indorser  on  a 
forged  check?  Opinion:  A  forged  check  is 
not  properly  protestable  nor  is  demand  and 
notice  of  dishonor  necessary  to  hold  an 
indorser  who  is  liable  to  an  indorseee  as 
warrantor  of  genuineness.  An  agent  holding 
such  paper  is  duh^  diligent  by  giving  notice 
of  the  forgery  within  reasonable  time.  Rossi 
V.  Nat.  Bk.  of  Commerce,  71  Mo.  App.  150. 
(Inquiry  from  Wis.,  May,  1913,  Jl.) 

Presentment  in  case  of  lost  instrument 

2659.  A  note  forwarded  in  ample  time 
was  lost  in  the  mails.  Are  the  indorsers 
discharged?  Opinion:  The  Negotiable 
Instruments  Act,  Sec.  5327,  provides: 
"Delay  in  making  presentment  for  payment 
is  excused  when  the  delay  is  caused  by 
circumstances  beyond  the  control  of  the 
holder  and  not  imputable  to  his  default, 
misconduct,  or  neghgence.  When  the 
cause  of  delay  ceases  to  operate,  present- 
ment must  be  made  with  reasonable  dih- 
gence,"  and  Sec.  5359 — "Notice  of  dishonor 
must  be  given  with  reasonable  dihgence." 
Under  these  sections,  it  would  be  permissible 
to  make  presentment  with  due  dihgence 
upon  a  copy  of  the  lost  note  or  written 
particulars  thereof  and  to  give  notice  of 
dishonor  in  case  of  refusal  to  pay  and  the 
indorsers  would  then  be  held.  (Inquiry 
from  Kan.,  March,  1919.) 

Presentment  hy  indorsee  of  "non-negotiable 
counter  check" 

2660.  A  check  payable  to  "John  Smith 
or  bearer"  was  stamped  across  its  face 
"non-negotiable  counter  check."  The  check 
was  presented  through  the  Clearing  House 
by  an  indorsee  of  the  payee  and  the  drawee 
bank  refused  payment.  Opinion:  The 
bank's  refusal  to  pay  was  justified  and  the 
check  was  not  properly  protestable.  (In- 
quiry from  Wis.,  Nov.,  1913,  Jl.) 

Place  of  payment 

Presentment  at  bank  other  than  drawee 

2661.  A  check  upon  A  bank  is  presented 
to  and  cashed  by  B  bank  and  inmiediately 


601 


2662-2666] 


DIGEST  OF  LEGAL  OPINIONS 


charged  to  the  former's  account  prior  to 
forwarding  it  to  A  bank,  pursuant  to  an 
agreement  between  both  banks.  A  bank 
became  insolvent  after  its  account  was 
charged  but  before  it  received  the  item. 
Opinion:  Bank  B  will  not  be  permitted  to 
maintain  the  charge  to  the  account  of  Bank 
A,  against  the  receiver  of  the  latter.  Arm- 
strong V.  Second  Nat.  Bk.,  38  Fed.  883. 
(Inquiry  from  Kan.,  May,  1915,  Jl.) 

Presentment  where  makers  have  moved  from 
place  of  payment 

2662.  A  note  is  made  payable  at  the 
office  of  the  makers  at  a  particular  street 
address,  and  before  maturity  the  makers 
have  closed  their  office  and  moved  to  another 
street.  Opinion:  To  hold  an  indorser, 
presentment  at  the  place  specified  in  the 
note  would  be  sufficient;  but  where  notary 
knows  the  makers  are  at  a  new  address,  it 
would  be  safer  to  make  a  supplemental  pre- 
sentment at  that  place.  Schlesinger  v. 
Schultz,  110  N.  Y.  App.  Div.  356.  Ryan  v. 
State,  (Fla.)  53  So.  448.  (Inquiry  from 
N.  H.,  Jan.,  1912,  Jl.) 

Mailing  notice  to  maker  in  lieu  of  presentment 

2663.  Where  a  note  does  not  name  any 
place  of  payment,  a  bank  inquires  whether 
it  has  discharged  its  duty  when  it  mails  the 
maker  a  notice  stating  where  his  note  will 
be  due,  and  the  date  and  amount,  or  must 
the  note  be  presented  at  his  place  of  busi- 
ness? Very  often  the  maker  lives  in  the 
country,  and  has  no  place  of  business. 
Opinion:  Where  a  promissory  note  does  not 
name  any  place  of  payment,  it  is  payable  at 
the  place  of  business  or  residence  of  the 
maker  and  must  be  presented  at  such  place 
at  maturity,  and  due  notice  of  dishonor 
given,  to  preserve  the  liability  of  an  indorser, 
if  not  waived.  The  mere  mailing  of  notice 
to  the  maker  will  not  suffice.  But  so  far  as 
the  maker  is  concerned,  presentment  is  not 
necessary,  and  he  must  seek  the  holder  to 
make  payment.  Christopherson  v.  Common 
Council,  (Mich.)  75  N.  W.  445.  Oxnard  v. 
Varnum,  111  Pa.  St.  193.  (Inquiry  from 
S.  C.  Sept.,  1919,  Jl.) 

Time  of  presentment 

Reasonable  time  for  presentment  of 
demand  drafts 

2664.  Bank  A  sent  a  demand  draft,  with 
instructions  attached  that  notice  of  dishonor 
be  wired  it  immediately  in  case  of  non- 
payment, to  bank  B,  which  sent  it  to  bank 


C  which  in  turn  sent  it  to  bank  D  located 
in  same  city  as  drawee.  Bank  D  held  draft 
for  fifteen  days,  and  returned  it,  bank  B 
charging  it  back  to  bank  A's  account.  Is 
bank  A  liable  on  its  indorsement?  Opinion: 
The  law  requires  that  presentment  of  a 
demand  draft  be  made  within  a  reasonable 
time,  and  what  is  a  reasonable  time  depends 
upon  the  facts  and  circumstances  of  each 
particular  case — presumptively  a  bank  which 
held  a  draft  for  ten  or  fifteen  days  before 
making  presentment  and  giving  notice  of 
dishonor  did  not  comply  with  the  require- 
ments of  making  presentment  within  a 
reasonable  time  and  the  indorsers  would  be 
discharged,  especially  as  the  draft  was 
accompanied  by  instructions  to  wire  notice 
of  dishonor  immediately,  which  would  imply 
that  immediate  presentment  was  desired. 
(Inquiry  from  Tex.,  Dec,  1916.) 

Reasonable  time  for  presentment  of 
demand  notes 

2665.  Have  the  courts  accurately  de- 
termined what  is  a  "reasonable  time"  within 
which  an  indorser  on  demand  paper  can  be 
held  without  presentment?  Opinion:  The 
courts  have  not  fixed  any  particular  time  as 
being  reasonable  within  which  to  present 
paper  payable  on  demand  or  at  sight,  but 
the  same  depends  on  all  the  circumstances  of 
each  particular  case.  In  respect  to  notes, 
it  has  been  held,  in  particular  cases,  that  a 
delay  in  presentation  was  not  unreasonable 
where  there  was  a  delay  of  nineteen  months. 
Vreeland  v.  Hyde,  2  N.  Y.  Super.  429; 
two  years,  Tomlinson  Carriage  Co.  v.  Kim- 
sella,  31  Conn.  268.  Bacon  v.  Bacon,  94 
Va.  686;  and  even  thirty-two  months, 
Commercial  Bk.  v.  Allen,  10  Minn.  330. 
Whereas,  on  the  other  hand,  the  delay,  in 
case  of  a  note,  was  held  to  be  unreasonable 
where  there  was  a  delay  of  over  two  years — 
see  Gerke  Brew.  Co.  v.  Busse,  11  Ky.  L. 
Rep.  322.  Home  Sav.  Bank  v.  Hosie,  119 
Mich.  116.  Eisenlord  v.  Dillenbach,  79 
N.  Y.  617.  Harrisburg  Nat.  Bk.  v.  Reilly, 
24  Pa.  Co.  Ct.  113;  six  months,  Martin 
V.  Winslow,  16  Fed.  Cas.  No.  9172;  five 
months,  Anderson  v.  First  Nat.  Bk.,  144 
Iowa  251;  sixty  days,  Merritt  v.  Jackson, 
181  Mass.  69;  and  even  as  short  a  time  as 
twenty-five  days.  Levy  v.  Drew,  14  Ark. 
334.    (Inquiry  from  N.  Y.,  March,  1919.) 

One  yearns  delay  in  presentment  of  demand  note 

2666.  A  gave  B  a  note  payable  one  year 
from  date,  bearing  interest  at  10  per  cent, 
payable  annually.     After  the  expiration  of 


602 


PRESENTMENT,   PROTEST  AND  NOTICE 


[2667-2670 


a  year  B  indorsed  the  note  over  to  C  for 
value,  and  one  year  later  the  note  is  pre- 
sented to  A  for  payment  and  refused.  Opin- 
ion: B's  indorsement  of  a  past  due  note  was 
valid,  making  it  a  demand  instrument. 
The  delay  of  one  year  in  demanding  pay- 
ment, under  the  circumstances,  was  un- 
reasonable, and  the  indorser  was  discharged. 
Com.  Nat.  Bk.  v.  Zimmerman,  185  N.  Y. 
210.  Schlesinger  v.  Schultz,  110  N.  Y. 
App.  Div.  356.  Yates  v.  Goodwin,  96  Me. 
90.  Anderson  v.  First  Nat.  Bk.,  (Iowa)  122 
N.  W.  918.  {Inquiry  from  Ida.,  Sept., 
1911,  Jl) 

Not  safe  to  hold  indorsed  demand  note  over 

two  or  three  months  unless  it  contains 

waiver  of  presentment 

2667.  A  bank  has  a  note  payable  on 
demand,  indorsed  and  discounted  for  the 
benefit  of  the  maker,  interest  being  collected 
every  six  months.  How  long  is  the  indorser 
bound  thereon?  Opinion:  The  Negotiable 
Instruments  Law  provides  that  where  the 
instrument  is  payable  on  demand,  present- 
ment must  be  made  within  a  reasonable 
time  after  its  issue.  Exactly  what  is  a 
reasonable  time  for  presentment  in  order  to 
charge  an  indorser  is  not  clearly  defined  by 
the  authorities  which  vary  greatly.  Each 
case  must  be  governed  by  its  own  particular 
facts.  It  would  not  be  safe,  however,  to 
hold  an  indorsed  demand  note  more  than 
two  or  three  months  before  presenting  same 
for  payment,  unless  the  indorser  waived 
presentment.  (Inquiry  from  N.  J-,  Nov., 
1917.)  (Similar  inquiry  from  Pa.,  Sept., 
1911,  Jl.) 

Time  limit  for  presentment  of  check 

2668.  When  should  a  check  be  presented 
in  order  to  hold  the  drawer?  Opinion: 
Where  a  check  is  issued  and  delivered  in  the 
place  where  the  drawee  is  located,  the  well 
estabhshed  rule  adopted  by  the  courts  is 
that  under  the  Negotiable  Instruments 
Act  the  reasonable  time  for  presentment  to 
hold  the  drawer  ends  with  the  next  business 
day  after  dehvery  of  the  check.  Kershaw  v. 
Ladd,  34  Ore.  375.  This  rule  applies  to  a 
bank  in  which  the  payee  deposits  a  check  for 
collection  drawn  upon  another  bank  in  the 
same  place.  See  Rickford  v.  Ridge,  2 
Campb.  537.  There  is  no  rule  which  would 
require  the  collecting  bank  to  make  pre- 
sentment the  same  day  of  deposit,  in  the 
absence  of  some  specific  instruction  from  its 
depositor  so  to  do.  Where  there  exists  a 
custom  of  presentment  through  a  clearing 


house  in  any  city  or  town,  according  to  the 
rule  in  some  courts,  such  method  is  within 
the  requirements  of  diligence,  and,  as  illus- 
trated in  a  Pennsylvania  case,  the  drawer 
will  remain  hable,  although  the  check  was 
not  presented  until  the  third  business  day 
following  dehvery.  Loax  v.  Fox  178  Pa.  68. 
But  a  Nebrasaka  case  refused  to  follow  this 
decision  and  required  presentment  by  the 
paj^ee  the  following  dav.  Edmisten  v. 
Herpolsheimer,  (Neb.)  92  N.  W.  138.  A 
Texas  case  held  that  the  drawer  was  dis- 
charged where  there  was  presentment 
through  a  clearing  house  on  the  third  day 
because  he  had  not  impliedly  consented  and 
was  entitled  to  have  his  check  presented 
directly  to  the  drawee  not  later  than  the  day 
following  its  dehvery.  Merchants  Nat.  Bk.  v. 
Dorchester,  (Tex.  1911)  136  S.  W.  551.  The 
payee,  however,  who  deposited  the  check 
was  bound  by  the  custom  by  reason  of  his 
imphed  consent.  Rickford  v.  Ridge,  2 
Camp.  537.  (Inquiry  from  Ore.,  March, 
1917,  Jl.) 

Check  must  he  presented  within  reasonable  time 

2669.  When  must  a  check  be  presented? 
Opinion :  A  check  must  be  presented  within 
a  reasonable  time,  but  the  exact  period  of 
time  after  which  a  check  becomes  stale  or 
discredited  and  puts  a  purchaser  or  a  bank 
of  payment  upon  inquiry  is  not  definitely 
fixed  by  the  authorities.  A  check  becomes 
outlawed  according  to  the  statute  of 
limitations  of  each  state.  But  there  is 
some  divergence  of  opinion  of  different 
courts  as  to  whether  the  statute  begins  to 
run  from  the  date  of  a  check  or  from  a 
reasonable  time  after  date  or  from  a  time 
after  date  beginning  with  the  end  of  the  stat- 
utorv  period.  Lancaster  Bk.  v.  Woodward, 
18  Pa.  357.  Merchants,  etc..  Bk.  v.  Clifton 
Mfg.  Co.,  (S.  C.)  33  S.  E.  750.  Skillman  v. 
Titus,  32  N.  J.  L.  96.  First  Nat.  Bk.  v. 
Needham,  29  Iowa  249.  Farmers  Bk.  v. 
Dreyfus,  82  Mo.  App.  399.  Fh-st  Nat. 
Bk.  V.  Harris,  108  Mass.  514.  Rothschild 
V.  Corney,  9  B.  &  C.  388.  London,  etc.. 
Bk.  V.  Groome,  8  Q.  B.  D.  288.  Ames  v. 
Meriam,  98  Mass.  294.  Bull  v.  Bk.  of 
Kasson,  123  U.  S.  105.  (Inquiry  from 
Kan.,  April,  1916,  Jl.) 

Collecting  bank  not  required  to  present  check 
on  day  received  unless  circumstances 
exceptional 

2670.  A  bank  received  for  collection  a 
check  from  another  place  on  Thursday,  and 
presented    it    for    payment    on    Saturday 


603 


2671-2674] 


DIGEST  OF  LEGAL  OPINIONS 


forenoon,  Friday  being  a  legal  holiday. 
The  check  was  dishonored,  although  it  could 
have  been  paid  if  presented  on  Thursday. 
Opinion:  The  collecting  bank  was  not  liable 
for  not  presenting  the  check  on  the  day  it 
was  received,  unless  it  had  information  that 
the  drawee  was  approaching  insolvency  or 
that  the  case  required  extraordinary  diligence 
on  the  part  of  the  bank  in  protecting  its 
principal.  First  Nat.  Bk.  v.  Fourth  Nat. 
Bk.,  77  N.  Y.  320.  Pinkney  v.  Kanawha 
Valley  Bk.,  (W.  Va.)  69  S.  E.  1012.  {In- 
quiry from  Mont.,  April,  1915,  Jl.) 

Drawee   withholding   presentment   of  check 

received  by  mail  for  twenty  days,  because 

of  insufficient  funds 

2671.  The  drawee  bank  to  which  a 
check  is  sent  directly  by  mail  holds  it  for 
twenty  daj^s  because  of  insufficient  funds  in 
the  drawer's  account  and  then  returns  it 
without  notice  of  protest.  What  is  the 
result  of  such  action?  Opinion:  The 
indorsers  are  discharged  because  of  the 
delay  in  presentment  and  in  the  giving  of 
notice  of  dishonor.  The  drawee  bank  is 
probably  liable  to  the  forwarding  bank  for 
the  delay.  The  drawee  bank  occupied  the 
dual  relation  of  agent  of  the  drawer  to  pay 
the  check  and  agent  of  the  forwarding  bank 
to  make  due  presentment  and  give  notice  of 
dishonor.  The  twenty  days'  delay  would 
seem  to  be  negligence,  rendering  the  drawee 
liable  to  the  forwarding  bank.  (Inquiry 
from  Iowa,  Sept.,  1917.) 

Ten  days  delay  in  presentment  of  draft  because 
of  drawee's  change  of  address 

2672.  At  the  request  of  shippers  a 
customer  of  bank  A  paid  a  bill  of  lading 
draft  for  goods  that  were  shipped  to  wrong 
place  and  drew  back  with  bill  of  lading 
attached  upon  shippers  for  the  amount,  the 
draft  being  made  payable  on  demand  and 
marked  "protest."  A  forwarded  it  direct 
to  bank  B  in  city  where  shipping  concern 
carried  on  business,  for  collection,  with 
instructions  not  to  protest  and  that  bank, 
after  presenting  at  the  former  place  of 
business  of  shippers,  who  had  removed  to 
another  part  of  the  city,  held  the  draft  for 
ten  days,  when  upon  presentment  the 
drawee  refused  to  pay  the  draft  and  take 
up  the  bill  of  lading,  claiming  that  by 
reason  of  delay  the  value  of  the  goods  had 
deteriorated.  Where  does  the  responsibility 
lie?  Opinion:  The  ten  days'  delay  in  pre- 
sentment was  negligence  which  would  make 
bank  B  responsible  for  any  resulting  damage, 


assuming  the  new  address  of  the  drawees  was 
known  and  their  removal  from  one  part  of 
the  city  to  another  without  notice  did  not 
contribute  to  tliis  delay.  Although  A  sent 
the  item  with  instruction  "no  protest," 
this  would  not  justify  B  in  delaying  to  make 
presentment  for  ten  days.  Where  the 
drawee  removes  to  another  locality  in  the 
same  city,  the  party  whose  duty  it  is  to  make 
demand  must  exercise  reasonable  diligence 
to  ascertain  the  whereabouts  of  the  party 
sought.  It  is  not  certain,  however,  that  the 
ten  days'  delay  would  relieve  the  shippers. 
A  drew  on  them  at  their  request,  and  they 
virtually  promised  to  pay  the  draft  and  take 
up  the  bill  of  lading.  They  would  have  to 
show  that  the  non-presentment  to  them  of 
the  draft  and  bill  of  lading  was  the  cause 
of  the  loss,  and  that  they  were  unable  to 
control  the  shipment  in  the  interim  and 
save  its  value;  and  there  is  the  further 
question  of  the  ultimate  liabihty  of  the 
railroad  company  for  improper  routing. 
See  Linville  v.  Welch,  29  Mo.  203.  Wood- 
ruff V.  Daggett,  20  N.  J.  L.  526.  Cupler  v. 
Nellis,  4  Wend.  (N.  Y.)  398.  Smith  v. 
Fisher,  24  Pa.  St.  222.  Sequin  v.  MilHng 
Elec.  Co.,  (Tex.  Civ.  App.),  137  S.  W.  456. 
(Inquiry  from,  Tex.,  Jan.,  1918.) 

Delay  in  presentment  of  check  on  foreign  bank 

2673.  What  is  the  responsibility  of 
national  bank  in  connection  with  checks 
drawn  by  it  on  European  points  which  may 
be  held  up  for  an  indefinite  period  (say, 
several  months)  and  for  any  reason  may  not 
be  paid  when  presented.  Opinion:  Where 
a  check  is  drawn  in  New  York  upon  a  bank 
in  a  foreign  country  and  is  presented  an 
unreasonable  time  after  its  issue  and  dis- 
honored and  protested,  the  liabihty  of  the 
drawer  is  governed  by  the  law  of  New  York, 
and  he  is  not  absolutely  discharged  by  the 
delay  in  presentment,  but  only  to  the  extent 
of  the  loss,  if  any,  caused  by  such  delay. 
Amsinck  v.  Rogers,  189  N.  Y.  252.  (In- 
quiry from  N.  Y.,  Dec,  1919,  Jl.) 

Effect  of  non-presentment  of  check  for  ten  years 

2674.  A  bank's  customer  has  in  his 
possession  a  check  dated  January  26,  1905, 
which  he  has  never  presented.  Is  the  check 
still  valid  ten  years  after  its  date  if  the 
maker  has  never  stopped  payment?  Opin- 
ion: In  Campbell  v.  Whoriskey,  170  Mass. 
63,  it  was  held  that,  where  a  demand  must 
be  made  before  bringing  an  action,  in  a 
strict  sense  the  cause  of  action  does  not 
accrue  until  after  the  demand.     It  seems, 


604 


i 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2675-2680 


however,  to  be  well  settled  in  Massachusetts 
that,  where  a  demand  is  necessary  to  fix  the 
legal  rights  of  a  party  and  give  complete 
cause  of  action,  the  demand  ordinarily 
must  be  made  within  the  time  limit  for 
bringing  an  action  at  law.  (Whitney  v. 
Cheshire  R.  R.,  [Nov.  1911]  210  Mass.  263. 
West.  Union  Tel.  Co.  v.  Caldwell,  141  Mass. 
489.  Codman  v.  Rogers,  10  Pick.  112.) 
In  Massachusetts,  in  actions  upon  bills, 
notes  and  other  evidences  of  indebtedness 
issued  by  a  bank,  the  period  of  limitations  is 
twenty  years  (Mass.  R.  L.  C.  202,  Sec.  1, 
CI.  2),  and  in  actions  on  contract  other  than 
those  upon  judgments,  and  those  described 
in  Sec.  1,  supra,  the  period  is  six  years.  It 
would  seem  that  the  case  now  submitted 
would  be  controlled  by  R.  L.  C.  202,  Sec.  2, 
and,  as  no  demand  was  made  within  six 
years,  action  on  the  check  would  be  barred. 
(Inquiry  from  Mass.,  Feb.,  1915.) 

By  whom  made 

Draft  "payable  through  bank  A"  presented  to 
drawee  by  Bank  B 

2675.  An  accepted  draft  with  the 
words  "payable  through  bank  A,"  and 
bearing  the  indorsement  of  several  banks, 
was  sent  direct  to  bank  B,  and  by  that  bank 
presented  to  the  drawee  for  payment  at 
maturity.  Is  the  instrument  protest  able 
by  bank  B?  Opinion:  Where  an  instru- 
ment is  made  paj^able  through  a  specified 
bank,  such  restriction  of  the  channel  of 
collection  is  lawful,  and  presentment  by 
another  bank  is  not  a  due  presentment  and 
it  is  not  protestable.  Commercial  Nat. 
Bank  v.  First  Nat.  Bank,  118  N.  C.  783, 
24  S.  E.  524,  32  L.  R.  A.  712,  54  Am.  St. 
753.  Farmers  Bank  of  Nashville  v.  Johnson, 
134  Ga.  486,  68  S.  E.  85,  137  Am.  St.  242. 
(Inquiry  from  N.  C,  March,  1919.) 

To  whom  made 

Presentment,  by  custom,  of  draft  on  county 
treasurer  to  county  depository 

2676.  A  draft  drawn  on  the  county 
treasurer  was  presented  to  the  treasurer's 
depository  in  another  town  where  it  is 
customary  to  present  all  drafts  drawn  on 
the  treasurer.  Payment  was  refused  be- 
cause of  "no  funds  in  general  deposit"  and 
the  draft  was  duly  protested.  Opinion: 
The  presentment  was  suflficient  and  the 
protest  for  non-payment  was  legal  and  valid. 
Brent  v.  Bk.  of  Metropolis,  1  Pet.  (U.  S.) 
89.  Cox  v.  Nat.  Bk.,  100  U.  S.  704.  (In- 
quiry from  Miss.,  Oct.,  1911,  Jl.) 


Presentment  of  draft  addressed  to  drawee 
in  care  of  bank 

2677.  Is  it  sufficient  to  present  a  draft 
to  the  bank  in  whose  care  it  is  made  pay- 
able? Opinion:  This  is  sufficient  and 
authorizes  protest  in  the  event  of  non- 
payment without  necessity  of  further  pre- 
sentment to  the  drawee.  (Inquiries  from 
Okla.,  April,  1911,  Jl,  S.  C,  Dec,  1910,  Jl.) 

Presentment  of  indorsed  note  payable  at  bank 
to  maker  personally 

2678.  Although  an  indorsed  note  was 
made  payable  at  a  bank,  presentment  v/as 
made  to  the  maker  in  person,  and  then  pro- 
tested. May  the  indorser  recover  the 
protest  fees  from  the  payee?  Opinion: 
Where  an  indorsed  note  is  made  payable  at 
a  bank,  presentment  for  payment  must  be 
made  at  the  specified  place  in  order  to  hold 
an  indorser,  and  where  the  note  is  not  pre- 
sented at  the  bank,  but  to  the  maker  person- 
ally, and  then  protested,  the  instrument  is 
not  dul}^  presented  and  the  protest  is 
unauthorized.  There  is  no  riglit  to  recover 
the  protest  fees.  Farmers  Nat.  Bk.  v. 
Venner,  (Mass.)  78  N.  E.  540.  Myers  Co. 
V.  Battle,  (N.  C.)  86  S.  E.  1034.  Mer- 
chants Nat.  Bk.  V.  Bentel,  (Cal.)  113  Pac. 
708.     (Inquiry  from  Kan.,  July,  1917,  Jl.) 

Presentment  at  main  office  of  note  payable  at 
designated  branch 

2679.  A  note  for  $500  was  made  payable 
at  a  designated  branch  office  of  a  bank. 
The  notary  presented  the  note  at  the  main 
office  and  the  item  was  protested  for  non- 
payment. The  indorser  claims  non-liability. 
Opinion:  Presentment  for  payment  at  the 
main  office  of  the  bank  was  not  sufficient 
to  hold  the  indorser.  Ironclad  Mfg.  Co.  v. 
Sackin,  114  N.  Y.  S.  42.  (Inquiry  from 
Mich.,  Nov.,  1911,  Jl.) 

Presentment  by  parent  bank  cashing  check 
drawn  on  branch 

2680.  Is  a  parent  bank  which  cashed  a 
check  drawn  on  its  branch  a  holder  in  due 
course  with  duty  to  present  for  payment  at 
the  branch  and  with  recourse  upon  the 
drawer  and  prior  indorsers  if  payment  is 
stopped  or  the  check  is  refused  for  other 
reasons?  Opinion:  The  parent  bank  occu- 
pies the  same  status  ^^^th  respect  to  the 
check  as  an  independent  purchaser.  Wood- 
land V.  Fear,  7  El.  &  B.  (Eng.)  519.  It 
must  present  the  check  in  due  course  for 
payment  and  may  enforce  the  instrument 


605 


2681-2687] 


DIGEST  OF  LEGAL  OPINIONS 


against  the  drawer  and  prior  parties,  in  the 
event  of  non-payment,  if  it  could  have  done 
so  had  it  no  relation  to  the  bank  on  which 
drawn.    {Inquiry  from  Ala.,  May,  1917,  Jl.) 

2681.  In  the  city  of  C  there  is  thf» 
"Bank  of  C"  and  also  a  branch  located  in  a 
different  part  of  the  city,  known  as  the 
"Bank  of  C  Home  Savings  Branch."  A 
check  drawn  on  the  branch  was  presented  for 
payment  at  the  parent  bank.  Opinion:  The 
presentment  of  the  check  was  not  sufficient 
and  therefore  would  be  no  basis  for  a  pro- 
test. In  case  of  a  check  drawn  on  the  parent 
bank  and  presented  at  that  bank  where  pay- 
ment was  refused  although  the  drawer  had 
all  his  funds  in  the  branch,  the  bank  would 
not  be  responsible  for  damages.  While  the 
branches  of  a  bank  are  agencies  and  not  dis- 
tinct banks,  the  courts  recognize  that  for  cer- 
tain purposes,  including  the  presentment  and 
payment  of  checks,  the  different  branches 
are  to  be  regarded  as  distinct.  (Inquiry 
from  Ga.,  March,  1912,  Jl.) 

Manner  of  presentment 

Demand  of  payment  over  telephone  insufficient 

2682.  Is  a  demand  of  payment  of  a 
negotiable  instrument  over  the  telephone 
by  a  notary  sufficient  to  justify  a  protest? 
Opinion:  The  presentment  is  insufficient, 
the  law  requiring  personal  attendance  with 
the  note  at  the  place  of  demand,  in  readiness 
to  exhibit  it,  if  required,  and  to  receive  pay- 
ment and  surrender  it  if  the  debtor  is 
wilhng  to  pay.  Gilpin  v.  Savage,  (N.  Y.) 
94  N.  E.  656.  (Inquiry  from  W.  Va.,  Aug., 
1911,  Jl.) 

Check  not  sufficiently  presented  to  hold  indorser 
where  drawee  refuses  payment  over  telephone 

2683.  Is  a  telephone  message  from  a 
bank  that  a  check  is  not  good  a  sufficient 
presentation?  Opinion:  It  has  been  held 
that  a  demand  over  the  telephone  is  not  a 
legal  presentation;  the  instrument  itself 
must  be  presented.  The  fact  that  the  bank 
replies  over  the  telephone  that  the  check  is 
not  good  would  not  dispense  with  the 
necessity  of  due  presentment  to  hold  an 
indorser.  To  constitute  dishonor,  the 
instrument  must  be  duly  presented,  or 
presentment  must  be  legally  excused.  In 
this  case  there  is  no  due  presentment  and 
no  excuse  of  presentment,  so  far  as  an 
indorser  is  concerned;  hence  if  protest  or 
notice  of  dishonor  was  based  or  given  on  the 
telephone  refusal  of  a  bank  to  pay  a  check, 
it  would  not  be  legally  sufficient  and  the 


indorser    would    be    discharged.      (Inquiry 
from  Fla.,  June,  1916.)  ik 

Presentment  of  sight  draft  over  telephone 

2684.  A  bank  receiving  a  sight  draft  on 
a  person  living  three  miles  away  telephoned 
him  at  his  home,  there  being  no  bank  in  his 
town.  He  was  reported  to  be  absent  quite 
a  distance  and,  not  being  able  to  locate  him, 
the  bank  had  the  item  protested  for  non- 
payment. Opinion:  Presentment  and  de- 
mand of  payment  of  a  sight  draft  over  the 
telephone  is  not  legally  sufficient  and  protest 
for  non-payment  in  such  a  case  is  unauthor- 
ized. It  has  been  held  that  as  presentment 
must  be  made  by  actual  exhibition  of  the 
paper,  or,  at  least,  by  some  clear  indication 
that  the  paper  is  at  hand  ready  to  be  de- 
hvered,  a  demand  over  the  telephone  at  the 
place  specified  in  the  instrument  is  insuffi- 
cient. Neg.  Inst.  Law  (Commsr's.  dft.), 
Sees.  72,  73,  74.  Gilpin  v.  Savage,  201  N.  Y. 
167.    (Inquiry  from  Ark.,  March,  1918,  Jl.) 

Priority  where  checks  presented  through  mail 
and  over  counter 

2685.  When  the  check  of  A  is  presented 
through  the  mail  at  twelve  o'clock,  and  has 
not  been  paid  by  charging  to  the  account  of 
the  drawer  before  two  p.  m.,  when  another 
check  is  presented  over  the  counter  for  the 
entire  balance,  what  should  the  bank  do? 
Opinion:  If  A's  check  had  been  paid  by 
charge  to  account,  although  remittance  was 
to  be  made  later,  no  question  could  arise. 
But  although  not  paid,  it  seems  the  rule 
would  apply  that  checks  should  be  paid  in 
the  order  of  their  presentment,  and  that  the 
check  of  A,  having  been  first  presented  should 
be  first  disposed  of.  (Inquiry  from  N.  Y., 
Sept.,  1920.) 

Protest 

Abolition  of  protest 

2686.  Has  the  protest  of  negotiable 
instruments  been  aboUshed  in  any  state? 
Opinion:  It  has  not.  (Inquiry  from  Pa., 
Sept.,  1912,  Jl.) 

Instruments  a^  to  which  protest  required 

2687.  What  instruments  require  formal 
protest?  Opinion:  Formal  protest  as  dis- 
tinguished from  demand  and  notice  of 
dishonor  is  required  only  in  case  of  foreign 
bills  of  exchange.  However,  protest  of 
notes  and  inland  bills  is  permitted  and  it  is 
customary  for  a  collecting  bank  to  protest 
all  paper  unless  otherwise  instructed.    (In- 


606 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2688-2692 


quiries  from  N.  J.,   Nov.,  1913,  JL,  Wis., 
April,  1912,  JL,  Iowa,  May,  1914.) 

Omission  of  presenting  bank  to  have  check 
protested 

2688.  A  stock  buyer  gave  his  check  in 
payment  of  cattle,  on  a  local  bank,  which 
the  payee  took  to  his  own  town  in  same 
county,  having  been  assured  by  the  assistant 
cashier  of  drawee  bank  that  it  would  be 
paid  on  presentment.  The  payee  deposited 
the  check  for  credit  in  his  home  bank  and 
withdrew  the  proceeds.  The  check  was 
forwarded  through  a  city  correspondent, 
but  payment  was  refused  on  presentment 
because  of  insufficient  funds.  The  home 
bank  was  advised  of  non-payment  by 
'phone,  and  it  instructed  that  the  check  be 
returned  without  protest  through  the  city 
correspondent.  This  was  done,  and  when 
the  check  reached  the  home  bank  the  payee 
was  advised  of  non-payment,  and  gave  his 
note  for  the  amount,  but  subsequently 
threatened  to  sue  the  home  bank  for  non- 
protest.  What  is  the  liability  of  the  home 
bank,  and  also  the  liability  of  the  drawee 
upon  its  promise  to  pay  the  check?  Opin- 
ion: (1)  The  drawee  is  not  liable  as  acceptor 
because  its  promise  was  not  in  writing.  (2) 
The  home  bank  is  not  liable,  as  the  check 
did  not  require  protest,  and  the  hability 
of  the  payee  as  indorser  was  preserved  by 
due  demand  and  notice.  (Plover  Sav. 
Bank  v.  Moodie,  [Iowa]  110  N.  W.  29,  113 
N.  W.  476.  Weil  v.  Corn  Exch.  Bank,  116 
N.  Y.  Suppl.  665.  Neg.  Inst.  Law,  Sees. 
118,  152.)  (Inquiry  from  S.  D.,  Feb., 
1921,  Jl.) 

Accommodation  indorser  of  note  can  be  held  by 
demand  and  notice  without  protest 

2689.  Under  the  Negotiable  Instru- 
ments Act  is  it  necessary  to  protest  a  note  in 
order  to  hold  an  accommodation  joint  maker 
or  indorser?  Opinion:  Protest  is  not 
necessary  to  hold  a  joint  maker,  even  though 
he  sign  for  accommodation;  he  is  primarily 
hable  and  can  be  held  without  protest  or 
notice  of  dishonor.  However,  it  is  necessary 
to  make  due  demand  and  give  notice  of 
dishonor  to  hold  an  accommodation  indorser. 
Strict  notarial  protest,  while  also  permitted, 
is  required  only  in  the  case  of  a  foreign 
bill  of  exchange.  (Inquiry  from  S.  C,  Feb., 
1918.) 

Protest   of  instrument   providing   that  when 
receipted  it  becomes  a  check 

2690.  Bank  A  receives  an  item,  sent 
from  a  clearing  house,  subject  to  protest. 


On  its  face  was  a  statement  that  it  would 
have  to  be  receipted  before  it  became  a 
check  on  bank  B  and  space  was  provided  for 
that  purpose  on  face.  It  was  indorsed  but 
not  receipted,  and  bank  A  protested  it  for 
non-payment.  Is  bank  A  liable  for  damages? 
Opinion:  It  would  be  questionable  whether 
an  order  stating  on  its  face  that  it  would 
have  to  be  receipted  before  it  became  a 
check  would  be  subject  to  protest  for  non- 
payment where  not  so  receipted.  Such  an 
instrument  might  be  held  not  negotiable, 
because  of  the  condition  of  receipt  as  a  pre- 
requisite, in  which  event  it  would  not  be 
subject  to  protest;  and  even  if  negotiable, 
there  would  be  a  further  question  whether  a 
refusal  to  pay  where  the  condition  that  it 
would  be  receipted  before  it  became  a  check 
had  not  been  comphed  with  would  consti- 
tute a  dishonor  so  as  to  justify  protest.  It 
would  seem  in  this  case  that  the  instrument 
should  not  have  been  protested.  Banks  are 
sometimes  held  liable  in  damage  for  making 
wrongful  protest  where  injury  to  credit  is 
caused  thereby.  Whether  there  would  be 
any  such  liability  in  this  case  is  somewhat 
uncertain.    (Inquiry  from  Ga.,  March,  1913.) 

Protest  of  check  on  branch,  held  by  parent  bank 

2691.  May  a  branch  bank  treat  checks 
in  the  hands  of  the  parent  bank  like  checks 
in  the  hands  of  other  banks  when  items 
come  to  it  in  the  regular  course  of  mail? 
Opinion:  Checks  on  a  branch  bank  coming 
from  the  main  office  should  be  treated  just 
like  checks  coming  from  independent  banks 
when  they  are  received  by  the  branch  bank 
in  the  regular  course  of  mail,  and  where  the 
drawer  of  a  check  has  not  sufficient  funds  in 
the  branch  bank  to  meet  such  cheek,  it  may 
be  protested  at  the  close  of  the  business  day 
on  which  it  is  received  and  returned.  The 
general  rule  is  that  each  branch  bank  is 
regarded  as  separate  and  distinct;  the 
deposit  in  one  branch  of  a  check  drawn  on 
another  is  the  same  as  if  the  check  so  de- 
posited had  been  drawn  on  an  outside  bank. 
If  it  is  dishonored  by  the  branch  upon 
which  it  is  drawn,  the  branch  of  deposit  has 
the  right  to  charge  back  the  amount  to  its 
own  depositor  and  return  him  the  check. 
See  AVoodland  v.  Fear,  7  El.  &  B.,  519 
(Eng.);  Ironclad  Mfg.  Co.  v.  Sackin,  129 
N.  Y.  App.  Div.  555.  (Inquiry  froni  Mich., 
Aug.,  1913.) 

Protest  of  check  retained  by  payor  mthout 
pay7}ient 

2692.  Is  there  the  right  to  protest  a 
protestable  item  after  it  has  been  obtained 


607 


2693-2699] 


DIGEST  OF  LEGAL  OPINIONS 


i 


by  the  payor  under  means  other  than  the 
actual  bona  fide  payment  thereof?  Opinion: 
Protest  in  the  case  seems  to  be  authorized  by 
Sec.  160  of  the  Negotiable  Instruments  Act, 
which  provides,  "When  a  bill  is  lost  or 
destroyed  or  is  wrongfully  detained  from 
the  person  entitled  to  hold  it,  protest  may 
be  made  on  a  copy  or  written  particulars 
thereof."  (Inquiry  from  Neb.,  March, 
1919.) 

Protest  of  checks  under  $10 

2693.  Should  a  collecting  bank  protest  a 
check  for  less  than  $10?  Opinion:  In  case 
of  a  small  check  under  $10  payable  in  the 
same  state,  in  the  absence  of  instructions  it 
might  be  proper  to  omit  protest  and  merely 
give  due  notice  of  dishonor.  (Inquiry  from 
Okla.,  Sept.,  1911,  Jl.) 

Protest  of  decedent's  check 

2694.  Is  it  necessary  to  protest  a  check 
presented  for  payment  subsequent  to  the 
death  of  the  drawer?  What  if  indorsers  are 
located  in  different  state?  Opinion:  Where 
a  check  is  presented  for  payment  subsequent 
to  the  death  of  the  drawer,  it  may  be  pro- 
tested and  notice  of  dishonor  must  be  given 
to  indorsers,  and  if  the  check  is  drawn  in  one 
state  and  paj^able  in  another,  it  must  be  pro- 
tested. If  the  check  bears  no  indorsement 
and  is  presented  by  the  payee  or  his  agent, 
there  would  seem  no  real  necessity  for  pro- 
test or  notice  of  dishonor  to  the  representa- 
tives of  the  drawer's  estate,  except  that  a 
certificate  of  protest  would  establish  the 
fact  of  non-payment  by  the  bank  and  might 
be  convenient  when  proving  check  as  a 
claim  against  the  drawer's  estate.  (Inquiry 
from  III.,  Aug.,  1913.) 

Protest  not  necessary  against  deceased  maker 

2695.  A  note  is  signed  by  John  Smith, 
payable  to  John  Doe,  who  waives  protest. 
Smith  dies  before  the  note  becomes  due. 
Is  it  necessary  to  protest  the  note  in  order  to 
hold  Smith's  estate?  Opinion:  It  is  not 
necessary  to  protest  a  note  in  order  to  hold 
a  maker  or  his  estate.  (Inquiry  from  N.  J., 
April,  1914.) 

Protest  of  check  on  failed  drawee 

2696.  Should  a  check  presented  after 
the  failure  of  the  drawee  bank  be  protested? 
Opinion:  A  check  does  not  require  protest 
at  all;  due  demand  and  notice  of  dishonor 
are  sufiicient.  But  the  bankruptcy  or 
insolvency  of  the  drawee  does  not  excuse 


these  steps  and  it  is  usual  and  customary  to 
protest  a  check  as  the  certificate  of  protest 
affords  a  convenient  means  of  proving 
dishonor.  If  the  check  is  protested,  the 
protest  should  be  made  on  the  day  of 
presentment,  but  notice  of  dishonor  can  be 
given  without  any  formal  protest  at  all. 
See  Shaw  v.  McNeill,  95  N.  C.  535.  (In- 
quiry from  N.  Y.,  Sept.,  1919.) 

Liability  of  collecting  bank  omitting  protest  and 
delaying  return  of  draft 

2697.  A  bank  received  for  collection, 
with  instructions  to  protest  if  not  paid,  a 
draft  with  shares  of  stock  attached.  The 
draft  was  returned  without  protest,  forty- 
five  days  later,  and,  as  a  result  of  the  delay, 
the  owner  of  the  item  was  prejudiced  by  a 
depreciation  in  the  value  of  the  stock 
attached  to  the  draft  which  he  might  have 
disposed  of  at  a  better  figure  had  the  draft 
been  promptly  returned  unpaid.  What  is  the 
liability  of  the  collecting  bank?  Opinion: 
The  delay  would  seem  to  be  unreasonable, 
and  it  was  the  duty  of  the  collecting  bank 
to  present  the  draft  with  due  diligence,  and 
if  it  delayed  the  collection  for  an  unreason- 
able period  of  time,  it  could  be  held  liable  for 
any  resulting  loss.  (See  A.  B.  A.  Journal, 
April,  1919.)  (Inquiry  from  Ark.,  March, 
1919.) 

Protest  of  inland  check 

2698.  Can  a  check  that  has  not  been 
out  of  the  state  be  legally  protested? 
Opinion:  The  Negotiable  Instruments  Act 
provides  in  Sec.  118:  "Where  any  negoti- 
able instrument  has  been  dishonored  it  may 
be  protested  for  non-acceptance  or  non- 
payment, as  the  case  may  be;  but  protest  is 
not  required,  except  in  the  case  of  foreign 
bills  of  exchange."  It  is  quite  customary  to 
protest  inland  checks,  and  it  is  authorized 
by  the  above  section.  (Inquiry  from  Fla., 
Sept.,  1919.) 

Object  of  protesting  inland  bill  of  exchange 

2699.  What  is  the  object  of  permitting 
protest  of  inland  biUs  of  exchange?  Opinion: 
The  object  of  permitting  protest  of  inland 
biUs  is  to  enable  the  holder  to  obtain  a 
convenient  means  of  proving  dishonor  in 
case  he  is  compelled  to  bring  suit  on  the 
paper,  as  the  notary's  certificate  of  protest 
is  admitted  as  prima  facie  evidence  to 
prove  dishonor  and  obviates  the  necessity  of 
calling  witnesses  and  proving  that  fact  by 
other  evidence.  (Inquiry  from  Wash.,  Sept., 
1911,  JL) 


608 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2700-270G 


Collecting  hank  omitting  protest  of  inland  check 

2700.  Is  a  check  drawnX.and  payable 
within  a  single  state  and  not  bearing  the 
indorsement  of  anyone  outside  the  state 
protestable?  Is  the  collecting  bank  respon- 
sible when  the  same  is  not  protested? 
Opinion:  Although  a  collecting  bank  is 
responsible  if  by  its  negligence  it  fails  to  take 
the  necessary  steps  upon  dishonor  to  hold 
prior  indorsers,  if  it  makes  due  demand 
and  gives  due  notice  of  dishonor  the  prior 
parties  are  held  without  protest.  While  it  is 
customary  for  collecting  l^anks  to  protest 
inland  checks,  no  substantial  damage  to  the 

I  holder  results  from  omission  to  protest, 
where  the  liability  of  indorsers  is  preserved 
by  demand  and  notice.  {Inquiry  from 
Miss.,  May,  1917.) 

Protest  when  notice  of  non-payment  wired 

2701.  Should  the  drawee  bank  in  order 
to  hold  the  indorsers  have  a  check  protested 
upon  non-payment,  in  addition  to  wiring 
non-payment,  when  instructions  are  to  wire? 
Opinion:  The  statute  permits  the  protest, 
and,  although  it  is  not  absolutely  required, 
it  is  desirable,  because  a  certificate  of  pro- 
test provides  a  convenient  means  of  proving 
dishonor,  as  it  is  prima  facie  evidence  of  it, 
and  in  a  suit  against  the  indorsers,  if  there 
is  no  certificate  of  protest,  the  fact  of  due 
demand  and  dishonor  must  be  proved  by  the 
testimony  of  witnesses.  {Inquiry  from  Iowa, 
Oct.,  1918.) 

Protest  of  draft  refused  because  hill  of  lading 
not  attached 

2702.  A  draft  which  called  for  a  bill  of 
lading  was  sent  to  a  bank  for  collection. 
Where  payment  is  refused  because  the  bill 
of  lading  is  not  attached  to  the  draft,  it  hav- 
ing been  lost  on  the  way,  is  protest  proper? 
Opinion:  A  negotiable  draft  is  subject  to 
protest.  A  non-negotiable  one  is  not.  If  it 
is  a  plain  negotiable  form  of  draft  drawn  for 
the  price  of  merchandise,  it  is  protestable, 
although  the  bill  of  lading  for  same  was  not 
attached.  If,  on  the  other  hand,  the  draft 
contains  language  making  it  payable  only  on 
condition  that  the  bill  of  lading  is  surrender- 
ed, it  is  not  negotiable  and  not  protestable. 
{Inquiry  from  Miss.,  Jan.,  1918.) 

Protest  of  check  where  drawer  had  no  account 

2703.  A  check  drawn  on  an  Oregon  bank 
was  received  by  an  Oklahoma  bank  from  its 
customer.  It  was  forwarded  with  instruc- 
tions to  protest  but  was  returned   unpro- 


tested. Does  the  fact  that  the  drawer  had 
no  account  in  Oregon  bank  excuse  the 
collecting  bank  from  following  instructions? 
Opinion:  If  the  check  showed  on  its  face 
that  it  was  drawn  in  Oklahoma  upon  an 
Oregon  bank,  protest  would  be  required  to 
hold  parties  secondarilj^  liable;  but  if  it 
appeared  to  be  both  drawn  and  payable  in 
Oregon,  demand  and  notice  of  dishonor 
without  formal  protest  would  be  sufficient. 
As  the  drawer  had  no  account  in  bank,  this 
fact  would  excuse  demand,  notice  and  pro- 
test so  far  as  he  was  concerned,  but  any 
indorser  for  value  would  be  released  if  the 
proper  steps  upon  dishonor  were  not  taken. 
If  the  collecting  bank  made  due  demand  and 
gave  notice  of  dishonor  through  its  imme- 
diate principal  and  the  notice  came  back  to 
the  Oklahoma  bank  in  due  season,  so  that 
it  was  enabled  to  notify  its  customer  of  the 
dishonor  and  hold  him  Uable  as  indorser, 
there  would  probably  be  no  loss  for  which 
the  collecting  bank  could  be  held.  It  never- 
theless should  have  followed  instructions. 
{Inquiry  from  Okla.,  Apr.,  1914.) 

Protest  of  check  on  non-existent  drawee  hank 

2704.  Is  a  check  drawn  on  a  non- 
existent bank  subject  to  protest?  Opinio?!: 
Such  a  check  is  negotiable  and  is  subject  to 
protest  under  the  Negotiable  Instruments 
Act.  Neg.  Inst.  Law  (Commsr's.  dft.). 
Sees.  82,  114,  117.  {Inquiry  from  III., 
Feb.,  1918,  Jl,  N.  D.,  Oct.,  1918.) 

Protest  of  indorsed  note  payable  at  and  held 
by  hank 

2705.  Should  a  bank  protest  an  indorsed 
promissory  note  payable  to  its  order  at  the 
bank?  Opinion:  The  note  being  payable 
to  the  order  of  the  bank  at  the  bank,  the 
holding  of  the  note  at  maturity  constitutes 
a  sufficient  demand,  and  all  that  is  necessary 
is  to  mail  notices  of  dishonor  to  the  indorsers 
whose  names  are  on  the  back.  Formal 
notarial  protest  is  not  necessary,  but  it  is 
permissible  under  the  law,  and  customary, 
as  the  certificate  of  protest  affords  a  con- 
venient means  of  proving  dishonor.  See 
Neg.  Inst.  Act,  Sec.  118.  {Inquiry  from  N. 
H.,  Jan.,  1920.) 

Protest  of  check  "payable  to  order  of  self" 

2706.  Is  a  check  "pay  to  the  order  of 
self,"  indorsed  by  the  maker  and  negotiated, 
protestable?  Opinion:  The  check  is  nego- 
tiable and  consequently  protestable.  {In- 
quiry from  Iowa,  Sept.,  1917.) 


609 


%' 


2707-2714] 


DIGEST  OF  LEGAL  OPINIONS 


Surety-makers  not  discharged  by  failure  to 
protest 

2707.  Are  surety-makers  of  a  note  dis- 
charged by  the  failure  to  have  the  note 
protested?  O-pinion:  Under  the  Negotiable 
Instruments  Act  the  surety-makers  are 
primarily  liable  and  not  entitled  to  protest. 
{Inquiry  from  Tenn.,  Aug.,  1916,  Jl.) 

Protest    unnecessary    to    hold    guarantor    of 
payment 

2708.  Is  it  necessary  to  protest  a  note  to 
hold  the  indorser  who  guarantees  payment? 
Opinion:  The  guaranty  of  payment  ob- 
viates the  necessity  of  protest.  Zahn  v. 
First  Nat.  Bank,  103  Pa.  576.  {Inquiry 
from  Pa.,  July,  1915.) 

Drawee^s  duty  as  to  protest  when  check  pre- 
sented over  counter 

2709.  Where  payment  of  a  check  has 
been  stopped  or  there  is  lack  of  funds,  is  it 
necessary  for  a  bank  to  protest  it  for  a 
holder  when  it  is  presented  over  the  counter? 
Opinion:  In  such  a  transaction  a  bank  is  not 
the  agent  of  the  holder  and  is  not  obhged  to 
protest  the  check  for  him.  He  has  the  right 
to  have  it  protested  if  he  chooses,  pajdng  the 
fee  for  it  himself.  There  would  be  no  par- 
ticular advantage  to  the  holder  in  having 
such  a  check  protested,  unless  there  was  a 
prior  indorser  whom  he  desired  to  sue;  so  far 
as  the  drawer  is  concerned  he  is  liable  in  any 
event.     {Inquiry  from  Mont.,  May,  1920.) 

Duty  as  to  protest  between  drawee  and  local 
presenting  bank 

2710.  Should  a  bank  protest  items 
drawn  on  it  when  sent  to  it  by  another  bank 
in  the  same  town,  or  should  it  refuse  pay- 
ment and  let  the  other  bank  do  the  protest- 
ing? Opinion:  When  the  check  is  presented 
by  another  bank  in  the  same  town,  it  would 
seem  that  the  only  function  of  the  drawee 
is  to  pay,  or  to  refuse  to  pay,  and  the  pre- 
senting bank  is  in  such  case  the  agent  of  the 
holder  to  have  the  check  protested.  {In- 
quiries from  Colo.,  March,  1919,  N.  C,  July, 
1919,  Va.,  Jan.,  1918,  Del,  June,  1915.) 

Presenting  bank  in  same  city  and  not  drawee 
should  protest  check 

2711.  A  bank  received  for  deposit  from 
the  payee  a  check  on  another  bank  in  the 
same  city.  The  drawee  bank  returned  the 
check  because  of  insufficient  funds,  without 
protest.  Was  this  proper?  Opinion:  Pro- 
test is  permissible  but  not  required  unless 


the  check  is  drawn  in  one  state  and  payable 
in  another.  See  Morrison  v.  Bailey,  5  Ohio 
St.  13.  In  the  case  submitted,  it  was  in- 
cumbent on  the  presenting  bank  and  not 
the  drawee  to  take  the  necessary  steps  to 
preserve  the  liability  of  the  indorser;  this 
could  have  been  done  by  simply  notifying 
him  of  the  dishonor  of  the  check,  but,  of 
course,  the  bank  would  have  the  right  to 
hand  the  check  over  to  a  notary  for  purpose 
of  protest.  {Inquiry  from  Ohio,  Nov., 
1919.) 

Drawee's  duty  as  to  protest  of  check  received 
through  mail 

2712.  Should  a  drawee  bank  protest  an 
overdraft  received  by  mail?  Opinion:  It  is 
customary  for  banks  when  they  receive 
through  the  mail  checks  drawn  on  them- 
selves, which  are  dishonored,  to  cause  pro- 
test to  be  made  before  returning  the  items. 
In  so  doing,  they  are  acting  as  agents  for  the 
holders  who,  it  is  assumed,  desire  certificates 
of  protest  as  a  convenient  means  of  proving 
dishonor.    {Inquiry  from  Mass.,  June,  1919.) 

Liability  of  drawee  failing  to  protest  check 
received  through  mail 

2713.  If  a  drawee  bank  returns  a  check 
with  notation,  "Payment  stopped  subject 
to  adjustment,"  and  does  not  protest  the 
check,  is  it  liable?  Opinion:  A  bank  which 
refuses  payment  of  a  check  because  the 
drawer  has  stopped  payment  is  not  liable 
to  the  holder  for  refusal  to  pay,  because  a 
check  of  itself  does  not  operate  as  an  assign- 
ment of  any  part  of  the  funds  to  the  credit 
of  the  drawer  and  the  bank  is  not  Hable  to 
the  holder  unless  and  until  it  accepts  or 
certifies  the  check.  But  where  a  check  is 
mailed  to  the  drawee  bank,  it  might  be  held 
that  the  payor  bank  assumed  the  dual  re- 
lation (1)  as  agent  of  the  depositor  to  pay 
or  refuse  payment  and  (2)  as  agent  for  the 
holder  to  present  to  itself  and  to  protest  if 
not  paid, — in  the  latter  relation  it  would  be 
its  duty  to  protest  when  so  instructed;  but 
the  bank  might  take  the  ground  that  it  did 
not  act  as  agent  for  the  holder,  but  only 
as  agent  of  the  drawer.  A  check,  however, 
does  not  require  protest,  mere  notice  of 
dishonor  is  sufficient,  so  there  would  be  no 
loss  of  liability  of  prior  parties  from  which 
damages  would  result.  {Inquiry  from  Okla., 
April,  1919.) 

Protest  of  check  by  drawee  acting  as  agent  of 
payee 

2714.  A  check  for  $160  was  drawn,  pay- 
able by  A  to  B,  who  deposited  it  for  col- 


610 


I 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2715-2720 


lection.  The  check  was  forwarded  directly 
to  the  drawee  bank,  where  payment  was 
stopped  by  A.  The  drawee  questions  the  ad- 
visability of  protesting  the  check  for  non- 
payment. Opinion:  The  drawee  would  not 
be  responsible  in  omitting  protest,  as  protest 
is  not  necessary  in  this  case,  there  being  no 
contingent  parties  to  be  held  liable.  {In- 
quiry from  Wis.,  March,  1916,  Jl.) 

Drawee  not  liable  to  payee  for  omission  to 
protest 

2715.  The  payee  of  a  check  deposits  it 
in  his  bank  for  collection  and  before  the 
item  is  presented  goes  to  the  town  of  the 
drawee  and  asks  the  latter  if  it  will  pay  the 
same  when  it  comes  through  the  regular 
channels.  The  drawee  promises  to  hold  the 
check  awaiting  a  deposit  by  the  drawer, 
there  being  insuflBcient  funds  at  the  time. 
When  the  check  was  presented,  the  drawee 
returned  it  unpaid,  because  of  insufficient 
funds,  without  protesting  it.  The  payee 
wants  to  hold  the  drawee  for  not  protesting. 
Opinion:  Drawee  bank  not  hable  to  payee 
of  check  for  omission  to  protest  before  re- 
turning unpaid  because  of  insufficient  funds. 
In  this  case  the  check  was  owned  by  the 
payee,  and  there  was  no  discharge  of  parties 
contingently  liable  and  no  loss  resulted  to 
the  payee  from  the  bank's  omission  to  pro- 
test. Bank's  promise  to  hold  check  awaiting 
deposit  by  drawer  is  not  binding  on  bank, 
not  being  an  acceptance  nor  supported  by  a 
consideration.  {Inquiry  from  La.,  Aug., 
1917,  Jl.) 

Protest  of  undated  check 

2716.  An  undated  check  negotiable  in 
form  was  presented  for  payment  at  a  savings 
bank.  The  presenting  bank  protested  the 
item  for  non-payment  after  refusal  of  pay- 
ment because  of  non-production  of  the  pass- 
book. Opinion:  The  check  was  properly 
protestable  and  its  negotiable  character 
was  not  affected  by  the  fact  that  it  was 
undated  or  that  it  was  payable  only  on 
presentation  of  the  pass-book,  since  the 
holder  is  not  chargeable  with  knowledge  of 
any  condition  of  payment  not  existing  on 
the  face  of  the  check  itself.  N.  Y.  Neg.  Inst. 
Act,  Sec.  25.  {Inquiry  from  N.  Y.,  Aug., 
1913,  Jl.) 

Protest  where  signature  placed  under  drawer's 
signature 

2717.  A  check  was  presented  to  the 
drawee  bank  with  another  signature  under 
that  of  the  drawer  which  was  in  the  proper 


place.  The  drawee  bank  returned  the  check 
with  the  notation  "Signature  unauthorized." 
The  bank  presenting  the  check  then  pro- 
tested the  check.  Was  this  necessary? 
Opinion:  Although  in  the  case  submitted 
there  was  a  signature  under  the  drawer's 
signature,  the  check  was  genuine  and  not  a 
forgery  and  under  the  circumstances  protest 
was  justified.  The  signature  placed  under 
the  drawer's  signature  may  have  been  that 
of  an  indorser.  While  an  indorsement  is 
usually  placed  on  the  back,  it  has  been  held 
valid  where  placed  on  the  face  of  the  in- 
strument and  even  under  the  drawer's 
name.     {Inquiry  from  Iowa,  Feb.,  1920.) 

Protest  of  check  signed  by  unwitnessed  mark 

2718.  A  drawer  of  checks  unable  to 
write  signs  by  mark  with  witnesses.  A  check 
coming  through  another  bank  unwitnessed, 
to  drawee,  was  returned  by  that  bank  with 
the  notation  on  back,  "This  party  signs 
name  by  mark  and  mark  requires  witness." 
The  presenting  bank  protested  and  its  pro- 
cedure is  questioned.  Opinion:  A  signature 
by  mark  would  be  incomplete  without  a 
witness  and  it  would  seem  such  check  would 
not  be  properly  protestable  any  more  than 
would  a  check  bearing  no  signature.  {In- 
quiry from  Okla.,  Sept.,  1912.) 

Protest  of  check  bearing  mutilated  signature 

2719.  Is  a  drawee  bank  Hable  for  failure 
to  obey  instructions  to  protest  checks  for 
non-payment  where  the  signature  is  so 
mutilated  that  the  drawee  bank  cannot  be 
positive  as  to  the  identity  of  the  drawer? 
Opinion:  Where  the  mutilation  is  such  that 
the  drawee  bank  cannot  know  positively 
who  the  drawer  is,  it  is  proper  to  return  the 
check  without  protest  for  further  informa- 
tion. This  is  not  such  a  dishonor  as  justifies 
protest.     {Inquiry  from   Ky.,  Jan.,   1921.) 

Missing  signatures 

Protest  where  maker's  stamp  indicates  lack 
of  necessary  signature 

2720.  A  check  which  bears  the  rubber 
stamp  of  a  corporation  as  maker  indicates 
that  at  least  two  officers  must  add  their 
names.  The  signature  of  only  one  is  suffixed, 
and  he  only  indorses.  Is  the  holding  bank 
justified  in  causing  protest  to  be  made? 
Opinion:  The  check  on  its  face  showed  that 
it  was  incomplete  as  to  signature  so  that 
there  would  be  no  presentment  of  a  com- 
pleted check.  Probably  it  would  be  held 
that  there  was  no  dishonor  by  refusal  to  pay 


611 


2721-2726] 

which  justified  a  protest.      {Inquiry  from 
Colo.,  Aug.,  1919.) 

Protest  where  one  of  two  necessary  signatures 
of  officers  of  corporation  missing 

2721.  The  contract  between  a  bank  and 
a  corporation  requires  that  the  checks  of  the 
latter  have  the  signatures  of  two  officers  of 
the  corporation.  Was  the  drawee  bank 
justified  in  protesting  a  check  signed  by- 
only  one  of  such  officers.  Opinion:  There 
is  no  judicial  precedent,  but  the  test  as  to 
whether  protest  w^as  proper  would  seem  to 
be  whether  the  issuance  of  the  paper  by  the 
one  officer  was  within  his  authority  as  be- 
tween him  and  the  corporation.  If  it  was, 
the  check  was  valid  and  protestable;  if  it 
was  not,  the  drawer  corporation  would  not 
be  bound  by  the  check  and  any  indorser 
would  be  liable  on  liis  impHed  warranty,  as 
expressed  by  the  Negotiable  Instruments 
Act,  that  the  instrument  is  genuine  and  in 
all  respects  what  it  purports  to  be,  for  such 
warranty  includes  the  authority  of  an  agent 
to  sign  for  his  principal.  Notice  of  protest  or 
dishonor  is  not  necessary  to  hold  an  indorser 
on  his  breach  of  warranty;  in  fact,  if  the 
officer's  act  was  beyond  liis  power,  there  was 
no  dishonor  because  there  was  and  could 
be  no  due  presentment,  and  without  dis- 
honor there  can  be  no  protest.  {Inquiry 
from  N.  J.,  April,  1921,  Jl.) 

2722.  By  agreement  between  a  bank 
and  its  depositor,  a  corporation,  a  check 
requires  two  signatures  to  authorize  pay- 
ment. The  bank  refuses  to  pay  because  one 
of  such  signatures  is  missing  and  inquires 
as  to  the  legaHty  and  propriety  of  protesting 
the  check.  Opinion:  To  authorize  or  justi- 
fy a  protest  the  instrument  must  be  "dis- 
honored" and  one  of  the  essentials  to  con- 
stitute dishonor  is  that  the  instrument  must 
be  "duly  presented."  If  the  instrument, 
though  not  in  accordance  with  the  contract 
with  the  bank,  was  drawn  in  this  way  by 
authority  of  the  board  of  directors,  it  would 
probably  be  held  to  be  a  genuine  negotiable 
instrument  duly  presented  and  protest 
would  be  justifiable  and  valid.  But  if 
issued  without  authority  and  without  the 
second  signature,  it  was  not  a  valid  order, 
the  check  would  probably  not  be  protest- 
able,  but  the  indorser  would  be  hable  upon 
breach  of  warranty  of  genuineness.  lU. 
Neg.  Inst.  Act,  Sees.  117,  151,  83.  {In- 
quiry from  III.,  Dec,  1916,  Jl.) 

Protest  where  signature  lacking 

2723.  Bank  F  sends  bank  A  an  unsigned 
check  on  bank  B  which  refuses  payment. 


DIGEST  OF  LEGAL  OPINIONS 


Bank  A  returns  check  to  bank  F  without 
protesting,  although  instructed  by  bank  F 
to  protest  all  items.  May  the  F  bank 
charge  the  A  bank  with  the  amount  of  the 
check?  Opinion:  An  unsigned  check  does  ; 
not,  of  course,  constitute  an  order  by  the  ! 
customer  on  the  bank  to  pay;  it  cannot, 
therefore,  be  dishonored  and  there  can  be  no 
protest.  The  return  of  the  check  by  A 
without  protest,  although  F  has  instructed 
it  to  protest  all  items,  does  not  entitle  F  to 
charge  A  with  the  amount.  {Inquiry  from 
Neb.,  Aug.,  1914.) 

Missing  indorsements 

Protest  where  payment  refused  because 
indorsement  lacking 

2724.  Is  protest  justifiable  when  a  check 
is  refused  payment  because  of  lack  of  in- 
dorsement or  because  of  improper  or  in- 
sufficient indorsement?  Opinion:  Refusal 
of  payment  because  of  lack  of  indorsement  or 
because  of  improper  indorsement  is  not  a 
dishonor  which  authorizes  or  justifies  a  pro- 
test. The  Negotiable  Instruments  Act 
authorizes  protest  "Where  any  negotiable 
instrument  has  been  dishonored,"  and 
provides  that  "The  instrument  is  dis- 
honored by  non-payment,  when  it  is  duly 
presented  for  payment  and  payment  is 
refused."  The  holder  of  an  instrument 
acquired  through  insufficient  or  improper 
indorsement  is  not  in  position  to  make  due 
presentment  and  therefore  there  is  no 
dishonor  which  authorizes  a  protest.  Goshen 
V.  Bingham,  118  N.  Y.  349,  23  N.  E.  180,  16 
Am.  St.  Rep.  765.  Harden  v.  Birmingham 
Trust  &  Sav.  Co.,  55  So.  (Ala.)  943.  {In- 
quiry from  Colo.,  April,  1916.) 

Protest  of  check  refused  because  indorsement 
missing 

2725.  Under  the  laws  of  the  state  of  New 
Jersey  or  of  Utah  is  it  allowable  to  protest 
a  check  because  of  a  missing  indorsement? 
Opinion:  To  constitute  dishonor  and  au- 
thorize protest,  a  check  must  be  duly  pre- 
sented, and  where  a  check  is  presented 
lacking  indorsement,  there  can  be  no  due 
presentment  and  protest  is  not  justified. 
The  Negotiable  Instruments  Act  in  Utah 
is  not  different  from  the  New  Jersey  Act 
with  reference  to  the  requirements  of  pre- 
sentment, notice  of  dishonor,  protest,  etc. 
{Inquiry  from  N.  J.,  May,  1920.) 

Protest   where   third   person   presents   check 
lacking  payee's  indorsement 

2726.  Is  protest  justified  where  a  check 
to  the  order  of  the  payee  is  presented  by  a 


612 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2727-2732 


third  person  without  the  indorsement  of  the 
payee  and  paj^ment  is  refused  for  that 
reason?  Opinion:  The  refusal  is  not  a 
dishonor  which  justifies  protest.  To  con- 
stitute dishonor  it  is  essential  that  there  be 
due  presentment  of  the  check  and  it  cannot 
be  said  that  a  check  without  indorsement  of 
the  paj'^ee,  presented  by  a  third  person,  is 
duly  presented,  because  the  payee's  indorse- 
ment, which  is  the  order  and  authority  to 
the  bank  to  pay  the  holder,  is  lacking. 
Harden  v.  Birmingham,  etc.,  Bank  (Ala.) 
55  So.  943.  {Inquiries  from  III.,  Dec,  1917, 
Okla.,  May,  1912,  JL,  Ga.  Sept.,  1910,  Jl. 
Ga.,  Dec,  1916,  Jl.) 

Protest  where  -payment  refused  because  payee's 

indorsement  lacking  although  indorsed  by 

depository  bank 

2727.  When  a  check  bearing  the  in- 
dorsement, "Credit  to  the  account  of  payee, 
John  Doe,  cashier"  is  refused  payment 
because  not  properly  indorsed,  should  it  be 
protested?  Opinion:  Section  118  of  the 
Negotiable  Instruments  Act  authorizes  pro- 
test "when  the  instrument  has  been  dis- 
honored," and  Section  83  provides  that  "the 
instrument  is  dishonored  by  non-pa>Tnent 
when  it  is  duly  presented  for  payment  and 
payment  is  refused  or  cannot  be  obtained." 
There  must  be  due  and  regular  indorsement 
to  entitle  the  holder  to  demand  payment, 
and  the  payee  did  not  indorse,  but  the  bank 
of  deposit  indorsed  a  memorandum  that  the 
check  should  be  credited  to  his  account.  It 
is  questionable  whether  it  could  be  held 
that  there  was  a  due  presentment  which 
would  constitute  the  refusal  to  pay  a  dis- 
honor which  would  authorize  protest.  {In- 
quiry from  III.,  Feb.,  1919.) 

Protest  where  payee's  indorsement  lacking  and 
prior  indorsements  guaranteed 

2728.  Where  a  check  bearing  a  number 
of  bank  indorsements  "Prior  indorsements 
guaranteed,"  lacks  the  paj'ec's  indorsement, 
should  the  presenting  bank  protest  the  item? 
Opinion:  Where  a  check  is  presented  by  a 
third  person  without  the  indorsement  of  the 
payee  and  payment  is  refused  for  that  rea- 
son, such  refusal  is  not  a  dishonor  which 
justifies  a  protest.  To  constitute  dishonor, 
it  is  essential  that  there  be  due  presentment 
of  the  check.  It  cannot  be  said  that  a  check 
without  the  indorsement  of  the  payee  pre- 
sented by  a  third  person  is  duly  presented, 
because  the  payee's  indorsement,  which  is 
the  order  and  authority  to  the  bank  to  pay 


the  holder,  is  lacking.    {Inquiry  from  Colo., 
Aug.,  1919.) 

Protest    of   draft    refused    payment    because 
accompanying    b/l    not    indorsed 

2729.  A  grain  dealer  in  Oklahoma  drew 
a  draft  on  a  firm  in  Kansas.  He  attached 
thereto  an  "order"  bill  of  lading  which 
provided  that  "the  surrender  of  this  original 
order  bill  of  lading  properly  indorsed  shall 
be  required  before  delivery  of  the  property" 
and  deposited  it  in  his  bank  for  credit.  On 
presentment  through  the  Kansas  City 
Clearing  House,  payment  was  refused  be- 
cause the  grain  dealer  failed  to  indorse  the 
bill  of  lading.  Should  the  draft  have  been 
protested?  Opinion:  In  the  absence  of 
instructions  not  to  protest,  the  draft  should 
have  been  protested  upon  dishonor.  {In- 
quiry from  Kan.,  Nov.,  1913,  Jl.) 

Incorrect  indorsements 

Protest  where  payment  refused  because 
indorsement  incorrect 

2730.  Does  presentment  by  a  holder 
under  an  "incorrect  indorsement"  authorize 
protest?  Opinion:  To  authorize  the  protest 
of  a  check,  it  must  be  "duly"  presented  for 
payment.  The  holder  under  an  "incorrect 
indorsement"  is  not  entitled  to  demand  pay- 
ment; hence  there  can  be  no  due  present- 
ment of  such  a  check  and  no  dishonor  by 
non-payment  which  would  authorize  a 
protest.    {Inquiry  from  Pa.,  Nov.,  1911,  Jl.) 

Protest  where  payment  refused  because  in- 
dorsement of  certificate  of  deposit  incorrect 

2731.  Bank  A  issued  a  certificate  of 
deposit  to  B,  paj'able  to  his  order  on  demand. 
B  negotiated  it  in  another  state  and  it  was 
sent  to  bank  C  in  the  same  town  as  bank  A 
for  collection.  It  bore  three  indorsements. 
Bank  A  refused  payment,  and  returned  to 
bank  C,  with  notation,  "Signature  in- 
correct." Should  bank  C  protest  it  before 
returning  it  to  its  correspondent?  Opinion: 
In  such  case  there  was  no  dishonor  of  the 
instrument  and  no  justification  for  protest, 
{Inquiry  from  Ida.,  Oct.,  1915.) 

Protest  where  payment  refused  because  check 

payable    to    guardian    is    indorsed 

indvidually 

2732.  A  check  payable  to  "Will  Jones, 
guardian  of  Elsie  Smith,"  was  indorsed  by 
Will  Jones  only.  On  presentment  of  the 
check  pa\Tnent  was  refused  because  of  the 
incomplete    indorsement.      The    collecting 


613 


2733-2738] 


DIGEST  OF  LEGAL  OPINIONS 


:i^' 


bank  then  protested  the  check.  Opinion: 
The  question  is  an  uncertain  one  whether 
the  indorsement  of  "Will  Jones"  without 
adding  his  representative  capacity  is  a 
proper  indorsement.  Where  a  check  is  pre- 
sented bearing  an  improper  or  defective  in- 
dorsement of  the  payee  and  payment  is  re- 
fused for  that  reason,  there  is  no  due  pre- 
sentment and  no  dishonor  which  justified 
protest.  Harden  v.  Birmingham,  etc.,  Bk., 
(Ala.)  55  So.  943.  Thornton  v.  Rankin,  19 
Mo.  193.  Daniel  Neg.  Inst.,  Sees.  271,  301, 
795a.     {Inquiry  from  Wash.,  March,  1914, 

Protest  where   payment   refused   because   of 

incorrect   indorsement    and   certification 

also  refused 

2733.  When  a  check  's  refused  payment 
because  of  improper  indorsement  and  certifi- 
cation is  then  asked,  and  refused  because  of 
lack  of  funds,  can  it  be  protested  for  non- 
payment? Opinion:  The  Negotiable  In- 
struments Act  provides  that  "Where  any 
instrument  has  been  dishonored,  it  may  be 
protested  for  non-acceptance  or  non-pay- 
ment, as  the  case  may  be;  but  protest  is  not 
required  except  in  case  of  foreign  bills  of 
exchange."  Mere  non-payment  is  not 
sufficient  to  authorize  protest;  there  must  be 
a  dishonor  of  the  instrument,  and  where  the 
instrument  is  refused  payment  because  of 
incorrect  indorsement,  there  is  not  a  due 
presentment  or  a  dishonor  within  the  mean- 
ing of  the  Act;  or  one  that  calls  for  protest. 
The  fact  that  a  drawee  refuses  to  certify  be- 
cause of  insufficient  funds  would  not  au- 
thorize protest.  A  bank  is  not  obliged  to 
certify  a  check  in  any  event,  and  where  it 
refuses  there  can  be  no  protest  no  matter 
what  the  reason  for  refusing  is.  {Inquiry 
from  Ind.,  Dec,  1919.) 

Forged  instruments 

Protest  of  forged  check  unauthorized 

2734.  Is  a  forged  check  or  one  bearing 
an  unauthorized  signature  protestable? 
Opinion:  Protest  is  neither  necessary 
nor  proper;  the  instrument  is  void  and  the 
indorser  of  a  check  warrants  that  it  is 
genuine  to  all  holders  in  due  course  and  is 
liable  without  demand,  protest  or  notice. 
Hamer  v.  Brainerd,  7  Utah  245.  Turnbull  v. 
Bowyer,  40  N.  Y.  456.  Perkins  v.  White,  36 
Ohio  St.  530.  Susquehanna  Bk.  v.  Loomis, 
85  N  .  Y.  207.  Rossi  v.  Nat.  Bk.  71  Mo. 
App.  150.  Daniel  Neg.  Inst.,  Sees.  669b, 
733a,  1 113b.  {Inquiries  from  Ind.,  Nov. ,1916, 
JL,  Tenn.,  Feb.,  1916,  Fla.,  Feb.,  1910,  Jl.) 


Instructions  to  protest  do  not  apply  to  forged 
check 

2735.  Is  a  drawee  bank  liable  for  failure 
to  obey  instructions  to  protest  checks  for 
non-payment  when  the  check  is  a  forgery? 
Opinion:  A  forged  check  is  not  protestable 
and  the  bank  is  not  liable.  {Inquiry  from 
Ky.,Jan.,  1921.) 

Non-negotiable  instruments 

Draft  "payable  on  arrival  of  goods"  not 
protestable 

2736.  Bank  A  sends  B  a  draft  drawn  on 
its  face  "payable  on  arrival  of  goods."  The 
accompanying  letter  gives  no  instructions  to 
hold  for  arrival  of  goods,  but  printed  in- 
structions are,  "Protest  all  items  of  $10 
and  over."  B  protested  the  item  without 
ascertaining  whether  or  not  goods  had 
arrived,  and  the  question  is  as  to  its  liabil- 
ity. Opinion:  The  draft  was  a  non- 
negotiable  instrument  because  "payable  on 
arrival  of  goods."  The  order  was,  therefore, 
conditional,  not  absolute.  Under  the  law 
merchant,  protest  is  only  required  in  the 
case  of  bills  negotiable  by  the  custom  of 
merchants,  and  no  protest  is  necessary  in 
case  of  non-negotiable  instruments,  nor  is  it, 
unless  by  statute,  evidence  of  any  fact 
therein  stated.  The  Negotiable  Instruments 
Act  contains  no  provision  for  protest  of 
non-negotiable  instruments,  and  the  draft 
being  non-negotiable  was  not  protestable. 
B's  proper  procedure  was  to  hold  for  arrival, 
although  it  received  no  instructions  to  that 
effect,  because  the  draft  was  expressly  made 
payable  only  on  arrival  of  goods.  If  not 
paid  then,  B  should  have  notified  principal. 
It  would  seem  that  B  failed  in  its  duty,  and 
if  there  was  any  resulting  damage  it  prob- 
ably would  be  held  Uable.  Kampman  v. 
Wilhams,  70  Tex.  568,  8  S.  W.  310.  Ford  v. 
Mitchell,  15  Wis.  304.  Bank  of  Mobile  v. 
Brown,  42  Ala.  108.  {Inquiry  from  Tenn., 
March,  1920.) 

Protest  of  county  warrant 

2737.  Is  a  county  warrant  providing  for 
payment  of  money  out  of  a  particular  fund 
subject  to  protest?  Opinion:  The  warrant 
is  not  negotiable  under  the  Negotiable 
Instruments  Law  and  is  not  subject  to 
protest.    {Inquiry  from  Ala.,  Nov.,  1914,  JI-) 

Protest  of  draft  payable  "at  sight  on  arrival 
of  car" 

2738.  A  bank  received  for  collection  a 
draft  payable  "at  sight  on  arrival  of  car," 


614 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2739-2745 


together  with  instructions  to  protest  upon 
non-payment.  The  draft  was  presented  and 
refused.  The  bank  wired  non-payment  but 
did  not  protest.  Opinion:  A  draft  payable 
"at  sight  on  arrival  of  car"  is  non-negotiable, 
and  is  not  properly  subject  to  protest.  The 
bank  exercised  due  diligence.  Westberg  v. 
Chicago  Lumber  Co.,  117  Wis.  589.  Daniel 
Neg.  Inst.,  Sec.  927.  Bk.  v.  Brown,  42  Ala. 
108.  Ford  V.  Mitchell,  15  Wis.  304.  {In- 
quiry from  Ohio,  Nov.,  1911,  Jl.) 

Protest  of  draft   "payable  in    Kansas  City 
exchange" 

2739.  By  agreement  with  its  customer  a 
bank  stamped  its  checks  "Payable  in  Kan- 
sas City  exchange."  The  holder  of  such 
checks  demanded  cash,  but  only  Kansas 
City  exchange  was  tendered.  Can  the 
holder  refuse  the  tender  of  exchange  and 
protest  the  check  if  not  paid  in  money? 
Opinion:  The  checks  are  not  paj^able  in 
cash  but  in  drafts  on  Kansas  City,  and  the 
holder  cannot  have  the  checks  protested. 
All  doubt  as  to  whether  the  checks  would  be 
payable  in  money  would  be  removed  if  the 
stamp  read:  "Payable  by  the  drawee's 
draft  on  Kansas  City."  Security  Tr.  Co.  v. 
Des  Moines  County,  198  Fed.  331.  (In- 
quiry from  Kan.,  Aug.,  1913,  Jl.) 

Protest  of  check  against  savings  account 

2740.  Can  a  check  drawn  against  a 
savings  account  without  pass-book  ac- 
companying be  legally  protested?  Opinion: 
If  the  check  is  in  negotiable  form  it  would  be 
protestable,  but  if  the  check  had  on  its 
face  "on  presentation  of  my  pass-book," 
then  it  would  be  non-negotiable  and  not 
subject  to  protest.  (See  A.  B.  A.  Journals 
for  Aug.  and  Sept.,  1913)  {Inquiry  from 
N.  Y.,  Nov.,  1915.) 

Protest  of  check  payable  "on  presentation  of 
pass-book" 

2741.  A  check  on  a  savings  bank  pay- 
able on  its  face  "on  presentation  of  the  pass- 
book" was  presented  for  payment  unaccom- 
panied by  the  book.  The  bank  refused 
payment  on  the  ground  that  the  presenta- 
tion was  incomplete  and  did  not  think  it 
necessary  to  protest  the  check.  Opinion: 
The  check  was  not  negotial:)le  and  therefore 
not  subject  to  protest.  Besides  this  the 
presentation  was  incomplete.  N.  Y.  Neg. 
Inst.  Act,  Sees.  20,  189.  (Inquiry  from  N. 
Y.  Sept.,  1913,  Jl.) 


Instruments  drawn  and  payable 
in   same  state  but   negoti- 
ated   elsewhere 

Checks  payable  in  one  state  and  negotiated  in 
another 

2742.  Does  a  check  drawn  and  payable 
in  one  state  become  a  foreign  bill  because 
indorsed  in  another  state?  Opinion:  Such 
check  does  not  become  a  foreign  bill  and 
protest  is  not  required  but  optional.  (In- 
quiry from  Utah,  April,  1911,  Jl.) 

Check  dated  and  payable  in  Wyoming, 
indorsed  outside  state 

2743.  A  check  dated  at  Sheridan, 
Wyoming,  and  drawn  on  a  bank  of  that 
place,  bears  the  indorsement  of  a  bank  out- 
side of  the  state.  It  is  questioned  whether  by 
reason  of  the  indorsement  it  becomes  a  for- 
eign bill  of  exchange  so  as  to  require  protest. 
Opinion:  Notwithstanding  such  indorse- 
ment the  check  is  an  inland  bill  of  exchange 
and  does  not  require  protest.  Brown  v, 
Wilson,  45  S.  C.  519.  Piner  v.  Clary.  17  B. 
Monroe  (Ky.)  645.  Smith  v.  Little,  10 
N.  H.  526.  Williams  v.  Putnam,  14  N.  H. 
540.  Ticonic  Bk.  v.  Stackpole,  41  Me.  302. 
Kirtland  v.  Wanzer,  2  Duer,  278.  Corbin 
V.  Planters  Nat.  Bk.,  87  Va.  661.  Neg.  Inst. 
A.,  Sec.  129,  152,  Comsr's.  dft.  Libel  v. 
Tucker,  L.  R.  3  Q.  B.  77.  (Inquiry  from 
Wyo.,  Dec,  1909,  Jl.) 

Check  dated  and  payable  in  Nebraska  though 
written  and  cashed  in  Iowa 

2744.  Is  a  check  dated  "Jackson,  Ne- 
braska," drawn  on  the  bank  at  Jackson, 
Nebraska,  but  written  and  cashed  in  Sioux 
City,  Iowa,  an  inland  bill  or  a  foreign  bill 
requiring  protest  under  the  Negotiable 
Instruments  Act.  Opinion:  (1)  The  Ne- 
gotiable Instruments  Act  of  Nebraska 
defines  an  inland  bill  as  a  bill  "wliich  is  or 
on  its  face  purports  to  be  both  drawn  and 
payable  within  this  state."  While  actually 
drawn  in  Iowa,  the  check  purports  on  its 
face  to  have  been  drawn  on  a  bank  in  Ne- 
braska, and  is,  therefore,  an  inland  bill  under 
this  definition,  and  protest  thereof  is  not 
required  although  permissible.  (Inquiry 
from  Iowa,  May,  1918.) 

Protest  of  check  negotiated  in  another  state 

2745.  Is  a  check  dated  and  payable  in 
one  state  but  bearing  out-of-state  indorse- 
ments an  inland  bill  of  exchange  such  as 
does  not  require  protest?     Opinion:     The 


616 


2746-2752] 


DIGEST  OF  LEGAL  OPINIONS 


Negotiable  Instruments  Act  defines  an  in- 
land and  a  foreign  bill  thus:  "An  inland 
bill  of  exchange  is  a  bill  which  is,  or  on  its 
face  purports  to  be,  both  drawn  and  payable 
within  the  State.  Any  other  bill  is  a  foreign 
bill.  Unless  the  contrary  appears  on  the 
face  of  the  bill,  the  holder  ma}^  treat  it  as 
an  inland  bill."  The  act  further  provides: 
"Where  a  foreign  bill,  appearing  on  its  face 
to  be  such  is  dishonored*  *  *it  must  be  duly 
protested  *  *  *  Where  a  bill  does  not  appear 
on  its  face  to  be  a  foreign  bill,  protest  thereof 
in  case  of  dishonor  is  unnecessary."  The 
check  in  question  bearing  out-of-state  in- 
dorsements may  be  protested  but  protest 
is  not  necessary;  due  presentment  and 
notice  of  dishonor  are  suflficient.  {Inquiries 
from  Ida.,  June,  1913,  S.  D.,  Dec,  1917,  JL, 
Mo.,  Oct.,  1914.) 

2746.  When  a  man  in  Delaware  gives  his 
check  drawn  upon  a  Delaware  bank  and  the 
payee  deposits  the  item  in  a  New  York  bank, 
is  protest  for  non-payment  required?  Opin- 
ion: Protest  is  permissible  but  not  compul- 
sory, because  the  instrument  is  not  a  foreign 
bill  of  exchange.  {Inquiry  from  Del.,  Jan., 
1913,  JL) 

2747.  Is  protest  necessary  of  a  check 
drawn  and  payable  in  New  Mexico  indorsed 
to  a  bank  in  Colorado?  Opinion:  The 
Negotiable  Instruments  Act  requires  pro- 
test only  in  case  of  foreign  bills  of  exchange. 
Protest  of  inland  bills  and  checks  is  not 
absolutely  required,  but  is  permitted  by  the 
statute  and  it  is  customary  for  collecting 
banks  to  protest  inland  checks  upon  dis- 
honor, unless  instructed  to  the  contrary,  the 
certificate  of  protest  providing  convenient 
proof  of  the  fact  of  dishonor.  The  check, 
being  drawn  and  payable  in  New  Mexico, 
was  an  inland  bill  of  exchange,  and  its 
character  was  not  changed  because  it  was 
indorsed  to  a  bank  in  Colorado.  Although 
not  absolutely  required,  the  check  should 
have  been  protested  according  to  custom, 
unless  the  Colorado  correspondent  expressly 
instructed  to  the  contrary.  {Inquiry  from 
N.  M.,  Oct.,  1917.) 

2748.  A  check,  as  shown  on  its  face,  was 
drawn  and  payable  in  South  Dakota,  but 
was  issued  and  negotiated  in  Illinois.  Opin- 
ion: Protest  of  the  check  is  permissible  but 
is  not  required  by  the  Negotiable  Instru- 
ments Act,  even  though  the  check  was 
issued  in  one  state  and  negotiated  in  another. 
S.  Dak.  Neg.  Inst.  Act.  Sees.  117,  128,  150. 
Mankey  v.  Hoyt,  (S.  Dak.  1911)  132  N.  W. 
230.    {Inquiry  from  S.  D.,  Dec,  1913,  Jl.) 


2749.  Is  a  check  drawn  and  payable  in 
the  same  state  an  inland  bill  such  as  is  not 
required  to  be  protested  although  the  payee 
is  located  in  another  state?  Opinion:  Such 
a  check  is  an  inland  bill  of  exchange  and  not 
a  foreign  bill,  and  protest  upon  dishonor, 
while  customary,  is  not  indispensable  as  in 
case  of  a  foreign  bill  of  exchange.  Tenn. 
Neg.  Inst.  Act.  Sec.  129.  {Inquiry  from 
Tenn.,  June,  1914,  JI-) 

Protest  of  note  payable  in  another  state 

2750.  Should  a  note  received  for  col- 
lection from  another  state  be  protested  for 
non-payment?  Opinion:  Protest  is  neces- 
sary only  in  case  of  foreign  bills  of  ex- 
change, and  a  note  payable  in  another  state 
does  not  come  under  that  category.  While 
protest  is  not  necessary,  it  is  permissible,  and 
might  be  of  convenience  to  customer  in  case 
of  suit,  as  a  certificate  of  protest  is  a  prima 
facie  proof  of  dishonor.  He  could  lose  noth- 
ing on  his  claim  by  not  having  protest  made, 
but  might  be  put  to  the  inconvenience  and 
expense  of  calling  witness  to  prove  demand 
and  refusal.  {Inquiry  frmn  Conn.,  June, 
1919.) 

Stopped  checks 

Protest   of  stopped   check 

2751.  Is  it  customary  or  proper  to  pro- 
test checks  after  payment  has  been  stopped? 
Opinion:  Banks  frequently  protest  stopped 
checks,  although,  so  far  as  the  law  is  con- 
cerned, when  the  drawer  stops  payment,  he 
is  liable  without  notice  of  dishonor  and  pro- 
test; but  if  the  check  is  indorsed,  the  coun- 
termand of  payment  by  the  drawer  would 
not  excuse  presentment  and  notice  to  the 
indorser  and  the  check  should  be  protested 
as  a  convenient  means  of  proving  dishonor 
and  holding  him  hable.  {Inquiry  from  N. 
Y.,  March,  1915.) 

Protest  by  drawee  of  stopped  check 

2752.  Where  the  drawer  not  having 
sufficient  funds  in  bank  to  meet  a  check, 
requests  the  drawee  to  return  it  with  the  state- 
ment that  paj^ment  has  been  stopped,  what 
should  the  drawee  do?  Opinion:  When  a  check 
is  refused  payment  because  the  drawer  has 
countermanded  same,  it  is  dishonored  and 
equally  subject  to  protest  as  if  dishonored 
because  of  insufficient  funds.  Where  the 
drawer  of  a  check  bearing  indorsers  has  not 
sufficient  funds  but  requests  that  it  be  re- 
turned "payment  stopped,"  the  check  should 
be  protested  and  it  would  be  merely  a  ques- 


616 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2753-2757 


tion  of  what  reason  should  be  given  by 
the  bank  for  refusing  pajTnent.  If  it  would 
help  the  customer's  credit  any  better  to 
give  "pa>Tnent  stopped"  as  a  reason  rather 
than  "insufficient  funds,"  this  course  would 
not  be  improper  because  the  customer  has 
the  right  to  stop  paj^ment  of  his  check  if 
he  chooses,  and  the  bank  has  a  right  to  pay 
the  customer's  check  against  insufficient 
funds  if  it  chooses.  {Inquiry  from  Me., 
Aug.,  1916.) 

Holder's  right  to  protest  fees  upon  protest  of 
stopped  check 

2753.  At  a  customer's  request  a  bank 
stopped  payment  on  a  check  coming  from  a 
local  bank  which  then  protested  it.  Is  the 
holder  entitled  to  protest  fees?  Opinion: 
While  protest  is  not  strictly  necessary  to 
preserve  liabihty  of  prior  parties,  who  are 
bound  if  notice  of  dishonor  is  given,  without 
protest,  and  the  holder  has  a  right  of  action 
the  same  as  if  the  check  was  protested,  he 
has  the  privilege  of  having  protest  made, 
and  if  he  does  so,  may  recover  protest  fees 
in  addition.    {Inquiry  from  Ore.,  Dec,  1917.) 

Drawee  protesting  stopped  check  at  request  of 
holder  entitled  to  fees 

2754.  A  bank  received  an  order  from  its 
customer  not  to  pay  his  check  of  S143.40. 
The  check  in  question  was  dul}^  protested  at 
the  request  of  the  bank  which  mailed  it  for 
payment.  The  depositor  claims  that  the 
check  should  not  have  been  protested,  that 
his  credit  has  been  injured  and  refuses  to 
pay  the  protest  fees.  Opinion:  When  a 
customer  orders  payment  of  his  check 
stopped,  it  is  the  duty  of  the  bank  to  refuse 
payment  and  it  may  properly  cause  protest 
to  be  made  at  the  request  of  the  holder  and 
recover  protest  fees.  {Inquiry  from  Va., 
March,  1919,  Jl.) 

Time  of  protest 

Protest  of  unmatured  certificate   of  deposit 

2755.  An  unmatured  time  certificate  of 
deposit  with  interest  for  the  time  added  to 
the  face  was  protested.  The  proceeding  is 
questioned.  Opinion:  Protest  is  authorized 
only  upon  dishonor,  upon  due  presentment 
at  maturity,  and  there  can  be  no  legal  pro- 
test where  the  instrument  is  not  due  and 
payable.     {Inquiry  from  S.  D.,  Sept.,  1919.) 

Protest  of  unmatured  note 

2756.  If  an  unmatured  note  sent  in 
regular  cash  letter  to  correspondent  bank 


through  error  is  refused  by  the  maker  for  the 
reason  that  it  is  not  due,  has  the  collecting 
bank  the  right  to  make  protest?  Opinion: 
A  collecting  bank  to  which  is  forwarded  for 
collection,  through  error,  a  note  not  due,wdth 
instructions  to  protest  if  not  paid,  does  not 
pursue  the  proper  course  when  it  presents 
the  item  and,  upon  refusal  of  payment  be- 
cause it  is  not  due,  causes  it  to  be  protested. 
There  is  no  dishonor  of  such  an  instrument, 
and  protest  of  a  note  before  it  is  due  is  an 
absolute  nulUty.  The  proper  course  for 
the  collecting  bank  is  to  hold  the  item 
until  it  matures  and  then  present  and 
protest  if  not  paid,  advising  its  correspond- 
ent that  it  had  been  sent  by  them  before  due 
through  error,  or,  if  the  maturity  is  a  long 
way  off,  the  item  could  be  returned  to  the 
forwarding  bank.  {Inquiry  from  Kan., 
Feb.,  1919.) 

Protest  for  better  security 

2757.  When  may  a  protest  "for  better 
security"  be  made?  What  is  the  pm-pose 
and  result  of  making  such  a  protest?  What 
are  the  formal  requirements?  Opinion: 
Section  158  of  the  Negotiable  Instruments 
Act  provides:  "Where  the  acceptor  has  been 
adjudged  a  bankrupt  or  an  insolvent,  or  has 
made  an  assignment  for  the  benefit  of 
creditors,  before  the  bill  matures,  the  holder 
may  cause  the  bill  to  be  protested  for  better 
security  against  the  drawer  and  indorsers." 
Section  161  of  the  Act  provides:  "Where 
a  bill  of  exchange  has  been  protested  for  dis- 
honor by  non-acceptance  or  protested  for 
better  security,  and  is  not  overdue,  any 
person  not  being  a  party  already  liable 
thereon  may,  with  the  consent  of  the  holder, 
intervene  and  accept  the  bill  supra  protest 
for  the  honor  of  any  party  liable  thereon, 
or  for  the  honor  of  the  person  for  whose 
account  the  bill  is  drawn."  The  utihty  of 
this  kind  of  protest  seems  to  lie  in  the  fact 
that,  when  the  acceptor  becomes  a  bankrupt, 
the  causing  of  protest  for  better  security  and 
giving  of  notice  thereof  to  the  drawer  and 
prior  indorsers,  will  enable  him  or  them  to 
procure  some  friend  or  correspondent  to  ac- 
cept the  bill,  supra  protest,  for  their  honor. 
The  Negotiable  Instruments  Act,  while  au- 
thorizing a  protest  for  better  security,  fails 
to  specify  the  requirements  of  such  a  protest. 
It  would  seem  that  a  certificate,  made  under 
the  hand  and  seal  of  the  notary,  containing 
a  copy  of  the  bill  or  having  the  original  bill 
annexed  thereto,  which  should  recite  (follow- 
ing as  closely  as  possible  the  language  of  the 
Act)  that  the  acceptor  has  been  adjudged 


617 


2758-2762] 


DIGEST  OF  LEGAL  OPINIONS 


bankrupt  before  the  bill  has  matured,  for 
which  cause  the  bill  is  protested  for  better 
security  against  the  drawers  and  indorsers, 
would  be  sufficient.  Miss.  Neg.  Inst.  Act, 
Sees.  158,  161.  Ex  parte  Wackerbath,  5 
Ves.  574.  Chitty  on  Bills,  p.  385.  La 
Banque  Nationale  v.  Martel,  17  Quebec 
Super.  Ct.  97.  {Inquiry  from  Miss.,  Dec, 
1916,  Jl.) 

Protest  must  he  made  on  day  of  dishonor  unless 
delay  excusable 

2758.  To  what  extent  is  delay  excusable 
in  protesting  an  instrument?  Opinion:  The 
Negotiable  Instruments  Act  provides  that 
protest  must  be  made  on  the  day  of  dishonor 
"unless  delay  is  excused  as  herein  provided." 
Delay  is  excused  when  "caused  by  circum- 
stances beyond  the  control  of  the  holder  and 
not  imputable  to  his  default,  misconduct  or 
negligence."  Of  course,  if  the  delay  is  not 
excusable,  the  protest  is  unavailing,  but  if 
protest  is  omitted  and  it  was  shown  that  the 
delay  was  excusable,  the  holder  might  be 
held  neghgent,  for  the  Act  provides :  "When 
the  cause  of  the  delay  ceases  to  operate,  the 
bill  must  be  noted  or  protested  with  rea- 
sonable diligence."  {Inquiries  from  Ark., 
Aug.,  1916,  N.  D.,  Oct.,  1910,  Jl.) 

Protest  of  check  by  drawee  bank  on  day 
following  receipt 

2759.  Has  a  bank  the  right  to  hold  a 
check  over  until  the  following  day  after  it  is 
received,  to  protest  it?  Opinion:  Where  a 
bank  receives  for  collection  a  check  on 
another  bank,  it  may  make  presentment  not 
later  than  the  day  following  its  receipt. 
Where  it  receives  by  mail  from  the  holder 
a  check  drawn  on  itself,  it  occupies  the  dual 
relation  of  (1)  agent  for  the  holder  to  make 
presentment  and  cause  protest  upon  dis- 
honor, and  (2)  agent  of  the  drawer  to  pay  or 
refuse  to  pay.  If  such  a  check  is  to  be  re- 
garded as  presented  for  payment  at  the  time 
of  its  receipt,  then,  there  being  insufficient 
funds,  and  the  law  requiring  protest  to  be 
made  on  the  day  of  dishonor,  it  would 
have  to  be  protested  the  same  day.  A  bank 
will  sometimes  hold  a  check  for  a  short  time 
in  the  expectation  of  the  deposit  of  funds  by 
the  drawer.  Whether  a  check  so  held  until 
the  following  day  and  then  protested  would 
be  deemed  not  to  have  been  presented  until 
such  day,  and  the  protest  made  according  to 
law,  is  doubtful.  The  better  course  for  the 
bank  is  not  to  hold  checks  over  until  the 
next  day  when  the  funds  are  insufficient, 


but  protest  and  return  them  the  same  day. 
See  Whitman  v.  First  Nat.  Bank,  35  Pa. 
Super.  125.  {Inquiry  from  S.  D.,  March, 
1919.) 

Time  of  protest  of  check  dishonored  Saturday 

forenoon 

2760.  A  check  is  presented  and  dis- 
honored on  Saturday  forenoon.  Opinion: 
Protest  should  be  made  on  Saturday,  and  the 
check  should  not  be  held  over  without  pro- 
test until  the  following  Monday.  {Inquiry 
from  N.  Y.,  May,  1912,  Jl.) 

Protest  of  check  received  by  drawee  in  mail 
Saturday  morning 

2761.  If  a  bank  is  instructed  to  return  or 
remit  all  items  on  day  of  receipt,  should  it 
protest  for  non-payment  a  check  received  by 
mail  on  Saturday  morning  on  that  day,  or 
return  it  without  protest?  Opinion:  The 
New  Jersey  Negotiable  Instruments  Act 
provides.  Sec.  85,  that  "instruments  falling 
due  or  becoming  payable  on  Saturday  are 
to  be  presented  for  payment  on  the  next  suc- 
ceeding business  day,"  but  makes  the  ex- 
ception that  instruments  payable  on 
demand  may,  at  the  option  of  the  holder,  be 
presented  for  payment  before  twelve  o'clock 
noon  on  Saturday  when  that  entire  day  is 
not  a  holiday.  The  Act  also  provides  (Sec. 
153)  that  "when  a  bill  is  protested,  such 
protest  must  be  made  on  the  day  of  its 
dishonor."  As  checks  and  other  demand 
items  may  be  presented  for  payment  on 
Saturday  forenoon  and  when  so  presented 
must  be  protested  on  day  of  dishonor,  it 
follows  that  the  check  in  this  case  should  be 
protested  on  the  Saturday  received  and. 
returned  the  same  day  as  requested. 
{Inquiry  from    N.    J.,    Nov.,  1916.) 

Time  of  protest  of  demand  paper  presented  on- 

Saturday  and  of  time  paper  maturing  on 

Saturday 

2762.  Is  it  legal  to  protest  a  note  or 
check  on  Saturday  afternoon?  Opinion: 
Checks  can  be  presented  on  Saturday  fore- 
noon and,  when  so  presented,  protest  in  the 
afternoon  is  legal.  Promissory  notes  falling, 
due  on  Saturday  are  not  presentable  until 
the  following  Monday,  and  cannot  be  pro- 
tested on  Saturday;  however,  a  demand  note 
can  be  presented  on  Saturday  forenoon  and 
protested  in  the  afternoon  the  same  as  a 
check.  (See  Neg.  Inst.  Act,  Sec.  10,053.> 
{Inquiry  from  Mo.,  March,  1918.) 


618 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2763-2768 


Protest  of  check  on  Saturday  afternoon  by 
drawee  legally  doing  business  in  afternoon 

2763.  A  check  was  received  by  the  draw- 
ee by  mail  on  Saturday  afternoon,  and  was 
refused  because  of  lack  of  funds.  Was  it 
necessary  to  protest  the  check  that  same 
afternoon,  Saturday  being  a  half  holiday, 
although  the  bank  kept  open  for  business? 
Opinion:  Under  the  Negotiable  Instru- 
ments Act  an  instrument  must  be  protested 
on  the  day  of  dishonor  (Sec.  157);  therefore, 
if  presentment  of  the  check  on  Saturday 
afternoon  is  lawful  and  valid,  its  protest 
upon  dishonor  on  that  day  is  authorized. 
Section  87  of  said  Act  permits  presentment 
of  demand  paper  such  as  checks  on  Saturday 
forenoon  and  in  Michigan  there  is  a  proviso 
to  the  statute  which  validates  certain  bank 
transactions  done  on  Saturday  afternoon 
where  valid  if  done  before  twelve  o'clock. 
While  not  specifically  providing  for  pre- 
sentment and  protest,  the  act  does  vahdate, 
in  addition  to  the  things  specified,  "any  other 
transaction  by  a  bank  in  this  state"  and, 
payment  of  a  check  being  specifically 
covered,  the  presentment  for  payment  on 
Saturday  afternoon  seems  sufficiently  au- 
thorized by  this  proviso.  Therefore,  it  may 
quite  safely  be  said  that  a  check  presented 
to  and  refused  on  Saturday  afternoon  by  a 
bank  that  keeps  open  for  business  at  such 
time  should  be  protested  on  Saturday 
afternoon,  and  this  would  apply  where  the 
check  is  received  by  mail  on  Saturday  after- 
noon.    {Inquiry  from  Mich.,    Nov.,  1920.) 

Protest  of  note  where  check  given  in  -payment 
dishonored 

2764.  A  check  given  in  payment  of  a 
note  was  presented  on  the  following  day 
and  payment  was  refused  because  of  "in- 
sufficient funds."  The  holder  still  has  the 
note  in  his  possession  and  wishes  to  protest 
the  same.  Opinion:  Although  the  case  has 
never  been  decided,  probably  a  valid  protest 
of  the  note  a  day  after  its  maturity  could  be 
made,  because  the  note  would  not  be  re- 
garded as  dishonored  until  the  check  given 
as  conditional  payment  was  dishonored. 
Burkhalter  v.  Erie  Sec.  Nat.  Bk.,  42  N.  Y. 
538.  Morse  on  Banks  and  Bank.,  Sec.  247. 
{Inquiry  from  N.  Y.,  June,  1913,  Jl.) 

Protest  of  note  at  end  of  period  of  extension 

2765.  A  bank  received  for  collection  a 
note,  payment  of  which  was  extended  one 
week.  The  makers  defaulted  in  payment 
and  the  bank  protested  the  note.  The  owner 
of  the  note  refused  to  pay  the  protest  fees, 


claiming  that  the  proper  time  of  protest  was 
the  date  of  original  maturity.  Opinion: 
Where  there  is  a  valid  extension  of  time  of 
payment  of  a  promissory  note,  the  date  of 
expiration  of  the  extension  and  not  the  date 
of  original  maturity  is  the  proper  time  of  pro- 
test. Ferguson  v.  Hill,  3  Stew.  (Ala.)  485. 
Rodgers  v.  Rosser,  57  Ga.  319.  Morgan  v. 
Butterfield,  3  Mich.  615.  Pearl  v.  Wells, 
6  Wend.  (N.  Y.)  291.  Cruger  v.  Lindheim, 
(Tex.)  16  S.  W.  420.  Craig  v.  Price,  23  Ark. 
633.  Haggerty  v.  Engle,  43  N.  J.  L.  299. 
{Inquiry  from  Ark.,  Aug.,  1913,  Jl.) 

Check  may  be  immediately  protested  before 
close  of  banking  hours 

2766.  Is  it  lawful  to  protest  a  check  be- 
fore the  close  of  banking  hours  on  day  of 
presentment?  Opinion:  The  Negotiable 
Instruments  Act  provides  that  "protest 
must  be  made  upon  the  day  of  dishonor." 
(Sec.  155);  also  that  "notice  may  be  given 
as  soon  as  the  instrument  is  dishonored." 
(Sec.  102.)  While  it  is  customary  for  the 
notary  to  wait  until  the  close  of  banking 
hours  and  then  make  formal  demand  and 
protest,  this  is  not  compulsory,  and  if  a 
check  is  presented  and  refused  during  bank- 
ing hours,  it  is  lawful  for  the  notary  to  make 
demand  and  protest  immediately.  Rules 
of  certain  clearing  houses  might  modify  this 
so  far  as  those  bound  by  its  rules  are  con- 
cerned and  payment  be  permitted  up  to  the 
close  of  banking  hours.  {Inquiries  from  N. 
J.,  April,  1917,  Jl,  Ga.,  Dec,  1914,  Jl,  La., 
June,  1910,  Jl,  Ohio,  Feb.,  1917,  Jl,  Miss., 
Ocl,  1910,  Jl,  Wyo.,  April,  1918.) 

2767.  Is  a  bank  obhged  to  wait  until  the 
close  of  business  hours  to  protest  a  check  on 
it  received  from  out  of  town,  or  can  it  be 
protested  immediately  on  receipt?  Opinion: 
A  check  is  protestable  immediately  upon  dis- 
honor and  it  is  not  necessary  to  wait  until 
the  close  of  business  hours.  The  rule  is 
different  with  respect  to  a  time  note  payable 
at  bank.  In  such  case  the  maker  has  the 
whole  of  banking  hours  in  which  to  pay,  and 
the  instrument  is  not  dishonored  until  the 
close  of  such  hours.  {Inquiry  from  Conn., 
Aug.,  1918.) 

Protest  of  note  before  close  of  business  hours 

2768.  A  note  payable  at  the  place  of 
business  of  the  maker  was  presented  for 
payment  at  3  o'clock  on  the  day  it  fell  due. 
The  note  was  protested  for  non-pa>Tnen 
at  that  time,  although  the  place  of  business 
kept  open  until  6  o'clock.  It  is  claimed  that 
the  note  should  have  been  held  the  whole 


619 


2769-2774] 


DIGEST  OF  LEGAL  OPINIONS 


day  before  presenting  it.  Opinion:  The 
note  can  be  protested  for  non-payment  be- 
fore the  closing  hour  of  the  day  of  maturity. 
Oothout  V.  Ballard,  41  Barb.  (N.  Y.)  33. 
Etheridge  v.  Ladd,  44  Barb.  (N.  Y.)  69. 
Osborn  v.  Moncure,  3  Wend.  (N.  Y.)  169. 
Merchants  Bk.  v.  Elderkin,  25  N.  Y.  178. 
{Inquiry  from  N.  J.,  June,  1911,  Jl.) 

NoLe:  The  above  is  supported  by  several 
decisions;  but  in  German- American  Bank  v. 
Milliman,  31  Misc.  (N.  Y.)  87,  it  was  held 
that  a  note  payable  at  a  bank,  presented  and 
refused  payment  during  banking  hours, 
should  not  be  protested  until  the  close  of 
banking  hours  because  the  maker  had  the 
whole  of  the  day  in  which  to  pay  and  the 
note  was  not  dishonored  until  the  end  of  the 
day. 

Place  of  protest 

Protest  of  draft  at  place  where  drawee  ad- 
dressed although  drawee  located  elsewhere 

2769.  A  draft  drawn  on  John  Smith  was 
erroneously  addressed  to  Galveston,  Texas, 
at  which  city  John  Smith  was  not  located. 
The  draft  was  protested  for  non-payment 
at  Galveston.  Opinion:  The  protest  of  the 
draft  at  Galveston,  which  was  the  place 
addressed,  was  proper  to  preserve  the  lia- 
bility of  the  drawer  and  indorser.  Cox  v. 
Nat.  Bk.,  100  U.  S.  704.  (Inquiry  from  Tex., 
Sept.,  1913,  Jl.) 

Protest  where  no  notary  in  place  where  drawee 
bank  located 

2770.  A  drawee  bank  in  a  town  returned 
to  a  city  bank  a  check  unpaid  because  of 
insufficient  funds,  but  failed  to  have  it  pro- 
tested because  there  was  no  notary  in  the 
place.  The  officer  of  the  drawee  bank  went 
to  the  city  bank  and  there  caused  the  check 
to  be  protested.  Opinion:  The  protest  was 
invalid  because  it  was  not  made  at  the  place 
of  dishonor.  The  check  could  have  been 
protested  in  the  town  where  payable  by 
"any  respectable  resident  of  the  place  in  the 
presence  of  two  or  more  credible  witnesses." 
(Inquiry  from  La.,  Sept.,  1911,  Jl.) 

Who    may    make 

Cross  Reference — See  Notaries,  2319-2356 
Protest  by  secretary  of  bank  who  is  notary 

2771.  Is  it  legal  for  the  secretary  of  a 
bank  to  protest  checks  or  notes  drawn  on 
it,  or  on  any  other  bank,  which  are  sent  to 
it  for  collection?  Opinion:  Under  the  New 
Jersey  statute  the  secretary  may  as  notary 


public  make  protests  of  such  checks  anc 
notes.  (Inquiry  from  N.  J.,  May,  1917.) 

Protest  by  justice  of  peace 

2772.  May  protest  be  made  by  a  justice" 
of  the  peace?  Opinion:  A  statute  in  Louisi- 
ana authorizes  justices  of  the  peace  to  make 
protests  of  negotiable  instruments  in  default 
of  notaries  and  parish  recorders,  provided 
the  protest  is  witnessed  by  two  persons  of 
the  same  parish.  Rev.  Laws  La.  1897,  1904, 
Sec.  2055.  La.  Neg.  Inst.  Act,  Sec.  154. 
(Inquiry  from  La.,  July,  1912,  Jl.) 

Certificate  of  protest 

Certificate  of  protest  signed  by  notary's  clerk 

2773.  Bank  C  received  a  demand  draft 
with  bill  of  lading  for  collection  and  caused 
the  item  to  be  protested.  The  notices  were 
drawn  regularly  by  one  of  the  clerks  of 
C  bank  and  signed  by  him  in  the  name  of 
the  cashier  of  C  bank  who  is  the  notary. 
The  forwarding  bank  refused  to  pay  the 
protest  fee,  saying  that  the  notices  and 
protest,  although  signed  in  the  name  of  the 
cashier  and  notary,  are  not  in  his  hand- 
writing. Opinion:  A  certificate  of  protest 
signed  in  the  name  of  the  notary  bj'-  his 
clerk  is  of  doubtful  validity.  The  Nego- 
tiable Instruments  Act  provides  that  the 
protest  "must  be  under  the  hand  and  seal 
of  the  notary  making  it."  The  law  requires 
that  demand  and  notice  must  be  by  the 
notary  personally,  and  cannot  be  delegated 
to  a  clerk,  except  that  a  few  cases  recognize 
the  custom  for  a  clerk  to  act,  but  the  validity 
of  the  custom  is  uncertain.  Vanderwald  v. 
Tvrell,  Mood  &  Malk,  87.  Stewart  v. 
Ellison,  6  Serg.  &  R.  (Pa.)  324.  Onondaga 
County  Bk.  v.  Bates,  3  Hill  (N.  Y.)  53.  Com. 
Bk.  V.  Varnum,  49  N.  Y.  277.  Gawtry  v. 
Doane,  51  N.  Y.  90.  Gessner  v.  Smith,  2 
N.  Y.  S.  655.  Miltenberger  v.  Spaulding, 
33  Mo.  421.  (Inquiry  from  N.  C,  Jan., 
1915,  Jl.) 

Effect  of  certificate  of  protest  in  Illinois 

2174.  What  is  the  effect  in  IlHnois  of  a 
certificate  of  protest?  Opinion:  In  IlHnois 
the  certificate  of  protest  of  a  foreign  notary 
is  competent  evidence  of  the  dishonor  of  a 
foreign  bill  of  exchange  by  virtue  of  the 
common  law  rule;  but  the  certificate  of  a 
foreign  notary  as  to  demand  and  notice  in 
case  of  a  promissory  note  is  not  competent 
evidence,  and  additional  legislation  is  nec- 
essary to  effect  this.  The  certificate  of 
protest  of  a  notary  within  the  state  is  com- 


620 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2775-2779 


petent  evidence  of  demand,  dishonor  and 
notice  in  case  of  inland  bills,  notes  and 
checks  by  virtue  of  Sections  12  and  13  (un- 
repealed) of  the  Act  of  1872,  notwith- 
standing the  repeal  of  Sections  10  and  11  of 
that  act  by  the  Negotiable  Instruments  Law. 
Bond  V.  Bragg,  17  111.  69.  McAllister  v. 
Smith,  17  111.  328.  Montehus  v.  Charles, 
76  111.  303.  Neg.  Inst.  Law  (Comsr's. 
dft.),  Sees.  196,  117.  Vaughan  v.  Potter, 
131  111.  App.  334.  {Inquiry  from  III.,  March, 
1911,  Jl.) 

Protest  instructions 

Liability  of  collecting  hank  for  failure  to  follow 
protest  instructions 

2775.  An  inquiry  is  made  as  to  the  lia- 
bility a  collecting  bank  incurs  in  failing  to 
protest  checks  or  negotiable  notes  sent  to  it 
under  instructions  to  protest  if  not  paid, 
when  such  items  are  not  paid.  Opinion: 
Under  the  Negotiable  Instruments  Act  pro- 
test is  necessary  only  in  the  case  of  foreign 
bills  of  exchange  (and  a  bill  or  check  drawn 
in  one  state  upon  a  drawee  in  another  is  a 
foreign  bill).  As  protest  of  such  is  the  only 
means  of  proving  dishonor,  the  omission  to 
protest  in  such  case  would  be  fatal  and  the 
collecting  bank  might  be  held  liable  for  the 
entire  amount  of  the  instrument.  But  it  is 
optional  and  not  compulsory  for  the  owner 
of  an  inland  bill  or  check  which  has  been  dis- 
honored to  have  same  protested  and  he  can, 
if  he  chooses,  omit  protest  and  prove  dis- 
honor by  evidence  of  due  demand  and  the 
giving  of  notice  of  dishonor  so  as  to  hold 
parties  contingently  liable  thereon.  The 
case  is  different  where  the  owner  intrusts  an 
inland  check  or  note  to  a  collecting  bank 
with  instructions  to  protest  if  not  paid.  In 
such  case  it  is  not  optional  with  the  collect- 
ing bank  to  omit  protest,  but  it  is  bound  to 
follow  instructions  and  if  it  fails  to  do 
so  it  is  liable  for  any  damages  caused  by 
such  failure.  The  damages  would  not  neces- 
sarily be  the  amount  of  the  check  pro- 
vided the  parties  were  held  liable,  but  they 
would  be  limited  to  such  incidental  expense 
or  cost  as  followed  a  failure  to  protest. 
Where  an  instrument  is  protested,  in  a  suit 
thereon  a  certificate  of  protest  could  be  in- 
troduced as  evidence  to  prove  dishonor. 
Without  it,  it  would  be  necessary  to  have  the 
testimony  of  the  person  who  made  the  de- 
mand and  who  gave  the  notice  of  dishonor 
to  make  out  a  case.  This  would  be  at  an 
extra  cost  for  which  the  collecting  bank 
might  be  held  Hable.  (Inquiry  from  Ala., 
Oct.,  1920.) 


Conflict    between   letter   of  instructions   and 
^'no  protest"  stamp 

2776.  A  draft  is  marked,  "No  protest," 
but  the  letter  of  instructions  reads,  "Protest 
all  items  SIO  and  over  unless  marked  X," 
and  there  is  no  X  marked  on  the  letter 
opposite  the  listed  item.  Opinion:  It  is 
safer  for  the  collecting  bank  to  be  governed 
by  the  letter  of  instructions,  as  they  are  the 
instructions  from  the  immediate  principal. 
{Inquiry  from  Tex.,  March,  1912,  Jl.) 

Collecting    hank    should   follow    protest 
instructions 

2777.  Is  it  necessary  for  a  presenting 
bank  to  cause  protest  of  a  check  when  in- 
structed to  do  so  in  case  of  non-payment? 
Opinion:  On  an  inland  bill  or  check,  parties 
contingently  liable  are  held  without  protest 
provided  there  have  been  due  demand  and 
notice  of  dishonor.  Nevertheless  the  statute 
permits  protest  and  when  the  principal  in- 
structs its  collecting  agent  to  do  so,  the  in- 
structions should  be  followed.  The  object 
is  not  so  much  to  preserve  the  habilities  of 
prior  parties  as  to  provide  a  convenient 
means  of  proving  dishonor;  a  certificate  of 
protest,  being  prima  facie  evidence  of  the 
fact,  is  competent  in  case  of  suit.  {Inquiry 
from  Minn.,  Oct.,  1918.) 

Conflicting  protest  instructions  on  draft  and 
in  letter 

2778.  A  draft  was  sent  directly  to  the 
drawee  bank  A  for  collection.  It  had  a  "no 
protest"  slip  attached;  sent  with  draft  was 
a  letter  of  advice  on  which  were  the  words, 
"items  marked  X  no  protest."  The  item 
was  not  so  marked.  Should  the  drawee 
bank  protest  the  item?  Opinion:  It  is 
customary  where  there  is  a  conflict  between 
the  printed  instruction  on  the  draft  and  the 
instructions  given  by  letter,  to  follow  the 
letter.  That  is  the  latest  instruction  in  point 
of  time,  and  there  may  be  some  good  reason, 
unknown  to  the  collecting  bank,  why  the 
forwarding  bank  desires  the  item  protested 
although  it  is  marked,  "No  protest."  See 
A.  B.  A.  Jl.,  Feb.,  1915.  {Inquiry  from  la., 
April,  1915.) 

2779.  A  collecting  bank  received  a  check 
upon  which  was  stamped,  "No  protest," 
but  the  letter  enclosing  the  item  instructed 
that  the  same  be  protested.  Opinion:  The 
safer  course  for  the  collecting  bank  is  to 
protest.  {Inquiry  from  Miss.,  March,  1911, 
Jl.) 


621 


2780-2785] 


DIGEST  OF  LEGAL  OPINIONS 


Liability  of  collecting  hank  for  failure  to  follow 
protest  instructions 

2780.  The  drawee  bank  receives  from  an 
outside  bank  a  check  stamped  "No  protest," 
with  a  letter  of  instruction  reading,  "Protest 
all  items  of  $10.00  or  over."  The  particular 
check  was  for  $100.  Was  the  bank  justified 
in  returning  the  check  without  protest? 
Would  the  fact  that  the  "no  protest"  stamp 
was  above  the  signature  of  the  payee  alter 
the  case?  Opinion:  While  the  check  was 
stamped  "No  protest"  the  letter  instructed 
protest,  and  this  should  have  been  followed. 
However,  to  entitle  the  sending  bank  to 
recover  damages  for  the  omission  to  protest, 
according  to  the  instruction  it  must  show 
injury  to  it  from  the  disobedience.  Assum- 
ing indorsers  for  value  subsequent  to  the 
payee  were  duly  charged  by  notice  of  dis- 
honor, the  liability  of  all  parties  would  be 
preserved,  the  payee  having  waived  protest 
and  the  drawer  being  liable  without  protest, 
and  in  such  case  no  particular  damage 
would  result  from  failure  to  protest  except 
the  inconvenience  of  proving  dishonor  other 
than  by  certificate  of  protest.  {Inquiry  from 
Mich.,  June,  1915.) 

Conflicting  instructions  followed  by  telephone 
instructions  to  protest 

2781.  A  draft  is  sent  to  bank  A  with 
letter  accompanying  which  contained  the 
instruction  to  "protest  items  unless  marked 
X  or  no  pro."  The  item  itself  was  so 
marked,  but  the  letter  was  not  marked. 
A's  correspondent  telephones  it  to  follow 
letter  and  pay  no  attention  to  the  instruc- 
tions on  the  item.  A,  therefore,  causes  pro- 
test to  be  made,  and  desires  to  know  if  it  is 
responsible  for  fees.  Opinion:  Whether  or 
not  there  was  any  conflict  between  the  letter 
and  the  instrument  itself,  A's  correspondent 
expressly  instructed  it  by  telephone  to 
follow  the  letter  and  pay  no  attention  to  the 
instructions  on  the  item,  in  other  words,  to 
make  protest,  and  in  doing  so,  it  was  justified 
and  not  responsible  for  the  protest  fees. 
(Inquiry  from  N.  Mex.,  Nov.,  1914.) 

Protest  of  certificate  of  deposit  where  payee^s 
indorsement  in  doubt 

2782.  A  negotiable  certificate  of  deposit 
was  sent  to  the  collecting  bank  with  in- 
structions to  protest  if  not  paid.  None  of 
the  banks  through  which  it  passed  guaran- 
teed prior  indorsements,  and  the  issuing 
bank  refused  payment  claiming  that  the 
indorsement  of  the  payee  did  not  agree  with 
the  signature  on  file,  but  admitted  that  it 


agreed  in  most  respects  and  offered  to  pay 
the  item  provided  the  collecting  bank  guar- 
anteed the  indorsement.  The  bank  refused, 
and  caused  protest  to  be  made.  Was  pro- 
test proper?  Opinion:  If  the  signature  was 
a  forgery  no  protest  was  necessary.  But  there 
being  doubt  as  to  the  fact,  and  express 
instructions  being  given  to  protest,  under 
the  circumstances,  the  protest  was  proper 
and  justifiable.  (Inquiry  from  Ark.,  Feb., 
1918.) 

Collecting  bank  following  protest  instructions 
entitled  to  collect  protest  fees 

2783.  A  bank  received  a  draft  for  col- 
lection, accompanied  by  a  letter  "We  en- 
close for  collection  and  credit.  Items 
marked  X  no  protest."  The  bank  protested 
the  draft  (not  marked  X)  but  the  sending 
bank  refused  to  pay  the  protest  fee.  Opin- 
ion: The  collecting  bank  was  justified  in 
protesting  the  draft  and  could  collect  the 
protest  fees.  (Inquiry  from  La.,  Aug.,  1912, 
Jl.) 

Protest    of    note    presented    after    maturity 

pursuant   to   express  instructions  from 

holder 

2784.  Should  an  overdue  note  be  pro- 
tested for  non-payment  when  the  presenting 
bank  has  express  instructions  from  for- 
warding bank  to  protest?  Opinion:  Or- 
dinarily a  note  not  presented  until  overdue 
is  not  protestable  because  not  "duly  pre- 
sented for  payment"  "on  the  day  it  falls 
due,"  as  provided  by  the  Negotiable  In- 
struments Act;  but  such  an  instrument  is 
dishonored  and  protest  authorized  when 
"presentment  is  excused  and  the  instrument 
is  overdue  and  unpaid"  or  where  delay  in 
making  presentment  is  excused  by  the  cir- 
cumstances defined  in  the  Act,  and  present- 
ment has  been  diligently  made  when  the 
cause  of  delay  ceases  to  opperate  and  pay- 
ment has  been  refused.  As  the  collecting 
bank  has  been  expressly  instructed  to  cause 
protest  to  be  made,  and  as  there  may  have 
been  some  cause  which  would  excuse  delay 
in  presentment  of  which  it  is  not  aware,  the 
better  course  would  be  to  follow  instructions 
and  have  the  note  protested.  It  would 
thereby  escape  any  possible  liability  to  the 
holder.    (Inquiry  from  Fla.,  Nov.,  1912.) 

2785.  A  promissory  note  had  two  in- 
dorsers for  value,  only  the  first  of  whom  has 
waived  over  his  signature  protest  and  notice 
of  protest.  On  the  face  of  the  note  was  the 
written  instruction,  "Protest  if  not  paid." 
The  note  was  received  by  the  collecting 


622 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2786-2790 


bank  five  days  after  maturity  and  was  pro- 
tested after  the  maker  stated  his  inability 
to  pay.  The  bank  did  not  know  the  cir- 
cumstances of  the  delay  in  presentment. 
Opinion:  Had  the  instrument  been  a  foreign 
bill  of  exchange,  the  collecting  bank  would 
have  been  justified  in  making  protest  to  safe- 
guard the  interest  of  its  principal,  in  case  the 
delay  was  excusable.  In  the  case  of  a  prom- 
issory note,  while  formal  protest  is  not  essen- 
tial, it  is  a  convenient  means  of  proving  dis- 
honor, and  as  the  note  contained  the  positive 
instruction  "protest  if  not  paid"  the  collect- 
ing bank  was  justified  in  assuming  that  the 
principal  desired  the  protest  made  and  knew 
of  facts  which  would  justify  the  delay  and 
make  the  protest  efficacious.  Neg.  Inst. 
Law  (Commsr's.  dft.),  Sees.  71,  81,  155, 
159.    (Inquiry  from  Pa.,  Aug.,  1915,  Jl.) 

Protest  of  note  containing  waiver  of  protest 
pursuant    to    instructions 

2786.  A  note  comes  to  bank  A  with 
instructions  to  "protest,"  but  demand, 
protest  and  notice  are  waived  on  the  face  of 
the  note.  Is  the  bank  liable  for  not  pro- 
testing? Would  it  be  liable  if  it  did  protest? 
Opinion:  One  of  the  primary  duties  of  a 
collecting  agent  is  to  follow  instructions  and 
bank  A  should  have  caused  protest  to  be 
made.  It  cannot  be  held  liable  for  damages 
in  view  of  the  waiver,  for  although  bank  A 
disregarded  instructions,  its  principal  would 
have  to  show  damage  because  of  failure  to 
protest  and  where  there  is  an  express  waiver 
■of  protest,  there  can  be  no  damage,  as  the 
parties  to  be  charged  are  liable  without  pro- 
test.    {Inquiry  from  Miss.,  Oct.,  1912.) 

Liability  of  drawee  for  not  protesting  as 
instructed 

2787.  Payment  on  a  check  drawn  and 
payable  in  the  state  was  stopped  by  drawer 
and  the  drawee  bank  sent  the  check  back 
unprotested,  although  instructed  to  protest 
it,  if  not  paid.  What  is  its  liability?  Opin- 
ion: A  check  does  not  necessarily  require 
notarial  protest  where  the  indorsers  are 
bound  by  due  demand  and  notice  of  dis- 
honor. But  as  the  bank  was  instructed  to 
make  protest  in  case  of  non-payment,  it 
should  have  done  so,  and  its  failure  to  follow 
instructions  makes  it  liable  for  whatever 
resulting  damage  there  may  be.  It  is  diffi- 
cult, however,  to  see  how  the  holder  would  be 
damaged  by  failure  to  protest  in  any  case 
where  the  liability  of  the  parties  is  preserved 
by  due  demand  and  notice  unless  in  a  suit 

♦on  the  instrument  he  would  be  put  to  more 


trouble  in  proving  dishonor  than  he  would 
have  been  if  he  had  attached  to  the  check  a 
formal  certificate  of  protest;  in  that  case  the 
drawee  might  be  looked  to  for  the  extra 
expense  incurred.  {Inquiry  from  S.  C,  Jan., 
1919.) 

Liability  of  drawee  bank  omitting  protest  when 
instructed 

2788.  A  check  subject  to  protest  was 
forwarded,  and,  on  account  of  insufficient 
funds,  returned  by  drawee  bank  which  did 
not  protest  it.  The  collecting  bank  again 
sent  it  on,  and  it  was  protested  by  the  draw- 
ee. Afterwards  the  drawer  failed,  and  the 
collecting  bank  claims  the  drawee  bank  owes 
it  the  amount  of  the  check  because  of  failure 
to  protest  the  first  time.  Opinion:  A 
drawee  bank  which  disobeys  instructions 
to  protest  is  liable  for  any  damage  resulting, 
but  if  no  damage  can  be  proved,  there  is  no 
liability.  The  omission  to  protest  is  not  vital 
where  parties  contingently  liable  are  charged 
by  due  demand  and  due  notice  of  dishonor. 
The  second  protest  was  of  no  avail;  but  as- 
suming the  parties  were  duly  charged  upon 
dishonor  of  the  check  when  first  presented, 
although  their  protest  was  omitted,  there 
would  be  no  liability  of  the  drawee  except 
possibly,  in  case  of  suit,  the  extra  expense 
involved  in  proving  dishonor,  which  would 
be  obviated  by  a  certificate  of  protest. 
{Inquiry  from  Tenn.,  Sept.,  1918.) 

Liability   of  drawee  returning   item   without 
protest  where  instructed  to  protest 

2789.  An  item  is  sent  for  collection  with 
instructions  to  protest  for  non-payment  all 
items  over  SIO.  If  a  check  over  that  amount 
is  returned  unpaid  and  is  not  protested,  is 
the  drawee  bank  responsible  to  the  forward- 
ing bank  where  no  question  of  prior  indorse- 
ments arises?  Opinion:  The  drawee  bank 
would  be  liable  for  damages  resulting  from 
failing  to  obey  instructions  to  protest;  but 
where  there  are  no  prior  parties  to  hold  there 
is  no  damage.  {Inquiry  from  Ky.,  Jan., 
1921.) 

Liability  for  causing  omission  of  protest 
by  directions  to  correspondent 

2790.  A  client  deposits  a  foreign  bill  of 
exchange  drawn  in  favor  of  his  bank  which 
sends  it  on  for  collection  to  its  foreign 
correspondent  with  a  qualified  indorsement 
with  instructions,  "No  protest."  The  bill  is 
dishonored  and  returned.  Has  the  drawer 
the  right  to  refuse  to  take  it  up  because  it 
was  not  protested.     Would  the  legal  posi- 


623 


2791-2794] 


DIGEST  OF  LEGAL  OPINIONS 


tion  of  the  payee  be  changed  if  it  had 
transferred  the  bill  by  an  unquaHfied  in- 
dorsement instead  of  by  the  usual  indorse- 
ment for  collection?  Opinion:  The  drawer 
would  be  entitled  under  the  Civil  Code  of 
California  to  have  the  bill  protested  and  an 
instruction  by  the  payee  of  the  bill  not  to 
protest  would  not  deprive  him  of  this  right; 
hence  the  drawer  may  refuse  to  take  up  the 
bill.  The  position  of  the  payee  bank  would 
be  the  same  whether  the  indorsement  is 
for  value  or  to  an  agent  for  collection. 
{Inquiry  from  Cal.y    May,  1917.) 

Effect  of  "no  protest"  slip 

2791.  A  draft  with  the  words,  "No  pro- 
test, tear  this  off  before  presenting,"  printed 
on  a  marginal  strip  attached  to  it  by  a 
perforated  line,  was  protested  for  non-pay- 
ment. May  the  collecting  bank  claim  fee 
for  protesting?  Opinion:  It  has  been  held 
that  the  words  "No  protest"  written  in  the 
margin  of  a  bill,  dispense  with  the  necessity 
of  protest  to  hold  an  indorser,  and  the  same 
conclusion  would  probably  be  reached  where 
the  words  "No  protest,  tear  this  off  before 
presenting"  were  printed  on  a  marginal 
strip  attached  to  a  draft  by  perforated  lines. 
Assuming  the  sHp  should  be  held  a  waiver  of 
and  instruction  not  to  protest,  the  collecting 
bank  could  not  claim  fee  for  protesting.  It 
is  not  infrequent  for  banks  to  tear  off  the 
"No  protest"  slip,  and  then  protest  the 
draft,  and  such  slip  is  regarded  with  disfavor 
by  many  bankers.  See  Shaw  v.  McNeill, 
95  N.  C.  535.  {Inquiry  from  Ala.,  May, 
1910.) 

2792.  B  had  discounted  at  a  bank  a 
foreign  draft  drawn  by  R  on  N.  The  money 
was  deposited  with  the  bank  to  the  credit 
of  B's  savings  account,  the  understanding 
being  that  B  was  to  pay  interest  on  the 
money  advanced  until  payment  was  re- 
ceived from  the  foreign  country.  At  the 
end  of  the  draft  was  a  detachable  slip  which 
read,  "No  protest,  take  this  shp  off  before 
presenting."  The  draft  was  returned  unpaid 
and  unprotested.  B  was  notified,  and  the 
bank  deducted  the  amount  of  the  uncol- 
lected item  from  B's  savings  account.  It 
desires  to  know  if  it  had  the  right  to  do  this, 
and  if  it  is  in  any  way  responsible  for  not 
causing  protest.  Opinion:  The  draft  or- 
dinarily would  require  protest,  the  omission 
of  which  would  discharge  drawer  and  in- 
dorser. But  it  had  a  detachable  "No  pro- 
test" shp  at  one  end,  and  the  Negotiable 
Instruments  Act  provides  that  "A  waiver  of 
protest,  whether  in  the  case  of  a  foreign  bill 


of  exchange  or  other  negotiable  instrument, 
is  deemed  a  waiver  of  not  only  a  formal 
protest,  but  also  of  presentment  and  notice 
of  dishonor."  Undoubtedly  the  "No  pro- 
test" slip  would  be  held  a  waiver  and  the 
drawer  R  and  indorser  B  would  remain 
liable.  A  collecting  bank  has  the  right  to 
charge  back  the  amount  of  an  uncollected 
item  to  its  customer's  account,  where  there 
is  no  negligence  or  default  upon  its  part.  As 
the  bank  took  the  check  for  collection  only, 
as  agent,  as  is  evidenced  by  B  paying  in- 
terest on  the  money  pending  collection,  it 
had  the  right  to  deduct  the  amount  from  B's 
savings  account  and  B  has  recourse  upon  the 
drawer  R.  Shaw  v.  McNeill,  95  N.  C.  535. 
{Inquiry  from  D.  C.,  April,  1916.) 

Stamping  of  item  "no  protest"  hy  collecting 

hank  where  forwarding   hank  instructs 

not  to  protest 

2793.  If  a  bank's  correspondent  indi- 
cates its  desire  not  to  have  item  protested 
but  omits  to  use  the  N.  P.  stamp,  is  the  col- 
lecting bank  justified  in  using  its  own  N.  P. 
stamp?  Opinion:  If  a  bank  receives  an 
item  from  its  correspondent  with  no  in- 
instructions  not  to  protest,  it  takes  the 
responsibility  if  it  affixes  the  N.  P.  stamp; 
but  if  the  correspondent  forwards  the  item 
and  its  letter  of  transmittal  instructs  not  to 
protest,  or  if  it  indicates  its  desire  not  to 
have  the  item  protested,  but  the  stamp  is 
omitted  from  the  item  itself,  the  collecting 
bank  would  have  the  right  to  place  its  own 
N.  P.  stamp  on  the  item.  {Inquiry  from 
N.  Y.,  May,  1916.) 

Refusal  of  drawee  to  follow  instruction  to  pro- 
test check  received  through  mail 

2794.  A  bank  frequently  sends  checks 
to  the  drawee,  the  only  bank  in  the  town, 
with  request  they  be  presented  and  protested 
if  not  paid.  The  drawee  returns  the  checks 
unprotested  when  not  paid,  disregarding 
all  instructions.  The  sending  bank  desires 
to  know  what  procedure  is  best.  Opinion: 
If  a  bank  undertakes  a  collection,  then  it 
should  follow  instructions  and  is  liable  if  it 
does  not.  But  where  a  check  is  sent  direct 
to  the  drawee  for  collection  (and  this,  some 
courts  have  held,  is  not  a  proper  thing  to  do) 
that  bank  may  take  the  position  that  it 
stands  only  in  the  relation  of  payor  that  is  to 
pay  or  refuse  to  pay  and  may  refuse  to  as- 
sume the  dual  relation  of  collecting  agent 
and  so  be  compelled  to  follow  instructions 
in  the  matter  of  protest,  and,  if  it  takes  this 
ground,  it  is  doubtful  if  it  could  be  held 


624 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2795 


responsible  for  any  damages  caused  by  not 
following  instructions.  A  bank  is  not 
obliged  to  undertake  a  collection.  As  there 
is  no  other  bank  in  the  place,  it  would  be  a 
good  plan  to  send  the  checks  to  some  re- 
sponsible person  there,  who  is  a  notary,  and 
arrange  with  him  to  present  and  protest  if 
payment  is  refused.  (Inquiry  from  Miss., 
Feb.,  1914.) 

Payment    of   dishonored    or    protested 
checks 

Authority  of  hank  to  pay   check  after  protest 

2795.  Has  a  drawee  bank  authority  to 
pay  a  check  which  has  been  protested  for 
non-payment?  Is  the  check  after  dishonor 
a  valid  demand  for  the  original  amount; 
or  for  the  additional  protest  fees?  Opinion: 
Where  a  check  has  been  once  dishonored 
and  the  liability  of  the  parties  fixed  by  pro- 
test, it  is  reasonable  to  conclude  that  this 
ends  its  function  as  an  order  to  the  bank  to 
pay  and  it  is  safer  for  the  bank  to  refuse 
payment  of  the  face  of  the  check  when  again 
presented  and  leave  it  for  the  drawer,  to  take 
up  the  protested  item  by  giving  a  new  check. 
There  is  clearly  no  authority  for  the  bank 
to  pay  the  protest  fees.  There  is  no  decided 
case  upon  this  subject,  and  it  is  not  infre- 
quent for  banks  to  pay  a  protested  check  on 
a  second  presentment  when  the  funds  have 
been  deposited  in  the  interim.  Such  pay- 
ment would  probably  be  held  chargeable 
to  the  depositor,  except  in  a  case  where  he 
had  some  superior  equity,  as  where  he  has 
paid  the  protested  check  without  taking 
it  up;  but  in  view  of  such  possible  equities 
the  safer  and  better  course  is  to  refuse  pay- 
ment on  the  theory  that  after  the  check  has 
once  been  protested,  it  has  no  longer  any 
legal  efficacy  as  an  order  on  the  bank  to  pay. 
See  A.  B.  A.  Jls.  Ala.,  March,  1915,  Ark., 
April,  1913,  Wash.,  April,  1911.  {Inquiries 
from  Ind.,  Nov.,  1919,  S.  D.,  March,  1917.) 

Drawee  has  no  authority  to  pay  protested  check 
and  fees 

2796.  May  a  bank  rightfully  charge  a 
protested  check  with  or  without  fees  to  a 
customer's  account,  if  again  presented  when 
the  account  is  made  good  after  protest?  Is 
there  any  difference  between  paying  checks 
that  are  once  protested  and  checks  that  are 
presented  and  refused,  and  at  a  subsequent 
date  presented?  Opinion:  A  bank  is  under 
no  duty  and  has  no  authority  to  pay  a 
protested  check,  face  and  fees,  upon  second 
presentment,  when  the  funds  are  sufficient, 
without  express  instructions  from  the  drawer 


so  to  do.  Clearly  there  is  no  authority  to  pay 
the  protest  fees  and  it  is  doubtful  if  there  is 
authority  to  pay  the  face  of  such  a  check 
when  presented  a  second  time  without 
protest  fees,  although  it  is  often  done,  be- 
cause convenience  may  be  best  served  by 
paying  it  out  of  subsequently  deposited 
funds.  A  check,  however,  that  is  once 
presented  and  protested  is  a  dishonored 
instrument,  and  the  safest  course  for  a  bank 
to  pursue  is  to  refuse  to  pay  when  presented 
a  second  time,  unless  express  instructions  of 
the  depositor  are  obtained.  It  would  seem 
to  be  the  better  practice  that  the  check 
should  be  taken  up  by  the  customer,  by 
giving  a  new  check.  Notwithstanding  the 
above,  it  appears  to  be  the  custom  of 
many  banks  to  pay  the  face  of  a  protested 
check  on  second  presentment,  regarding  the 
same  as  a  continuing  order,  and  there  does 
not  appear  to  be  any  difference  whether  the 
check  has  been  protested,  or  simply  refused 
payment  without  protest,  at  the  time  of 
first  presentment.  In  either  case  the  bank 
is  paying  a  dishonored  instrument,  and  there 
is  a  possibility  a  court  might  hold  that  when 
the  check  was  once  presented  and  dishonored 
the  authority  of  the  bank  to  pay  was  ter- 
minated, should  the  drawer  have  any 
equity  which  would  give  him  the  right  to 
object  to  such  payment.  See  A.  B.  A.  Jls., 
April,  1913,  March,  1915.  {Inquiry  from 
Conn.,  July,  1920.) 

Liability  to  drawer  where  bank  pays  dishonored 

check  on  second  presentment  after  drawer 

has    paid   same   without   requiring 

surrender 

2797.  A  gives  check  to  B.  Check  is 
refused  payment  because  of  insufficient 
funds.  B  notifies  A  who  refunds  him  the 
amount,  without  taking  up  check  or  notify- 
ing the  bank.  Thereafter  B  again  presents 
check  and,  the  funds  beingsufficient,  it  is  paid 
by  the  bank.  It  is  the  custom  of  many 
banks,  including  the  inquiring  bank,  to  pay 
checks  where  the  funds  are  sufficient  al- 
though they  have  previously  been  refused 
because  of  insufficient  funds.  B  is  irre- 
sponsible and  A  seeks  to  hold  the  bank  for 
pajing  his  check  after  it  has  been  dis- 
honored. Opinion:  The  precise  question 
of  responsibihty  for  loss  as  between  the 
bank  and  drawer  has  never  been  decided. 
The  N.  I.  Act  provides  that  "The  instru- 
ment is  dishonored  by  non-payment  when 
it  is  duly  presented  for  payment  and  pay- 
ment is  refused."  Sec.  83.  The  check  in 
question  was,  therefore,  dishonored  by  non- 


625 


2798-2800] 


DIGEST  OF  LEGAL  OPINIONS 


payment  when  it  was  refused  by  the  drawee 
for  insufficient  funds.  The  question  would 
seem  to  be  whether  the  bank's  authority  to 
pay,  which  is  conferred  by  the  check,  is 
revoked  by  its  dishonor  by  first  presentment 
or  whether  such  authority  continues  until 
the  check  is  actually  paid  by  the  bank  or 
until  receipt  of  notice  that  the  check  has 
been  paid  by  the  drawer.  On  the  one  hand, 
there  is  a  custom  to  make  payment  of  a  dis- 
honored check  on  later  presentment  and  to 
regard  the  instrument,  though  dishonored, 
as  a  continuing  order  until  paid,  or  payment 
has  been  countermanded,  or  until  notice  to 
the  bank  of  payment  by  a  prior  indorser  or 
the  drawer;  on  the  other  hand,  according  to 
the  Negotiable  Instruments  Act,  upon  the 
first  dishonor  the  legal  status  of  the  check  is 
established  as  a  dishonored  instrument  upon 
which  the  drawer  has  an  immediate  right 
of  action  against  prior  parties  and,  while  an 
innocent  purchaser  to  whom  it  was  after- 
wards negotiated  would  be  protected  (for 
the  N.  I.  Act  defines  a  holder  in  due  course 
as  one  who,  among  other  things,  became  the 
holder  of  the  instrument  "before  it  was  over- 
due and  without  notice  that  it  had  been 
previously  dishonored  if  such  was  the  fact"), 
the  drawee  bank  does  not  come  within  the 
definition  of  a  holder  in  due  course  and, 
furthermore,  it  has  notice  upon  the  second 
presentment  that  the  instrument  has  been 
previously  dishonored.  Payment  by  the 
principal  debtor,  at  or  after  maturity,  dis- 
charges or  extinguishes  the  instrument 
(N.I.  Act,  Sec.  119)  and  although  the  holder 
should  fail  to  deliver  it  up,  the  plea  of  pay- 
ment is  good  against  a  subsequent  transferee 
provided  the  payee  was  in  possession  of  the 
instrument  at  the  time  of  payment  (Dan. 
Neg.  Inst.,  Sec.  1233a)  although  payment  of 
a  protested  note  by  the  maker  to  an  indorser 
without  taking  same  up  is  not  a  good  defense 
against  the  indorsee  to  whom  the  dishonored 
instrument  had  been  transferred  prior  to 
such  payment.  Davis  v.  Miller,  14  Gratt.  1. 
In  the  case  submitted,  the  dishonored  check 
was  in  the  possession  of  the  payee  at  the 
time  of  payment  by  the  drawer  and  such 
payment  discharged  the  instrument  al- 
though it  was  not  surrendered.  The  bank, 
therefore,  paid  a  discharged  instrument  and 
logically  would  seem  accountable  to  the 
drawer  for  the  money  paid  unless,  in  view  of 
the  custom  to  pay  dishonored  checks  on 
second  presentment,  some  duty  should  be 
held  owing  by  the  drawer  to  the  drawee  to 
notify  the  bank  whenever  such  a  check  was 
paid  without  surrender;  or  unless  it  should 


be  held  that  the  authority  of  the  bank  to 
pay  a  dishonored  check  continued  until 
revoked  by  notice  of  its  discharge.  The 
question  is  problematical  and  until  judicially 
settled  will  remain  uncertain.  Dishonored 
instruments  are  rarely  taken  up  without 
requiring  their  surrender  and  the  convenient 
practice  of  banks  of  paying  such  checks 
upon  second  presentment  is  reasonably  safe 
in  the  large  majority  of  instances;  at  the 
same  time  there  is  ground  for  maintaining 
that  such  payments  are  at  the  risk  of  the 
bank  in  any  case  where  the  drawer  makes 
good  the  dishonored  instrument  without 
taking  it  up.  {Inquiry  Jrom  N.  Y.,  April, 
1920.) 

Tender  by  drawer  on  day  of  dishonor  of  amount 
of  protested  check  and  fees 

2798.  What  effect  has  protest  on  the 
right  of  the  drawer  to  pay  the  check  on  the 
day  that  it  is  presented  and  dishonored? 
Opinion:  The  drawer  has  the  right  to 
tender  payment  to  the  holder  of  the  amount 
and  protest  fee  at  any  time  during  the  day 
of  protest.  Although  the  point  has  not  been 
specifically  decided,  it  would  seem  that  a 
tender  to  the  notary,  the  same  day,  of  the 
amount  due,  with  protest  fees,  while  he  still 
retains  possession  of  the  protested  instru- 
ment would  be  a  valid  tender,  and  that  upon 
such  tender  the  drawer  could  demand  a 
surrender  of  the  instrument.  Bk.  v.  Swan, 
9  Pet.  (U.  S.)  33.  Ex  parte  Moline,  19  Ves. 
216.  Whitwell  v.  Bingham,  19  Pick.  (Mass.) 
117.  Coleman  v.  Carpenter,  9  Pa.  178. 
Ohio  Neg.  Inst.  Act,  Sec.  3174t.  McFarland 
V.  Pico,  8  Cal.  626.  {Inquiry  from  Ohio, 
Feb.,  1917,  Jl.) 

Double  protest 

Second  protest  of  check  unjustified 

2799.  Should  a  check  be  protested  a 
second  time  after  it  has  once  been  protested 
for  non-payment  and  is  again  presented 
with  demand  for  payment  which  is  refused? 
Opinion:  There  is  no  justification  for  a 
second  protest;  it  would  be  of  no  avail;  the 
instrument  has  already  been  dishonored  and 
the  parties  are  all  held  liable  by  the  first 
protest.  Harden  v.  Birmingham,  etc.,  Bk., 
(Ala.)  55  So.  943.  {Inquiries  from  Ind., 
June,  1915,  Jl.,  Ga.,  Dec,  1916,  Jl,  Mich., 
Feb.,  1917,  Mont.,  March,  1919.) 

2800.  Should  instructions  to  protest  a 
second  time  a  check  already  protested 
be  followed?  Opinion:  There  is  no  justi- 
fication  for   protesting   the    check   a  sec- 


626 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2801-2806 


ond  time,  nor  is  there  any  justification  for 
such  an  instruction.  Parties  are  all  held 
Uable  by  first  protest.  See  A.  B.  A.  Jls., 
June,  1917,  April,  1913.  {Inquiries  from 
Ark.,  March,  1917.) 

Drawer  not  liable  for  double  'protest  fees 

2801.  Payment  of  a  protested  check  was 
refused  on  second  presentment  and  it  was 
protested  a  second  time.  The  depositor 
objects  to  paying  double  fee.  Opinion: 
Even  assuming  there  are  new  indorsers  of 
the  check  after  the  first  protest,  the  dishonor 
of  the  instrument  and  its  protest  destroy  the 
negotiable  character  of  the  instrument,  and 
the  protested  check  is  taken  out  of  the  cate- 
gory of  negotiable  instruments  subject  to 
protest.  It  appears,  therefore,  that  a  second 
protest  of  a  check  already  protested  is 
unjustified  and  there  is  no  liability  on  the 
part  of  the  drawer  for  the  second  notarial 
fee.     (Inquiry  from  N.  Y.,  Nov.,  1920.) 

Protest  fees 

Collecting  agent  of  payee  not  entitled  to  protest 
fees 

2802.  A  note  was  payble  to  a  firm  at  a 
bank  in  Alabama.  The  payees  sent  the 
note  to  the  bank  for  collection,  and  because 
payment  was  not  promptly  made  the  note 
was  protested.  The  bank  claimed  that  it  is 
entitled  to  the  amount  expended  for  protest 
fee.  Opinion:  It  is  doubtful  if  the  bank  is 
entitled  to  the  protest  fees,  as  in  an  action 
on  the  note  by  the  payees  against  the  maker 
it  is  not  necessary  to  prove  demand  and 
notice  and  the  certificate  of  protest  would 
have  no  utility  as  an  item  of  evidence. 
Farmers  Nat.  Bk.  v.  Venner,  192  Mass. 
531.  Hyman  v.  Doyle,  53  Misc.  (N.  Y.) 
597.  Florence  Oil  Co.  v.  First  Nat.  Bk., 
38  Colo.  119.  {Inquiry  from  Ala.,  Dec, 
1913,  Jl.) 

Right  of  owner  to  protest  fees  where  payment 
of  check  tendered  before  close  of  bank- 
ing hours   on   day   of  protest 

2803.  A  check  for  $100  was  presented  at 
a  bank  at  ten  o  clock  in  the  morning  and 
was  immediately  protested  for  non-payment 
because  of  no  funds.  Before  the  close  of 
banking  hours  on  the  same  day  the  bank 
received  funds  and  notified  the  holder  that 
it  would  pay  the  check  without  the  protest 
fees.  Opinion:  The  check  having  been 
lawfully  protested  at  ten  o'clock,  the  holder 
was  entitled  to  recover  the  fees  in  addition 
to  the  face  of  the  check.  In  the  absence  of 
instructions   from   the  maker,    the   better 


course  for  the  bank  is  to  leave  the  matter 
for  direct  adjustment  between  the  parties. 
Daniel  Neg.  Inst.,  Sec  1235.  Carey  v.  Bk., 
(Tex.)  24  S.  W.  260.  German  Nat.  Bk.  v. 
Beatrice  Nat.  Bk.,  63  Neb.  246.  {Inquiry 
from  Va.,  Oct.,  1913,  Jl.) 

Liability  for  protest  fees  on  recalled  item 

2804.  Bank  A  sends  note  to  bank  B  for 
collection.  Bank  B  forwards  it  to  bank  C; 
before  the  note  became  due  the  depositor 
recalls  the  note  and  bank  A  forwards  to  B, 
notice  of  recall  without  protest  on  presen- 
tation, the  note  is  returned  protested,  and 
C  claims  it  was  not  notified  although  B 
disputes  this.  B  charges  fees  back  to  A, 
and  depositor  refuses  to  pay.  Is  he  liable? 
Opinion:  Although  the  depositor  recalls 
the  note,  it  is  not  proved  that  the  notice  of 
recall  reached  C  whose  duty  it  was  to 
present  note  at  maturity  and  have  it  pro- 
tested if  not  paid,  and  as  no  neghgence  is 
shown  which  would  make  any  of  the 
collecting  banks  responsible,  the  depositor, 
who  without  recall  would  have  been  charge- 
able with  the  protest  fees,  is  undoubtedly 
chargeable.  {Inquiry  from  N.  J.,  Nov. 
1912.) 

Liability  for  fees  when  protest  not  required 

2805.  Who  is  to  be  charged  for  notary 
fees  when  a  bank,  not  being  absolutely  re- 
quired to  do  so,  protests  indorsed  paper? 
Opinion:  While  there  have  been  decisions 
to  the  effect  that,  unless  protest  is  strictly 
necessary,  the  notary  fees  cannot  be  col- 
lected from  the  maker,  drawer,  or  indorser, 
but  must,  if  collected  at  all,  be  paid  by  the 
holder,  there  are  contrary  decisions,  and  it 
would  seem  while  demand  and  notice  of 
dishonor  are  all  that  are  necessary  to 
preserve  the  liability  of  parties  to  the 
instrument,  yet  as  a  notarial  certificate  of 
protest  affords  a  convenient  means  of 
proving  dishonor  in  case  of  suit  and  protest 
is  permitted  by  statute,  the  fees  for  such 
protest  are  a  proper  and  legal  charge  against 
the  parties  liable  on  the  paper.  See  German 
Nat.  Bank  v.  Beatrice,  63  Neb.,  248,  88 
N.  W.  480.  See  A.  B.  A.  Jl.,  Wis.,  April, 
1912.    {Inquiry  from  la.,  Aug.,  1919.) 

Collecting  bank  entitled  to  protest  fees 
from  sending  bank 

2806.  Can  a  bank  protesting  an  inland 
item  (one  not  leaving  the  border  of  the 
state)  enforce  collection  of  protest  fees 
from  the  sender  bank?  Opinion:  The 
Negotiable  Instruments  Act  provides  that 


627 


2807-2811] 


DIGEST  OF  LEGAL  OPINIONS 


"where  any  negotiable  instrument  has  been 
dishonored,  it  may  be  protested  for  non- 
acceptance  or  non-payment,  as  the  case  may 
be;  but  protest  is  not  required  except  in  the 
case  of  foreign  bills  of  exchange."  Under 
this  statutory  authority  it  is  customary  for 
banks  holding  inland  checks  for  collection 
to  cause  them  to  be  protested  upon  dis- 
honor, unless  express  instructions  are  given 
not  to  protest,  and  wherever  protest  is 
authorized,  the  fees  are  collectible  from  the 
sender  or  owner.  {Inquiry  from  la.,  April, 
1918.) 

Liability  of  owner  to  collecting  hank  for  protest 

fees  and  right  of  recovery  from  maker — 

Liability  of  collecting  bank 

omitting  protest 

2807.  Is  a  collecting  bank  liable,  if  it 
neglects  to  protest  a  check,  drawn  and 
made  payable  within  the  state  and  bearing 
only  state  indorsement?  If  it  protests,  to 
whom  shall  it  look  for  notary  fees?  Opinion : 
The  check  does  not  require  protest,  that  is,  it 
is  not  legally  necessary.  Due  demand  and 
notice  of  dishonor  are  sufficient  to  charge 
parties  contingently  liable,  and  this  can  be 
done  without  protest.  The  law,  however, 
authorizes  protest  of  such  inland  paper,  and 
it  is  customary  for  collecting  banks  to  pro- 
test because  the  certificate  of  protest  is 
prima  facie  evidence  of  dishonor  and,  in  case 
of  suit,  an  inexpensive  and  time-saving 
means  of  proving  non-payment.  Some 
authorities,  however,  question  the  right  of 
a  holder  to  collect  the  fees  of  protest  in  such 
a  case  from  the  maker  or  drawer,  but  in 
view  of  the  law's  authorization,  it  seems 
there  should  be  a  proper  charge  against  the 
parties  liable.  In  the  absence  of  instructions 
it  would  seem  to  be  the  duty  of  the  collecting 
bank  to  have  the  check  protested,  in  view  of 
the  custom  so  to  do,  and  if  the  fees  w^ere  not 
properly  chargeable  against  the  parties  to  it, 
they  could  be  collected  from  the  holder. 
No  serious  liabihty  would  be  incurred  in 
case  the  bank  omitted  to  cause  protest  to  be 
made,  for  if  it  gave  due  demand  and  notice 
of  dishonor,  no  parties  contingently  liable 
would  be  released,  and  the  only  effect  would 
be  that  in  case  of  suit  a  more  cumbersome 
and  expensive  method  of  proving  dishonor 
would  have  to  be  used.  (Inquiry  from 
Mont.,  May,  1920.) 

Notice  of  dishonor 

Waiver  of  notice  by  indorser 

2808.  A  note  contained  on  its  face  the 
statement  that  the  indorsers  thereon  "waive 


protest,  presentment,  notice,  diligence  and 
suit."  On  its  maturity  the  indorser,  who 
knew  that  the  maker  could  not  pay  the 
note,  stated  that  he  himself  could  not  pay  it 
and  would  not  indorse  a  renewal.  The 
indorser,  when  sought  to  be  held  liable 
some  little  time  later,  claimed  non-liabiHty 
on  the  ground  that  he  was  not  notified  that 
the  note  was  not  paid.  Opinion:  The 
indorser  was  not  discharged  by  any  omission 
to  give  formal  notice  of  non-payment  at  the 
time  of  maturity  of  the  note,  both  because 
of  his  express  waiver  and  because  of  his 
actual  knowledge  that  the  note  would  not 
be  paid.    (Inquiry  from  Wis.,  Oct.,  1918.) 

Non-necessity  of  notice  to  accommodated 
indorser 

2809.  Where  the  payee  of  a  note 
indorses  it  to  C,  in  settlement  of  an  account, 
is  notice  of  dishonor  to  the  payee  necessary 
in  view  of  Section  115  of  S.  C.  Negotiable 
Instruments  Law,  to  the  effect  that  notice  of 
dishonor  is  not  required  to  be  given  to  an 
indorser  for  whose  accommodation  the 
instrument  was  made  or  accepted?  Opinion: 
The  note  requires  due  demand  and  notice 
of  dishonor  to  preserve  the  indorser's 
hability,  but  if  A  made  his  note  to  B  for 
the  latter's  accommodation  without  receiv- 
ing value  therefor,  in  order  that  B  might  use 
it  to  pay  off  a  debt  to  C,  notice  of  dishonor 
would  not  be  required  to  hold  the  indorser 
B.  (See  Neg.  Inst.  Act,  Sec.  115.)  (In- 
quiry from  S.  C,  March,  1915.) 

Necessity  of  notice  to  accommodation  indorser 

2810.  A  corporation  executed  its  note 
payable  on  demand  to  B,  and  indorsed  for 
accommodation  by  C,  one  of  its  officers. 
Payment  was  demanded  ninety  days  later 
and  refused.  C  was  not  notified  of  its  non- 
payment until  several  weeks  thereafter. 
Opinion:  Under  the  Negotiable  Instruments 
Act,  C,  the  indorser,  is  released  from 
liability.  Irrespective  of  the  question 
whether  demand  of  payment  was  made  in 
due  season,  the  failure  to  give  C  due  notice 
of  dishonor  released  C.  111.  Neg.  Inst.  Act, 
Sees.  64,  102,  103.  (Inquiries  from  III., 
Oct.,  1915,  Jl,  Minn.,  Feb.,  1914,  Jl.) 

2811.  Are  accommodation  makers  and 
indorsers  of  notes  entitled  to  notice  of 
dishonor?  Opinion:  An  accommodation 
maker  of  a  note  is  not  entitled  to  notice  of 
dishonor,  but  an  accommodation  indorser, 
in  the  absence  of  a  waiver,  is  so  entitled. 
(Inquiry  from  Minn.,  Feb.,  1914,  Jl.) 


628 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2812-2817 


Liability  of  officers  indorsing  for  accommoda- 
tion  note   of  corporation   which  failed, 
where  notice  of  dishonor  omitted 

2812.  A  customer  discounted  and  for- 
warded for  collection  a  note  given  by  a 
corporation  and  indorsed  by  officers  of  the 
company  as  individuals.  The  corporation 
went  into  the  hands  of  a  receiver.  At  ma- 
turity the  note  was  presented  by  a  notary  at 
the  place  of  business  of  the  company,  which 
was  also  the  place  of  business  of  the  indors- 
ers,  but  being  closed  he  was  unable  to  make 
formal  demand.  The  notary  notified  the 
payee  of  the  dishonor  but  no  notice  of  pro- 
test was  sent  to  the  individual  indorsers. 
Opinion:  The  officers  of  a  corporation  who 
indorse  its  note  are  entitled  to  due  present- 
ment and  notice  of  dishonor  unless  the  facts 
constitute  an  implied  waiver  or  the  indorser 
is  the  person  to  whom  the  instrument  is  pre- 
sented for  payment.  Under  the  facts  there 
would  seem  a  fair  ground  for  holding  the  in- 
dorsers liable,  although  there  was  an 
omission  of  notice  of  dishonor.  Assuming, 
however,  the  accommodation  indorsers  were 
discharged,  neither  the  collecting  bank  nor 
notary  would  be  liable,  because  it  is  only  ob- 
ligatory upon  a  collecting  bank  to  notify  its 
immediate  principal.  McDonald  v.  Lucken- 
bach,  170  Fed.  434.  Mercantile  Bk.  v. 
Busby,  (Tenn.)  113  S.  W.  390.  Schlesinger 
V.  Schultz,  96  N.  Y.  S.  383.  In  re  Swift,  106 
Fed.  65.  Adler  v.  Levinston,  120  N.  Y.  S. 
67.  J.  W.  O'Bannon  Co.  v.  Curran,  113 
N.  Y.  S.  359.  Bessenger  v.  Wenzel,  (INIich.) 
125  N.  W.  750.  {Inquiry  from  Ind.,  Sept., 
1916,  JL) 

Necessity  of  notice  to  indorser  who  was 
former  officer  of  payee  bank 

2813.  A  bank  holds  a  note  payable  to 
its  order  at  the  bank  which  was  indorsed 
by  a  person  who  was  then  its  president 
but  who  resided  in  another  state.  The 
whole  transaction  took  place  at  the  bank. 
When  the  note  became  due,  the  indorser 
claimed  he  had  not  received  notice  of  pro- 
test. Opinion:  While  strict  notarial  pro- 
test is  not  required  to  hold  an  indorser,  it  is 
necessary  that  there  be  due  demand  and 
notice  of  dishonor.  The  note  being  payable 
at  the  bank,  its  holding  of  it  at  maturity 
constituted  sufficient  demand.  If  the  in- 
dorser was  president  at  such  time,  the  fact 
of  his  official  position  would  probably 
relieve  the  bank  of  the  necessity  of  giving 
notice  of  dishonor,  but  if  he  was  no  longer 
president,  he  would  be  in  the  position  of  any 
outside    indorser,    and    unless    there    were 


some  special  circumstances  which  would 
dispense  with  the  necessity,  he  would  be 
relieved  from  liabiUty.  (Inquiry  from  Wis., 
Aug.,  1919.) 

Surety-maker  of  note  not  entitled  to  notice 

2814.  B  and  C  made  a  note  payable  to 
A.  At  maturity  B  refused  to  pay.  Six 
months  later  A  demanded  payment  from  C, 
who  refused  on  the  ground  that  he  received 
no  notice  of  dishonor.  Opinion:  No  notice 
was  required  to  bind  C,  who  is  one  of  the 
makers,  even  though  he  is  surety  for  another 
maker.  {Inquiry  from  Neb.,  Aug.,  1911,  Jl.) 
{Similar  inquiry  from  S.  C,  April,  1914,  Jl., 
citing  Rouse  v.  Wooten,  140  C.  C.  567.) 

How  notice  of  dishonor  given 

2815.  Under  the  negotiable  instruments 
law  how  must  notice  of  dishonor  be  given? 
Opinion:  The  Negotiable  Instruments  Law 
governing  notice  of  dishonor  provides  that: 
"The  notice  may  be  in  writing  or  merely 
oral,  and  may  be  given  in  any  terms  w^hich 
sufficiently  identify  the  instrument,  and 
indicate  that  it  has  been  dishonored  by 
non-acceptance  or  non-payment.  It  may 
in  all  cases  be  given  by  delivering  it  person- 
ally or  through  the  mails."  {Inquiry  from 
Pa.,  Nov.,  1909,  Jl.) 

Notice  by  ordinary  form  of  letter 

2816.  Is  notification  of  non-payment  by 
ordinary  form  of  letter  sufficient?  Opinion: 
It  is  sufficient,  provided  the  letter  sufficiently 
identifies  the  instrument  and  indicates  that 
it  has  been  dishonored  by  non-paj'ment. 
{Inquiry  from  III.,  March,  1913.) 

Time  of  giving  notice 

2817.  A  bank  received  from  the  payee 
a  check  drawn  on  a  bank  in  a  town  in  the 
state  eight  miles  distant.  In  the  course  of 
collection  the  check  was  handled  by  two 
other  state  banks  and  on  presentment  pay- 
ment was  refused,  the  paj-ee  receiving  notice 
of  dishonor  five  days  afterwards.  The 
check  was  not  protested.  Is  the  payee 
liable?  Opinion:  Being  an  inland  bill  of 
exchange,  no  protest  was  required  to  hold 
the  paj-ee  but  notice  of  dishonor  was 
necessary,  and  this  the  payee  did  not  receive 
until  five  days  after  the  check  was  dis- 
honored. The  check,  however,  went  through 
and  was  indorsed  In'-  at  least  three  banks, 
and  the  Negotiable  Instruments  Act  pro- 
vides, as  to  the  time  of  giving  notice,  that, 
where  the  person  giving  and  the  person  to 
receive  notice  reside  in  different  places,  the 


629 


2818-2821] 


DIGEST  OF  LEGAL  OPINIONS 


notice,  if  sent  by  mail,  must  be  deposited  in 
the  post  office  in  time  to  go  by  mail  the  day 
following  dishonor,  and  where  a  party  re- 
ceives notice,  of  dishonor  he  has,  after  the 
receipt  of  such  notice,  the  same  time  for 
giving  notice  to  antecedent  parties  that  the 
holder  has  after  the  dishonor,  and  where  the 
instrument  is  dishonored  in  the  hands  of  an 
agent,  who  gives  notice  to  his  principal, 
he  must  do  so  within  the  same  time  as  if 
he  were  the  holder.  According  to  these 
rules  it  would  seem  that  the  payee  in  this 
instance  probably  received  notice  of  dis- 
honor in  due  time  and  would  be  hable. 
{Inquiry  from  Ark.,  May,  1918.) 

Notice  of  dishonor  of  time  note  maturing  on 
Saturday 

2818.  When  should  notice  of  dishonor 
be  given  of  a  time  note  falling  due  on 
Saturday?  Opinion:  Under  the  laws  of 
Oklahoma  when  a  note  falls  due  on  Saturday 
it  is  to  be  presented  for  payment  on  the 
next  succeeding  business  day;  if  not  paid 
then,  notice  of  dishonor  may  be  given  as 
soon  as  the  instrument  is  dishonored  and 
not  later  than  the  following  day.  (Inquiry 
from  Okla.,  March,  1920.) 

Time  of  giving  notice — Note  payable  in 
installments 


2819.  A  gave  B  his  note  for 
payable  in  monthly  installments  of  $25, 
with  no  provision  that  on  default  the  whole 
amount  should  become  due.  A  made  sundry 
payments  but  not  according  to  the  agreed 
installments  and  finally  owed  $135  on  the 
note  on  the  day  the  whole  debt  would  have 
been  discharged  had  the  payments  been 
regular.  Notice  of  protest  was  duly  mailed 
to  C,  the  indorser,  who  claimed  non-liabihty 
because  he  received  no  notice  of  A's  failure 
to  pay  each  installment  according  to  the 
terms  of  the  instrument.  Opinion:  The 
principle  is  well  established  that  where  the 
principal  of  a  note  is  payable  in  installments 
a  failure  to  pay  one  of  them  when  due 
makes  the  note  dishonored  paper.  An 
indorser  is  discharged  by  failure  to  give 
notice  of  dishonor  upon  default  in  payment 
of  an  installment,  but  according  to  some 
cases  is  liable  for  subsequent  installments  of 
the  non-payment  of  which  he  is  duly  notified. 
In  the  case  submitted  upon  the  first  default 
in  payment  the  note  became  overdue  and 
dishonored.  C,  the  indorser,  was  discharged 
by  failure  to  give  notice  of  dishonor  upon 
the  default  in  payment  of  the  installment 
and  cannot  be  held  except,  possibly,  as  to 


the  last  installment.  Vinton  v.  King,  4 
Allen  (Mass.)  562.  Field  v.  Tibbetts,  57 
Me.  359,  Hart  v.  Stickney.  41  Wis.  630. 
McCorkle  v.  Miller,  64  Mo.  App.  153. 
Vette  V.  La  Barge,  64  Mo.  App.  179. 
Norwood  V.  Leeves,  (Tex.)  115  S.  W.  53. 
Hinton  v.  Jones,  136  N.  C.  53.  Sheffield  v. 
Johnson  County  Sav.  Bk.,  2  Ga.  App.  221. 
Fitchburg  Ins.  Co  v.  Davis,  121  Mass  121, 
Hopkins  v.  Merrill,  79  Conn.,  626,  {Inquiry 
from  Mich.,  June,  1915,  Jl.,) 

Time  of  giving  and  sufficiency  of  notice 

2820.  A  check  of  $111  on  a  bank  in 
Ohio  was  indorsed  on  October  26th  to  a 
bank  in  Colorado  by  one  of  its  depositors 
and  forwarded  for  collection.  Notice  of  pro- 
test was  not  received  by  the  bank  until  No- 
vember 11th  and  the  amount  was  described 
as  $110.  The  bank  immediately  notified  its 
depositor  that  it  had  received  such  notice  of 
protest.  The  depositor  refused  to  reimburse 
the  bank  on  the  ground  that  the  notice  of 
protest  did  not  refer  to  the  item  indorsed, 
by  him.  Notice  of  protest  of  a  further  check 
deposited  at  the  same  time  was  not  received 
by  the  bank  until  November  14th.  Opinion: 
The  mere  inaccuracy  in  the  statement  of  the 
amount  of  the  dishonored  check  did  not  in- 
validate the  notice  of  protest  where  the  in- 
dorser was  not  misled  thereby.  But  assum- 
ing the  checks  were  presented  and  protested 
on  October  31st  (the  inquiry  omits  the  date 
of  forwarding) ,  the  notice  of  dishonor  should 
have  been  mailed  not  later  than  November 
2d,  and  the  fact  that  the  notice  was  not  re- 
ceived in  one  case  until  November  11th  and 
in  the  other  until  November  14th  would  in- 
dicate that  the  notice  was  not  mailed  in  due 
season  and  the  indorser  would  be  discharged. 
The  Colorado  bank,  however,  can  recover 
from  the  collecting  bank  if  the  latter  was 
responsible  for  the  delay  which  responsibility 
would  extend  to  the  negligence  of  the  notary 
employed  by  it.  Neg.  Inst.  Law  (Comsr's. 
dft.)  Sees.  95,  96.  Colo.  Neg.  Inst.  Law 
Sees.  5, 145, 146.  Snow  v.  Perkins,  2  Mich. 
238.  Rowan  v.  Odenheimer,  13  Miss.  44. 
Downer  v.  Remer,  23  Wend.  (N.  Y.)  670. 
Bk.  of  Alexandria  v.  Swann,  9  Pet.  (U.  S.) 
33.  Davey  v.  Jones,  42  N.  J.  L.  28.  Wil- 
Hams  V.  Parks,  63  Neb.  747.  {Inquiry  from 
Colo.,  Jan.,  1917,  Jl.) 

Sufficiency  of  words  "not  sufficient  funds" 
attached  to  returned  check  as  notice 

2821.  Is  a  sHp  bearing  the  words  "Not 
sufficient  funds,"  and  the  names  of  bank 
and  officer,  pinned  to  the  check  on  its  return, 


630 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2822-2825 


a  sufficient  notice  of  dishonor?  Opinion: 
This  would  be  sufficient  notice  and  when 
received  by  correspondent  bank,  it  would 
be  incumbent  on  the  latter  to  notify  the 
prior  parties.  The  Negotiable  Instruments 
Act  provides  that  notice  of  dishonor  may  be 
given  in  any  terms  which  sufficiently  identify 
the  instrument  and  indicate  that  it  has 
been  dishonored  by  non-acceptance  or  non- 
payment. {Inquiry  from  Minn.,  Oct.,  1918.) 

Reasonable  diligence  in  inquiry  as  to 
ijidorser's  address 

2822.  Must  a  notary  make  inquiry  as  to 
the  address  of  the  indorser  on  a  note  which 
he  protests  as  basis  for  notice  of  dishonor? 
Opinion:  The  law  does  not  require  every 
possible  exertion  which  might  have  been 
made  to  effect  notice  of  the  dishonor  of  the 
paper  when  the  party  giving  notice  is  igno- 
rant of  the  place  of  residence  or  place  of 
business  of  the  party  to  be  notified,  but  he 
must  exercise  due  diligence  in  inquiring  for 
the  same.  Such  diligence  must  be  ordinary 
and  reasonable,  such  as  men  of  business 
usually  exercise  when  their  interest  depends 
upon  correct  information.  What  is  reason- 
able diligence  depends  upon  the  circum- 
stances of  each  case.  See  Fouseca  v.  Hart- 
man,  84  N.  Y.  Supp.  131.  E.  I.  Dupont  de 
Nemours  Powder  Co.  v.  Rooney,  117  N.  Y. 
Supp.  220.  King  v.  Griggs,  82  Minn.  387, 
85  N.  W.  162.  {Inquiry  from  N.  Y.,  Oct., 
1915.) 

Agent  may  notify  all  indorser s  or  only 
immediate  principal 

2823.  A  drawee  received  through  the 
mail  an  indorsed  inland  check,  payment  of 
which  had  been  stopped.  The  drawee 
bank,  having  returned  the  item  to  the 
presenting  bank,  asks  if  it  is  its  duty  to  no- 
tify all  the  indorsers  of  dishonor.  Opinion: 
The  drawee  is  not  obliged  to  notify  all  of 
the  indorsers  but  notice  to  the  immediate 
principal  is  sufficient.  Gleason  v.  Thayer, 
87  Conn.  248.  {Inquiry  from  N.  D.,  Dec, 
1916,  Jl.) 

2824.  An  indorsed  note,  issued  and  made 
payable  in  the  same  state,  was  not  protested 
for  non-pa}Tnent  and  the  presenting  bank 
as  collecting  agent  failed  to  notify  the 
indorsing  payee  of  non-payment.  It  did, 
however,  immediately  notify  its  principal, 
the  forwarding  bank,  which  notified  its 
customer,  who  in  turn  notified  the  payee. 
Is  the  indorser  justified  in  refusing  to  pay 
the  note?  Opinion:  Formal  notarial  pro- 
test was  not  required  to  hold  the  indorser. 


the  instrument  not  being  a  foreign  bill  of 
exchange,  and  the  collecting  agent  gave 
notice  to  his  immediate  principal — appar- 
ently in  due  season ;  the  principal  immediate- 
ly notified  its  customer,  the  prior  indorser, 
and  he  in  turn  notified  his  payee,  the  prior 
indorser,  who  is  the  party  sought  to  be  held 
liable.  Consequently  due  notice  of  dis- 
honor was  given.  An  agent  for  collection 
may  either  himself  give  notice  of  dishonor 
to  all  parties  liable  or  he  may  give  notice  to 
his  principal  and  the  principal  himself 
notify  prior  indorsers.  An  express  agree- 
ment would  be  necessary  to  create  the  duty 
to  notify  all  prior  parties.  Colo.  Neg.  Inst. 
Act,  Sec.  5144.  Wis.  Neg.  Inst.  Act,  Sec. 
1678-24.  Gleason  v.  Thayer,  87  Conn.  248 
Brill  V.  Jefferson  Bk.,  159  N.  Y.  App.  Div. 
461.  State  Bk.  v.  Bank  of  Capitol,  41 
Barb.  (N.  Y.)  343.  Phipps  v.  Milbury 
Bank,  8  Mete  (Mass.)  79  {Inquiry  from 
Colo.,  Sept.,  1918,  Jl.)  {Similar  inquiry 
from  N.  Y.,  Jan.,  1912,  Jl.) 

2825.  A  bank  states  that  by  the  Illinois 
law  "the  notary  public  shall,  at  the  time  of 
protesting,  mail  in  the  post  office  a  notice  to 
each  individual  who  may  be  interested  in  the 
transaction."  It  desires  to  know  if  this  law 
is  generally  accepted  in  most  of  the  states, 
and  also  as  to  whether  a  notary  public 
could  force  one  of  the  customers  of  the 
bank  to  pay  protest  fees  where  notices  have 
been  bunched  and  mailed  to  the  bank, 
leaving  it  to  the  bank  to  mail  notices  to  all 
proper  parties?  Opinion:  Under  the  law 
merchant  and  the  Negotiable  Instruments 
Law,  an  agent  in  whose  hands  an  instrument 
has  been  dishonored  may  either  give  notice 
to  all  the  parties  liable  thereon,  or  to  his 
principal,  in  which  latter  event  the  principal 
has  the  same  time  for  giving  notice  as  if  the 
agent  was  an  independent  holder.  Gleason 
V.  Thayer,  87  Conn.  248.  Blue  Ribbon 
Garage  v.  Baldwin,  91  Conn.  674.  Pate  v. 
State  Bank,  3  Ind.  187.  Scaton  v.  Scoville, 
18  Kan.  433.  Moore  v.  Corning,  12  La. 
Ann.  256.  Eagle  Bank  v.  Chapin,  3  Pick. 
(Mass.)  180.  Jones  &  Addington  111.  St., 
Sec.  7733.  The  passage  of  the  Negotiable 
Instruments  Law  in  Illinois  in  1907  repealed 
Sees.  10  and  11  of  the  Notary  Pul)lic  Act  of 
April  5th,  1872,  referred  to  in  the  statement 
of  facts,  and  thereunder  banks  and  notaries 
which  return  protested  checks  with  all  the 
notices  of  protest  attached,  leaving  it  to 
the  receiving  bank  to  mail  such  notices  to 
the  various  interested  parties,  are  within 
their  rights  in  so  doing,  and  an  express 
agreement  would  be  necessary  to  create  a 


631 


2820-283 1] 


DIGEST  OF  LEGAL  OPINIONS 


duty  upon  their  part  to  notify  other  prior 
parties.  Whether  in  such  ease  the  notary 
would  be  entitled  to  a  fee  for  each  notice,  as 
distinguished  from  a  fee  for  making  and 
certifying  protest,  would  depend  upon  the 
statute  of  the  particular  state  under  which 
notaries' fees  for  making  protest  and  giving 
notice  are  fixed.  {Inquiry  from  III.,  Aug  , 
1920,  Jl.) 

2826.  Does  the  law  compel  the  corre- 
spondent of  a  bank  receiving  a  note  from  its 
depositor  for  collection  to  forward  notices 
of  protest  direct  to  the  indorsers  if  their 
addresses  appear  on  the  instrument,  or  is  it 
permissible  to  forward  them  to  the  preceding 
indorser,  the  depositary  bank?  Opinion: 
A  bank  receiving  a  note  for  collection  from 
another  bank,  its  principal,  upon  which 
there  are  prior  indorsers,  has  the  right  to 
forward  the  notices  of  protest  for  such 
prior  indorsers  to  its  principal,  instead  of 
sending  them  direct  to  such  prior  indorsers; 
and  the  fact  that  the  address  of  one  of  the 
indorsers  appears  under  his  indorsement 
does  not  compel  it  to  send  notice  to  such 
indorser  directly.  (Neg.  Inst.  Law,  Sec. 
94.)      {Inquiry  from  N.  Y.,  Oct.,  1920.  Jl.) 

Waivers 

Effect  of  waiver  on  face  of  instrument  and  above 
signature  of  indorser 

2827.  A  number  of  inquiries  from  vari- 
ous states  present  the  following  questions: 
Is  a  waiver  of  one  or  more  or  all  of  the 
following  on  the  face  of  the  instrument 
binding  on  the  indorsers  as  well  as  on  the 
other  parties:  presentment,  protest,  notice 
of  protest  and  notice  of  dishonor?  On 
whom  is  such  a  waiver  above  the  signature 
of  an  indorser  binding?  Opinion:  These 
matters  are  covered  by  the  following 
express  provision  of  the  Uniform  Negotiable 
Instruments  Act:  "Where  the  waiver  is 
embodied  in  the  instrument  itself,  it  is 
binding  upon  all  parties;  but  where  it  is 
written  above  the  signature  of  an  indorser  it 
binds  him  only."  {Inquiries  from  Mass., 
Nov.,  1916,  Jl,  Minn.,  Feb.,  1914,  Jl, 
R.  I.,   Nov.,  1916.) 

Waiver  in  instrument  of  demand,  protest  and 
notice 

2828.  A  note  contains  on  its  face  above 
the  signature  a  provision  that  "the  makers 
and  indorsers  waive  demand,  protest  and 
notice  of  protest."  Opinion:  The  pro- 
vision is  binding  on  all  the  indorsers  and  dis- 
penses with  the  necessity  of  those  steps  to 


preserve  their  liability.  Phillips  v.  Dippo, 
93  Iowa  35.  Ala.  Neg.  Inst.  Act,  Sec.  5060. 
{Inquiry  from  Ala.,  July,  1913,  Jl) 

Waiver  clause  and  consent  to  extension 

2829.  Is  the  following  clause  embodied 
in  a  promissory  note  binding?  "The  signers 
and  indorsers  each  waive  demand,  notice 
and  protest  of  this  note  and  non-payment 
thereof,  and  consent  that  time  of  payment 
thereof  may  be  extended  without  notice 
thereof."  Opinion:  The  waiver  clause  is 
valid  and  sufficient.  The  fact  that  the 
Arkansas  Negotiable  Instruments  Act  re- 
quires demand  and  notice  to  hold  indorsers 
does  not  change  this  conclusion.  The  same 
requirement  existed  in  the  state  under  the 
law  merchant  before  the  Act,  and  the 
requirement  of  the  Act  applies  only  where 
there  is  no  waiver;  the  Act  itself  provides 
for  waivers  of  presentment  and  notice. 
The  consent  to  extension  is  also  binding  on 
all  parties.  {Inquiry  from  Ark.,  Nov., 
1914.) 

Waiver  on  face  of  instrument  binds  indorsers 

2830.  A  note  bears  on  its  face,  above  the 
signature  of  the  maker,  the  following: 
"Each  and  every  party  to  this  instrument, 
either  as  maker,  indorser,  or  otherwise, 
hereby  waives  presentment  for  payment, 
notice  of  dishonor,  protest  and  notice  of 
protest  thereof."  Does  this  bind  an 
indorser?  Opinion:  It  binds  all  the 
indorsers.    {Inquiry  from  Conn.,  Dec,  1919.) 

Holder  may  protest  notwithstanding  waiver 

2831.  If  the  words:  "Demand  of  pay- 
ment, protest  and  notice  of  protest  are 
hereby  waived,"  are  printed  on  the  face  of  a 
note,  above  the  signature  line,  are  they 
binding  on  the  indorsers?  If  so,  may  the 
holder  have  the  note  protested?  Opinion: 
The  words  above  quoted  are  binding  on  all 
indorsers  as  a  waiver  of  protest.  By  reason 
of  such  waiver,  protest  would  be  an  unneces- 
sary act  as  the  indorser  would  be  bound 
without  proof  of  demand  of  payment  or 
notice  of  dishonor.  In  answer  to  the  second 
question,  so  far  as  the  right  to  have  a  note 
protested  is  concerned,  this  is  a  right  given 
to  the  holder  by  statute,  and  it  is  doubtful 
if  the  waiver  would  deprive  the  owner  of 
the  right  to  have  the  note  protested,  if  he 
chose  so  to  do,  although,  protest  being 
unnecessary  because  of  the  waiver,  the  fees 
would  not  be  recoverable.  {Inquiry  from 
N.  Y.,  Oct.,  1916.) 


632 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2832-2838 


Indorser  bound  by  a  waiver  on  face  of 
instrument 

2832.  Where  an  indorsed  note  recites 
on  its  face  that  the  indorsers,  signers  and 
guarantors  waive  presentment  for  payment, 
protest  and  notice  of  protest  and  of  non- 
payment, is  it  necessary  to  protest  the 
note  in  order  to  hold  an  indorser?  Opinion: 
The  indorser  is  bound  by  the  waiver  of 
protest  on  the  face  of  the  instrument. 
(Inquiry  from  Okla.,  Jan.,  1918.) 

2833.  A  promissory  note  has  printed  on 
its  face  the  clause,  "We  further  waive 
demand,  protest,  and  notice  of  demand, 
protest  and  non-payment."  Is  this  clause 
binding  upon  a  joint  maker  or  an  indorser? 
Opinion:  The  clause  binds  all  parties  to  the 
instrument,  including  indorsers,  so  as  to 
reheve  from  the  necessity  of  taking  the 
necessary  steps  to  hold  parties  contingently 
liable.  Of  course,  protest  is  not  necessary 
to  hold  the  maker  in  any  event.  {Inquiries 
from  S.  C,  Feb.,  1913,  N.  Y.,  July,  1914.) 

Waiver  clause  with  guaranty  of  payment 

2834.  A  bank  holds  a  note,  made  by  A 
and  indorsed  by  B,  containing  the  following 
clause:  "The  drawers  and  indorsers  of  this 
note  severally  waive  presentment  and  notice 
of  protest  and  guaranty  payment  at  any 
time  after  maturity."  If  through  inadver- 
tence the  bank  fails  to  present  the  note  to 
A  at  maturity,  does  that  relieve  B  of  his 
responsibility  as  indorser,  provided  A  had 
sufficient  funds  to  pay  the  note  when  due? 
Opinion:  The  waiver  of  presentment  and 
notice  by  the  indorser  would  dispense  with 
the  necessity  of  such  steps  to  hold  him  liable. 
{Inquiry  from  S.  D.,  Nov.,  1919.) 

Waiver  of  presentment  and  protest  on  face  and 
back  with  agreement  that  if  notice  of  dis- 
honor given  it  shall  not  affect 
validity  of  waiver 

2835.  Is  the  following  clause  appearing 
on  the  face  of  a  note,  and  also  on  the  back 
above  the  signatures  of  the  indorsers, 
binding?  "We,  the  indorsers  of  this  note, 
also  hereby  waive  the  presentment  of  and 
demand  for  payment,  and  also  waive  the 
protest,  notice  of  dishonor  and  non-payment 
of  this  note;  and  we  expressly  agree  that 
should  the  holder  of  the  note  give  notice  of 
presentment,  demand  for  paj'^ment,  protest, 
notice  of  dishonor  and  non-pajinent  of 
same,  that  the  giving  of  such  notice  shall 
in  no  wise  or  in  any  manner  affect  the 
validity    of    the    above    waiver,    but    the 


waiver  shall  be  as  valid  and  binding  as 
though  such  notice  had  not  been  given." 
Opinion:  The  waiver  is  binding  on  all 
parties  according  to  its  terms.  {Inquiry 
from  W.  Va.,  Jan.,  1913.) 

Waiver  of  protest  binding  on  accommoda- 
tion indorser 

2836.  Does  the  clause  "all  indorsers  and 
parties  hereto  jointly  and  severally  waive 
protest"  on  the  face  of  a  note  render  protest 
unnecessary  as  to  an  accommodation  in- 
dorser? Opinion:  The  note  need  not  be 
protested.  The  waiver  would  be  binding 
on  an  accommodation  indorser  as  well  as 
an  indorser  for  value.  {Inquiry  from  Pa., 
Nov.,  1913.) 

Waiver  dispenses  with  necessity  of  protest  and 
right  to  fees  if  protested 

2837.  A  note  contains  the  following: 
"The  makers  and  indorsers  hereof  hereby 
severally  waive  protest,  demand,  and 
notice  of  protest  and  non-payment  in  case 
this  note  is  not  paid  at  maturity  and  agree 
to  all  extensions  and  partial  payments  before, 
on,  or  after  maturity,  without  prejudice  to 
holder."  Is  there  need  of  protest?  Opinion: 
The  note  contains  an  express  waiver  of 
protest,  demand  and  notice  by  the  makers 
and  indorsers.  This  is  binding  on  the 
indorsers,  and  in  view  of  the  waiver  there 
is  no  necessity  to  protest  such  a  note  for 
non-payment  at  maturity.  It  being  un- 
necessary, protest  fees  would  probably  not 
be  recoverable  if  it  was  protested.  {Inquiry 
from  Okla.,  Aug.,  1920.) 

''Protest  waived'^  above  signature  of  first  of 
three  accommodation  indorsers 

2838.  "Protest  waived"  was  written  on 
the  back  of  a  note  and  signed  by  three 
officers  of  a  corporation  individually.  Does 
this  operate  against  any  other  than  the 
first  signer?  In  case  the  corporation  does 
not  pay  the  note,  are  the  officers  jointly 
liable  as  indorsers?  Opinion:  The  Uniform 
Negotiable  Instruments  Act  ex-pressly  pro- 
vides that  "WHiere  the  waiver  is  embodied 
in  the  instrument  itself,  it  is  binding  upon 
all  parties,  but  where  it  is  wTitten  above  the 
signature  of  an  indorser,  it  binds  him 
only."  As  the  three  corporation  officers 
signed  as  individuals,  the  waiver  would  be 
binding  on  the  first  indorser  only.  The 
Act  further  provides  that  "as  respects  one 
another,  the  indorsers  are  liable  prima  facie 
in  the  order  in  which  they  indorse;  but 
evidence    is    admissible   to   show    that    as 


633 


2839-2843] 


DIGEST  OF  LEGAL  OPINIONS 


between  or  among  themselves,  they  have 
agreed  otherwise."  Under  this,  it  has  been 
held  that  the  fact  that  the  indorsers  of  a 
note  are  accommodation  indorsers,  and 
known  to  each  other  to  be  so,  does  not 
change  the  rule  of  liability  and  it  is  necessary 
to  prove  an  express  agreement  to  render 
them  liable  ratably  as  between  themselves. 
In  re  McCord,  174  Fed.  72.  Under  this, 
unless  there  is  a  special  agreement  as  to 
sharing  liability,  the  first  indorsers  would 
be  ultimately  liable  for  the  full  amount. 
{Inquiry  from  Mo.,  Nov.,  1916.) 

Oral  waiver 

2839.  Need  a  waiver  of  demand  and 
notice  be  in  handwriting?  Opinion:  The 
law  does  not  so  require.  Bk.  v.  Mill,  etc., 
Co.,  129  Cal.  263.  {Inquiry  from  Mass., 
Nov.,  1916,  Jl.) 

Implied  waiver  of  demand  and  notice 

2840.  The  holder  of  a  note  before  its 
maturity  asked  an  indorser  if  he  would  take 
care  of  the  note  at  the  proper  time  as  the 
maker  had  gone  into  bankruptcy.  The 
indorser  stated  that  the  receivership  or 
bankruptcy  proceeding  was  merely  of  a 
friendly  nature  and  that  a  mistake  would  be 
made  in  enforcing  collection  of  note  at  that 
time,  but  that  it  was  collectible  and  if 
payment  was  insisted  upon,  naturally  he 
would  be  compelled  to  pay  it.  The  note 
was  not  forwarded  to  bank  in  time  to  make 
presentment  on  the  day  of  maturity.  Is  the 
indorser  released?  Opinion:  The  indorser 
would  be  released  because  of  inexcusable 
delay  in  presentment  unless  the  facts  show 
an  imphed  waiver  of  presentment  and 
notice.  The  Negotiable  Instruments  Act 
provides  that  "presentment  for  payment  is 
dispensed  with  *  *  *  (3)  by  waiver  of 
presentment  express  or  implied."  It  also 
provides  that  "notice  of  dishonor  may  be 
waived,  either  before  the  time  of  giving 
notice  has  arrived  or  after  the  omission  to 
give  due  notice,  and  the  waiver  may  be 
express  or  implied."  It  would  seem  in  this 
case  there  was  virtually  a  request  by  the 
indorser  to  the  holder  to  wait  or  give  time 
and  an  assurance  that  the  note  would  be 
paid  by  the  indorser,  and  this  constituted 
an  implied  waiver  of  demand  and  notice. 
The  fact  that  the  maker  was  in  bankruptcy 
did  not  excuse  presentment,  but  the  fact 
that  the  indorser,  knowing  that  the  demand 
upon  the  maker  would  be  futile,  asked  the 
holder  to  hold  off  and  virtually  promised 
to  pay  the  note  constituted  a  waiver  of 


demand  and  notice.  See  In  re  Swift,  106 
Fed.  65.  Kent  v.  Warner,  94  Mass. 
561.  Bessenger  v.  Wenzel,  161  Mich.  61, 
125  N.  W.  750.  Gove  v.  Vining,  48  Mass. 
(7  Mete.)  212.  O'Bannon  Co.  v.  Curran, 
113  N.  Y.  Supp.  359.  {Inquiry  from  Ind., 
Aug.,  1916.) 

Effect  as  waiver  of  clause,  ''This  note  subject 
to  privilege  of  one  renewaV* 

2841.  Does  the  clause  in  an  indorsed 
note  "this  note  subject  to  privilege  of  one 
renewal  of  like  period"  constitute  an 
implied  waiver  of  demand,  protest  and 
notice  of  dishonor?  Opinion:  Such  clause 
is  an  implied  waiver  by  the  indorser  at 
least  until  the  expiration  of  the  extended 
period,  and  by  later  cases  also  waives  those 
steps  at  the  end  of  the  period  of  extension. 
It  would  be  better  to  have  an  express  waiver 
of  protest  in  the  note  to  avoid  all  question. 
Ridgeway  v.  Day,  13  Pa.  208.  Barclay  v. 
Weaver,  19  Pa.  396.  First  Nat.  Bk.  v. 
Ryerson,  23  Iowa  508.  Cady  v.  Bradshaw, 
116  N.  Y.  118.  McGonigal  v.  Brown,  45 
Ohio  St.  499.  Worden  v.  Mitchell,  7  Wis. 
161.  Long  V.  Moore,  2  Brev.  (S.  C.)  172. 
Sheldon  v.  Horton,  43  N.  Y.  93.  Amoskeag 
Bk.  V.  Moore,  37  N.  H.  539.  {Inquiry  from 
Cal,  Sept.,  1916,  Jl.) 

General  waiver  of  all  paper  bearing  customer^ 
indorsement 

2842.  A  depositor  discounts  with  his 
bank  a  large  number  of  his  customers' 
notes.  He  has  requested  that  in  case  of 
non-payment  the  notes  be  not  protested, 
and  has  left  with  his  bank  a  form  in  which 
he  waives  demand  and  notice  of  protest  on 
any  paper  bearing  his  indorsement.  In 
case  of  the  non-payment  of  any  of  the  notes 
would  such  a  form  hold  him  as  indorser? 
Opinion:  Where  a  depositor  requests  the 
bank  to  omit  protest  of  paper  bearing  his 
indorsement  in  case  of  non-payment,  and 
files  with  the  bank  a  written  waiver  of 
demand  and  notice  of  protest  on  all  such 
paper,  he  is  bound  as  indorser  without  the 
necessity  of  such  steps.  Duvall  v.  Farmers 
Bank,  7  Gill  &  J.  (Md.)  44.  Hayward  v. 
Empire  State  Sugar  Co.,  93  N.  Y.  Suppl. 
449.  Davis  v.  Miller,  (Iowa)  55  N.  W.  89. 
{Inquiry  from  Mass.,  Sept.,  1919,  Jl.) 

General  waiver  of  presentment  until  funds 
sufficient 

2843.  A  customer  of  bank  A  frequently 
overdraws  in  large  amounts  and,  instead  of 
immediately  protesting  and,  sending  items 


634 


PRESENTMENT,  PROTEST  AND  NOTICE 


[2844-2849 


back  for  want  of  funds,  the  bank  holds 
them  for  several  days  until  the  requisite 
funds  are  deposited,  this  course  of  procedure 
being  understood  by  all  parties.  Checks 
which  are  drawn  to  a  single  payee 
are  deposited  in  bank  B  which  forwards  to 
bank  C  for  collection,  the  latter  not  giving 
bank  B  credit  until  it  receives  returns  from 
bank  A.  It  is  asked  if  a  waiver  by  bank  B 
alone  or  by  bank  C  alone  would  reUeve 
bank  A  of  liability  in  holding  checks 
Opinion:  A  waiver  of  protest  embodied 
in  the  check  itself  would  be  binding  on  all 
parties  and  sufficient  for  the  purpose,  as 
this  would  constitute  a  waiver  of  present- 
ment as  well  as  notice  of  dishonor  and 
formal  protest.  If  the  waiver  was  indorsed 
on  the  back  of  check,  it  might  bind  only  the 
indorser  above  whose  signature  it  appeared. 
As  these  transactions  relate  to  the  business 
of  a  particular  customer  and  regularly  go 
through  the  same  two  banks,  it  might  be 
well  for  bank  A  to  obtain  special  letters 
from  the  other  two  banks  authorizing  it  to 
hold  the  customer's  checks  for  a  reasonable 
period,  if  funds  are  insufficient,  before 
returning,  them  protested  or  unprotested. 
(Inquiry  from  Tenn.,  June,  1913.) 

Meaning  of  waiver  of  ''protest*' 

2844.  Does  a  waiver  of  "protest"  also 
constitute  a  waiver  of  presentment  and 
notice  of  dishonor?  Opinion:  The  Uniform 
Negotiable  Instruments  Act  expressly  pro- 
vides that  "a  waiver  of  protest,  whether  in 
the  case  of  a  foreign  bill  of  exchange  or 
other  negotiable  instrument,  is  deemed  to 
be  a  waiver  not  only  of  a  formal  protest, 
but  also  of  presentment  and  notice  of 
dishonor."  (Inquiry  from  Minn.,  Feb., 
1914,  Jl.) 

Waiver  of  notice  not  a  waiver  of  presentment 

2845.  What  is  the  effect  of  the  following 
clause  contained  in  a  note:  "We  waive 
notice  of  protest  and  consent  to  the  exten- 
sion of  payment  of  this  note  without  notice"? 
Opinion:  It  is  questionable  whether  waiver 
of  notice  of  protest  would  be  a  waiver  of 
presentment  or  protest.  It  might  be  better 
to  provide  that  "the  makers  and  indorsers 
severally  waive  presentment  for  payment, 
protest  and  notice  of  protest  or  of  non- 
payment and  consent  to  the  extension  of 
time  of  payment  of  this  note  without 
notice."     (Inquiry  from  Mo.,  Sept.,  1913.) 

2846.  In  the  body  of  a  note  was  inserted 
"notice  of  protest  is  hereby  waived  by  all 
parties  liable  herein."     Opinion:     This  is 


binding  on  all  parties  as  a  waiver  of  notice, 
but  might  not  be  construed  as  a  waiver  of 
presentment.  See  Sections  89,  112-114, 
S.  C.  Neg.  Inst.  Act,  Rouse  v.  Wooten  140 
S.  C.  557.    (Inquiry  from  S.  C,  April,  1914.) 

Person  waiving  protest  on  back  of  note  with 
provision  that  he  becomes  security  for  payment 

2847.  A  bank  uses  a  waiver  of  protest 
which  reads:  "For  value  received  I  hereby 
become  security  for  the  payment  of  the 
within  note  and  waive  protest  and  notice 
of  protest  and  demand  on  same."  It  asks 
whether,  by  using  such  stamp,  it  is  mixing 
up  its  rights  against  the  indorser  by  having 
him  agree  to  become  surety,  instead  of 
holding  him  to  his  liability  as  indorser. 
Opinion:  The  Negotiable  Instruments  Act 
provides  that  "A  person  placing  his  signature 
upon  an  instrument  otherwise  than  as  maker, 
drawer  or  acceptor  is  deemed  to  be  an 
indorser  unless  he  clearly  indicates  by 
appropriate  words  his  intention  to  be 
bound  in  some  other  capacity."  In  the 
present  case  the  person  signing  on  the  back 
indicates  his  intention  to  be  bound  as 
security  and  as  such  he  is  bound  without 
protest  or  notice  and  there  is  no  necessity 
for  a  waiver.  A  better  form  of  waiver 
would  probably  be  a  simple  waiver  of 
protest,  demand  and  notice  to  be  signed  by 
the  indorsers  omitting  the  pro\ision  that 
he  becomes  "security"  for  the  payment  of 
the  note.  This  would  have  the  effect  of 
changing  the  indorser's  liability  from  a 
contingent  to  an  absolute  one  and  there 
would  be  no  necessity  for  a  further  provision 
that  he  becomes  security  for  payment. 
(Inquiry  from  W.  Va.,  April,  1917.) 

Waiver  on  original  note  as  affecting  indorser  of 
renewal  note 

2848.  The  following  waiver  of  protest, 
"For  value  received hereby  guaran- 
tee the  payment  of  the  within  note  and  any 
renewal  of  the  same,  and  hereby  waive 
protest,  demand  and  notice  of  non-payment 
thereof,"  was  rubber  stamped  on  the  back 
of  an  old  note  and  attached  to  a  renewal 
note  containing  no  such  waiver.  Opinion: 
The  waiver  on  the  original  note  also  consti- 
tuted a  waiver  by  the  indorser  of  demand, 
protest  and  notice  of  the  renewal.  Duval  v. 
Farmers  Bk.,  7  Gill  &  J.  (Md.)  44.  (Inquiry 
from  W.  Va.,  Feb.,  1916,  Jl.) 

Indorser  liable  without  protest  when 
protest  waived 

2849.  Where  the  indorser  of  a  note 
expressly  waives  presentment  for  payment, 


635 


2850-2854] 


DIGEST  OF  LEGAL  OPINIONS 


II 


demand,  notice  of  dishonor,  protest  and 
notice  of  protest  thereof,  is  he  hable  in  the 
absence  of  protest?  Opinion:  Protest,  when 
expressly  waived,  is  not  necessary  to  hold 
the  indorser.    {Inquiry  from  III.,  Feb.,  1917.) 

Omission  of  'protest  by  collecting  bank  when 
waived 

2850.  Bank  A  forwards  to  bank  B  for 
collection  a  note  with  waiver  of  protest 
clause  on  its  face.  No  instructions  are 
sent.  Can  bank  A  hold  bank  B  for  the 
amount  of  the  note  if  that  bank  returns 
it  unpaid  and  not  protested?  Opinion:  It 
is  the  general  duty  of  a  collecting  bank  to 
cause  protest  to  be  made  as  a  convenient 
means  of  proving  dishonor,  but  where  the 
note  waives  protest  and  there  is  no  instruc- 
tion of  the  sending  bank  to  make  protest, 
it  is  not  incumbent  on  the  collecting  bank 
to  cause  protest  to  be  made.  Even  if  the 
sending  bank  had  instructed  protest  and  the 
collecting  bank  failed  to  make  it,  there 
would  be  no  liability,  as  the  parties  having 
waived  protest  are  not  discharged.  {In- 
quiry from  Mich.,  June,  1915.) 

2851.  A  bank  received  for  collection  a 
note  containing  the  following  waiver  printed 
on  its  face:  "The  drawers  and  indorsers 
severally  waive  presentment  for  payment, 
protest  and  notice  of  protest  and  non- 
paj'^ment  of  this  note."  No  instructions 
were  given  as  to  protest.  Opinion:  The 
proper  course  for  the  collecting  bank  was  to 
omit  protest.  {Inquiry  from  Miss.,  Dec, 
1912,  Jl.) 

Instruction  to  "deduct  freight"  is  not  a 
waiver  of  protest 

2852.  A  bank  in  Nebraska  sent  to  a 
Wyoming  bank  a  demand  draft  on  a  party 
in  Wyoming.  The  draft  bore  no  instructions 
in  regard  to  protest,  but  the  letter  trans- 
mitting the  draft  contained  the  instructions : 
"Deduct  freight  and  attach  bill  to  remit- 
tance. No  other  deductions  to  be  made  for 
collection  or  exchange."  It  is  now  claimed 
that  this  was  sufficient  notice  that  this  was 
not  a  "protest  item."  Is  this  correct? 
Opinion:  Where  a  sight  draft  drawn  by  a 
customer  of  a  bank  in  one  state  upon  a 
part}'  in  another  is  forwarded  by  a  bank 
in  the  state  where  drawn  to  a  bank  at  the 
home  of  the  drawee  for  collection,  it  is  the 
duty  of  the  collecting  bank  to  cause  the 
draft  to  be  protested  upon  dishonor,  and  a 
notation  in  the  letter  of  advice,  "Deduct 
freight  and  attach  biU  to  remittance,"  etc., 
is  not  to  be  construed  as  an  instruction  not 


to    protest. 
1920,  Jl.) 


{Inquiry   from    Wyo.,    June, 


Waiver  of  protest  by  payee 

2853.  A  check  signed  by  John  Doe, 
payable  to  the  Sears-Roebuck  Co.,  or 
bearer,  was  indorsed  by  the  payee  to  a 
national  bank  "No  protest";  indorsed  by 
the  national  bank  to  the  order  of  any 
banker  and  presented  to  the  drawee  bank. 
Should  the  check  be  protested  for  non- 
pajTuent?  Opinion:  The  Negotiable  In- 
struments Act  permits  the  protest  of  an 
inland  instrument,  such  as  this  check,  the 
object  to  which  is  to  afford  a  convenient 
means  of  proving  dishonor.  The  waiver  of 
protest  is  by  the  payee  and  is  binding  on  it 
only.  The  national  bank  to  which  the  check 
was  indorsed  placed  a  restrictive  indorse- 
ment thereon,  which  made  the  subsequent 
banks  collection  agents.  It  is,  therefore, 
not  an  indorser  for  value  but  simply  the 
owner  of  the  instrument,  which  it  has 
forwarded  for  collection  through  agents. 
As  no  protest  is  necessary  to  prove  dishonor 
against  the  drawer  (notice  of  dishonor  is  not 
required  where  the  drawer  has  stopped 
payment  or  where  he  has  no  right  to  expect 
that  the  drawee  will  honor  the  instrument), 
as  the  payee  has  waived  protest,  and  as  the 
national  bank  has  not  parted  with  title  to 
the  instrument  and  is  still  owner,  it  would 
seem  that  there  is  no  necessity  for  protesting 
the  check.    {Inquiry  from  Ida.,  Jan.,  1921.) 

Waiver  in  demand  note  of  presentment 
and  notice 

2854.  Under  what  conditions  may  a 
bank  safely  accept  a  note  payable  on 
demand,  bearing  one  or  more  indorsements? 
What  should  be  indorsed  on  the  back  of  the 
paper  in  order  to  bind  indorsers?  Opinion: 
Under  the  Negotiable  Instruments  Act  a 
note  payable  on  demand  becomes  due 
"within  a  reasonable  time,"  but  there  is  no 
certainty  in  the  New  York  decisions  as  to 
just  what  period  of  time  would  be  deemed 
reasonable.  To  charge  an  indorser  there 
must  be  presentment  for  payment  of  such 
a  note  within  a  reasonable  time,  as  his 
liability  is  conditioned  on  due  presentment 
and  notice.  It  would  be  well  to  insert  in  the 
face  of  a  demand  note  the  following:  "The 
indorsers  hereof  waive  presentment  and 
notice  of  dishonor."  The  bank  discounting 
such  a  note  could  hold  the  note  up  to  the 
period  of  the  statute  of  Hmitations  and  the 
indorsers  would  be  liable  thereon,  they  hav- 
ing  waived   presentment   and   notice.     It 


636 


SET-OFF 


[2855-2859 


would  be  better  that  the  waiver  be  printed 
in  the  body  of  the  note  rather  than  on  the 
back;  for  in  the  latter  case  it  would  be  bind- 
ing only  upon  the  indorser  above  whose 
signature  it  appeared  and  not  upon  all  the 
indorsers.  {Inquiries  from  N.  Y.,  May, 
1917,  N.  Y.,  Feb.,  1918.) 

2855.  What  is  the  period  within  which 
an  indorser  on  a  demand  note  may  be  held 
liable  for  its  payment?  Opinion:  The 
Negotiable  Instruments  Act  provides  that 
where  a  note  is  paj^able  on  demand,  pre- 
sentment must  be  made  within  a  reasonable 
time  after  its  issue  to  charge  the  indorsers. 
The  courts  of  the  state  do  not,  however, 


appear  as  yet  to  have  held  what  is  such  a 
reasonable  time,  and  the  only  guide  is  the 
Act  itself  which  further  provides  that  "in 
determining  what  is  a  reasonable  time,  or  an 
unreasonable  time,  regard  is  to  be  had  to  the 
nature  of  the  instrument,  the  usage  of  trade 
or  business  (if  any)  with  respect  to  such 
instrument,  and  the  facts  of  the  particular 
case."  If  it  is  desired  to  hold  an  indorsed 
demand  note  as  an  investment  for  any 
length  of  time  it  would  be  well  to  couple 
with  the  indorsement  a  waiver  of  demand 
and  notice.  See  Columbian  Banking  Co.  v. 
Bowen,  134  Wis.  218.  Schlesinger  v. 
Schultz,  910  N.  Y.  App.  Div.  356.  {Inquiry 
from  Wis.,  June,  1919.) 


SET-OFF 


Bank's  right  of  set-off  against  depositor 

Right  of  set-off  agaijist  depositor-maker  exists 

whether  note  acquired  from  him  directly 

or  from  third  person 

2856.  The  rule  that  a  bank  has  a  right 
to  set  off  a  deposit  against  its  customer's 
matured  indebtedness  applies  equally  to  his 
indebtedness  upon  paper  discounted  for  the 
customer  and  paper  of  the  customer  pur- 
chased from  a  third  person  in  the  usual 
course  of  business.  The  bank  purchasing 
from  a  third  person  would  have  the  right  to 
apply  the  deposit  of  the  maker  of  a  note 
equally  as  if  it  had  been  discounted  for  the 
maker  directly,  subject,  of  course,  to  the 
limitation  that  the  paper  was  acquired  in  the 
usual  course  of  business  and  not  purchased 
for  the  express  purpose  of  enabling  the  seller 
to  realize  out  of  the  funds  of  the  maker 
approaching  insolvency.  The  right  of  set- 
off of  unmatured  paper  upon  the  depositor's 
insolvency  is  not  recognized  in  Pennsylvania. 
The  rule  is  conflicting  in  other  states  but  it 
exists  under  the  National  Bankrupt  Act. 
It  would  seem  competent  for  a  bank  to  make 
an  agreement  with  its  customer  giving  the 
former  the  right  to  such  set-off.  Melander  v. 
Western  Nat.  Bk.,  21  Cal.  App.  462. 
Mechanics  Bk.  v.  Seitz,  150  Pa.  632. 
Chipman  v.  Bk.,  120  Pa.  86.  Frank  v. 
Mercantile  Nat.  Bk.,  182  N.  Y.  264. 
{Inquiry  from  Pa.,  July,  1917,  Jl.) 

Bank's  general  right  of  set-off 

2857.  A  bank  asks  what  right  it  has 
against  the  deposit  credits  of  a  customer 
based  on  his  notes  to  the  bank.  Has  the 
bank  any  preferred  rights  against  his 
deposit    account?     Opinion:      Where    the 


note  of  a  customer  owned  by  the  bank  has 
matured,  it  has  a  right  to  apply  the  deposit, 
but  the  right  does  not  exist  where  the  note 
is  not  matured,  unless  the  depositor  is 
insolvent.  In  the  latter  event  some  courts 
hold  insolvency  gives  the  bank  a  right  of 
set-off  of  unmatured  paper,  while  other 
courts  deny  such  right.  There  seem  to  be 
no  decided  cases  in  Colorado  one  way  or 
the  other.  If,  however,  the  depositor  is 
adjudicated  a  bankrupt,  the  right  exists  to 
set  off  unmatured  paper  against  his  deposit 
under  the  National  Bankrupt  Act.  {In- 
quiry from  Colo.,  Oct.,  1914.) 

28.58.  The  rule  is  well  settled  that  a 
bank  may  look  to  deposits  in  its  hands  for 
the  repayment  of  any  indebtedness  to  it  on 
the  part  of  the  depositor  and  maj'  apply 
his  deposits  on  his  debts  to  the  bank  as  they 
become  due.  A  bank  holding  a  matured 
note  of  its  depositor  has  the  right  to  apply 
his  deposit  to  payment  of  the  note.  In 
some  jurisdictions,  to  wit,  California,  Ken- 
tucky and  Massachusetts,  it  has  been  held 
that  a  bank  is  not  entitled  to  apply  a  deposit 
to  a  debt  of  a  depositor  which  is  fully 
protected  by  other  collateral.  Hodgin  v. 
Bk.,  124  N.  C.  540,  125  N.  C.  503.  Guarini 
V.  Swiss-Amcr.  Bk.,  162  Cal.  181.  Mc. 
Kean  v.  German-Amer.  Sav.  Bk.,  118  Cail 
334.  Furber  v.  Dane,  203  Mass.  108. 
Cockrill  V.  Jovce,  62  Ark.  216.  {Inquiry 
from.  N.  C,  May,  1918,  Jl.) 

Set-off  by  bank  of  customer's  note 

2859.  A  bank  holds  a  past  due  and 
protested  note  which  it  discounted  for  a 
customer.  He  has  S300  on  deposit  with 
the  bank  which  wishes  to  bring  suit  on  the 


637 


2860-2864] 


DIGEST  OF  LEGAL  OPINIONS 


note.  The  bank  asks  whether  it  has  a  right 
to  charge  his  account  $300  and  credit  same 
on  note  before  getting  judgment  for  the 
balance.  Opinion:  The  law  allows  a  bank 
which  owns  a  past  due  note  of  a  customer  to 
apply  the  deposit  towards  its  payment.  In 
the  case  stated  the  bank  has  the  undoubted 
right  to  apply  the  $300  to  the  credit  of  its 
customer  towards  payment  of  the  note 
before  getting  judgment  for  the  balance. 
(Inquiry  from  N.  J.,  Aug.,  1917.) 

Set-off  of  past  due  note  against  depositor's 
account 

2860.  A  bank  states  that  it  holds  a 
note  dated  September  13,  1912,  with 
interest  paid  thereon  to  May  13,  1913. 
The  bank  asks  whether  it  can  charge  this 
note  against  the  checking  account  of  its 
depositor  if  he  should  refuse  to  pay  it  on 
presentment.  Opinion:  The  note  being 
past  due,  the  bank  can  charge  it  up  against 
the  checking  account  of  its  depositor  and 
it  is  not  necessary  to  attempt  to  attach  or 
garnish  his  money  on  deposit.  It  is  a 
general  rule  that  a  bank  has  a  right  to 
appropriate  the  funds  due  upon  a  general 
deposit  to  the  payment  of  any  debt  due  to 
the  bank  from  the  depositor.  This  has 
been  so  held  by  the  Ohio  Supreme  Court  in 
Bank  of  Marysville  v.  Windisch  Mulhauser 
Brew.  Co.,  50  Ohio  State  151.  (Inquiry 
from  Ohio,  March,  1914.) 

Set-off  of  overdrawn  check  not  charged  to  ac- 
count when  smaller  check  presented 

2861.  A  bank  inquires  as  to  the  effect  of 
paying  a  depositor's  check  calling  for  more 
than  his  balance,  but  instead  of  charging 
the  check  against  his  account,  the  bank 
holds  it  as  a  cash  item,  and  afterwards  a 
check  is  presented  for  an  amount  less  than 
the  customer's  balance,  payment  thereof 
being  refused.  Opinion:  When  a  bank 
pays  an  overdraft  and  holds  the  check  as  a 
cash  item  instead  of  charging  it  against  his 
account,  the  item  is  none  the  less  an  in- 
debtedness of  the  depositor  to  the  bank 
which  the  latter  has  a  right  to  set  off. 
Consequently,  if  another  check  should  be 
presented  for  an  amount  less  than  the 
customer's  balance,  the  bank  would,  it 
seems,  have  a  right  to  refuse  payment  and 
would  not  be  Uable  to  the  customer  for  dis- 
honoring his  check.  In  one  or  two  states  it  is 
held  the  deposit  must  be  actually  appro- 
priated upon  the  indebtedness  by  charge  to 
account  before  the  subsequent  check  was 
presented;  but  this  is  not  the  general  rule. 


As  the  case  stands,  the  depositor  owes  the 
bank  more  than  the  amount  of  the  balance, 
and  it  has  a  prior  right  to  such  balance  by 
reason  of  paying  his  overdraft  and  can 
rightfully  refuse  to  pay  the  later  check,  for 
the  balance  belongs  to  the  bank  rather  than 
to  the  depositor.  (Inquiry  from  Fla.,  April, 
1916.) 

Set-off  against  maker's  account  without  first 
presenting  at  place  of  business  where  payable 

2862.  A  note  of  A  was  discounted  for  B, 
the  indorser,  by  a  bank  in  which  both  A 
and  B  were  depositors.  The  note  was  not 
paid  at  maturity  and  the  bank  charged  the 
note  to  A's  account  without  first  presenting 
it  at  A's  place  of  business,  where  it  was 
payable.  Opinion:  The  bank  probably  had 
the  right  of  set-off  by  charging  the  note  to 
A's  account,  without  first  presenting  it  to 
him  for  payment  at  his  place  of  business. 
The  same  conclusion  would  apply  where  the 
note  was  discounted  for  A  instead  of  for  B. 
In  a  case  where  such  a  note  was  presented 
at  A's  place  of  business  and  protested,  a 
similar  right  of  set-off  would  exist  against 
A's  account,  but  not  against  B's  account, 
where  A's  account  was  sufficient.  See 
citations  in  opinion  2909  and  Lamb  v. 
Morris,  118  Ind.  179.  (Inquiry  from  Pa., 
May,  1912,  Jl.) 

Debt  must  be  contracted  in  good  faith 

2863.  A  bank  held  a  deposit  to  the 
credit  of  A.  One  B,  who  owned  an  un- 
matured note  executed  by  A,  asked  the  bank 
to  discount  the  note  on  his  personal  guaran- 
tee, and  to  use  A's  deposit  as  a  set-off  at  ma- 
turity. Opinion:  Ordinarily  the  bank 
would  have  the  right  to  set  off  A's  note  in- 
dorsed by  B  against  A's  deposit,  but  there  is 
a  possibihty  that  a  court  would  deny  the 
right  of  set-off  on  the  ground  that  the  note 
was  acquired  by  the  bank  to  enable  B  to 
gain  an  unfair  advantage  over  A,  and  that 
the  indebtedness  of  A  to  the  bank  was  not 
a  bona  fide  debt  subject  to  set-off.  Bk.  v. 
Henninger,  105  Pa.  496.  Gillet  v.  Bk.,  160 
N.  Y.  549.    (Inquiry  from  Pa.,  Dec,  1912,  JL 

Set-off  of  note  held  as  collateral  against 
maker's  account 

2864.  An  officer  of  a  bank  buys  a  note 
signed  by  a  customer  payable  to  an  outsider, 
and  then  attaches  this  note  as  collateral  to 
his  own  note  payable  to  the  bank.  The 
question  is  whether,  after  the  maturity  of 
both  notes,  the  bank  can  charge  up  the 
collateral  note  signed  by  its  customer  against 


638 


SET-OFF 


[2865-2868 


his  deposit  account.  Opinion:  One  tak- 
ing negotiable  paper  before  maturity  as 
collateral  is,  for  all  practical  purposes,  the 
owner  of  it  and  a  bona  fide  holder  for  value 
and  may  collect  it,  at  least  to  the  extent 
of  the  debt  for  which  it  was  pledged,  without 
regard  to  the  equities  between  the  original 
parties.  Jones  on  Collateral  Securities,  sec. 
89,  and  cases  cited.  In  this  case,  therefore, 
there  was  a  right  of  set-off  of  the  note  held 
as  collateral  against  the  maker's  account. 
{Inquiry  from  Wyo.,Feb.,  1919.) 

Set-off   against    correspondent's    balance    of 
items  mailed  to  it  for  collection 

2865.  A  bank  states  that  it  is  indebted 
to  various  correspondents  for  a  balance  of 
account  and  sends  to  such  correspondents 
various  items  for  collection.  The  question 
seems  to  be :  When  does  the  correspondent 
become  debtor  to  the  bank  by  reason  of 
such  items  so  as  to  permit  the  right  of  set- 
off? Opinion:  The  right  of  set-off  exists  at 
the  point  of  time  the  correspondent  be- 
comes debtor  for  the  items.  The  charge  of 
an  uncollected  item  against  the  corre- 
spondent's account  does  not  necessarily  make 
it  debtor,  prior  to  collection.  Even  then, 
the  item  may  be  received  for  collection  and 
remittance  and  not  for  collection  and 
credit.  The  reply  to  the  question  depends 
largely  upon  the  facts  of  the  particular  case. 
{Inquiry  from  Pa.,  Dec,  1915.) 

Set-off  against  widow's  account  of  decedent's 
debt  assumed  by  her 

2866.  A  bank  received  wire  from  Mrs. 
H  to  pay  her  husband,  since  deceased,  $10. 
The  bank  misread  the  wire  and  paid  $50. 
Mrs.  H  subsequently  advised  the  bank  she 
would  assume  the  difference;  consequently 
the  bank  did  not  file  claim  against  the 
husband's  estate  but  looked  to  her.  Mrs. 
H  failed  to  pay  and  recently  deposited  some 
money  with  the  bank  which  the  bank 
appropriated  to  the  old  debt.  Mrs.  H  now 
repudiates  her  former  actions  and  threatens 
bank  with  suit  unless  it  returns  the  money 
appropriated.  Has  the  bank  a  good  defense? 
Opinion:  The  right  of  set-off  is  based  on 
the  theory  that  the  parties  owe  each  other 
mutual  debts.  If  it  could  be  estabHshed 
that  the  $40  was  a  debt  of  Mrs.  H  owing 
by  her  to  the  bank,  there  would  be  a  right  of 
set-off.  The  promise  by  Mrs.  H  was  to  pay 
the  debt  of  another,  her  husband.  It  might 
be  contended  there  was  a  consideration 
for  such  promise,  namely,  the  refraining 
from  proving  claim  against  the  husband's 


estate.  The  Oklahoma  statute  requires 
that  a  promise  to  answer  for  the  debt  of 
another  must  be  in  writing.  There  is  an 
exception,  however,  "where  the  promise 
being  for  an  antecedent  obhgation  of 
another  is  made  upon  the  consideration 
that  the  party  receiving  it  cancels  the 
antecedent  obligation,  accepting  the  new 
promise  as  a  substitute  therefor."  It  might 
possibly  be  held  that  the  bank  in  effect 
cancelled  the  debt  against  the  husband  by 
not  filing  any  claim  against  his  estate  and 
thereby  brought  the  case  within  the  excep- 
tion. In  Laughlin  v.  Dalton,  200  111.  App. 
342,  however,  it  was  held  that  a  promise 
to  repay  money  loaned  the  promisor's  wife 
to  pay  a  bill  is  within  the  statute  of  frauds 
and  not  enforceable  in  the  absence  of  a 
new  consideration  moving  to  the  promisor. 
It  is  somewhat  douVjtful,  therefore,  whether 
the  bank  had  a  right  to  set  off  the  $40 
against  Mrs.  H's  deposit  and  whether  it 
would  have  a  defense.  {Inquiry  from  Okla., 
Sept.,  1918.) 

Deposit  received  after  maturity  of  note 

2867.  A  bank  purchased  from  the  in- 
dorser  a  note  which  was  not  paid  at  maturity 
by  the  maker,  who  claimed  failure  of 
consideration.  After  maturity  the  bank 
received  funds  deposited  to  the  general 
account  of  the  maker,  against  which  funds  it 
set  off  the  note.  The  l^ank  had  previously 
started  suit  against  the  maker  but  discon- 
tinued it  after  it  had  set  off  the  note.  Opin- 
ion: The  bank  had  a  right  to  apply  to  the 
payment  of  the  note  not  only  all  the  funds 
deposited  in  the  bank  when  the  note  matured 
but  all  funds  afterwards  received.  Such 
right  is  not  affected  by  the  fact  that  the 
bank  began  and  discontinued  suit.  Jordan 
V.  Nat.  Shoe,  etc.,  Bk.,  74  N.  Y.  467. 
Shotwell  V.  Sioux  Falls  Sav.  Bk.,  (S.  Dak.) 
147  N.  W.  288.  Muonch  v.  Valley  Nat. 
Bk.,  11  Mo.  App.  144.  Blair  v.  Allen, 
Fed.  Cas.  No.  1483,  3  Dill.  101.  {Inquiry 
from  S.  Dak.,  Aug.,  1915,  Jl) 

Set-off  of  claim  for  interest 

2868.  A  bank,  receiving  a  note  for 
collection,  collected  from  the  maker  and 
after  payment  to  the  holder  and  surrender  of 
the  note  discovered  that  through  error  the 
maker  still  owed  $4.64  interest.  The  bank 
paid  this  amount  to  the  payee,  the  maker 
acknowledging  his  indebtedness.  Later  the 
maker  of  the  note  became  a  depositor  for 
$200  and  against  this  account  the  bank 
charged  the  $4.64  for  which  the  depositor 


639 


2869-2872] 


DIGEST  OF  LEGAL  OPINIONS 


brings  suit.  Opinion:  In  the  discharge  of 
the  hability  for  $4.64  the  bank  became  sub- 
rogated to  the  rights  and  remedies  of  the 
holder  of  the  note  and  there  arose  a  legally 
subsisting  cause  of  action  in  its  favor  against 
the  maker  of  the  note.  The  bank  had  the 
right  to  set  off  his  matured  indebtedness 
against  the  deposit.  Heuser  v.  Sharman,  89 
Ark.  355.  So.  Cotton  Oil  Co.  v.  Napoleon 
Hill  Oil  Co.,  108  Ark.  555.  Holland  Bk.  Co. 
V.  See,  146  Mo.  App.  269.  Capen  v. 
Garrison,  193  Mo.  341.  Jones  v.  Bacon, 
72  Hun.  (N.  Y.)  506.  Rachal  v.  Smith, 
101  Fed.  159.  Union  Bk.  v.  Tutt,  5  Mo. 
App.  342.  Muench  v.  Valley  Nat.  Bk., 
11  Mo.  App.  144.  Ehlermann  v.  St.  Louis 
Nat.  Bk.,  14  Mo.  App.  591.  {Inquiry  from 
Mo.,  March,  1917,  Jl.) 

Set-off  against  deposit  of  pension  checks 

2869.  A  bank  inquires  as  to  its  right  of 
set-off  against  the  pension  checks  of  a 
depositor  mingled  with  other  deposits. 
Opinion:  The  U.  S.  Rev.  Stat.,  Sec.  4745, 
makes  void  "any  pledge,  mortgage,  sale, 
assignment  or  transfer  of  any  right,  claim  or 
interest  in  any  pension"  *  *  *  And  Section 
4747  Rev.  Stat,  exempts  sums  of  money  due 
or  to  become  due  any  pensioner  from 
attachment,  levy,  or  seizure  by  or  under  any 
legal  or  equitable  process,  where  the  sum 
remains  with  the  pension  office  or  is  in 
course  of  transmission  to  the  pensioner. 
But  where  a  pensioner  deposits  his  pension 
check  in  bank  and  receives  credit  to  his 
account,  it  does  not  seem  either  of  the 
above  provisions  would  deprive  the  bank  of 
the  right  of  set-off,  especially  where,  as  in  the 
instant  case,  he  mingles  his  pension  checks 
with  his  other  deposits  and  carries  on  a 
general  checking  account.  It  has  been 
held  that  a  gift  of  a  check  for  pension 
money  is  not  void  under  Sec.  4745  (Farmer 
V.  Turner,  64  Iowa,  690)  and  also  that  a 
verbal  promise  by  a  pensioner  to  pay  a 
debt  thereout  is  not  a  "pledge,  mortgage, 
assignment,  transfer  or  sale"  under  Sec. 
4745.  It  seems  after  the  pensioner  had 
deposited  the  check  at  the  bank  and  re- 
ceived credit  therefor,  the  proceeds  ceased 
to  be  pension  money  and  the  bank  became 
a  mere  debtor  therefor,  and  has  a  right  to 
set  off  such  debt  against  a  note  of  the 
pensioner.    {Inquiry  from  Pa.,  March,  1919.) 

Set-off  of  customer's  indebtedness  upon  over- 
draft against  certificate  of  deposit  trans- 
ferred by  customer  after  maturity 

2870.  A  bank  issued  a  time  certificate  of 
deposit  to  one  of  its  customers  who  negoti- 


ated it  after  maturity.  The  customer 
subsequently  overdrew  his  account  in  the 
bank.  Would  the  bank  have  the  right  to 
set  off  the  overdraft  against  the  certificate? 
Opinion:  One  of  the  essentials  to  constitute 
a  holder  in  due  course  is  that  he  must  have 
become  the  holder  of  the  instrument  before 
it  was  overdue.  An  indorser  after  maturity 
takes  subject  to  equities  of  the  maker  against 
the  payee.  Presumably  the  maker  of  a 
certificate  of  deposit,  being  debtor  to  the 
payee  thereon  would  have  a  right  to  set  off 
such  debt  against  a  debt  owed  by  the  payee 
upon  overdraft  and  where  the  payee  trans- 
fers such  certificate  after  maturity  presum- 
ably the  transferee  would  take  it  subject 
to  this  right  of  set-off  against  the  payee. 
In  the  present  case,  however,  the  debt  upon 
overdraft  was  not  created  until  after  the 
customer  had  negotiated  the  overdue  cer- 
tificate and  in  such  case  it  would  be  question- 
able whether  a  right  of  set-off  existed.  See 
Davis  V.  Miller,  14  Gratt.  1.  {Inquiry  from 
Kan.,  Dec,  1920.) 

Set-off  against  city  deposit 

2871.  A  city  in  Indiana  was  indebted 
on  an  overdue  note  to  a  national  bank 
holding  the  city's  funds,  which  were  suffi- 
cient to  meet  the  note.  The  bank  accordingly 
applied  the  deposit  to  payment  of  the  note 
and  accrued  interest.  Opinion:  In  the 
absence  of  a  statute  to  the  contrary  (no 
apparent  restriction  in  Indiana)  the  bank 
had  the  right  to  apply  such  deposit  to 
payment  of  the  city's  indebtedness,  the 
same  as  in  case  of  an  individual  depositor. 
U.  S.  V.  Bk.  of  Metropolis,  15  Pet.  (U.  S.) 
377.  State  v.  Cobb,  64  Ala.  156.  Town  v. 
First  Nat.  Bk.,  37  Colo.  344,  86  Pac.  75. 
Citizens  Bk.  v.  Alexander,  120  Pa.  476. 
McDowell  V.  Bk.,  2  Del.  Ch.  1.  U.  S.  v. 
Nat.  Bk.,  73  Fed,  379,  Boyd  v.  Bell,  69 
Tex.  735.  State  v.  Corning  St.  Sav.  Bk., 
128  Iowa  597.  Wagner  v.  Citizens  Bk., 
122  Tenn.  164,  {Inquiry  from  Ind.,  Aug., 
1914,  Jl.) 

County  warrant  set  off  against  deposit 
of  county 

2872.  A  bank  in  Georgia  purchased 
certain  county  orders  or  scripts,  being  the 
matured  obhgations  of  the  county,  drawn 
against  the  county  treasurer  by  the  board  of 
county  commissioners.  It  was  the  practice 
of  the  bank  to  cash  these  orders  and  hold 
them  until  the  end  of  the  month,  when  the 
treasurer  would  give  his  check  on  the  account 
to  take  them  up.    Upon  going  out  of  ofi&ce,  at 


640 


SET-OFF 


[2873-2878 


the  time  the  office  of  treasurer  was  abohshed, 
he  refused  to  give  his  check  taking  up  the 
orders  that  had  accumulated,  but,  instead, 
gave  a  check  for  the  entire  balance  to  be 
used  in  the  new  county  depository.  The 
bank  seeks  to  charge  the  said  scripts  to  the 
treasurer's  account,  before  his  balance  check 
is  presented.  Opinion:  Where  a  bank 
purchased  county  orders  upon  the  county 
treasurer  under  an  arrangement  by  which, 
at  the  end  of  the  month,  the  treasurer  would 
pay  such  orders  by  his  check  upon  the 
county  deposit  held  by  the  bank,  the 
latter,  upon  the  treasurer's  failure  so  to  do, 
;  would  probably  be  held  to  have  a  right  to 
J  set  off  the  county  orders,  as  a  matured 
indebtedness  owing  it  by  the  county  against 
the  deposit.  Shepard  v.  Meridan  Nat.  Bk., 
149  Ind.  532.  Aidala  v.  Savoy  Tr.  Co.,  128 
N.  Y.  S.  219.  Hayden  v.  Alton  Nat.  Bk., 
29  111.  App.  458.  Citizens  Bk.  v.  Bowen, 
21  Kan.  354.  Fory  v.  Amer.  Nat.  Bk.,  136 
La.  298.    {Inquiry  from  Ga.,  Sept.,  1917,  Jl.) 

Consent  of  and  notice  to  depositor 
of  set-off 

Consent  of  depositor  generally  unnecessary 

2873.  A  bank  owned  its  customer's 
note  of  $100  due  at  the  bank  August  5th. 
On  that  date  the  customer  had  $100  to  his 
credit  at  the  bank.  Opinion:  The  bank  had 
the  right  at  the  maturity  of  the  note  to  charge 
it  up  to  his  account  without  first  notifying 
him  or  obtaining  his  consent.  McDowell  v. 
Bk.,  1  Harr.  (Del.)  369.  {Inquiry  from  Del., 
Aug.,  1909,  Jl.) 

Bank  can  charge  matured  note  against  maker's 
account  without  his  consent 

2874.  A  bank's  customer  recently  ob- 
jected to  its  charging  to  his  account  the 
amount  of  a  note  which  was  made  payable 
at  the  bank.  The  objection  was  based  upon 
the  fact  that  the  note  failed  to  recite  that 
the  bank  could  pay  the  same,  and  that  the 
customer  should  have  been  notified  and  his 
consent  procured  before  charging  the  same. 
Opinion:  There  are  only  one  or  two  states 
in  the  Union  wherein  the  law  requires  the 
depositor's  consent  before  the  bank  is 
entitled  to  set  off  his  matured  note.  The 
general  rule  which  prevails  in  Ohio,  as  else- 
where, is  that  the  bank  has  a  right  to  set  off 
the  money  due  on  general  deposit  account 
against  the  matured  indebtedness  of  the 
depositor.  Unquestionably  the  bank  has 
a  right  of  set-off  in  this  case.  {Inquiry 
from  Ohio,  Aug.,  1916.) 


Bank's  right  of  set-off  exists  without  special 
instruction  of  depositor 

2875.  Bank  A  discounted  and  became 
owner  of  a  note  drawn  by  its  customer 
Smith  in  favor  of  Jones,  made  payable  to 
Bank  B,  where  Smith  also  keeps  an  account. 
The  note  was  protested  at  maturity.  Opin- 
ion,: Bank  A  has  the  right  to  cliarge  up  the 
note  against  Smith's  account  without  special 
instructions  from  Smith,  although  he  should 
be  notified  that  the  note  has  been  so  charged 
up.    {Inquiry  from  N.  J.,  June,  1911,  Jl.) 

Consent  of  depositor  required  in  Louisiana 

2876.  John  Doe  deposited  funds  in  his 
bank  on  the  same  day  upon  which  his  note 
held  by  it  became  due.  He  had  been 
carrying  the  note  from  year  to  year  for  four 
years,  having  it  renewed  each  year.  The 
bank  without  Doe's  consent  charged  the  note 
to  his  account,  and  refused  to  honor  his 
checks,  whereupon  Doe  brings  suit.  Opin- 
ion: Under  the  rule  generally  prevailing  a 
bank  has  a  right  to  set  off  a  matured  debt 
against  a  customer's  account  without  his 
consent,  l)ut  in  Louisiana  a  special  rule 
prevails  that  the  bank  is  not  authorized  to 
apply  a  customer's  deposit  to  payment  of 
his  debts,  unless  there  is  a  special  mandate 
from  the  depositor  or  agreement  or  course 
of  dealing  so  authorizing.  Morgan  v. 
Lathrop,  12  La.  Ann.  257.  Gordon  v. 
Muehler,  34  La.  Ann.  604.  Hancock  v. 
Citizens  Bk.,  33  La.  Ann.  592.  Succ.  of 
Grayard,  106  La.  298.  Fory  v.  Amer. 
Nat.  Bk.,  136  La.  298.  {Inquiry  from  La., 
Nov.,  1918,  Jl.) 

Notice  to  depositor  in  South  Carolina 

2877.  A  bank  asks  whether  it  is  proper 
to  charge  up  a  past  due  note  against  the 
maker's  checking  account  without  his  con- 
sent. Opinion:  The  courts  quite  generally 
hold  that  a  bank  has  a  right  to  set  off  or 
charge  up  a  matured  note  owned  by  the 
bank  against  the  maker's  account.  The 
maker's  consent  is  not  a  prerequisite.  In 
Louisiana  it  has  been  held  that  the  bank 
cannot  charge  up  a  past  due  note  without  the 
maker's  consent  and  in  South  Carolina 
without  notifying  him;  but  this  is  not  the 
rule  in  general.  {Inquiry  from  Col.,  March, 
1913.) 

Notice  of  set-off  must  be  given  indorser 
in  South  Carolina 

2878.  A  depositor  was  indebted  to  a 
bank  in  South  Carolina  as  an  indorser  on  a 
note  discounted  for  him.    The  bank  set  off 


041 


2879-2882] 


DIGEST  OF  LEGAL  OPINIONS 


the  note  against  the  depositor's  account. 
Opinion:  The  bank  had  the  right  of  set-off 
but  under  the  law  of  South  CaroHna  must 
give  the  depositor  notice  of  application  of  the 
deposit,  and  checks  drawn  before  such  notice 
must  be  paid.  Where  the  note  is  discounted 
for  the  maker  and  the  depositor  is  an  accom- 
modation indorser,  it  is  doubtful  if  the 
latter's  deposit  can  be  set  off.  Callahan  v. 
Bk.  of  Anderson,  69  S.  C.  374.  Loan  & 
Sav.  Bk.  V.  Farmers,  etc.,  Bk.,  (S.  C.)  54 
S.  E.  364.  Southern  Seating,  etc.,  Co.  v. 
First  Nat.  Bk.,  (S.  C.)  68  S.  E.  962.  Killer 
V.  Bk.  of  Columbia,  (S.  C.)  75  S.  E.  789. 
Milhouse  v.  Citizens  Bk.,  (Ga.)  80  S.  E. 
703.  Ticonic  Bk.  v.  Johnson,  21  Me.  426. 
Shackamaxon  Bk.  v.  Kinsler,  16  Weekly 
Notes  Cas.  (Pa.)  509.  Van  Winkle  Gin  Co. 
V.  Citizens  Bk.,  89  Tex.  147.  Harrison  v. 
Harrison,  118  Ind.  179.  O'Grady  v.  Stotts 
City  Bk.,  106  Mo.  App.  366.  {Inquiry  from 
S.  C,  July,  1915,  Jl.) 

Where  debt  not  matured 

Unmatured  note  cannot  he  set  off  in  absence 
of  fraud  or  (in  some  states)  insolvency 

2879.  A  depositor  owes  his  bank  $1,100 
on  a  note  not  yet  matured,  and,  having 
quarreled  with  the  bank,  intends  withdraw- 
ing his  account  and  doing  business  with 
another  bank.  He  refuses  to  allow  the  bank 
to  charge  his  account  with  the  amount  of 
the  note.  Opinion:  Unless  the  loan  made 
to  the  depositor  upon  his  note  was  induced 
by  fraud  upon  his  part  or  unless  he  is  now 
insolvent,  the  bank  would  have  no  right  to 
apply  his  deposit  upon  his  unmatured  note. 
A  bank  has  no  right  to  apply  a  deposit  to  a 
debt  of  the  depositor  until  such  debt  matures 
unless  (as  held  in  some  states,  but  denied  in 
others)  the  depositor  becomes  insolvent  be- 
fore maturity,  or  unless  the  debt  has  been 
created  by  fraud,  in  which  event  the  credit 
given  for  the  note  can  be  rescinded.  Clear- 
water County  V.  Pfeffer,  236  Fed.  183. 
Bk.  V.  Crayter,  (Ala.)  75  So.  7.  Com.  Nat. 
Bk.  V.  Proctor,  98  111.  558.  Homer  v.  Nat. 
Bk.  of  Com.,  140  Mo.  225.  Bradley  v. 
Seaboard  Nat.  Bk.,  167  N.  Y.  427.  Mann  v. 
Franklin  Tr.  Co.,  158  N.  Y.  App.  Div.  491. 
Andrews  v.  Artisans  Bk.,  26  N.  Y.  298. 
Flatow  V.  Jefferson  Bk.,  135  N.  Y.  App. 
Div.  24.  Peyman  v.  Bowery  Bk.,  43  N.  Y. 
Suppl.  826.  (Inquiry  from  Ark.,  Sept., 
1918,  Jl.) 

Set-off  of  unmatured  mortgage  note 
against  garnisheed  account 

2880.  An  account  in  a  bank  subject  to 
check  has  been  garnisheed.    Opinion  desired 


as  to  whether  bank  can  charge  a  mortgage 
note  which  matured  three  days  after  service 
of  the  garnishment  against  the  garnisheed 
account?  Opinion:  Where  the  account 
of  a  depositor  is  garnisheed,  the  bank  has 
no  right  to  set  off  an  unmatured  note  of  the 
depositor  against  the  account  so  as  to  defeat 
the  garnishment;  (County  v.  Pfeffer,  236 
Fed.  183.  Bank  v.  Crayter,  [Ala.]  75  So.  7. 
Bank  v.  Presnall,  [Tex.]  194  S.  W.  384. 
Oatman  v.  Batavian  Bank,  77  Wis.  501, 
46  N.  W.  881)  except  that  in  some  states 
(but  not  in  Wisconsin)  insolvency  of  a 
depositor  gives  the  bank  a  right  to  set  off 
his  unmatured  paper  against  his  deposit. 
(See  Kinsey  v.  Ring,  83  Wis.  536,  and 
Union  Nat.  Bank  v.  Hicks,  67  Wis.  189.) 
(Inquiry  from  Wis.,  Jan.,  1921,  Jl.) 

Where  depositor  insolvent  or  declared 
bankrupt 

Set-off  of  unmatured  note  against  insolvent 
depositor  in  Connecticut 

2881.  A  depositor  maintaining  an  active 
account  and  receiving  discount  accommoda- 
tions based  somewhat  upon  his  balance, 
made  an  assignment  for  the  benefit  of 
creditors,  owing  the  bank  on  unmatured 
notes.  The  question  is  asked  whether,  under 
the  laws  of  Connecticut,  the  bank  can  hold 
the  depositor's  balance  and  apply  the  same 
against  such  notes.  Opinion:  An  exhaust- 
ive search  fails  to  disclose  a  Connecticut 
case  passing  upon  the  precise  point  submit- 
ted. The  quite  recent  decision  of  the  Supreme 
Court  of  Errors  growing  out  of  the  failure 
of  the  Thames  Loan  &  Trust  Co.,  90  Atl. 
Report  369,  deals  with  the  right  of  set-off 
of  depositors  against  an  insolvent  bank 
having  commercial  and  savings  depositors, 
but  is  not  an  authority  upon  the  question 
submitted.  The  decisions  in  other  states 
conflict.     (Inquiry  from  Conn.,  July,  1914.) 

Set-off  of  unmatured  note  against  insolvent's 
account  in  Missouri 

2882.  A  bank  asks  whether  decisions  in 
Missouri  hold  that  a  bank  can,  or  cannot, 
set  off  an  unmatured  note  against  its 
depositor's  account,  upon  the  latter  becom- 
ing insolvent.  Opinion:  Missouri  is  in  the 
latter  class  which  denies  the  right  of  set-off 
in  such  case,  unless  the  note  contains  a 
special  clause  which  authorizes  the  bank  so 
to  do  upon  the  maker's  becoming  insolvent. 
In  a  case  where  the  bank's  customer  was  put 
into  bankruptcy  under  the  National  Bank- 
rupt Act  the  right  of  set-off  would  exist. 
It  has  been  held  under  that  Act  that,  where 


642 


SET-OFF 


[2883-2886 


the  borrower  becomes  bankrupt,  the  bank 
has  a  right  to  apply  his  deposit  upon  his 
notes,  though  unmatured.  See,  for  example, 
Germania  Savings  Bank  &  Trust  Co.  v. 
Loeb,  188  Fed.  285.  {Inquiry  from  Mo., 
Aug.,  1915.) 

Unmatured  note   cannot   he   set  off  against 
insolvent's  deposit  in  Missouri 

2883.  A  bank  held  two  notes  of  its 
depositor,  one  being  a  demand  note  for 
$320,  the  other,  payable  in  six  months,  for 
$1,000.  The  date  of  maturity  of  the  latter 
was  extended  three  months  by  contract  in- 
dorsed on  the  note.  Before  the  $1,000  note 
matured,  the  depositor  made  a  general  assign- 
ment to  creditors.  The  bank,  having  on  its 
books  $1,065  to  the  depositor's  credit,  debits 
the  amount  of  the  demand  note,  and  also 
seeks  to  set  off  the  unmatured  note.  Opin- 
ion: In  Missouri,  bank  holding  unmatured 
note  of  depositor  cannot  apply  balance  upon 
note  in  event  of  depositor's  insolvency. 
Where  maturity  of  note  extended  and  depos- 
itor becomes  insolvent  before  end  of  period 
of  extension,  note  is  unmatured  paper  and 
cannot  be  set  off  unless  contract  of  extension 
can  be  rescinded,  because  of  fraud  or  on  other 
equitable  ground.  Meunch  v.  Valley  Nat. 
Bk.,  11  Mo.  App.  144.  Ehlermann  v.  St. 
Louis  Nat.  Bk.,  14  Mo.  App.  591.  Homer 
V.  Nat.  Bk.  of  Com.,  140  Mo.  225.  Beck- 
with  V.  Bk.,  9  N.  Y.  211.  Dougherty  v. 
Central  Nat.  Bk.,  93  Pa.  227.  Knecht  v. 
U.  S.  Sav.  Bk.,  2  Mo.  App.  563.  Bk.  v. 
Union  Tr.  Co.,  50  111.  App.  434.  Kling  v. 
Irving  Nat.  Bk.,  160  N.  Y.  698,  21  App. 
Div.  323.  6  Cyc.  288.  {Inquiry  from  Mo., 
Aug.,  1917,  Jl.) 

Unmatured  note  cannot  be  set  off  against 
insolvent's  deposit  in  New  York 

2884.  A  depositor  made  a  general  assign- 
ment. The  bank  held  a  note  for  a  larger 
amount  than  his  balance,  but  not  yet  due. 
The  bank,  claiming  a  set-off,  holds  the 
money  until  maturity  of  the  note.  Opinion: 
Under  the  law  of  New  York  the  bank  cannot 
set  ofT  the  deposit  against  the  unmatured 
note,  but  the  rule  in  the  federal  courts  and 
under  the  Bankruptcy  Act  allows  a  set-off. 
Heidelbach  v.  Nat.  Park  Bk.,  87  Hun  (N.  Y.) 
117.  Delahunty  v.  Central  Nat.  Bk.,  63 
N.  Y.  App.  Div.  177.  {Inquiry  from  N.  Y., 
June,  1914,  Jl.) 

Credit  form — Clause  maturing  debt  of 
insolvent  depositor 

2885.  A  bank  submits  a  proposed  clause 


for  insertion  in  its  credit  blank,  reading  as 
follows:  "And  it  is  further  agreed  that, 
upon  any  bankruptcy  proceedings  being 
instituted  by  or  against  me,  or  upon  my 
becoming  insolvent,  all  sums  due  on  deposit 
with  you  or  in  your  hands  belonging  to  me 
shall  immediately  become  the  subject  of 
offset  against  any  indebtedness  due  or  to 
become  due  you  from  me,  either  directly  or 
contingently,  and  all  such  sums  so  in  your 
hands  may  be  charged  immediately  against 
any  such  habihty."  The  bank  asks  whether 
an  insolvent  depositor  could  be  legally  held 
by  the  terms  thereof.  Opinion:  Under  the 
National  Bankruptcy  Law,  a  bank  holding 
an  unmatured  note  of  a  depositor  who 
becomes  bankrupt  has  the  right  to  set  off 
the  note  against  the  deposit,  and  the  same 
rule  prevails  in  some  of  the  states,  but  in 
others,  including  New  York,  a  bank  cannot 
apply  the  deposit  of  a  customer  to  the  pay- 
ment of  an  indebtedness  owing  to  it  by  him 
which  has  not  matured,  though  he  be 
insolvent,  unless  it  is  authorized  to  do  so  by 
contract.  Heidelbach  v.  National  Park 
Bank,  87  Hun  117.  It  seems  that  the 
clause  framed  by  the  bank  for  insertion  in  its 
credit  blank  would  constitute  a  contract 
under  which  it  could  acquire  the  right  of 
set-off  of  debts  of  its  customer  not  due, 
upon  his  becoming  insolvent.  {Inquiry 
from  N.  Y.,  March,  1918.) 

Form  of  contract  authorizing  bank  to  set  off 
immatured  paper  upon  maker's  insolvency 

2886.  Where  a  borrower  becomes  bank- 
rupt, the  bank  has  the  right,  under  the 
provisions  of  the  National  Bankrupt  Law, 
to  apply  his  deposit  upon  his  notes,  though 
unmatured.  Aside  from  the  Bankrupt  Act, 
the  right  of  set-off  of  an  unmatured  note 
against  the  deposit  upon  the  insolvency  of 
the  maker  is  recognized  in  some  states  and 
denied  in  others,  but  where  the  right  is 
given  by  contract  it  can  be  enforced.  The 
following  form  of  contract,  if  inserted  in  the 
borrower's  note,  would  protect  the  bank: 
"The  bank  at  which  this  note  is  payable  is 
hereby  authorized,  in  the  event  of  the 
maker's  insolvency  before  maturity  hereof, 
to  thereupon  apply  any  balance  in  said  bank 
standing  to  the  credit  of  the  maker  in  pay- 
ment of  this  note."  Germania  Sav.,  etc., 
Co.  V.  Loeb,  188  Fed.  285.  Jordan  v.  Nat. 
Shoe,  etc.,  Co.,  74  N.  Y.  467.  Heidelbach 
V.  Nat.  Park  Bk.,  87  Hun  (N.  Y.)  117,  33 
N.  Y.  S.  794.  Roe  v.  Bk.,  167  Mo.  406. 
Bk.  V.  Mahon,  78  S.  C.  408.  {Inquiry  from 
S.  Dak.,  Oct.,  1914,  Jl.) 


643 


2887-2892] 


DIGEST  OF  LEGAL  OPINIONS 


Unmatured  note  may  he  set  off  against  insol- 
vent's deposit  in  Ohio 

2887.  The  general  rule  is  that  a  bank 
has  a  right  to  apply  a  deposit  to  the  payment 
of  any  matured  debt  due  the  bank  from  the 
depositor.  It  has  been  held  in  Ohio  and 
other  states  (but  the  right  is  denied  in 
many  states)  that  a  bank  may  apply  a 
deposit  to  the  payment  of  the  depositor's 
indebtedness  not  yet  matured,  provided  the 
depositor  is  insolvent.  Under  the  National 
Bankrupt  Act  a  bank  may  set  off  an  un- 
matured note  against  the  deposit  of  the 
maker.  Bk.  v.  Windsch,  etc.,  Brew.  Co., 
50  Ohio  St.  15L  German-Amer.  Sav.  Co.  v. 
Grossman,  15  Ohio  Cir.  Ct.  378.  Frank  v. 
Mercantile  Nat.  Bk.,  182  N.  Y.  264. 
(Inquiry  from  Ohio,  June,  1913,  Jl.) 

Set-off  of  unmatured  note  against 
bankrupt's  account 

2888.  A  bank  states  that  it  secured  a 
judgment  against  P  who  later  executed  a 
deed  of  trust  to  another  bank  for  $1,250, 
which  amount  was  credited  to  his  account  by 
the  other  bank,  and  the  inquiring  bank 
garnished  the  money.  P  afterwards  took 
the  benefit  of  the  Bankruptcy  Law.  The 
other  bank  charged  the  note  back  to  his 
account,  showing  an  overdraft  of  two 
checks  which  had  already  been  paid.  Opin- 
ion: It  has  been  held  under  the  Bankrupt 
Law  that,  although  a  note  against  the 
bankrupt  has  not  matured,  the  bank  holding 
same  has  a  right  to  set  off  the  amount 
against  the  bankrupt's  deposit.  Frank  v. 
Mercantile  Nat.  Bk.,  182  N.  Y.  264.  The 
Supreme  Court  of  the  United  States  in 
Schuler  v.  Israel,  120  U.  S.  506,  also  allowed 
a  bank  which  held  the  unmatured  note  of 
an  insolvent  customer  to  hold  his  deposit  as 
against  an  attachment  process  by  a  creditor 
of  the  customer.  It  seems  in  the  present 
case,  therefore,  the  other  bank  was  within 
its  rights  in  charging  up  the  unmatured 
notes  against  the  bankrupt's  account.  (In- 
quiry from  Ark.,  Feb.,  1917.) 

Set-off  against  bankrupt's  debt  of  proceeds  of 
checks  deposited  for  collection 

2889.  A  bank  states  that  a  few  days 
before  a  person  went  into  bankruptcy  he 
deposited  with  it  for  collection  some  notes 
which  were  not  collected  before  the  appoint- 
ment of  a  receiver.  The  bankrupt  was 
indebted  to  the  bank  in  a  large  amount. 
The  bank  asks  if  the  proceeds  of  the  checks 
may  be  applied  toward  the  indebtedness. 
Opinion:     It  was  held,  in  re  Farnsworth, 


Fed.  Cas.  4673,  14  N.  B.  R.  148,  that,  if  the 
banker  has  received  drafts  for  collection,  the 
proceeds  of  which  afterwards  come  into  his 
hands,  he  may  offset  them  against  debts 
due  to  him  by  the  bankrupt.  But  see  Moore 
V.  Third  Nat.  Bank  of  Phila.,  24  A.  B.  R. 
568,  in  which  it  was  held  that,  where  a 
bank  accepts  a  check  for  collection,  and 
receives  the  proceeds  on  the  following  day 
without  having  paid  out  in  the  meantime 
anything  on  account  of  the  deposit,  it  cannot 
apply  the  proceeds  of  the  check  toward  a 
debt  due  by  the  depositor,  where  it  appears 
that  on  the  day  the  check  was  deposited 
for  collection,  but  at  a  subsequent  hour,  a 
petition  in  bankruptcy  was  filed  against  the 
depositor.     (Inquiry  from  Ga.,  May,  1914.) 

Collection  proceeds  set  off  against  bankrupt 

2890.  A  bank  received  from  its  cus- 
tomer notes  deposited  for  collection  at  a 
time  when  bankruptcy  was  not  contemplated 
by  the  customer.  After  the  customer  went 
into  bankruptcy  the  notes  were  collected 
and  the  bank  apphed  the  proceeds  of  the 
notes  upon  a  claim  it  held  against  the  cus- 
tomer. Opinion:  The  bank  had  a  right  to 
set  off  the  proceeds  of  the  notes  deposited 
for  collection  at  a  time  when  bankruptcy 
was  not  contemplated  and  collected  after 
the  bankruptcy.  In  re  Farnsworth,  Fed. 
Cas.  No.  4673.  N.  Y.  Co.  Nat.  Bk.  v. 
Massey,  192  U.  S.  138.  (Inquiry  from  Ga., 
Jan.,  1915,  Jl.) 

Set-off  of  claim  for  rent  against  bankrupt's 
deposit 

2891.  A  bank  leased  rooms  to  a  cor- 
poration depositor,  the  rent  being  payable 
monthly  in  advance.  The  corporation  has 
gone  into  the  hands  of  a  receiver  and  owes 
the  bank  two  months'  rent.  Has  the  bank 
a  right  to  offset  rent  against  deposit? 
Opinion:  It  has  been  repeatedly  held  that 
the  amount  of  a  bankrupt's  credit  in  a  bank 
at  the  time  of  filing  his  petition  in  bank- 
ruptcy may  be  set  off  against  a  debt  due 
him  from  the  bank.  In  view  thereof,  in  the 
present  case  the  bank  has  a  right  to  apply 
the  deposit  in  bank  upon  the  indebtedness 
for  two  months'  rent  which  the  corporation 
owed  the  bank  at  the  time  it  went  into  the 
hands  of  a  receiver.  (Inquiry  from  III., 
March,  1916.) 

Set-off  of  demand  note  against  bankrupt's  de- 
posit two  weeks  before  bankruptcy 

2892.  A  bank  states  that  a  customer 
owes  it  $4,000  on  a  demand  note  which  was 


644 


SET-OFF 


[2893-2896 


charged  to  the  customer's  account  with 
accrued  interest,  and  two  weeks  thereafter 
the  customer  was  adjudged  bankrupt.  The 
bank  asks  whether  it  is  obhged  to  turn  over 
to  the  receiver  said  sum  and  interest. 
Opinion:  Under  the  National  Bankruptcy- 
Act,  where  the  depositor  goes  into  bank- 
ruptcy the  bank  may  retain  his  deposit  in 
satisfaction  of  any  debt  due  it  from  the  de- 
positor, or  can  set  off  an  unmatured  note 
against  the  deposit.  In  re  Meyer,  1007 
Fed  86.  Ex  parte  Howard  Nat.  Bk.  12 
Fed.  Cas.  No.  6764.  In  re  Farnsworth, 
8  Fed.  Cas.  No.  4673.  In  Habegger  v. 
First  Nat.  Bank,  103  N.  W.  (Minn.)  216, 
it  was  held  that  money  deposited  in  the 
bank  by  an  insolvent  within  four  months  of 
bankruptcy  does  not  constitute  a  preference 
and  the  bank  may  set  off  the  deposit  upon 
a  debt  due  from  the  bankrupt.  In  the 
instant  case  the  bank  would  be  entitled  to 
apply  the  $4,000  upon  the  customer's 
demand  note  and  accrued  interest  and  would 
not  be  required  to  turn  the  money  back  to 
the  receiver  where  the  customer  was  de- 
clared bankrupt  within  two  weeks  there- 
after.   {Inquiry  from  III.,  May,  1918.) 

Set-off  of  demand  note  two  months  before 
threatened  bankruptcy 

2893.  A  bank  held  a  demand  note  of  its 
depositor,  who  had  on  deposit  a  balance 
smaller  than  the  amount  of  the  note.  The 
bank  applied  the  deposit  in  partial  payment 
of  the  note,  and  two  months  later  the  de- 
positor was  threatened  with  bankruptcy. 
Opinion:  The  application  of  the  customer's 
deposit  to  his  demand  note  two  months  be- 
fore it  became  likely  that  the  depositor 
would  be  forced  into  bankruptcy  was  a  valid 
set-off.  The  bank  can  retain  such  balance 
and  prove  its  claim  for  the  amount  remaining 
due  against  the  estate  and  recover  its  pro 
rata  share.  Nat.  Bankruptcy  Act,  Sees. 
60a,  68a.  N.  Y.  County  Nat.  Bk.  v. 
Massey,  192  U.  S.  138.  Germania  Sav., 
etc.,  Co.  v.  Loeb,  188  Fed.  285.  {Inquiry 
from  Iowa,  Aug.,  1912,  Jl.) 

Deposit  subsequent  to  bankruptcy  representing 

assets  existing  at  time  of  bankruptcy 

cannot  be  set  off 

2894.  A  bank  states  that  one  of  its 
depositors  has  recenly  been  adjudicated  a 
bankrupt,  since  which  time  he  made  a 
deposit  in  his  regular  account,  subject  to 
check.  It  is  claimed  by  the  receiver's 
attorney  that  the  bank  has  no  right  to 
apply  the  bankrupt's  balance  for  the  pur- 


pose of  reducing  a  demand  note  held  by  the 
bank.  Opinion:  Assuming  that  the  deposit 
made  by  the  bankrupt  after  he  had  been 
adjudicated  such  was  not  money  earned 
by  him  or  given  to  him  since  the  bankruptcy, 
in  which  case  it  would  not  be  part  of  the 
assets  of  the  estate,  but  was  the  earnings, 
profit  or  incident  of  property  which  existed 
beforehand  as  assets  of  the  estate,  the 
receiver  would  be  entitled  to  the  money. 
{Inquiry  from  Md.,  Oct.,  1914-) 

Set-off  of  deposits  not  made  in  view  of 
insolvency 

2895.  The  deposit  balance  of  a  customer 
who  has  gone  into  bankruptcy  may  be  set  off 
against  his  indebtedness  to  the  bank,  whether 
due  or  not,  provided  his  deposits  have  been 
received  in  usual  course  subject  to  check  and 
not  in  view  of  his  insolvency  with  an  in- 
tention to  make  a  preferential  appropriation 
in  reduction  of  his  indebtedness.  U.  S. 
Bankruptcy  Act,  Sees.  68,  63.  N.  Y. 
County  Bk.  v.  Massey,  192  U.  S.  138. 
Habegger  v.  First  Nat.  Bk.,  94  Minn.  445. 
Frank  v.  Mercantile  Nat.  Bk.,  182  N.  Y. 
264.  Wiley  v.  Bunker  Hill  Nat.  Bk.,  183 
Mass.  495.  Re  Percy  Ford  Co.,  199  Fed. 
334.    {Inquiry  from  Mass.,  Feb.,  1914,  Jl.) 

Set-off  of  bankrupt's  balance  against  note 

2896.  A  firm  advertises  that  it  is  going 
out  of  business.  The  firm  seems  to  be  sol- 
vent, but  owes  the  bank  on  demand  notes 
which  were  charged  against  the  firm's  account. 
It  developed  later  that  the  firm  will  not  be 
able  to  pay  creditors  in  full.  The  bank  asks 
whether  it  can  be  compelled  to  turn  over  to 
trustee  or  receiver  in  bankruptcy  the  moneys 
so  credited  to  the  account.  Opinion:  It 
seems,  in  the  case  stated,  that  the  bank  can 
hold  the  amount  of  the  deposit  covered  by 
the  notes  that  were  charged  against  the 
firm's  account  and  would  not  be  compelled 
to  turn  same  over  to  the  trustee  or  receiver. 
The  deposit  balance  of  a  customer  who  has 
gone  into  bankruptcy  may  be  set  off  against 
his  indebtedness  to  the  bank,  whether  due  or 
not,  provided  his  deposits  have  been  re- 
ceived in  usual  course  subject  to  check,  and 
not  in  view  of  his  insolvency  with  an  inten- 
tion to  make  a  preferential  appropriation  in 
reduction  of  iiis  indebtedness.  New  York 
County  Nat.  Bk.  v.  Massey,  192  U.  S.  138. 
Habegger  v.  First  Nat.  Bk.,  94  Minn.  455. 
Frank  v.  Mercantile  Nat.  Bk.,  182  N.  Y. 
264.  Studley  v.  Boylston  Nat.  Bk.,  33  Sup. 
Ct.  Rep.  806.  {Inquiry  from  Minn.,  Sept., 
1915.) 


645 


2897-2902] 


DIGEST  OF  LEGAL  OPINIONS 


Set-off  of  bankrupt's  note  against  deposit  after 
adjudication 

2897.  A  bank  received  a  deposit  for  a 
bankrupt  the  day  after  he  was  adjudged  a 
bankrupt,  but  before  notice  of  such  adjudi- 
cation was  received  by  the  bank;  in  fact, 
before  papers  were  received  from  the  court 
by  the  local  referee.  A  demand  was  made 
on  the  bank  by  the  trustee  in  bankruptcy  to 
turn  over  the  funds  to  him,  but  the  bank  is 
holding  them  as  a  set-off  against  a  note  of 
the  bankrupt  held  by  it.  Opinion  is  desired 
as  to  whether  it  can  legally  do  this.  Opinion : 
When  a  customer  of  a  bank  is  adjudicated  a 
bankrupt,  his  property  at  once  vests  in  the 
trustee  subsequently  to  be  appointed,  re- 
maining meanwhile  in  custodia  legis,  and  a 
deposit  made  to  the  credit  of  the  bankrupt 
a  day  or  two  after  adjudication  cannot  be 
apphed  as  a  set-off  against  the  bankrupt's 
note  owned  by  the  bank.  Smith  v.  Berman, 
(Ga.)  68  S.  E.  1014.  White  v.  Schoerb,  178 
U.  S.  542,  20  Sup.  Ct.  Rep.  1007.  ColUer  on 
Bankruptcy  (6th  Ed.)  p.  35.  See  also 
Chapman  v.  Mills,  241  Fed.  715.  (Inquiry 
from  Mont.,  Feb.,  1920,  Jl.) 

Set-off  of  demand  note    against   account  of 
depositor  approaching  bankruptcy 

2898.  A  bank  made  a  loan  to  its  cus- 
tomer on  his  personal  note,  crediting  the 
customer  with  the  money  loaned.  The  cus- 
tomer has  drawn  75  per  cent,  of  the  money 
by  check  and  is  about  to  go  into  bankruptcy. 
The  note  is  past  due.  The  bank  cannot 
obtain  a  new  note  for  the  balance  due,  but  has 
a  verbal  understanding  with  the  customer 
that  no  more  money  will  be  drawn  out. 
Opinion:  The  bank  can  apply  the  deposit 
against  the  customer's  matured  note,  and  in 
case  of  his  bankruptcy  can  prove  its  claim 
against  the  estate  for  the  balance.  The  cir- 
cumstances of  this  case  do  not  show  that  a 
preferential  transfer  was  made.  Falkland 
V.  Bk.,  84  N.  Y.  145.  N.  Y.  County  Nat. 
Bk.  V.  Massey,  192  U.  S.  138.  Re  George 
M.  Hill  Co.,  130  Fed.  315.  {Inquiry  from 
N.  Y.,  Feb.,  1914,  Jl) 

Set-off  of  demand  note  two  days  before 
depositor's  failure 

2899.  A  had  S2,000  on  deposit  with  his 
bank,  which  owned  his  demand  note  of 
$1,000.  The  bank  applied  the  deposit  in 
payment  of  the  note  and  two  days  after- 
wards A  failed.  Opinion:  The  bank  had  the 
right  to  apply  the  bankrupt's  deposit  upon 
his  demand  note.  Money  deposited  in  a 
bank  in  the  due  course  of  business  by  an 


insolvent  within  four  months  of  the  time  he 
is  adjudged  a  bankrupt  is  not  a  transfer  of 
property  amounting  to  a  preference  within 
the  meaning  of  the  Bankruptcy  Act  of  1898. 
Nat.  Bankruptcy  Act,  Sees.  60a,  68a.  N.  Y. 
County  Nat.  Bk.  v.  Massey,  192  U.  S.  138. 
Habegger  v.  First  Nat.  Bk.,  94  Minn.  445. 
Frank  v.  Mercantile  Nat.  Bk.,  182  N.  Y. 
264.     {Inquiry  from  Ohio,  Sept.,  1910,  Jl.) 

Set-off  against'  deposits  made  in  usual  course 
within  four  months  of  bankruptcy 

2900.  A  bank  held  certain  overdue 
notes  of  a  lumber  company.  The  company 
made  several  deposits  subject  to  check 
which  the  bank  apphed  to  payment  of  the 
notes.  The  company  then  became  bank- 
rupt. The  bank  had  been  employed  by  the 
company  as  sales  agent  on  salary.  Opinion: 
The  deposits,  if  made  in  the  usual  com-se, 
subject  to  check  within  four  months  of  bank- 
ruptcy, may  be  set  off  against  the  bank- 
rupt's notes,  whether  due  or  not,  but  it  is 
otherwise  if  the  bank  deposits  were  made 
by  the  company  in  view  of  insolvency  with 
an  intent  to  give  a  preference.  The  Bank- 
rupt Act  provides  that  wages  to  salesmen  are 
preferred  payments,  but  it  is  very  doubtful 
that  the  act  would  be  construed  to  include 
the  salary  to  an  incorporated  state  bank 
which  acted  as  a  sales  agent.  See  citations 
in  opinion  No.  2895  and  Studley  v.  Boylston 
Nat.  Bk.,  33  U.  S.  Sup.  Ct.  Rep.  806.  Nat. 
City  Bk.  V.  Hotchkiss,  34  U.  S.  Sup.  Ct.  Rep. 
20.  Merchants,  etc.,  Bk.  v.  Ernst,  34  U.  S. 
Sup.  Ct.  Rep.  22.  Continental,  etc.,  Bk.  v. 
Chicago  Title,  etc.,  Co.,  199  Fed.  704.  {In- 
quiry from  S.  Dak.,  April,  1914,  Jl.) 

Set-off   against    indorser's   deposit 

Set-off   of   demand    note    against    indorser's 
account 

2901.  A  bank  discounted  for  the  in- 
dorser,  who  was  its  customer,  a  demand 
note.  The  indorser  guaranteed  the  payment 
thereof.  The  note  was  dishonored  by  the 
maker.  Opinion:  The  bank  had  the  right 
to  charge  up  the  note  when  dishonored 
against  the  indorser's  account,  assuming  his 
liability  as  indorser  has  been  duly  preserved. 
Ticonic  Bk.  v.  Johnson,  21  Me.  426.  Me- 
chanics, etc.,  Bk.  v.  Seitz,  150  Pa.  632.  First 
Nat.  Bk.  V.  Shreiner,  110  Pa.  188.  {Inquiry 
from  N.  Y.,  April,  1913,  Jl.) 

Right   of  set-off  of  past   due  notes  against 
indorser 

2902.  A  bank  asks  whether  it  has  au- 
thority to  charge  notes  which  are  past  due 


646 


SET-OFF 


[2903-2907 


against  the  indorser's  account.  Opinion: 
The  law  gives  such  right  where  he  has  been 
duly  charged  wdth  liability.  This  is  on  the 
principle  of  set-off.  The  indorser  owes  the 
bank  on  the  note  and  the  bank  owes  the 
indorser  on  deposit  account.  The  law  allows 
the  bank  to  set  off  one  against  the  other  and 
call  the  balance  the  true  debt.  Of  course, 
this  principle  does  not  apply  when  the  note 
has  not  matured.  (Inquiry  from  Okla.,  Sept., 
1920.) 

Right    to    charge    indorser^s    account    where 
liability  fixed 

2903.  A  bank  has  the  right  to  charge 
a  dishonored  note  to  the  indorser's  account, 
provided  the  latter's  liability  is  duly  fixed 
by  protest  and  notice.  {Inquiry  from  Pa., 
Sept.,  1910,  Jl.) 

Bank  can  set  off  note  against  indorser^ s  account 
without    first    obtaining    judgment 

2904.  A  bank  cashed  for  its  depositor  a 
check  indorsed  by  him,  payment  of  which 
was  refused  by  the  drawee  bank.  The 
depositor's  liability  as  indorser  was  fixed  by 
due  demand  and  notice  of  dishonor.  The 
bank  wishes  to  set  off  his  deposit  against  his 
indebtedness  as  indorser.  Opinion:  There 
existed  a  mutual  debt  between  the  bank  and 
its  depositor,  which  would  entitle  the  bank 
to  apply  the  indorser's  deposit  against  his 
indebtedness  as  indorser.  The  bank  would 
not  be  compelled  to  first  sue  and  obtain 
judgment  against  the  indorser  who  did  not 
consent  to  such  application.  Tiffany  on 
Banks  (Ed.  1912),  p.  71,  73.  Shackamaxon 
Bk.  V.  Kinsler,  16  Weekly  Notes  Cas.  (Pa.) 
509.  Ticonic  Bk.  v.  Johnson,  21  Me.  426. 
{Inquiry  from  Tenn.,  Nov.,  1912,  Jl.) 

Indorser's  liability  must  be  fixed  to  entitle 
set-off 

2905.  A  bank  cashed  a  note  given  by  a 
party,  payable  at  the  bank,  and  indorsed 
by  one  of  its  customers.  The  note  was  not 
paid  at  maturity,  and  was  charged  to  the 
account  of  the  indorser.  The  item  was  not 
protested.  The  bank  asks  whether  the  note 
should  have  been  protested  and  then  charged 
to  the  account  of  the  indorser.  Opinion: 
Unless  the  liability  of  the  indorser  was 
preserved  by  notice  of  dishonor  at  maturity 
he  would  be  discharged  and  the  bank  would 
have  no  right  to  charge  the  amount  to  his 
account.  But  where  the  bank  has  preserved 
his  liability  by  notice  of  dishonor,  whether 


the  note  was  protested  or  not,  the  bank 
would  have  a  right  to  charge  the  amount  to 
the  account  of  the  indorser.  {Inquiry  from 
Wis.,  June,  1913.) 

2906.  A  bank  takes  and  discounts  notes 
of  a  customer,  in  due  course  of  business, 
indorsed  by  him,  with  the  understanding 
that  should  any  of  the  notes  become  un- 
collectible he  would  take  care  of  the  same. 
The  bank  asks  whether,  if  these  notes  should 
remain  unpaid  for  a  time  after  they  became 
due,  it  would  be  acting  contrary  to  banking 
rules  if  it  charged  the  same  to  the  customer's 
account.  Opinion:  The  rule  of  law  is  that, 
when  a  note  owned  by  the  bank  is  unpaid  at 
maturity,  the  bank  has  a  right  to  set  off  the 
note  against  the  maker's  account;  in  other 
words,  charge  the  note  up  against  the  ac- 
count. The  same  right  exists  where  the 
customer  is  an  indorser  on  the  note  except 
that  the  liability  of  an  indorser  must  be 
duly  fixed  by  demand  and  notice.  When  the 
indorser's  liability  is  fixed  he  becomes  in- 
debted to  the  bank  for  the  amount  and  the 
bank  can  then  charge  the  indebtedness 
against  his  account  the  same  as  the  indebted- 
ness of  the  maker  of  a  note.  {Inquiry  from 
Wis.,  Feb.,  1914.) 

Set-oflf  against  maker's  deposit  in 
interest  of  indorser 

Conflict  of  decision  as  to  obligation  to  set  off 

note    against    maker's    account    in    the 

interest  of  indorsers 

2907.  Where  a  bank  owns  an  indorsed 
note,  and  at  maturity  has  sufficient  funds 
of  the  maker  on  deposit  to  pay  it,  the  de- 
cisions conflict  as  to  whether  failure  to 
charge  the  note  to  the  maker's  account  will 
release  the  indorser.  If,  however,  note  by 
its  terms  is  payable  at  bank,  under  Nego- 
tiable Instruments  Law,  being  an  order  to 
the  bank  to  paj',  indorser  would  be  released 
by  failure  to  charge  up.  But  bank  is  under 
no  obligation,  in  interest  of  indorser,  to 
apply  maker's  deposit  to  note  owned  by  it 
where  funds  insufficient  at  maturity,  nor 
(according  to  majority  of  courts,  a  few 
contra)  to  apply  sufficient  subsequent  de- 
posits. Central  Bk.  v.  Thein,  76  Hun 
(N.  Y.)  571.  Bk.  V.  Honningor,  105  Pa.  406. 
Pursifull  V.  Pineville  Bk.  Co.,  07  Ky.  154. 
Camp  v.  First.  Nat.  Bk.,  44  Fla.  497.  Dav- 
enport V.  St.  Bk.  Co.,  126  Ga.  136.  Bk.  v. 
Smith,  66  N.  Y.  271.  Bk.  v.  LeGrand,  103 
Pa.  309.  Bk.  v.  Shreiner,  110  Pa.  188.  Bk. 
of  Tavlorsville  v.  Hardestv,  (Ky.)  91  S.  W. 
729.    {Inquiry  from  N.  C,  March,  1911,  Jl.) 


647 


2908-2913] 


DIGEST  OF  LEGAL  OPINIONS 


Omission  to  apply  maker^s  deposit  in  partial 
satisfaction  of  note  does  not  release  indorsers 

2908.  At  maturity  of  a  note  made  by  a 
corporation  and  bearing  several  indorse- 
ments, the  maker  had  on  deposit  with  the 
bank  owning  the  note  a  sum  less  than  the 
amount  of  the  note.  After  maturity  the 
corporation  drew  out  its  balance  and  failed, 
leaving  the  note  unpaid.  Opinion:  A 
majority  of  the  courts  hold  that  the  bank  is 
not  obliged  to  apply  the  maker's  deposit 
towards  a  partial  satisfaction  of  the  note  in 
the  interest  of  the  indorsers  and  sureties. 
The  bank's  omission  to  apply  the  partial 
deposit  will  not  release  the  indorsers,  al- 
though the  maker  subsequently  draws  out 
the  balance  and  then  fails.  Armstrong  v. 
Warner,  49  Ohio  St.  376.  {Inquiry  from 
Ohio,  June,  1914,  Jl.) 

Bank  in  Pennsylvania  hound  to  apply  maker's 
deposit    in    relief   of   indorser 

2909.  A  bank  owned  an  overdue  note. 
The  maker  and  indorser  both  carried  ac- 
counts with  the  bank.  The  maker's  de- 
posit was  not  sufficient  to  meet  the  note  at 
maturity.  Opinion:  The  bank  has  a  right 
to  set  off  against  the  indorser's  account;  but 
where  the  maker's  account  is  sufficient  at 
maturity,  the  bank  is  bound  to  apply  the 
maker's  deposit  in  relief  of  the  indorser,  and 
failure  so  to  do  will  discharge  the  indorser;  if 
insufficient  at  the  time,  subsequent  deposits 
will  not  raise  that  duty.  German  Nat.  Bk.  v. 
Foreman,  138  Pa.  474.  Com.  Nat.  Bk.  v. 
Henninger,  105  Pa.  496.  People's  Bk.  v. 
LeGrand,  103  Pa.  309.  First  Nat.  Bk.  v. 
Peltz,  176  Pa.  513.  Mechanics  Bk.  v.  Seitz, 
105  Pa.  632.  Bk.  v.  Ralston,  3  Phila.  (Pa.) 
328.     (Inquiry  from  Pa.,  April,  1916,  Jl.) 

Set-off  where  bank  holds  collateral 

Rule  in  California  where  debt  protected  by 
collateral 

2910.  A  bank  holds  a  past  due  note  of 
its  customer  in  favor  of  the  bank.  The 
customer's  account  is  sufficiently  large  to 
meet  the  indebtedness.  Opinion:  The  bank 
has  the  right  to  apply  the  deposit  to  pay- 
ment of  the  depositor's  matured  indebted- 
ness, but  in  California,  if  the  note  is  secured 
by  a  mortgage  of  real  or  personal  property, 
the  bank  cannot  apply  the  deposit  until  the 
security  is  exhausted.  McKean  v.  German- 
Amer.  Sav.  B.,  118  Cal.  334.  (Inquiry  from 
Cal,  Dec,  1913,  Jl.) 

2911.  A  bank  in  California  owned  a  past 
due  note  for  $500,  drawn  by  its  depositor 


I 


who  had  a  balance  of  SI, 000  with  the  bank. 
At  maturity  of  the  note  the  maker  had 
refused  to  pay.  Opinion:  Under  the  law 
in  California  the  bank  has  a  right  to  apply 
the  maker's  deposit  upon  his  unpaid  note 
at  maturity  unless  it  holds  security  for  the 
indebtedness.  This  right  also  extends  to  a 
note  of  the  depositor  purchased  by  the  bank 
from  an  indorser.  Where  a  note  has  been 
discounted  for  an  indorser's  benefit,  his 
deposit  may  be  apphed  in  payment  at  the 
bank's  option.  Morgrage  v.  Nat.  Bk.  of 
Cal.,  24  Cal.  App.  103.  Marble  Co.  v. 
Merchants  Nat.  Bk.,  15  Cal.  App.  347. 
McKean  v.  German-Amer.  Sav.  Bk.,  118  Cal. 
340.  Blair  v.  Allen,  Fed.  Cas.  No.  1483. 
Ticonic  v.  Johnson,  21  Me.  426.  Bk.  v. 
Ralston,  3  Phila.  (Pa.)  328.  Manitou  v.  Bk. 
37  Colo.  344.  Pollack  v.  Bk.,  168  Mo.  App. 
368.     (Inquiry  from  Cal.,  April,  1916,  Jl.) 

Set-off  against  deposit  of  debt  secured  by 
collateral 

2912.  A  owes  a  bank  $1,000  secured  by  a 
chattel  mortgage.  The  chattel  mortgage  is 
due  and  the  bank  starts  foreclosure  pro- 
ceedings. Can  money  on  deposit  to  the 
credit  of  the  mortgagor  in  the  bank  be 
appropriated  towards  the  payment  of  the 
note  and  mortgage,  or  must  the  chattel 
security  be  first  exhausted?  Opinion:  In 
Cahfornia,  by  statute,  and  in  several  other 
jurisdictions  by  judicial  decision,  where  a 
bank  has  a  mortgage  security  for  a  debt  it 
must  exhaust  that  security  before  it  can 
apply  in  reduction  of  the  debt  any  money 
belonging  to  the  debtor  on  general  deposit.  ^H 
(Guarini  v.  Swiss  American  Bank,  162  Cal.  '^H 
181,  121  Pac.  726.  Bank  v.  McFerran,  11  ^ 
Ky.  Law  Rep.  183.  Furber  v.  Dane,  203 
Mass.  108,  89  N.  E.  227.  Cal.  Code.  Civ. 
Proc,  Sec.  726).  And,  under  the  Califor- 
nia statute,  the  mortgage  cannot  be  waived 

and  an  action  brought  on  the  indebtedness. 
(Com.  Bank  v.  Kershner,  120  Cal.  495,  52 
Pac.  848.  McKean  v.  German  Sav.  Bank, 
118  Cal.  334.  Barbieri  v.  RamelH,  84  Cal. 
154.  Marble  Co.  v.  Merchants  Nat.  Bank, 
15  Cal.  App.  347.)  (Inquiry  from  Cal.,  Nov., 
1919,  Jl.) 

Bank   in   Michigan   not   compelled   to  first 
resort    to    collateral 

2913.  A  bank  has  the  right  to  apply  the 
funds  to  the  general  credit  of  a  customer  to- 
ward payment  of  his  demand  note,  held  by 
the  bank,  although  no  demand  for  payment 
has  been  made.  Where  the  demand  note  is 
"secured    by    sundry    notes    deposited    as 


648 


SET-OFF 


[2914-2918 


collateral"  the  bank  can  set  off  the  demand 
note  against  the  general  deposit,  and  is  not 
compelled  to  first  resort  to  such  collateral. 
Citizens  Sav.  Bk.  v.  Vaughan,  115  Mich. 
156.  Bolles,  Banks,  Sec.  374.  Gibbons  v. 
Hacox,  105  Mich.  513.  Palmer  v.  Palmer, 
36  Mich.  487.  Beardsley  v.  Webber, 
104  Mich.  88.  Peninsular  Sav.  Bk.  v. 
Hosie,  112  Mich.  351.  Furber  v.  Dane,  203 
Mass.  108.  Marble  v.  Merchants  Nat.  Bk. 
(Cal.)  115  Pac.  59.  Cockrill  v.  Joyce,  62 
Ark.  216.  Rush  v.  Citizens  Nat.  Bk.,  114 
Ark.  170.  {Inquiry  from  Mich.,  July,  1918, 
Jl.) 

Mississippi  bank  can  set  off  deposit  against 

indebtedness  of  depositor  notwithstanding 

it  holds  collateral 

2914.  A  bank  held  collateral  security 
for  two  items  of  indebtedness  of  one  of  its 
depositors  who  had  an  account  with  the 
bank.  The  bank  applied  the  deposit  to  one 
of  the  debts  before  it  had  matured,  reducing 
the  balance  to  $90.  A  check  for  $100  was 
presented  after  the  debts  had  become  due 
and  was  refused.  Opinion:  The  bank  had  a 
right  at  any  time  to  offset  any  matured  in- 
debtedness owing  by  the  depositor  against 
his  credit  without  prior  resort  to  any  collat- 
eral security  held  by  it  and  without  first 
obtaining  the  consent  of  the  depositor.  A 
few  states,  (not  Mississippi)  require  prior 
exhaustion  of  collateral.  At  the  time  the 
check  for  $100  was  presented,  the  bank 
owed  the  depositor  $90  and  was  justified  in 
refusing  payment.  Morgrage  v.  Nat.  Bk., 
24  Cal.  App.  103.  Guernsey  v.  Marks,  55 
Ore.  323.  Patterson  v.  St.  Bk.,  55  Ind.  App. 
331.  Royal  Tr.  Co.  v.  Molsons  Bk.,  27  Ont. 
Law  441.  Eyrich  v.  Capital  St.  Bk.,  67 
Misc.  (N.  Y.)  60.  Cockrill  v.  Joyce,  62 
Ark.  216.  (Inquiry  from  Miss.,  June,  1916, 
Jl.) 

Debts    must   be    mutual 

General  rule 

2915.  It  is  the  general  rule  that  a  bank 
has  a  right  to  set  off  a  debt  from  the  de- 
positor against  his  deposit,  but  the  mutual 
debts  thus  set  off  nuist  be  in  the  same  right ; 
for  example,  it  is  generally  held  that  a  bank 
cannot  apply  a  deposit  of  an  individual  to 
debt  of  a  firm  of  which  he  is  a  member,  or 
cannot  apply  deposit  of  trustee  to  debt  of 
the  trustee  where  his  indebtedness  to  the 
bank  is  personal.  Tiffany  on  Banks  (Ed. 
1912),  p.  71.  Shackamaxon  Bk.  v.  Kinsler, 
16  Weekly  Notes  Cas.  (Pa.)  509.  Ticonic 
Bk.  V.  Johnson,  21  Me.  426.  {Inquiry  from 
Tenn.,  Nov.,  1912,  Jl.) 


Partnership  note  cannot  be  set  off  against 
partner's  individual  account 

2916.  The  firm  of  Doe  and  Roe  owes  a 
bank  $165  upon  its  note.  Doe  has  sold  out 
his  interest  to  Smith,  and  has  deposited  the 
purchase  money  in  the  bank  to  his  individual 
credit.  Later,  as  a  result  of  a  dispute.  Doe 
agrees  to  refund  part  of  the  purchase  money 
to  Smith,  and  has  given  Smith  an  order  on 
the  bank  for  $1,000.  The  bank  has  paid 
Smith  all  but  $165  thereof,  claiming  the 
right  to  set  off  the  firm's  note.  Opinion: 
Under  the  law  of  North  Carolina  the  bank 
cannot  set  off  the  firm's  note  against  the 
partner's  individual  account.  But  in  an 
action  by  Doe,  the  partner,  or  by  Smith,  the 
assignee,  for  the  deposit,  the  bank  can  plead 
the  firm's  indebtedness  by  way  of  counter- 
claim, or  can  recover  the  same  in  an  inde- 
pendent action  against  the  partner.  N.  C. 
Neg.  Inst.  Act,  Sec.  2338.  Hawes  v.  Black- 
well,  107  N.  C.  196.  Adams  v.  Bk.,  113  N. 
C.  332.    {Inquiry  from  N.  C,  Aug.,  1913,  Jl.) 

Partnership  note  cannot  be  set  off  against 
assignee's  account 

2917.  A  and  B,  co-partners,  gave  to  a 
bank  their  note  of  $300,  due  one  day  after 
date,  and  later  assigned  their  business  to  C 
for  the  benefit  of  creditors.  C  ran  the  busi- 
ness as  assignee  and  kept  his  account  with 
the  bank.  The  note  not  having  been  paid, 
the  bank  wants  to  charge  it  to  the  assignee's 
account.  Opinion:  The  bank  has  the  right 
to  set  off  the  partnership  note  against  the 
deposit  existing  at  the  time  of  the  assign- 
ment, but  cannot  exercise  such  right  against 
the  deposits  of  the  assignee.  Com.  Sav.  Bk. 
V.  Hornberger,  140  Cal.  19.  Marble  Co.  v. 
Merchants  Nat.  Bk.,  15  Cal.  App.  347.  Cal. 
Code  Civ.  Proc,  Sec.  720.  Guarini  v.  Swiss- 
Amer.  Bk.,  162  Cal.  141.  McKean  v.  Ger- 
man Sav.  Bk.,  118  Cal.  334.  Clark  v. 
Northampton  Nat.  Bk.,  160  T^Iass.  26. 
Templeman  v.  Hutchings,  24  Tex.  Civ.  App. 
1.  State  V.  Corning  Sav.  Bk.,  (Iowa) 
105  N.  W.  159.  Wagner  v.  Citizens  Bk., 
(Tenn.)  122  S.  W.  245.  {Inquiry  from  Cal, 
Oct.,  1916,  Jl.) 

Set-off  of  custotner's  note  against  his  account 
put  in  part7i€rship  name  to  defraud  bank 

2918.  John  Doe  gives  his  note  to  the 
bank  for  borrowed  money.  He  is  insolvent 
and  cannot  pay  his  debts.  Doe  has  ob- 
tained money  on  mortgage  from  a  building 
and  loan  association  on  property  solely 
belonging  to  him,  which  he  has  deposited  in 
bank  to  the  credit  of  Doe  Brothers,  to  escape 


649 


2919-2922] 


DIGEST  OF  LEGAL  OPINIONS 


paying  the  bank.  Can  bank  charge  the  note 
at  maturity  to  this  account?  Opinion: 
Ordinarily,  of  course,  a  bank  cannot  set 
off  the  note  of  an  individual  partner  against 
the  account  of  the  firm;  but  in  this  case  the 
deposit  did  not  belong  to  the  firm  although 
put  in  their  name,  but  belonged  to  John  Doe 
individually.  Assuming  that  John  Doe  is 
insolvent  and  cannot  pay  his  debts,  the 
money  obtained  on  mortgage  from  the  build- 
ing and  loan  association  is  the  personal 
property  of  Doe,  its  deposit  in  the  bank  to 
Doe  Brothers,  when  Doe  is  insolvent,  would 
be  a  fraud  against  the  bank,  and  the  bank 
would  be  allowed  to  set  off  its  individual 
indebtedness.  {Inquiry  from  Ark.,  May, 
1920.) 

Deposits  impressed  with  trust  character 

2919.  A  note  for  $2,700  secured  by  a 
chattel  mortgage  on  cattle  was  given  by 
A  to  B,  who  sold  it  to  Bank  C.  A  wrong- 
fully sold  the  mortgaged  cattle  and  deposited 
the  proceeds  with  Bank  D,  part  of  which 
were  attached  by  one  of  A's  creditors  and 
the  balance  was  apphed  by  the  bank  upon 
an  indebtedness  of  A.  B,  knowing  that  the 
cattle  had  been  disposed  of,  repurchased  the 
note  and  the  mortgage  from  Bank  C  and 
brought  suit  against  Bank  D  to  recover  the 
proceeds  as  a  trust  fund.  Opinion:  Ac- 
cording to  the  weight  of  authority  (a  few 
cases  contra)  Bank  D  was  entitled  to  apply 
the  deposit  upon  the  indebtedness  of  A,  and 
not  obhged  to  account  for  it  as  a  trust  fund 
if  it  had  no  knowledge  of  its  trust  character. 
The  bank,  however,  has  no  such  right  of 
set-off  where  it  knows  that  a  general  deposit 
is  impressed  with  a  trust  character.  Clem- 
mer  v.  Drovers  Nat.  Bk.,  157  111.  206.  Cady 
v.  South  Omaha  Nat.  Bk.,  49  Neb.  125. 
Smith  v.  Des  Moines  Nat.  Bk.,  107  Iowa 
620.  Wilson  v.  Farmers  First  Nat.  Bk., 
(Mo.)  162  S.  W.  1047.  Globe  Sav.  Bk.,  v. 
Nat.  Bk.,  (Neb.)  89  N.  W.  1030.  Meyers  v. 
N.  Y.  County  Nat.  Bk.,  36  N.  Y.  App.  Div. 
482.  McStay  Supply  Co.  v.  John  S.  Cook 
&  Co.,  (Nev.)  132  Pac.  545.  Burnett  v. 
First  Nat.  Bk.,  38  Mich.  630.  Swift  v. 
Williams,  68  Md.  236.  Kurd's  Rev.  St.  111., 
1911,  Ch.  95,  Sees.  6,  7.  (Inquiry  from  III., 
July,  1915,  Jl.) 

Set-off  by  bank  of  deposit  known  by  bank  to 

belong  to  another  or  held  by  depositor  in 

trust 

2920.  A  bought  and  paid  for  a  load  of 
mules  and  sent  them  to  B  who  lived  in  an 
adjoining  county.    B  was  to  sell  the  mules 


and  to  receive  as  compensation  one  half  the 
net  profits.  The  mules  were  sold  by  B  who 
took  checks  in  payment  thereof  to  his  own 
order  and  deposited  them  in  his  bank  to  his 
personal  account  and  sent  A  his  check  for 
the  proceeds.  The  bank  had  knowledge  that 
B  was  selling  the  mules  for  A  on  commission. 
A  cashed  the  checks,  but  before  they 
reached  B's  bank  it  had  applied  the  deposit 
in  payment  of  B's  note  and  refused  payment 
on  the  checks  which  were  protested  and  re- 
turned to  A.  The  bank  asks  whether  B's 
bank  was  justified  in  taking  such  course. 
Opinion:  B's  bank  acted  improperly  in 
applying  B's  deposit  to  his  personal  indebt- 
edness because  it  had  knowledge  that  the 
deposit  did  not  belong  to  B,  but  to  A.  The 
case  would  be  different  if  the  bank  had  no 
knowledge  that  the  funds  deposited  did  not 
belong  to  the  depositor  and  were  held  by 
him  in  trust.    (Inquiry  from  III.,  July,  1917.) 

Bank's  right  of  set-off  against  proceeds  of 
live-stock  draft 

2921.  A  shipped  live  stock  and  deposited 
a  draft  for  the  amount  involved  with  his 
bank  for  collection.  Subsequently  A  drew 
against  the  amount  deposited,  but  the  bank, 
having  applied  the  amount  to  A's  overdraft, 
refused  to  pay  beyond  the  balance.  A 
afterwards  went  into  bankruptcy  and  the 
holders  of  A's  checks  are  endeavoring  to 
recover  from  the  bank  the  amount  of  credit 
which  was  applied  on  the  overdraft.  Advice 
is  asked  whether  an  action  will  lie  against 
the  bank.  Opinion:  The  Negotiable  In- 
struments Act  expressly  provides  that  "a 
check  of  itself  does  not  operate  as  an  assign- 
ment of  any  part  of  the  funds  to  the  credit  of 
the  drawer  with  the  bank  and  the  bank  is 
not  liable  to  the  holder  unless  and  until  it 
accepts  or  certifies  the  check."  Even  if  the 
set-off  and  the  refusal  of  the  bank  to  pay  the 
checks  were  wrongful,  on  the  assumption 
that  the  bank  knew  that  the  hve  stock 
belonged  to  other  persons,  it  is  doubtful  if 
the  holders  of  A's  checks  would  have  a  right 
of  action  against  the  bank.  (Inquiry  from 
III,  Aug.,  1919.) 

Set-off  by  batik  of  claim  as  trustee  for  bond- 
holders of  defaulting  corporation  against 
tatter's  checking  account 

2922.  A  bank  inquires  whether  it  would 
be  acting  without  authority  or  right  to 
appropriate  a  checking  account  of  a  corpora- 
tion towards  payment  of  money  due  by  the 
corporation  to  the  bank  as  trustee.  Opin- 
ion:   The  right  of  a  bank  to  apply  a  deposit 


I 


650 


SET-OFF 


[2923-2925 


to  the  payment  of  a  debt  due  and  payable 
from  the  depositor  to  the  bank  only  exists 
where  each  occupies  the  relation  of  debtor 
and  creditor  and  where  the  demands  owing 
by  each  to  the  other  are  in  the  same  capacity 
and  right.  Harrison  v.  Harrison,  20  N.  E. 
(Ind.)  746.  Hodgin  v.  Peo.  Nat.  Bk.,  34 
S.  E.  (N.  C.)  709.  In  the  present  case  the 
bank  owes  a  corporation  upon  checking 
account  but  the  corporation  is  not  indebted 
to  the  bank  upon  the  bank's  own  claim  but 
it  has  defaulted  in  certain  payments,  which 
matures  the  principal  of  a  debt  and  makes 
same  due  to  the  bank  as  trustee  for  bond- 
holders, so  that  it  became  the  bank's  duty  to 
collect  the  principal  and  interest.  In  such 
a  case  it  seems  clear  that  the  right  of  set-off 
or  application  of  the  deposit  does  not  exist, 
but  that  the  bank,  as  trustee,  must  proceed 
at  law  or  equity  to  enforce  the  rights  of 
bondholders  according  to  the  deed  of  trust. 
See  Nolting  v.  Nat.  Bk.,  37  S.  E.  (Va.)  804. 
Johnson  v.  Payne  &  Williams  Bank,  56  Mo. 
App.  257.  Wagner  v.  Citizens  Bank  & 
Trust  Co.,  122  S.  W.  (Tenn.)  245.  (In- 
quiry from  Fla.,  Aug.,  1919.) 

Set-off  of  surety's   deposit   against   note   of 
principal  and  surety 

2923.  B  is  surety  on  a  note  for  A.  B  has 
on  deposit  in  the  bank  money  represented 
by  certificates  of  deposit  drawn  in  the  usual 
form,  but  marked  "Non-negotiable."  A 
defaulted  on  his  note,  and  the  bank  refuses 
to  pay  the  certificates,  and  thereafter  suit 
is  brought  against  A  and  B  jointly.  The 
question  is  whether  the  bank  has  the  right 
of  set-off  of  the  note  against  the  certificates. 
Opinion:  It  is  doubtful  that  the  bank  has 
a  right  to  set  off  its  indebtedness  on  the 
certificates  of  deposit  against  B's  liability 
on  the  note.  B  is  not  principal  maker  of  the 
note,  but  the  surety,  and  it  has  been  held 
in  several  cases  that  a  bank  cannot,  without 
the  depositor's  consent,  apply  a  deposit 
against  a  note  on  which  he  is  surety.  See 
Harrison  v.  Harrison,  118  Ind.  179.  New 
Farmers'  Bank's  Trustee  v.  Young,  100 
Ky.  683.    (Inquiry  from  N.  Y.,  Oct.,  1915.) 

Where  depositor  has  two  accounts 

Overdraft  on  commercial  account  can  he  set  off 
against  savings  account 

2924.  A  bank  which  carries  both  a  com- 
mercial and  a  savings  account  submits  for 
consideration  four  check  forms  as  follows: 
Check  A  is  an  ordinary  form  of  bank  check, 
but  underneath  the  name  of  the  bank  are 
the  words  "savings  department,"  and  the 


check  contains  the  notation,  "Book  must 
accompany  this  check,  otherwise  it  will  not 
be  honored  unless  entry  is  made  in  book,  or 
book  is  left  for  entry  of  check  when  pre- 
sented." Check  B  is  the  ordinary  form  of 
bank  check.  Check  C  is  the  same  form  with 
the  words  "Commercial  Department"  under 
the  name  of  the  bank.  Check  D  is  the  same 
as  C  with  the  notation,  "This  check  is  to 
be  paid  from  funds  on  deposit  in  commercial 
department  only."  The  bank  uses  forms  A 
and  B,  but  suggests  use  of  form  C  to  guard 
against  customer  who  overdraws  his  com- 
mercial account,  and  to  avoid  getting  the 
bank  into  trouble  in  dechning  payment  for 
insufficient  funds,  even  though  the  depositor 
has  sufficient  funds  in  his  savings  account. 
The  bank  asks  desirabihty  of  using  forms 
C  or  D.  Opinion:  Where  a  bank  carries 
both  a  commercial  and  savings  account 
and  pays  an  overdraft  on  the  commercial 
account,  it  has  the  right  to  set  off  the  check 
against  the  customer's  savings  account,  but 
where  funds  in  the  savings  account  are 
payable  under  special  agreement,  requiring 
production  of  pass-book,  bank  is  not  obliged 
to  pay  overdraft  on  commercial  account  and 
charge  same  to  sufficient  funds  in  savings 
account.  The  adoption  of  form  C  would 
serve  the  useful  purpose  of  training  customer 
that,  in  withdrawal  of  funds  from  either 
commercial  or  savings  account,  a  special 
form  is  required.  Form  C  is  more  desirable 
than  form  D,  for  the  reason  that  the  notation 
on  the  latter  states  a  condition  which  may 
affect  its  negotiability.  Lippitt  v.  Thames 
Loan  &  Tr.  Co.,  (Conn.)  90  Atl.  369.  (/n- 
quiry  from  III.,  Sept.,  1918,  Jl.) 

Set-off  against  savings  account  of  overdraft 
on  checking  account 


2925.  A  bank  carries  two  accounts 
for  a  customer,  a  savings  account  and 
a  checking  account,  and  the  customer 
is  indel)ted  to  the  bank  because  of  overdraft 
upon  the  checking  account.  The  bank  asks 
whether  it  has  the  right  to  apply  sufficient 
of  the  amount  to  the  customer's  credit  in  the 
savings  account  to  liquidate  the  debt. 
Opinion:  The  relation  between  the  bank 
and  depositor  as  to  the  savings  account  is 
that  of  debtor  and  creditor  equally  as  in 
the  case  of  a  checking  account.  The  savings 
account  is  not  a  trust  fund  but  a  debt  due  by 
the  bank.  In  Hiller  v.  Bank  of  Columbia, 
75  S.  E.  789,  the  court  said:  "When  a 
depositor,  having  two  accounts  in  his  own 
right,  kept  separately  merely  for  his  own 
convenience,  draws  on  one  of  them  beyond 


651 


2926-2930] 


DIGEST  OF  LEGAL  OPINIONS 


the  amount  to  his  credit,  without  any  ar- 
rangement with  the  bank  that  he  should  do 
so,  the  bank  is  justified  in  the  inference  that 
he  intends  the  check  to  be  protected  by  the 
other  account.  Certainly  it  would  be  most 
unreasonable  that  the  bank  should  be  re- 
quired, under  such  conditions,  to  pay  to  the 
depositor  the  credit  on  one  account  without 
deducting  the  debit  on  the  other."  In  the 
case  stated,  there  being  mutual  debts,  al- 
though carried  in  different  accounts,  the 
bank  has  a  right  of  set-off.  {Inquiry  from 
S.  C,  May,  1918.) 

Set-off  of  overdraft  where  depositor   carries 
more  than  one  account 

2926.  A  depositor  besides  his  ordinary 
account  in  a  bank  carried  two  other  ac- 
counts, one  being  marked  "special"  and 
the  other  "agent."  The  bank  did  not  know 
whether  the  depositor  owned  the  funds  in 
said  two  accounts  or  whether  he  held  them  in 
a  fiduciary  capacity.  The  depositor  became 
indebted  to  the  bank,  created  by  an  over- 
draft on  his  personal  account,  and  the  bank 
seeks  to  apply  the  balance  in  either  of  the 
other  accounts  in  settlement.  Opinion: 
The  bank  can  set  off  the  overdraft  upon  the 
accounts  styled  '"special"  and  "agent,"  pro- 
vided such  accounts  are  owned  by  the  de- 
positor in  his  own  right  and  are  thus  desig- 
nated merely  for  convenience.  But,  if  the 
accounts  so  marked  are  held  as  agent  or 
trustee  for  another,  they  cannot  (according 
to  the  weight  of  authority)  be  applied  upon 
the  depositor's  individual  indebtedness,  and 
the  bank  is  put  upon  inquiry  by  the  form 
of  the  account  so  styled.  Jordan  v.  Nat. 
Shoe,  etc.,  Bk.,  74  N.  Y.  467.  Falkland  v. 
St.  Nicholas  Bk.,  84  N.  Y.  145.  Ford  v. 
Thornton,  30  Va.  695.  Hiller  v.  Bk.  of 
Columbia,  (S.  C.)  75  S.  E.  789.  Laubach  v. 
Leibert,  87  Pa.  55.  Comfort  v.  Patterson, 
2  Lea  (Tenn.)  670.  Nat.  Bk.  v.  Insurance 
Co.,  104  U.  S.  54.  Burnett  v.  First  Nat.  Bk., 
38  Mich.  630.  Gerard  v.  McCormick,  130 
N.  Y.  261.  Squire  v.  Ordermann,  194  N.  Y. 
394.  Prosser  v.  First  Nat.  Bk.,  (Tex.)  134 
S.  W.  781.  Silsbee  St.  Bk.  v.  French 
Market  Grocery  Co.,  (Tex.)  132  S.  W.  465. 
{Inquiry  from  N.  Y.,Jan.,  1917,  Jl) 

Opinion  in    New  York  case  that,  unless  de- 
positor consents,  savings  account  cannot  be 
charged  with  overdraft  on  commercial 
account 

2927.  Where  a  depositor  carries  both  a 
commercial  and  a  savings  account  with  a  bank 
and  is  indebted  to  the  bank  upon  matured 


notes,  and  the  funds  in  the  commercial 
account  are  insufficient,  a  New  York  court 
has  held  the  bank  has  no  right,  without  the 
depositor's  consent,  to  charge  the  notes  to 
the  depositor's  savings  account.  The  opin- 
ion in  this  case,  however,  is  merely  obiter 
and  would  seem  contrary  to  general  princi- 
ples of  set-off.  Heinrich  v.  First  Nat.  Bk., 
145  N.  Y.  S.  342,  149  N.  Y.  S.  1086.  Tufts 
V.  People's  Bk.,  59  N.  J.  L.  380.  Hiller  v. 
Bk.  of  Columbia,  (S.  C.)  75  S.  E.  789.  {In 
quiry  from  N.  J.,  Dec,  1918,  Jl.) 

Set-off  where  depositor  carries  both  checking 
and    savings  account 

2928.  A  depositor  carries  both  a  check- 
ing and  a  savings  account  with  a  bank  and 
is  indebted  to  the  bank  upon  a  matured 
loan  in  excess  of  the  checking  but  within 
the  savings  account.  Opinion:  The  bank 
can  charge  the  indebtedness  to  the  savings 
account.  Callahan  v.  Bk.  of  Anderson,  69 
S.  C.  374.  Hiller  v.  Bk.  of  Columbia,  (S.  C.) 
75  S.  E.  789.  Hiller  v.  Bk.  of  Columbia 
(S.  C.)  79  S.  E.  899.  {Inquiry  from  S.  C, 
Dec,  1914,  Jl.) 

Where    depositor   deceased 

Set-off  of  matured  debt  of  decedent 

2929.  The  administrator  of  an  estate 
draws  a  check  against  the  account  of  the 
deceased,  which  the  bank  refuses  to  pay, 
claiming  that  it  is  entitled  to  set  off  against 
the  account  a  debt  due  at  the  time  of  de- 
positor's death.  Opinion:  The  bank  has  a 
right  to  set  off  against  the  account  of  the 
depositor  a  matured  debt  owing  by  him  at 
the  time  of  his  death,  and  to  refuse  to  pay 
the  check  of  the  administrator  upon  the 
deposit  so  set  off.  Rev.  St.  Mo.,  1899,  Sec. 
4489.  Padgett  v.  Bk.  of  Mountain  View, 
(Mo.)  125  S.  W.  219.  {Inquiry  from  Mo., 
May,  1917,  Jl.) 

Set-off  of  past  due  notes  against  decedent's 
account 

2930.  A  bank  held  two  past  due  un- 
secured notes  of  a  customer  who  carried  a 
balance  with  the  bank  subject  to  check.  The 
customer  died.  Opinion:  Upon  the  death 
of  the  depositor  the  bank  had  the  right  to 
set  off  the  past  due  notes  against  his  account. 
The  decisions  conflict  as  to  the  right  of  set- 
off where  the  notes  have  not  matured.  In 
Montana  such  right  is  denied.  Little  v. 
City  Nat.  Bk.,  (Ky.)  74  S.  W.  699.  Gardner 
V.  First  Nat.  Bk.,  10  Mont.  149.  {Inquiry 
from  Mont.,  March,  1914,  Jl.) 


652 


SET-OFF 


[2931-2936 


2931.  The  maker  of  a  note  died,  leaving 
a  balance  to  his  checking  account.  The 
bank  seeks  to  know  whether  it  has  the  right 
of  set-off  before  returning  the  balance  to  the 
administrator.  Opinion:  A  bank  owning 
the  note  of  a  customer  who  has  deceased  has 
the  right,  if  the  note  has  matured,  to  apply 
the  maker's  deposit  upon  the  note  and  in 
North  Carolina,  if  the  estate  is  insolvent, 
may  apply  such  deposit,  even  though  the 
note  is  not  due.  If  the  deposit  is  not  suffi- 
cient to  meet  the  note,  the  balance  would  be 
a  debt  payable  by  the  administrator.  The 
administrator  in  declaring  a  dividend  would 
only  be  required  to  base  same  upon  the 
balance  due  after  the  deposit  was  set  off. 
Moore  v.  Greenville  Bk.,  etc.,  Co.,  (N.  C. 
1917),  91  S.  E.  793.  Wagner  v.  Citizens  Bk., 
122  Tenn.  164.  Lumber  Co.  v.  Tr.  Co.,  93 
Wasii.  563.  Lutz  v.  Wilhams,  (W.  Va.  1917) 
91  S.  E.  460.  Hodgin  v.  People's  Nat.  Bk., 
124  N.  C.  540  (overruled  on  another  point 
in  125  N.  C.  503).  St.  Bk.  v.  Armstrong, 
15  N.  C.  519.  {Inquiry  Jrom  N.  C,  March, 
1919,  Jl.) 

2932.  When  a  depositor  dies,  indebted 
to  the  bank,  the  latter  has  the  right  to  apply 
the  balance  to  his  credit  at  the  time  of  his 
death  upon  a  matured  indebtedness  of  the 
depositor,  and  is  not  accountable  to  the 
administrator  therefor,  except  for  the  excess 
when  the  balance  exceeds  the  indebtedness. 
St.  Bk.  V.  Armstrong,  4  Dev.  (N.  C.)  519. 
Little  v.  City  Nat.  Bk.,  115  Ky.  629,  74  S. 
W.  699.  Padgett  v.  Bk.  of  Mountain  View, 
(Mo.)  129  S.  W.  219.  {Inquinj  from  Wyo., 
Nov.,  1912,  Jl.) 

Set-off  of  unmatured  judgment  note  against 
decedent's  account 

2933.  A  bank  loans  $100  receiving  there- 
for a  judgment  note  for  that  amount.  The 
maker  of  the  note  subsequently  deposits 
$600  in  a  savings  account  and  several  days 
later  dies,  the  note  having  one  month  to  run. 
The  bank  seeks  to  set  off  the  unmatured  in- 
debtedness against  the  account.  Opinion: 
Bank  in  Pennsylvania  has  the  right  to  set 
off  unmatured  note  against  savings  account 
of  solvent  decedent  if  note  matures  prior  to 
connnencenient  of  suit  for  deposit;  but  set- 
off not  allowed  if  estate  of  decedent  insol- 
vent. Bosler  v.  Exch.  Bk.,  4  Barr.  (Pa.)  32. 
Appeal  of  Farmers,  etc.,  Bk.,  48  Pa.  57. 
Blum  Bros.  v.  Girard  Nat.  Bk.,  (Pa.)  93 
Atl.  942.  Com.v.  Tradesmen  Tr.  Co.,  250 
Pa.  372.    (Inquiry  from  Pa.,March,1917,JL) 


Right  of  set-off  of  unmatured  note  against 

decedent's    insolvent    estate    denied    in 

Pennsylvania 

2934.  A  customer  was  indebted  to  a 
bank  on  a  note  which  became  due  several 
days  after  he  died.  The  bank  held  sufficient 
funds  of  the  decedent  to  apply  on  the  note. 
Opinion:  In  Pennsylvania  the  bank  may 
charge  the  note  to  the  account  of  the  maker, 
though  the  note  does  not  become  due  for 
several  days  after  his  decease,  provided  his 
estate  is  solvent,  but  such  right  of  set-off 
does  not  exist  if  the  estate  is  insolvent. 
Bosler  v.  Exch.  Bk.,  4  Barr.  (Pa.)  32.  Ap- 
peal of  Farmers,  etc.,  Bk.,  48  Pa.  57.  {In- 
quiry from  Pa.,  Jan.,  1914,  Jl.) 

Set-off  of  A 's  {decedent's)  deposit  against  note 
of  A  and  B 

2935.  A  bank  says  it  is  carrying  a  note 
which  will  fall  due  in  a  day.  One  of  the 
makers  died  a  month  previous  leaving  a 
checking  account  balance  ample  to  cover  the 
note.  There  was  another  signer  to  the  note 
who  refuses  to  pay,  stating  that  he  paid 
amount  of  note  to  the  first  signer  before  his 
death.  The  deceased  maker  really  signed 
for  accommodation  of  the  other.  The  bank 
asks  if  it  would  be  proper  to  charge  the  note 
to  account.  Opinion:  The  general  rule  is 
that  to  authorize  a  set-off  the  de])t  must  be 
mutual — it  must  mutually  exist  between  the 
same  parties  and  in  the  same  capacity  or 
right.  For  example,  many  courts  have  held 
that  a  bank  cannot  set  off  the  note  of  a 
partnership  against  the  individual  deposit 
of  one  of  the  partners,  but  a  few  courts  have 
held  that  such  right  of  set-off  exists.  In  a 
recent  case  in  Arkansas  where  A  and  B 
executed  to  a  bank  a  note,  it  was  held  that 
the  bank,  on  maturity  of  the  note,  was  en- 
titled to  apply  A's  general  deposit  to  its 
payment  and  that  it  was  immaterial  that 
the  bank  had  no  demand  or  set-off  against 
the  other  joint  maker.  Rush  v.  Citizens 
Nat.  Bk.,  169  S.  W.  (Ark.)  77.  There  seem 
to  be  no  decisions  in  Wyoming  on  this 
question  and,  in  the  ahsence  thereof,  it  is 
doubtful  what  the  l^ank's  rights  are,  but  it 
might  he  advisaV)le  to  charge  the  note  to  the 
account  on  the  claim  that  the  bank  had  a 
lien  on  the  deposit  and  a  right  of  set-off. 
{Inquiry  from  Wyo.,Feb.,  1919.) 

Set-off    against    check     holder 

Drawee  cannot  deduct  debt  of  check  holder 
before  payment 
2936.     The  payee  of  a  check  who  presents 
it  to  a  bank  owes  the  bank  on  the  past  due 


653 


2937-2943] 


DIGEST   OF  LEGAL  OPINIONS 


note,  the  amount  being  less  than  the  amount 
of  the  check.  The  bank  in  cashing  the  check 
desires  to  deduct  the  amount  of  the  in- 
debtedness and  dehver  him  the  balance. 
Opinion:  Drawee  bank,  upon  presentment 
of  a  check  by  the  payee  indebted  to  it,  cannot 
deduct  the  amount  of  indebtedness  from  the 
amount  of  the  check,  paying  only  the  bal- 
ance to  the  holder.  In  so  doing  it  would  be 
violating  its  contract  with  the  drawer, 
namely,  to  pay  his  checks  according  to  his 
order  and  direction.  Brown  v.  Leeke,  43 
111.  497.  Percival  v.  Strathman,  112  Iowa, 
747.     {Inquiry  from  III,  Oct.,  1917,  Jl.) 

Bank  cannot  set  off  debt  of  presenting 
check  holder 

2937.  A  bank  holds  a  sale  note  signed  by 
three  persons,  which  is  past  due.  The  bank 
frequently  cashes  checks  for  the  first  signer, 
although  he  has  no  account.  The  bank 
asks  whether  the  amount  due  the  bank  on 
the  note  may  be  taken  from  the  amount  due 
him  on  his  check  and  give  him  balance  in 
cash.  Opinion:  A  bank,  upon  presentment 
of  check  by  the  payee  who  is  indebted  to  it, 
cannot  deduct  the  amount  of  the  check, 
paying  only  the  balance  to  the  holder.  If  it 
did  so,  it  would  be  violating  its  contract 
with  the  drawer,  i.  e.,  to  pay  his  checks  ac- 
cording to  his  order  and  direction.  If  the 
check  holder  had  an  account  with  the  bank, 
and  the  note  was  his  individual  note,  past 
due,  the  account  could  be  charged  with  the 
amount  of  the  note.  But  in  this  case  the 
note  is  signed  by  three  persons,  and  it  has 
been  held  that  a  bank  has  no  right  to  ap- 
propriate to  the  payment  of  a  joint  and 
several  note,  made  to  it  by  A  as  principal 
and  B  and  C  as  sureties,  funds  on  deposit 
belonging  to  A  alone.  Dawson  v.  Real 
Estate  Bk.,  5  Ark.,  283.  {Inquiry  from  Ohio, 
April,  1920.) 

Depositor's    right    of    set-off 

Depositor  can  set  off  deposit  in  insolvent  hank 
against  his  unmatured  note 

2938.  Depositor  in  insolvent  bank  has 
right  to  set  off  his  deposit  against  his  in- 
debtedness to  the  bank,  whether  due  or  not. 
Steelman  v.  Atchley,  (Ark.)  135  S.  W.  902. 
Kirby's  Ark.  Dig.,  Sees.  6098,  6101.  {In- 
quiry from  Ark.,  Aug.,  1913,  Jl.) 

2939.  A  bank  held  a  note  for  $5,000  of 
its  depositor  who  had  on  deposit  $5,000. 
The  bank  failed  before  the  note  matured. 
Opinion:  The  depositor  has  the  right  to  set 
off  the  deposit  standing  to  his  credit  at  time 
of  insolvency  against  his  liability  on  the 


note.  Thompson  v.  Union  Tr.  Co.,  130 
Mich.  508.  In  re  Van  Allen,  37  Barb.  (N. 
Y.)  225.  Jack  v.  Klepser,  196  Pa.  699. 
Colton  V.  Dover,  etc.,  Ass'n,  90  Md.  85. 
{Inquiry  from  Mass.,  Jan.,  1913,  Jl.) 

2940.  A  depositor  in  an  insolvent  bank, 
who  is  indebted  to  the  bank  as  maker  upon 
a  note,  has  a  right  to  set  off  his  deposit 
against  such  indebtedness,  whether  the  note 
is  due  or  not  yet  matured.  Where  the  de- 
positor is  an  indorser,  some  courts  hold 
the  same  right  of  set-off  exists,  but  others 
that  the  indorser  cannot  set  off  his  deposit 
unless  the  maker  is  insolvent.  Scott  v. 
Armstrong,  146  U.  S.  499.  McCagg  v. 
Woodman,  28  111.  84.  Colton  v.  Drovers, 
etc.,  Ass'n,  90  Md.  85.  Thompson  v.  Union 
Tr.  Co.,  130  Mich.  508.  Clute  v.  Warner, 
8  N.  Y.  App.  Div.  40.  Jack  v.  Klepser,  196 
Pa.  187.  Jones  v.  Piening,  85  Wis.  264. 
Yardley  v.  Clothier,  49  Fed.  337.  Davis  v. 
Industrial  Mfg.  Co.,  114  N.  C.  321.  Bor- 
ough Bk.  V.  Mulqueen,  125  N.  Y.  S.  1034. 
{Inquiry  from  Wash.,  Dec,  1914,  Jl-) 

Depositor  can  set  off  note  but  not  stockholder's 
liability 

2941.  A  depositor  has  (1)  a  right  to  set 
off  his  deposit  in  an  insolvent  national  bank 
against  his  liability  on  a  note  held  by  the 
bank,  but  (2)  no  right  to  set  off  his  deposit 
against  his  double  liability  as  a  stockholder. 
Williams  v.  Rose,  218  Fed.  898.  {Inquiry 
from  Ark.,  Sept.,  1916,  Jl.) 

Depositor's  right  of  set-off  against  insolvent 

bank  not  a  discrimination  against  other 

depositors 

2942.  A  is  a  depositor  in  a  bank  which 
failed.  A  owed  $500  on  a  note  to  the  bank 
and  carried  a  balance  of  $500.  B  and 
others  are  depositors  but  not  indebted  to  the 
bank.  B  asks  if  it  is  not  discriminating 
against  him  in  favor  of  A  to  allow  A  to  set 
off  his  indebtedness.  Opinion:  A  has  a 
right  to  set  off  his  balance  against  his  in- 
debtedness to  the  bank,  whether  due  or  not. 
The  exercise  of  such  right  is  not  discriminat- 
ing against  B  or  the  other  depositors.  Jack 
V.  Klepser,  196  Pa.  699.  {Inquiry  from 
Pa.,  Aug.,  1913,  Jl.) 

Indorser' s  right  to  set  off  deposit  against 
note  held  by  insolvent  bank 

2943.  A  bank  has  a  deposit  of  $5,000 
subject  to  check  in  B  Bank,  and  owes  B 
Bank  a  note  of  $10,000.  B  Bank  fails.  A 
Bank  desires  to  pay  B  Bank  $5,000  and  set 


654 


SET-OFF 


[2944-2946 


off  the  other  $5,000.  Opinion:  It  is  general- 
ly held  by  the  courts  that  when  a  bank 
becomes  insolvent,  and  holds  the  note  of  a 
depositor  who  is  the  maker,  whether  due  or 
not  due,  and  also  has  a  balance  to  the  credit 
of  the  depositor,  the  latter  has  the  right  to 
set  off  the  deposit  against  the  note.  But 
where  the  depositor  is  indorser  on  note  of  a 
solvent  maker  some  cases  hold  that  the  right 
of  set-off  does  not  exist.  Thompson  v. 
Union  Tr.  Co.,  130  Mich.  508.  Jack  v. 
Klepser,  196  Pa.  699.  Steelman  v.  Atchley, 
(Ark.)  135  S.  W.  902.  New  Farmers  Bk.  v. 
Young,  100  Ky.  683,  39  S.  W.  46.  {Inquiry 
from  Ky.,  Jan.,,  1915,  Jl.) 

Difference    between    right    of    set-off    where 

depositor  maker  and  where  indorser  of 

note   of   a    solvent   maker 

2944.  A  bank  holds  a  matured  note  of  a 
depositor  for  an  amount  larger  than  his 
account  in  said  bank.  The  bank  becomes 
insolvent.  Opinion:  The  depositor  may 
have  his  deposit  set  off  against  his  note, 
whether  matured  or  unmatured  at  the  time 
of  the  bank's  insolvency,  whether  state  or 
national.  This  right  of  set-off  could  be  exer- 
cised by  the  depositor  tendering  to  the 
receiver  of  the  bank  the  difference  between 
the  amount  of  his  balance  and  the  amount 
due  upon  his  note.  But  it  is  questionable 
whether  a  depositor  who  has  indorsed  such 
a  note  can  have  it  set  off  against  his  deposit 
in  the  insolvent  bank  unless  the  maker  is 
insolvent.  Where,  however,  the  depositor 
discounted  his  wife's  note  with  his  indorse- 
ment, and  is  the  accommodated  party  and 
the  real  debtor,  he  is  entitled  to  a  set-off  on 
equitable  ground.  Waggoner  v.  Patterson 
Gas  Light  Co.,  23  N.  J.  L.  283.  Scott  v. 
Armstrong,  146  U.  S.  499.  In  re  Hatch,  155 
N.  Y.  401.  Davis  v.  Industrial  Mfg.  Co., 
114  N.  C.  321.  Borough  Bk.  v.  Mulqueen, 
125  N.  Y.  S.  1034.  Building,  etc.,  Co.  v. 
Northern  Bk.,  (N.  Y.)  99  N.  E.  1044.  {In- 
quiry from  N.  J.,  Jan.,  1914,  Jl.) 

Set-off  by  depositor  of  his  share  of  partnership 
deposit  in  insolvent  bank 

2945.  A  bank  asks  whether  A  who  owes 
a  note  to  an  insolvent  national  bank  can  have 
one  half  of  the  partnership  deposit  account 
of  A  &B  applied  on  the  note.  Opinion:  The 
general  rule  is  that  a  partnership  debt  cannot 
be  set  off  against  an  individual  debt  because 


the  claims  are  not  in  the  same  right.  Jones 
V.  Blair,  57  Ala.  457.  Apparently  the  only 
North  Carolina  cases  upon  that  subject  are 
Hodgin  V.  Bank,  124  N.  C.  540,  holding  that 
a  partnership  is  not  liable  for  the  debts  of 
its  members  and  that  a  bank  has  no  right 
to  apply  deposits  standing  in  the  name  of 
the  firm  in  payment  of  the  individual  in- 
debtedness of  any  of  its  members.  See  also 
Adams  v.  First  Nat.  Bank,  113  N.  C.  332. 
But  see  Montz  v.  Morris,  196  Pa.  St.  392, 
and  Sec.  Nat.  Bk.  v.  Hemingray,  34  Ohio 
St.  381,  holding  that,  where  one  who  is 
indebted  to  a  firm  is  insolvent,  in  an  action 
by  him  against  the  individual  partner  of 
such  firm,  his  indebtedness  to  the  partner- 
ship may  be  set  off  with  the  assent  of  the 
other  partners.  It  is  possible,  therefore, 
that  the  insolvency  of  the  bank  might 
create  a  special  equity  which  would  entitle 
A  to  have  his  share  of  the  deposit  indebted- 
ness of  the  bank  to  A  and  B  applied  upon  his 
note  although  there  are  no  North  Carolina 
cases  to  that  effect  and  the  general  rule  is 
that  partnership  and  individual  debts,  not 
being  in  the  same  right,  are  not  subject  to 
set-off.     {Inquiry  from  N.  C,  June,  1916.) 

Set-off  by  depositor  of  his  note  to  insolvent  bank 
against  indorsee  for  value 

2946.  John  Doe  borrowed  S2,000  on  his 
note  from  the  State  Bank  of  P.,  wliich 
occasionally  borrowed  upon  its  bills  receiv- 
able, and  hsted  this  note  among  others  as 
additional  capital.  Before  maturity  of  the 
bills  receivable  the  bank  suspended  pay- 
ment. The  correspondent  bank  demands 
payment  of  the  note  from  John  Doe  who  re- 
fuses to  pay  more  than  $1,000,  claiming  a 
set-off  of  $1,000  which  represents  his 
balance  in  said  State  Bank.  Has  he  the 
right  of  set-off?  Opinion:  If  the  note  of 
John  Doe  was  held  by  the  State  Bank  of  P. 
at  the  time  of  its  failure,  John  Doe  would 
have  a  right  to  set  off  his  SI, 000  balance 
against  the  amount  due  on  the  note.  But 
the  note  having  been  transferred  for  value  be- 
fore maturity  to  the  correspondent  of  that 
bank  as  collateral  for  a  loan,  such  bank  would 
be  a  holder  in  due  course  to  the  extent  of  its 
lien  and  would  have  the  right  to  enforce  the 
note  against  John  Doe  free  from  his  claim  of 
set-off.  See,  for  example,  Balbach  v.  Fre- 
linghuysen,  15  Fed.  675.  (Inquiry  from 
Iowa,  Nov.,  1920.) 


655 


2947-2950] 


SALES 


Conditional  sale   of  buggy — Necessity 
of  record 

2947.  A  contract  note  is  submitted,  the 
body  of  which  is  as  follows:  "Received  of 
F.  B,  R.,  under  contract  of  the  sale  thereof, 
one  Top  Buggy,  Reliance  make.  I  do  hereby 
give  security  on  one  Gray  Mare,  twelve 
years  of  age,  practically  sound,  weight  1200 
pounds.  For  value  received  I  do  hereby 
agree  to  pay  the  simi  of  $80.00,  namely, 
$ clown,  and  the  balance  in  install- 
ments of  $25.00,  payable  as  follows:  $25.00 
on  July  27,  1914,  $55.00  Oct.  27,  1914;  until 
the  whole  is  paid  with  interest  at  7%.  The 
express  condition  of  the  purchase  and  sale  of 
said  buggy  is  such  that  the  title,  ownership 
or  right  of  possession  does  not  pass  *  *  * 
until  this  note  and  interest  are  paid  in  full. 
Neither  shall  the  property  be  *  *  *  moved 
away  *  *  *  and  said  F.  B.  R.  has  power  to 
declare  this  note  due  and  take  possession  at 
any  time   he  may  deem  himself  insecure 

*  *  *  without  process  of  law  *  *  *  and  in 
case  he  shall  take  such  article  said  F.  B,  R, 
shall  not  be  liable  to  refund  any  moneys 

*  *  *  but  he  shall  be  deemed  paid  rent  for 
same."  An  opinion  is  requested  as  to  valid- 
ity of  this  form  of  note,  and  whether  same 
should  be  recorded.  Opinion:  Under  the 
note  or  contract  submitted,  if  the  maker 
defaulted  in  payment,  R.  could  retake  the 
buggy,  as  title  would  still  remain  in  him  until 
payment  of  the  price,  and  if  the  maker 
should  have  sold  the  buggy,  this  would  not 
have  foreclosed  R.'s  rights,  as  the  property 
was  still  his.  Concerning  the  gray  mare,  it 
does  not  seem  that  the  contract  gives  R. 
the  right,  in  case  of  default  of  payment,  to 
enter  the  premises  and  take  the  mare.  There 
appears  to  be  no  statute  in  Michigan  re- 
quiring the  recording  of  such  conditional 
sales;  it  appearing  that  the  instrument 
would,  if  presented  to  the  courts,  be  held  to 
evidence  a  conditional  sale.  {Inquiry  from 
Mich.,  July,  1914.) 

Sale  of  cow — Includes  unborn  calf  not 
known  to  seller  but  known  to  buyer 

2948.  A  bank  presents  this  case:  A 
sold  to  B  a  cow  that  was  carrying  a  calf, 
which  latter  fact  was  known  to  B  but  not  to 
A.  Can  A  recover  possession  of  the  calf, 
and  if  so,  would  B  be  entitled  to  compensa- 
tion for  the  time  the  calf  was  with  and 
sucked  the  cow?     Opinion:     B  would  be 


entitled  to  the  calf,  as  the  sale  of  the  cow 
would  include  the  unborn  caK.  The  general 
rule  is  that,  in  contracts  of  sale,  disclosure 
of  information  is  not  ordinarily  incumbent 
on  the  buyer,  and  the  mere  failure  to  dis- 
close facts  which  would  enhance  the  price, 
or  other  material  facts,  does  not  constitute 
fraud.  Hayner  v.  Mcllwain,  53  111.  App. 
652.    (Inquiry  from  Mo.,  June,  1920.) 

Uurecorded  bill  of  sale — Alabama 

2949.  Inquiry  is  made  as  to  the  value 
of  unrecorded  bills  of  sale  as  collateral  on 
loans.  Opinion:  The  Civil  Code  of  Ala- 
bama, Sec.  3376,  provides  that  conveyances 
of  personal  property  to  secure  debts  or  to 
provide  indemnity  must  be  recorded  in  the 
count}^  in  which  the  grantor  resides  and  also 
in  the  county  where  the  property  is  at  the 
date  of  the  conveyance  unless,  etc., — then 
follows  provision  where  the  property  is 
removed  from  one  county  to  another.  As- 
suming that  a  bill  of  sale  is  a  conveyance  of 
personal  property,  this  would  seem  to  re- 
quire record  of  same;  but  in  the  case  of 
Stuart  V.  Michum,  135  Ala.  546,  the  court, 
after  citing  this  section,  says:  "We  confess 
that  we  are  unable  to  see  any  analogy  be- 
tween a  bill  of  sale  and  a  mortgage;  besides, 
the  law  does  not  require  that  a  bill  of  sale 
should  be  recorded."  If  the  Alabama  law 
does  not  require  the  record  of  a  bill  of  sale, 
then  it  would  seem  that  an  unrecorded  bill 
of  sale  would  be  as  valuable  as  collateral  as 
one  which  has  been  recorded.  Yet  this 
conclusion  is  hardly  satisfactory  and  it 
would  be  the  safer  practice,  if  a  bill  of  sale 
is  taken  as  security  for  a  loan,  to  have  same 
recorded.     {Inquiry  from  Ala.,  Nov.,  1919.) 

Bulk  sales  law.  Notice  to  creditor  bank 

where  sale  of  goods  by  partner  (debtor 

to  bank)  to  co-partner 

2950.  A  bank  inquires  whether  it,  as  a 
creditor  of  A,  is  entitled  to  five  days'  notice 
under  the  Bulk  Sales  Law,  where  A  sells  his 
business  to  his  partner  B.  Opinion:  It  is 
the  duty  of  the  purchaser  to  give  notice  to 
the  bank  of  the  sale,  and  the  failure  so  to  do 
makes  the  sale  voidable  in  proper  proceed- 
ings. See  Pa.  Laws  1905,  Sec.  62.  Wilson 
V.  Edwards,  32  Pa.  Super.  Ct.,  295. 
Schnucker  v.  Lawler,  38  Pa.  Super.  Ct.  578. 
{Inquiry  frmn  Pa.,  March,  1919.) 


656 


SECURITIES— PUBLIC  AND  MUNICIPAL 


[2951-2954 


Purchaser  not  obliged   to   accept  nor 
liable  for  damaged  goods 

2951.  Upon  receipt  of  a  set  of  books  and 
a  bookcase,  the  purchaser  found  that  the 
case  was  damaged  and  that  the  pages  of  the 
index  volume  were  not  arranged  in  nmnerical 
order,  which  created  annoyance  and  con- 
fusion in  the  use  of  the  index.  Whereupon 
the  purchaser  returned  the  books  and  the 
case.  Is  the  purchaser  entitled  to  a  return 
of  partial  payment  made?  Can  the  seller 
enforce  paj-ment?  What  effect  has  an  offer 
to  deliver  another  set  of  books  and  another 
bookcase,  coupled  with  a  refusal  of  the  offer 
by  the  buyer?  Opinion :  The  purhaser  can 
recover  the  partial  payment  made  and  is 
not  required  to  pay  for  the  goods.  It  was  an 
imphed  condition  of  the  seller's  contract 
that  the  bookcase  should  be  undamaged. 


and  that  the  books  should  be  in  consecutive 
order  of  paging.  There  was  a  failure  to 
comply  with  this  condition.  The  purchaser 
was  not  obliged  to  find  this  out  prior  to 
delivery  of  the  purchase  to  him  by  the 
carrier,  as  presumably  there  was  no  right  of 
inspection  by  opening  the  box  and  examin- 
ing the  contents  before  delivery.  Since  the 
defects  were  discovered  within  a  reasonable 
time,  the  purchaser  could  cancel  the  con- 
tract. The  offer  to  deliver  another  set  of 
books  and  a  new  bookcase  required  the 
consent  of  the  purchaser  in  order  to  change 
the  legal  status  of  the  parties.  The  general 
rule  is  that  a  seller  who  has  delivered  imper- 
fect goods  cannot  prevent  a  cancellation  of 
the  contract  by  an  offer  to  substitute  goods 
conforming  to  the  contract.  {Inquiry  from 
Md.,  Aug.,  1914.) 


SECURITIES— PUBLIC  AND    MUNICIPAL 


Warrant    drawn    for    municipal    debt 
not  negotiable 

2952.  The  general  rule  is  that  warrants, 
drafts  or  orders  drawn  for  payment  of 
municipal  debts  by  one  public  office  on  an- 
other are  not  negotiable  instruments,  and 
this  class  of  instruments  includes  school 
district  warrants.  Fox  v.  Shipman,  19  Mich. 
218.  School  Dist.  v.  Stough,  4  Neb.  357. 
State  V.  Huff,  63  Mo.  288.  {Inquinj  from 
N.  M.,  Jan.,  1914,  Jl.) 

City   warrants    not   negotiable  hut   indorser 
warrants  validity 

2953.  Does  a  person  who  puts  his  name 
on  the  back  of  a  city  warrant  without  any 
qualification  assume  any  responsibility  or 
does  he  merely  transfer  his  rights,  without 
assuming  any  obligation?  Opinion:  City 
warrants  are  not  negotiable  instruments  so 
as  to  preclude  defenses  available  against  the 
original  payee,  even  in  the  hands  of  a  bona 
fide  purchaser,  and  this  is  so  without  any 
regard  to  any  recitals  in  the  warrant.  The 
word  negotiable  can  be  applied  to  them  only 
in  the  broad  sense  as  including  any  written 
security  which  can  be  transferred  so  as  to 
vest  the  legal  title.  McQuillan  on  Munici- 
pal Corporations.  In  the  case  of  West  Phila. 
Title  &  T.  Co.  V.  City  of  Olympia,  19  Wash. 
150,  52  Pac.  1015,  the  Washington  Supreme 
Court  held  that  city  warrants  are  not  within 
the  principles  controlling  the  transfer  of 
negotiable  paper;  that  an  indorsee  had  no 
better  right  than  the  original  payee.  See, 
also.  Wall  V.  County  of  Monroe,  103  U.  S. 


74.  Mayer  v.  Ray,  19  Wall  (U.  S.)  468. 
People  V.  Johnson,  100  111.  544.  Miner  v. 
Vedder,  66  Mich.  101.  Shakspear  v.  Smith, 
77  Cal.  638.  People  v.  Stupp,  49  Hun 
(N.  Y.)  In  some  jurisdictions  (Washington 
included)  the  liability  of  the  indorser  of  a 
non-negotiable  instrument  is  simply  that  of 
an  assignor  of  a  chose  in  action,  which  is  as 
follows:  In  the  absence  of  an  express  war- 
ranty, the  assignor  of  a  chose  in  action,  for  a 
valuable  consideration,  impliedly  warrants 
to  the  assignee  that  the  same  is  a  valid, 
subsisting  obligation  in  his  favor  against 
the  debtor  to  the  extent  to  which  it  purports 
to  be  such.  Galbreath  v.  Wallrich,  45  Colo. 
537.  Thompson  v.  First  St.  Bk.  102  Ga. 
696.  Eaton  v.  Melius,  7  Gray  (Mass.)  566. 
Miners'  Bank  v.  Burress,  164  Mo.  App.  690. 
Sanders  v.  Aldrich,  25  Barb.  (N.  Y.)  63. 
Flynn  v.  Allen,  57  Pa.  St.  482.  Giblin  v. 
North  Wis.  L.  Co.,  131  Wis.  261.  (Inquiry 
from  Wash.,  Oct.,  1917.) 

Non-negotiability    of   township    order 

2954.  A  township  order  is  in  the  form 
of  a  negotiable  promissory  note,  signed  by 
three  supervisors,  promising  to  pay  on  or 
before  a  specified  date  to  the  order  of  a 
named  payee  at  a  designated  bank  a  certain 
amount  for  culvert  pipe,  with  interest.  Is 
the  order  negotiable?  Opinion:  The  order 
is  negotiable  in  form,  that  is,  if  it  were  signed 
b}^  an  individual  or  a  private  corporation 
through  its  officers  it  would  be  negotiable. 
However,  the  courts  generally'  hold  such 
orders  non-negotiable  on  the  ground  that 


657 


2955-2957] 


DIGEST  OF  LEGAL  OPINIONS 


there  is  no  implied  authority  in  the  township 
officers  to  execute  negotiable  instruments. 
Under  this  rule,  the  purchaser  of  the  in- 
strument takes  it  subject  to  equities.  Some 
cases  hold  that  where  the  instrument  is  in 
negotiable  form  and  the  township  authori- 
ties have  been  empowered  by  law  to  issue 
such  instruments,  they  are  negotiable,  but 
the  authorities  are  not  in  accord.  {Inquiry 
from  Pa.,  Jan.,  1915.) 

Liability  of  indorser  of  non-negotiable 
state  warrants 

2955.  (1)  What  rights  does  a  holder  by 
indorsement  of  non-negotiable  instruments, 
such  as  state  warrants  acquire  against  the 
maker  and  the  previous  indorsers?  (2) 
Does  an  indorsement  ''without  recourse" 
relieve  an  indorser?  (3)  Can  the  payor  of  the 
warrant  compel  refund  from  a  holder  for 
value  of  warrant  regularly  issued  on  a 
fraudulent  claim?  Opinion:  (1)  A  pur- 
chaser of  such  a  non-negotiable  instrument 
takes  subject  to  defenses.  People  v.  John- 
son, 100  111.  544.  Miner  v.  Vetter,  66  Mich. 
lOL  People  v.  Supervisors,  11  Cal.  170. 
There  is  a  conflict  of  authority  as  to  the  lia- 
bility of  an  indorser  of  a  non-negotiable 
instrument.  In  a  few  cases  it  is  held  that 
the  liability  is  the  same  as  that  of  the  in- 
dorser of  a  negotiable  note.  First  Nat.  Bank 
v.  Falkenhan,  94  Cal.  141.  But  the  majority 
of  courts  hold  that  the  indorser  simply  trans- 
fers the  title,  without  assuming  liability  to 
the  indorsee,  and  this  it  seems,  is  the  rule  in 
the  state  of  Washington.  See  Thomson  v. 
Koch,  113  Pac.  1110.  (2)  An  indorser  with- 
out recourse  of  a  negotiable  note  can  be 
held  upon  an  implied  warranty  that  it  is 
vahd  and  that  there  is  no  fraud  in  the  con- 
sideration (Drennan  v.  Dunn,  124  111.  175. 
Challis  V.  McCrum,  22  Kan.  157),  and  it 
would  seem  that  equally  the  indorser  or  as- 
signor of  a  non-negotiable  instrument  might 
be  held  as  imphed  warrantor.  See  Keller  v. 
Hicks,  22  Cal.  460,  holding  that  the  indorser 
of  a  non-negotiable  warrant  is  liable  to 
refund  the  consideration  where  the  instru- 
ment is  not  valid  and  legal  according  to  its 
purport.  (3)  The  holder  of  the  instrument 
would  be  under  an  implied  contract  to  re- 
fund the  money  received  without  right  to 
retain.     {Inquiry  from  Wash.,  June,  1916.) 

Collection  of  municipal  bond  payable 
at  bank 

2956.  A  savings  bank  in  New  York  in- 
quires whether  there  is  necessity  for  the  sale 
and  assignment  of  a  registered  municipal 
bond  issued  by  a  city  in  Ohio  as  a  condition 


of  obtaining  payment.  It  seems  the  bond 
is  made  payable  to  the  inquiring  bank  at  a 
national  bank  in  New  York  and  on  the  back 
provides  a  small  space  for  a  sale  and  assign- 
ment in  the  event  the  owner  desires  to  sell 
and  assign.  The  savings  bank  presented  the 
bond  by  messenger  with  a  letter  from  its 
treasurer,  requesting  payment  by  check  to 
the  order  of  the  savings  bank;  with  copy  of 
its  by-laws  showing  authority  in  the  treasur- 
er to  collect.  Payment  was  refused  because 
(1)  signature  of  treasurer  was  unknown;  (2) 
the  bond  must  be  "sold  and  assigned"  by  a 
resolution  of  the  board  of  trustees  in  order 
to  collect  it.  Opinion:  Where  the  owner 
does  not  desire  to  sell  but  only  to  collect, 
the  requirement  that  he  must  first  execute 
the  "sale  and  assignment"  on  the  back  of 
the  bond  would  seem  absurd.  There  is  no 
necessity  to  sell  and  assign  a  registered  bond 
when  it  is  presented  by  the  payee  for  pay- 
ment. Legally  speaking,  the  payor  is  not 
obliged  to  pay  by  check,  but  has  the  strict 
legal  right  to  pay  in  cash  and  could  require 
satisfactory  evidence  of  authority  to  the 
person  presenting  the  bond.  But  business 
is  not  done  at  the  present  day  on  technicali- 
ties, and  it  seems  that  the  method  of  pre- 
sentment adopted  by  the  savings  bank,  with 
attached  copy  of  the  by-laws,  would  be  all 
sufficient.  {Inquiry  from  N.  Y.,  Jan., 
1920.) 

Interest  on  school  district  warrants 
2957.  Do  school  district  warrants  drawn 
on  the  sheriff,  which  are  not  paid  because  of 
insufficient  funds,  draw  interest  from 
the  date  that  they  are  indorsed  by  the 
sheriff  as  "presented  for  payment"  until 
actual  payment,  in  view  of  the  ruHng  by  the 
tax  commissioner  of  West  Virginia  that  they 
do  not  draw  interest?  Opinion:  The  West 
Virginia  Code  of  1906  (Chap.  39,  Sec.  1250) 
expressly  provides  for  interest  on  all  county 
orders  or  warrants  when  not  paid  on  presen- 
tation after  maturity,  and  the  supplement  of 
1909  (Chap.  45,  Sec.  1707)  specifically  pro- 
vides for  interest  on  school  warrants,  where 
the  sheriff  fails  to  pay  the  same  on  presenta- 
tion. The  authority  on  which  the  state  tax 
conmaissioner  bases  his  ruling  that  the 
warrants  in  question  do  not  draw  interest 
is  not  clear.  An  examination  of  the  West 
Virginia  code  under  the  caption  of  duties 
and  powers  of  the  tax  commissioner  fails  to 
disclose  any  authority  or  jurisdiction  con- 
ferred on  him  to  pass  upon  the  question  of 
interest  on  school  warrants  in  any  manner, 
shape  or  form.  {Inquiry  from  W.  Va.,  Dec, 
1914.) 


658 


SECURITIES— PUBLIC  AND  MUNICIPAL 


[2958-2960 


Outlaw  of  county  warrants  in  Missouri 

2958.  Missouri  county  warrants  which 
are  over  five  years  old  have  been  presented 
to  the  county  court  each  year,  but  payment 
denied,  apparently  on  the  ground  of  lack  of 
funds.  However,  each  year  the  county 
treasurer  has  paid  interest,  pursuant  to  an 
order  of  the  county  court.  Are  these  war- 
rants outlawed?  Opinion:  The  statute  of 
limitations  has  not  run  against  the  warrants. 
{Inquiry  from  Mo.,  Feb.,  1921.) 

Contract  for  municipal  improvements 
as  basis  for  loan 

2959.  The  city  council  of  Miami  caused 
to  be  advertised  bids  for  a  river  improve- 
ment and  proposed  to  enter  into  a  contract 
for  such  work  and  to  pay  for  the  same 
eighteen  months  from  the  date  of  the  con- 
tract. This  leads  to  the  inference  that  the 
city  did  not  have  the  funds  on  hand,  but 
expected  to  pay  the  cost  from  some  assess- 
ment, income  or  revenue  in  the  next  year. 
Would  it  be  safe  for  a  bank  to  advance 
money  on  such  a  contract?  May  a  taxpayer 
enjoin  the  letting  or  the  execution  of  the 
contract?  Opinion:  The  method  in  which 
a  municipaUty  shall  enter  into  a  contract  for 
a  public  improvement  and  the  elements 
essential  to  the  validity  of  such  a  contract 
are  usually  expressly  defined  by  statutory 
or  charter  provisions.  The  power  to  make 
improvements,  given  in  general  terms, 
carries  with  it  implied  authority  to  make 
contracts  therefor.  Keator  v.  Dalton,  29 
Misc.  (N.  Y.)  692.  Smith  v.  Westport,  105 
Mo.  App.  22 L  The  authority  to  make  such 
contracts  is  usually  vested  in  the  city  coun- 
cil, to  be  exercised  by  cither  ordinance  or 
resolution.  Stockton  v.  Creanor,  45  Cal. 
643.  Cunningham  v.  Cleveland,  98  Fed. 
657.  In  the  absence  of  legislative  provisions 
governing  the  making  of  improvements  and 
the  manner  of  paying  for  the  same,  the  city 
in  the  exercise  of  its  general  powers  may 
improve  its  streets,  or  sewerage  system,  and 
defray  the  cost  from  its  general  funds. 
Slusser  v.  Burlington,  42  Iowa  378.  Wool- 
sey  V.  Rondout,  4  Abb.  Dec.  (N.  Y.)  639. 
Detroit  v.  Detroit  United  R.  Co.  133  Mich. 
608. 

Where  an  improvement  ordinance  pro- 
vides for  payment  out  of  funds  to  be  raised 
by  general  taxation,  the  contractor  can  en- 
force payment  out  of  a  general  fund  created 
by  the  sale  of  bonds,  since  the  bonds  are 
payable  from  funds  derived  from  taxation. 


DuQuoin  First  Nat.  Bank  v.   Keith,   183 
111.,  475,  56  N.  E.  179. 

In  the  absence  of  statutory  prohibition, 
or  some  prohibitive  clause  in  the  charter  of 
the  city  of  Miami,  there  appears  to  be  no 
vahd  reason  why  its  city  council  cannot 
enter  into  the  proposed  contract  so  as  to 
bind  the  city;  in  which  case  the  bank  might 
safely  advance  money  on  the  contract. 
Taking  this  view  of  the  matter,  there  would 
seem  to  be  no  grounds  on  which  a  taxpayer 
might  enjoin.  {Inquiry  from  Fla.,  March, 
1913.) 

Erroneous  delivery  of  Liberty  bonds 

2960.  A  bank  delivered  $3500  in  Liberty 
bonds  to  the  manager  of  a  local  corporation, 
finding  later  that  it  had  in  error  delivered 
him  bonds,  for  which  he  had  personally 
signed,  acknowledging  receipt,  and  which 
did  not  belong  to  him.  The  bank  called  on 
the  manager  to  return  the  bonds.  He  ad- 
vised bank  that  he  only  had  S2600  of  bonds 
in  his  possession;  and,  while  he  did  not  deny 
that  he  received  the  full  amount,  has  called 
on  bank  to  verify  its  records  showing  ship- 
ment of  the  serial  numbers  which  bank's 
records  show  he  received.  Can  bank  hold 
the  corporation,  which  is  worth  the  amount 
involved;  and  if  not,  is  the  manager  per- 
sonally liable  for  the  amount  involved?  Also 
can  bank  replevin  the  bonds  wherever 
found?  Opinion:  Where  a  bank  erroneous- 
ly delivered  Liberty  (coupon)  bonds  to  the 
manager  of  a  corporation  who  personally 
acknowledged  receipt,  an  action  will  lie 
against  the  manager  to  recover  the  value  of 
the  bonds  or  an  action  of  replevin  will  lie 
to  recover  their  possession  against  the 
manager,  if  still  in  his  possession,  or  against 
any  person  to  whose  hands  the  bonds  may 
come,  except  an  innocent  purchaser  for 
value.  No  action  will  lie  against  the  cor- 
poration unless  the  manager  received  the 
bonds  or  their  proceeds  as  agent  of  such 
corporation  or  on  its  behalf.  Hughes  v. 
Stringfellow,  15  Ala.  324.  Ehrman  v. 
Rosenthal,  117  Cal.  491.  Fairbanks  v. 
Blackington,  9  Pick.  (Mass.)  93.  Bongdon 
V.  Pennev,  35  Minn.  204.  Lee  v.  Portwood, 
41  Miss.'lOO.  Burnham  v.  Ayer,  36  N.  H. 
182.  Javcox  V.  Cameron,  49  N.  Y.  645. 
Norfolk  South.  R.  Co.  v.  Barnes,  104  N.  C. 
25.  Krebs  Hop  Co.  v.  Taylor,  (Oreg.)  97 
Pac.  44.  Smith  v.  Austin,  4  Brewst. 
(Pa.)  89.  Doon  v.  Ravey,  49  Vt.  293. 
{Inquiry  from  Ore.,  Sept.,  1919,  Jl.) 


659 


2961-2964] 


STOPPING  PAYMENT 


Drawer's  right  to  stop  payment 

Customer  has  right  to  arbitrarily  stop  payment 

2961.  May  the  drawer  of  a  check,  with- 
out any  good  reason,  arbitrarily  stop  pay- 
ment of  his  check?  Must  the  bank  obey  his 
instructions  without  questioning  his  mo- 
tives? Opinion:  The  Negotiable  Instru- 
ments Act  provides  that  "A  check  of  itself 
does  not  operate  as  an  assignment  of  any 
part  of  the  funds  to  the  credit  of  the  drawer 
with  the  bank,  and  the  bank  is  not  liable  to 
the  holder  unless  and  until  it  accepts  or 
certifies  the  check."  Under  this  Act,  there- 
fore, the  check  is  a  mere  order  on,  and  au- 
thority to,  the  bank  to  pay  and  the  customer 
has  the  right  to  revoke  such  authority  and 
countermand  such  check.  After  receiving 
a  stop  payment  notice,  the  bank  will  pay 
the  check  at  its  peril.  It  is  the  duty  to  obey 
the  instructions  and  refuse  to  pay  and  in 
such  event,  as  shown  by  the  section  above 
quoted,  it  is  under  no  liability  to  the  holder 
whose  sole  recourse  is  against  drawer  and 
any  prior  indorsers.  The  drawer  has  this 
power  of  countermand  irrespective  of  any 
fraud  or  misrepresentation.  The  bank  is 
under  no  duty  to  inquire  into  his  motive. 
As  between  bank  and  customer,  the  latter 
has  the  right  to  revoke  the  bank's  authority 
to  pay  and  it  is  the  bank's  duty  to  obey  his 
instruction.  (Inquiry  from  S.  C,  April, 
1919.) 

Former  opinions  where  check  an  assignment 

2961a.  Opinions,  published  in  the  earlier 
editions  of  the  "Digest  of  Legal  Opinions," 
that,  under  the  laws  of  Illinois,  South  Caro- 
lina and  South  Dakota,  the  drawer  could  not 
stop  payment,  because  in  those  states  a 
check  constituted  an  assignment,  have  been 
omitted,  as  the  enactment  of  the  Negotiable 
Instruments  Law  has  changed  the  rule  in 
those  states  and  a  check  is  no  longer  an 
assignment;  but  the  drawer  has  the  right  to 
stop  payment. 

Stopping  payment  of  hearer  check 

2962.  A  bearer  check  not  being  an 
assignment,  but  merely  an  order  and  au- 
thority to  the  bank  to  pay,  the  drawer  has 
right  to  stop  payment  equally  as  in  case  of  a 
check  payable  to  order.  (Inquiry  from, 
Mass.,  Aug.,  1914,  JI-) 


Check  "given  as  earnest  money  on  land  trade'' 

2963.  A  check  bears  the  following  nota- 
tion, "Given  as  earnest  money  on  land 
trade."  The  bank  questions  its  right  to  pay 
the  instrument  without  first  inquiring  as  to 
the  status  of  the  land  trade,  also  the  right 
of  the  drawer  to  stop  payment.  Opinion: 
The  check  would  be  construed  as  an  uncon- 
ditional order  to  pay,  the  notation  being  a 
mere  statement  of  the  consideration  for 
which  the  check  was  given.  If  the  check 
operated  to  assign  the  fund  in  the  bank,  as 
soon  as  delivered,  the  drawer  would  have  no 
right  of  countermand,  but  if  it  was  a  mere 
order  or  an  authority  to  the  bank  to  pay 
and  did  not  have  the  legal  effect  of  assign- 
ment, the  drawer  would  have  the  right  to 
stop  payment.  According  to  the  weight  of 
authority  in  Texas,  a  check  does  not  operate 
as  an  assignment.  Doty  v.  Caldwell,  (Tex. 
Civ.  App.)  38  S.  W.  1025.  Vaughn  v.  Farm- 
ers, etc.,  Bk.,  (Tex.  Civ.  App.)  126  S.  W. 
690.  Central  Bk.  &  Tr.  Co.  v.  Davis,  (Tex. 
Civ.  App.)  149  S.  W.  290.  Davis  v.  State 
Nat.  B.,  (Tex.  Civ.  App.)  156  S.  W.  321. 
First  Nat.  Bk.  v.  Texas  MoHne  Plow  Co., 
(Tex.  Civ.  App.)  168  S.  W.  420.  Peters  v. 
Harden,  (Tex.  Civ.  App.)  168  S.  W.  1035. 
(Inquiry  from  Tex.,  Dec,  1916,  Jl.) 

Note :  The  Negotiable  Instruments  Law, 
providing  that  a  check  does  'not  operate 
as  an  assignment,  was  passed  in  Texas  in 
in  March,  1919. 

Stop  payment  of  check  by  partner 

2964.  Can  a  partner  stop  payment  of  a 
check  issued  in  the  firm  name  of  his  co-part- 
ner, each  having  the  right  to  draw,  whether 
given  for  private  or  firm  business?  Opinion : 
While  there  are  numerous  cases  upon  the 
liability  of  a  bank  where  it  pays  a  check 
after  stop  payment  by  the  drawer,  there  is 
a  dearth  of  authority  upon  the  right  of  a 
partner  to  stop  payment  of  a  check  issued 
in  the  firm  name  by  his  co-partner.  How- 
ever, upon  principle  either  party  has  the 
right  to  stop  payment  and  the  bank  should 
obey  the  order  and  would  thereafter  make 
payment  at  its  own  risk.  There  are  several 
decisions  involving  joint  accounts  in  savings 
banks  to  the  effect  that,  if  the  bank  pays 
after  notice  by  one  of  the  parties,  it  does  so 
at  its  own  risk  and  may  be  compelled  to  pay 
over  again  if  the  payment  proves  to  have 
been  made  to  one  not  entitled  thereto.    See, 


660 


STOPPING  PAYMENT 


[2965-2971 


for  example,  Metropolitan  Savings  Bank  v. 
Murphy,  33  Atl.  (Md.)  640.  If  a  check  is 
given  for  private  business  of  a  partner  and 
the  bank  knows  this,  there  is,  of  course, 
good  reason  for  the  other  partner  to  stop 
payment  because  the  money  is  being  used 
for  private  purposes.  But  equally  where  the 
check  is  given  for  firm  business,  the  bank 
would  take  the  risk  if  it  failed  to  obey  the 
stop  order  of  the  partner  who  did  not  draw 
the  check,  for  there  might  be  some  good 
business  reason  why  the  payee  was  not 
entitled  to  collect  same.  The  only  safe  rule 
to  follow  is  to  obey  the  stop  order  of  either 
partner,  no  matter  by  which  partner  the 
check  is  drawn,  {Inquiry  from  Pa.,  June, 
1915.) 

Stopping  payment  of  check  on  branch  hank 

2965.  Can  a  depositor  stop  the  payment 
of  his  check  drawn  on  a  branch  bank  after 
it  has  been  cashed  by  the  parent  bank? 
Opinion:  Payment  can  be  stopped  at  any 
time  before  the  check  has  been  presented 
at  the  branch  bank.  (Inquiry  from  Ala., 
May,  1917,  Jl.) 

After  check  stamped  "Paid"  and  remittance 
draft  drawn 

2966.  A  check  presented  by  mail  is 
stamped  "Paid,"  and  the  remittance  to 
cover  the  check  is  written  up ;  but  before  the 
check  has  been  charged  to  the  customer's 
account  or  the  letter  containing  the  payment 
for  it  mailed,  the  drawer  demands  that  the 
payment  be  stopped.  The  bank  inquires  as 
to  its  duty  in  the  matter.  Opinion:  Nine- 
teenth Ward  Bank  v.  First  National  Bank, 
184  Mass.  49,  67  N.  E.  670,  held  where  a 
bank  drew  a  remittance  check,  stamped  the 
word  "Paid"  on  the  face  of  the  item,  can- 
celled same  by  perforation,  and  filed  it  with 
the  paid  checks,  that  this  constituted  pay- 
ment even  though  it  was  not  charged  to  the 
account  of  the  drawer.  From  this  it  would 
seem  that  in  the  present  case  what  was  done 
constituted  an  acceptance  and  payment  of 
the  check,  so  that  it  would  be  too  late 
thereafter  for  the  drawer  to  stop  payment. 
{Inquiry  from  S.  C,  Dec,  1919.) 

Notes  and  acceptances  payable  at  bank 

Maker  has  right  to  stop  payment 

2967.  In  the  event  the  maker  of  a  note 
payable  at  a  bank  does  not  desire  bank  to 
pay  at  maturity,  it  is  necessary  for  him  to 
stop  payment;  where  the  bank  wrongfully 
refuses  to  pay  a  check  when  in  funds,  the 


courts  have  in  many  cases  awarded  the 
depositor  damages  for  injur\'  to  his  credit, 
and,  it  would  seem,  the  same  principle  would 
apply  to  notes  payable  at  bank.  {Inquiry 
from  Ala.,  Nov.,  1911,  Jl.) 

2968.  Note  payable  at  bank  is  equiva- 
lent to  order  to  bank  to  pay  same  for  account 
of  maker  and  latter  has  right  to  stop  pay- 
ment. N.  Y.  Neg.  Inst.,  Act.,  Sec.  147. 
{Inquiry  from  N.  Y.,  July,  1914,  Jl-) 

2969.  A  gave  his  promissory  note  to  B, 
payable  at  A's  bank.  B  negotiated  the  note 
in  his  own  bank  and  at  maturity  payment 
was  stopped,  although  there  were  sufficient 
funds  to  cover  the  note.  Opinion:  A  note 
payable  at  a  bank  constitutes  an  order  to 
the  bank  to  pay  the  same  for  the  account 
of  the  maker,  but  payment  should  be  refused 
where  the  maker  instructs  the  bank  not  to 
pay.  Bk.  v.  Henninger,  105  Pa.  496.  {In- 
quiry from  Pa.,  March,  1914,  Jl-) 

Stop  payment  by  acceptor 

2970.  B  purchased  goods  of  A,  giving 
him  in  payment  an  acceptance  covering  the 
invoice,  payable  at  a  bank  at  a  future  date. 
Before  maturity  B  stopped  payment,  al- 
though B  had  on  deposit  in  the  bank  suffi- 
cient funds.  Opinion:  An  acceptance 
or  note  payable  by  the  acceptor  or 
maker  at  a  bank  is  not  an  assignment  of  the 
deposit  to  the  holder  and  is  subject  to  coun- 
termand by  the  maker  before  the  bank  has 
paid  the  acceptance  or  accepted  or  paid  the 
note.  Edgerton  v.  Fulton  Nat.  Bk.,  43 
How.  Pr.  (N.  Y.)  216.  Grissom  v.  Com.  Nat 
Bk.,  87  Tenn.  350.  Elliott  v.  Worcester 
Tr.  Co.,  (Mass.)  75  N.  E.  944.  {Inquiry 
from  Wash.,  Feb.,  1917,  Jl.) 

Maker  orally  instructing  bank  not  to  pay  any 
of  his  notes 

2971.  A  gave  his  note  to  B  who  indorsed 
it  and  had  it  discounted  at  the  inquiring 
bank,  the  note  being  payable  at  X  bank.  On 
its  due  date  it  was  presented  for  payment 
at  X  bank,  which  refused  to  pay  same.  The 
cashier  of  X  bank  stated  that,  while  the  note 
was  good,  A  having  sufficient  funds  on  de- 
posit to  pay  same,  A  had  from  time  to  time 
orally  instructed  the  bookkeepers  not  to 
pay  any  of  his  notes.  The  inquiries  are: 
(1)  Whether,  under  the  circumstances,  the 
bank  could  by  protesting  note  charge  the 
indorsers  with  liability  on  this  note.  (2) 
Is  X  bank  hable  to  inquiring  bank  for  the 
payment  of  this  note  because  of  its  refusal 
to  pay,  as  X  bank  had  no  written  instruc- 


661 


2972-2977] 


DIGEST  OF  LEGAL  OPINIONS 


tions  as  to  non-payment  of  notes  and  not 
having  received  any  notice  of  non-payment 
of  this  particular  note?  Opinion:  Under 
the  Negotiable  Instruments  Law,  "Where  a 
note  is  made  payable  at  a  bank  it  is  equiva- 
lent to  an  order  on  the  bank  to  pay  the  same 
for  the  account  of  the  principal  debtor  there- 
on," The  note  being  an  order  on  the  bank 
to  pay,  the  maker  has  a  right,  as  between 
himself  and  the  bank,  to  stop  payment  if  he 
so  desires.  In  the  absence  of  a  requirement 
of  the  bank  that  stop  payment  orders  must 
be  in  writing,  a  notice  to  stop  payment  may 
be  given  orally.  In  this  particular  case,  al- 
though there  was  no  notice  to  stop  payment 
of  this  particular  note,  the  maker  has  orally 
instructed  the  bank  from  time  to  time  not 
to  pay  any  of  his  notes  that  were  presented, 
and  this  may  be  interpreted  as  a  sufficient 
instruction  not  to  pay  this  particular  note. 
Answering  queries:  (1)  The  inquiring  bank 
by  protesting  the  note  could  charge  the 
indorsers  with  liabihty.  It  was  duly  pre- 
sented and  payment  refused.  (2)  X  bank 
would  not  be  liable  to  the  inquiring  bank  nor 
any  of  the  parties  on  this  note.  The  re- 
course of  the  holder  would  be  against  the 
maker  and  prior  indorser.  {Inquiry  from 
N.J.,Aug.,  1917.) 

Written  notice  to  stop  payment 

Ineffective  where  check  inaccurately  described 

2972.  In  April  a  customer,  wishing  to 
stop  payment  on  his  check,  notified  the  bank 
and  described  the  check  as  being  for  $50, 
payable  to  John  Doe  and  dated  some  time 
in  April.  The  exact  date  he  did  not  know. 
A  check  payable  to  John  Doe  for  .$50  and 
dated  July  2  was  presented  and  paid  by  the 
bank.  The  customer  seeks  to  hold  the  bank 
liable  for  violating  his  stop  order.  He  claims 
he  omitted  to  date  the  check  and  the  payee 
supplied  the  date.  Opinion:  The  bank  is 
not  liable,  as  the  check  was  not  described 
with  sufficient  accuracy.  When  stopping 
payment  he  did  not  describe  the  check  as 
dated,  but  stated  it  was  dated  in  April. 
This  misdescription  was  material.  Mitchell 
V.  Security  Bk.,  147  N.  Y.  S.  470.  {Inquiry 
from  Ala.,  Oct.,  1916.  Jl.) 

Sufficiency  of  stop  notice  where  check  fully 
described,  but  wrong  number  given 

2973.  A  bank  having  before  it  an  order 
stopping  payment  of  a  post  dated  check, 
describing  the  check  by  name  of  the  drawer, 
number,  date,  amount  and  payee,  neverthe- 
less paid  the  check  when  presented  on  the 
day  of  its  date  because  the  number  of  the 


check  (12)  was  different  from  that  (13)  given 
in  the  stop  order.  The  bank  endeavored  in 
vain  to  reach  the  drawer  before  payment, 
but  construed  the  order  to  refer  to  another 
check.  Opinion:  Notwithstanding  a  mis- 
take in  the  number  of  the  check,  the  order 
was  sufficient  as  an  instruction  to  the  bank 
not  to  pay  the  presented  check.  {Inquiry 
from  Cal.,  Aug.,  1915.  Jl.) 

Stopping   payment  of  original  and  issuing 

duplicate  dfter  original  paid  and  returned 

to  depositor 

2974.  A  depositor,  after  his  check  had 
been  paid  and  returned  to  him  as  a  paid 
voucher,  in  ignorance  thereof,  issued  a  du- 
plicate check  and  notified  the  bank  in 
writing  not  to  pay  the  original  Opinion: 
The  bank  is  not  liable  to  the  depositor  be- 
cause the  duplicate  is  paid.  The  bank  is  not 
chargeable  with  knowledge  that  the  original 
was  paid  and  returned  and  that  the  stop  pay- 
ment order  was  issued  in  error.  {Inquiry 
from  Ohio,  Dec,  1915,  Jl.) 

Notice  holds  good  indefinitely 

2975.  An  order  to  stop  payment  can  be 
made  by  a  customer  to  his  bank  before  the 
check  has  been  paid  or  accepted  and  such 
order  does  not  expire  after  a  certain  time 
limit,  but  holds  good  indefinitely.  {Inquiry 
from  N.  J.,  Jan.,  1917,  Jl.) 

2976.  A  bank  which  pays  a  check  after 
receiving  a  stop-order  from  its  depositor 
does  so  at  its  peril.  The  usual  custom  of 
banks  in  New  York  City  with  respect  to  ac- 
cepting notices  of  stop  payment  is  to  keep 
the  orders  on  file  indefinitely;  if  a  check  is 
three  or  four  years  old,  the  banks  inquire  of 
the  drawer  whether  or  not  there  was  a  stop 
payment  order.  {Inquiry  from  Va.,  Feb., 
1909,  Jl.) 

No  time  limit  on  stop  payment  order 

2977.  An  opinion  is  asked  respecting  the 
liability  of  a  bank  when  a  depositor  has 
issued  a  check  and,  before  same  is  presented 
to  the  bank  for  payment,  the  customer  noti- 
fies the  bank  not  to  pay  the  check;  and  if  the 
bank  is  held  responsible  for  the  payment  of 
this  check  by  mistake,  should  it  be  presented, 
and  if  the  time  of  responsibihty  for  pay- 
ment of  same  is  in  any  manner  limited.  Opin- 
ion: There  is  no  time  limit  to  the  liabihty  of 
a  bank  which  inadvertently  pays  a  stopped 
check,  short  of  the  statute  of  hmitations. 
When  a  customer  stops  pajonent,  he  revokes 
the  authority  of  the  bank  to  pay  and  pay- 
ment of  a  stopped  check  is  without  authority 


662 


STOPPING  PAYMENT 


[2978-2981 


by  the  bank.  Such  revocation  of  authority- 
continues  indefinitely.  In  other  words,  there 
is  no  time  hmit  on  a  stop  payment  order. 
Of  course,  after  a  certain  period  of  time,  say, 
a  year  or  so,  an  outstanding  check  would 
become  stale  and  would  not  be  paid  by  the 
bank  in  any  event.  {Inquiry  from  Ark., 
April,  1919.) 

Oral  notice 

Sufficiency  of  oral  notice  to  stop  payment 

2978.  Under  the  Negotiable  Instru- 
ments Law  a  drawee  bank  is  not  liable  to 
the  holder  of  a  check  unless  it  accepts  or 
certifies  the  check,  and  the  maker  has  the 
right  to  stop  payment.  An  oral  notice  to 
stop  payment  is  probably  sufficient  and  a 
written  order  is  not  necessary,  although  the 
point  has  not  yet  been  judicially  passed  upon. 
{Inquiry  from  Ala.,  Dec,  1911,  Jl.) 

Note:  In  Peoples  Sav.  Bank  &  Trust 
Co.  V.  Lancey,  40  So.  (Ala.)  346  it  was  held 
that  a  depositor  may  prove  a  verbal  notice 
given  by  him  before  payment  to  the  bank's 
receiving  teller  not  to  pay  a  check,  though 
afterwards  at  request  of  the  teller  he  re- 
duced the  notice  to  writing. 

Payment  by  hank  two  years  after  check  orally 
stopped 

2979.  A  made  his  check  to  B  in  payment 
of  a  debt  but  later  verbally  stopped  payment 
because  he  had  settled  the  debt  by  giving 
B  a  note.  Two  years  later,  after  the  debt 
was  paid,  B  deposited  the  check  for  col- 
lection and  the  same  was  paid.  Opinion: 
The  drawee  cannot  charge  the  amount  to 
A's  account,  because  it  has  violated  the  stop 
order  and  has  paid  a  stale  check.  The 
drawee,  however,  can  recover  from  the  payee 
under  the  rule  that  money  obtained  by 
deceit  and  in  bad  faith  is  recoverable. 
People's  Sav.  Bk.  v.  Lacy,  (Ala.  1906)  40 
So.  346.  Lancaster  Bk.  v.  Woodward,  18  Pa. 
357.  Spokane,  etc.,  Tr.  Co.  v.  Huff,  (Wash.) 
115  Pac.  80.  Manufacturers,  etc.,  Bk.  v. 
Swift,  (Md.)  17  Atl.  336.  Schaller  v.  Borger, 
47  Minn.  357.  Stothwer  v.  McFarlane  Grain 
Co.,  (Iowa)  90  N.  W.  620.  {Inquiry  from 
N.  D.,  July,  1916,  Jl.) 

Check  paid  by  bank  one  year  after  oral  stop 
notice 

2980.  John  Jones  issued  a  check,  which 
was  presented  and  paid  about  one  year 
later.  The  depositor  claimed  that  he 
stopped  pajTnent  a  few  days  after  the  issue, 
but  the  bank  had  no  record  of  the  stop  order. 
Opinion:    If  the  depositor  can  prove  an  oral 


instruction  not  to  pay,  he  can  recover,  unless 
the  bank  can  prove  that  the  check  when  paid 
was  in  the  hands  of  a  holder  in  due  course 
who  could  enforce  the  check  against  the 
drawer.  If  a  check  is  stale  it  places  the  bank 
on  inquiry  before  pajTiient,  but  whether  a 
check  one  year  old  can  be  called  stale  is  an 
unsettled  question.  People's  Sav.  Bk.  v. 
Lacy,  146  Ala.  688.  Merchants,  etc.,  Nat. 
Bk.  V.  Clifton  Mfg.  Co.,  56  S.  C.  320.  {In- 
quiry from  Okla.,  April,  1913,  Jl.) 

Oral  notice  given  away  from  bank 
2981.  One  of  a  bank's  customers  gave  a 
check  to  another  customer  after  banking 
hours  for  an  automobile.  During  that  night 
the  garage  burned  and  the  automobile  was 
destroyed.  The  maker  of  the  check  saw  the 
president  and  cashier  of  the  Ijank  at  the 
fire,  and  there  told  them  not  to  pay  the 
check.  The  bank  inquires  whether  payment 
was  legally  stopped,  or  if  it  should  have  paid 
the  check  when  presented  the  next  morning. 
Opinion:  It  has  been  held  that  a  notice  to 
stop  payment  may  be  oral  (Lacey's  case, 
40  So.  Rep.  346)  but  it  has  never  been  held 
that  an  oral  notice  not  to  pay  given  to  the 
proper  officer  away  from  the  bank  is  binding 
on  the  bank,  where  it  is  not  executed  at  the 
bank.  There  are  certain  cases  in  which 
transactions  with  an  officer  away  from  the 
bank  do  not  bind  the  bank.  For  example, 
if  a  deposit  is  handed  to  an  officer  away 
from  the  bank  and  he  loses  it  and  it  never 
reaches  the  bank,  the  bank  is  not  bound. 
He  is  the  agent  of  the  depositor  and  not  of 
the  bank  until  the  money  actually  reaches 
the  bank.  So  if  the  customer  of  a  bank 
should  meet  an  officer  outside  of  banking 
hours  and  instruct  him  not  to  pay  a  de- 
scribed check,  and  the  officer  should,  on 
reaching  the  bank  next  day,  forget  and  omit 
to  make  note  of  the  stop  payment,  and  the 
stopped  check  was  paid,  or  if  it  was  paid 
before  he  reached  the  bank,  it  is  unlikely  the 
bank  would  be  hable;  certainly  not  in  the 
last  stated  case.  The  point  has  never  been 
decided.  But  we  think  the  true  rule  is  that, 
while  a  bank  may  act  upon  an  oral  stop 
payment  received  bj^  an  officer  away  from 
the  bank,  and  might  have  done  so  in  the 
present  case,  still  the  bank  is  not  bound  by 
such  an  order  where  not  communicated  to 
the  proper  officer  at  the  bank  or  where  the 
check  is  paid  before  the  order  is  entered  at 
the  bank,  and,  until  properly  communicated 
at  the  bank,  the  officer  receiving  the  order 
must  be  deemed  the  agent  of  the  depositor 
and  not  of  the  bank.  {Inquiry  from  Ohio, 
Aug.,  1918.) 


663 


2982-2983] 


DIGEST  OF  LEGAL  OPINIONS 


Note:  A  decision  has  recently  been 
rendered  by  the  Court  of  Civil  Appeals  for 
the  Third  District  of  Texas  holding  an  oral 
notice  to  stop  payment  given  to  the  cashier 
away  from  the  bank,  at  his  place  of  residence, 
vahd.  Hewitt  v.  First  National  Bank  of  San 
Angelo,  decided  192L  A  depositor  delivered 
his  check  on  Saturday  and  on  Sunday  called 
the  cashier  over  the  telephone  at  his  residence 
about  one-half  mile  from  the  bank  and  told 
him  not  to  pay  the  check.  The  cashier  replied 
he  would  make  a  written  memorandum  and 
attend  to  it  when  he  returned  to  the  bank. 
On  the  following  Monday  the  cashier  was 
detained  at  his  home  by  sickness  and  did  not 
arrive  at  the  bank  until  forty  minutes  after 
the  opening  hour.  Upon  his  arrival  he 
instructed  the  teller  not  to  pay  the  check 
and  then  learned  that  the  check  had  been 
presented  a  few  miuutes  before  and  had  been 
paid.  The  depositor  sued  the  bank  and  the 
District  Court  held  that  his  attempt  to  stop 
payment  on  Sunday  when  the  bank  was 
closed,  only  by  instruction  to  the  cashier 
away  from  the  banldng  house  and  records 
was  negligent  and  that  payment  of  the  check 
thereafter  before  the  cashier's  arrival  at  and 
notice  of  the  revocation  was  communicated 
to  the  bank  did  not  create  any  liability  to 
refund  the  money  paid  on  his  lawful  order; 
that  such  payment  did  not  constitute  negli- 
gence. The  Court  of  Civil  Appeals,  re- 
versing the  judgment,  held  that  the  notice 
was  vahd,  though  given  on  Sunday;  that 
notice  to  the  cashier  was  notice  to  the  bank 
and,  even  if  the  cashier  be  regarded  as  only 
an  agent,  it  was  his  duty  to  act  upon  the 
information  he  had  received.  Answering  the 
contention  that  the  notice  was  not  binding 
because  not  given  at  the  bank,  the  court  held 
that  while  there  are  some  transactions  which 
a  bank  can  properly  attend  to  only  at  its 
place  of  business,  still  in  the  instant  case  the 
cashier  was  not  requested  to  transact  any 
business  away  from  the  bank  but,  acting 
upon  the  information  which  he  had  received, 
he  was  requested  to  stop  payment  at  the 
bank.  He  was  as  much  the  cashier  at  home 
on  Sunday  as  he  was  when  at  the  bank.  The 
court  conceded  that  notice  to  the  cashier 
given  away  from  the  bank  would  not  be 
binding  on  the  bank  until,  by  use  of  reason- 
able diligence,  he  was  able  to  communicate 
such  notice  at  the  bank.  But  in  the  instant 
case  no  reason  was  shown  why  the  cashier, 
if  he  knew  that  he  would  not  be  at  the 
bank  when  it  was  opened  Monday  morning, 
should  not  have  communicated  the  infor- 
mation which  he  had  received  to  the  paying 


teller.  There  was  no  contributory  negli- 
gence on  the  part  of  the  depositor.  When 
he  notified  the  cashier  not  to  pay  the  check, 
he  did  all  that  reasonable  prudence  on  his 
part  required  him  to  do. 

The  bank,  in  this  case,  has  filed  a  petition 
for  rehearing  but  no  decision  has  been  made 
thereon  up  to  the  time  this  digest  goes  to 
press. 

Oral  notice  away  from  hank  supplemented  by 
written  memorandum  at  hank 

2982.  The  customer  of  a  bank  met  its 
cashier  at  a  social  function  and  verbally 
notified  him  to  stop  payment  on  a  certain 
check.  The  next  day  the  cashier  made  a 
written  memorandum  of  the  order.  About 
a  month  later  the  check  was  paid.  Opinion: 
The  notice  was  valid  and  binding  on  the 
bank.  The  law  does  not  require  that  the 
notice  be  in  writing,  and  although  an  oral 
notice  might  not  be  valid  when  given  outside 
of  the  bank,  the  fact  that  a  written  memo- 
randum of  the  notice  was  made  by  the  cashier 
at  the  bank  would  validate  it.  Norse  on 
Banks  and  Banking,  Sec.  168.  People's 
Sav.  Bk.  V.  Lacy,  (Ala.  1906)  40  So.  346. 
{Inquiry  from  Del.,  Feb.,  1909,  Jl.) 

Validity  of  stop  payment  over  telephone 

2983.  A  call  was  received  by  a  bank 
over  a  long  distance  telephone  from  a  person 
representing  himself  to  be  a  customer  order- 
ing pa3anent  stopped  on  a  certain  check. 
The  bank  was  not  sure  of  the  identity  of  the 
person  calling  and  informed  him  it  must 
have  an  order  in  writing.  Such  written 
order  was  received  but  before  receipt  the 
check  was  presented  and  paid.  Is  the  bank 
liable?  Opinion:  It  has  been  held  that  an 
oral  notice  not  to  pay,  given  the  receiving 
teller  before  the  check  is  paid,  is  valid  and 
may  be  proved.  Peo.  Sav.  Bk.  &  Trust  Co. 
V.  Lacy,  146  Ala.  688.  But  an  oral  notice 
over  the  long  distance  telephone  is  a  differ- 
ent matter,  in  view  of  the  difficulty  of  de- 
termining its  authenticity.  It  would  seem 
that  the  bank  could  maintain  such  an  order 
cannot  be  relied  on  as  genuine  and  that  it  is 
entitled  to  a  written  order  signed  by  the 
drawer  of  the  check.  Such  a  rule  of  the  bank 
would  seem  necessary  for  its  protection; 
otherwise  banks  would  be  at  the  mercy  of 
dishonest  persons  impersonating  drawers 
and  telephoning  fictitious  stop  payment 
orders.  The  courts  have  held  that  a  bank 
may,  but  is  under  no  obhgation  to  pay  a 
deposit  upon  an  oral  order,  being  entitled 
to  a  written  order  for  its  protection.    Aurora 


664 


STOPPING  PAYMENT 


[2984-2988 


Nat.  Bk.  V.  Dils,  118  Ind.  App.  19.  In 
Mayor  v.  Boyle,  132  N.  Y.  Supp.  729,  it  is 
held  that  notice  of  dishonor  by  telephone 
is  not  sufficient  under  the  Negotiable  In- 
struments Act.  It  has  also  been  held  in 
England  that  a  bank  is  not  bound  to  accept 
an  unauthenticated  telegram  as  sufficient 
authority  to  refuse  payment.  Curtice  v. 
London  City  and  Midland  Bank,  98  L.  T.  N. 
S.  190.  Until  the  point  is  definitely  decided, 
we  think  the  view  reasonable  that  a  bank  is 
not  bound  to  accept  a  notice  to  stop  pay- 
ment over  the  telephone  as  a  valid  order  and 
may  insist  on  a  written  order,  although  it 
may,  if  it  chooses,  accept  the  order  over  the 
telephone  and  take  the  risk  of  proving  its 
authenticity.  (Inquiry  from  Col.,  Dec, 
1915.) 

Note:  In  Hewitt  v.  First  National  Bank 
of  San  Angelo,  in  the  Court  of  Civil  Appeals 
of  Texas,  Third  District,  decided  1921,  it  was 
held  (reversing  the  lower  court)  that  a  tele- 
phone notice  to  stop  payment  was  valid 
even  though  given  to  the  cashier  at  his 
residence  away  from  the  bank  and  on  a 
Sunday.  A  petition  for  rehearing  of  this 
case  is  pending. 

Practice  of  stamping  check  "Payment 
stopped" 

Beneficial  effect  of  practice 

2984.  Following  its  usual  custom,  a  bank 
to  which  a  check  was  presented  stamped 
across  the  face  "Payment  stopped"  and  re- 
turned the  same  to  the  payee.  The  maker 
of  the  check  had  previously  countermanded 
payment.  The  payee  claimed  that,  as  the 
check  was  his  property,  the  bank  had  no 
right  to  deface  it  by  such  stamp.  Opinion: 
Custom  of  bank  to  stamp  a  countermanded 
check  "Payment  stopped"  before  returning 
to  the  holder  serves  a  beneficial  purpose 
without  injury  to  a  bona  fide  holder  and  will 
doubtless  be  sustained  by  the  courts.  {In- 
quiry from  N.  Y.,  Sept.,  1917,  Jl.) 

Bank  not  liable  for  defacing  property  of  holder 

2985.  A  bank  refused  payment  of  a 
check  in  pursuance  of  instruction  from  the 
drawer  not  to  pay,  and  stamped  "Payment 
stopped"  upon  the  instrument  before  re- 
turning the  same  to  the  holder.  The  pre- 
senting bank  objected  to  this  action,  taking 
the  position  that  the  drawee  had  no  right  to 
so  mark  the  check,  which  was  not  its  proper- 
ty. Opinion:  The  act  of  stamping  "Pay- 
ment stopped"  upon  the  check  was  proper 
in  view  of  the  custom  so  to  do,  the  beneficial 
purpose  thereby  served,  and  the  fact  that  no 


substantial  right  of  the  holder  is  violated. 
Burbridge  v.  Manners,  3  Camp.  193.  Dis- 
trict of  Columbia  v.  Cornell,  130  U.  S.  659. 
Andrews  v.  Pond,  13  Pet.  (U.  S.)  65.  Good- 
man V.  Harvey,  4  Adol.  &  El.  870.  Fowler  v. 
Brantley,  14  Pet.  (U.  S.)  318.  (Inquiry  from 
Pa.,  May,  1912,  Jl.) 

Note :  It  has  been  held  that  no  action  for 
damage  will  lie  against  a  bank  for  defacing  a 
note,  as  by  writing  on  the  face  thereof  the 
words  "Payment  stopped."  McKinley  v. 
American  Exchange  Bank,  7  Rob.  (N.  Y.) 
663. 

No  law  forbidding  practice 

2986.  There  is  no  law  expressly  for- 
bidding a  drawee  bank  from  stamping  "Pay- 
ment stopped"  upon  a  check  which  has 
been  refused  for  that  reason.  Such  a  prac- 
tice has  the  beneficial  result  of  warning  sub- 
sequent holders  that  payment  has  been 
stopped,  thereby  preventing  further  negotia- 
tion.     (Inquiry  from  N.  Y.,A2ig.,  1911,  Jl.) 

Criminal  liability  of  depositor 

Where  check  stopped  after  cattle  received 

2987.  A  Hve-stock  dealer  purchased  five 
head  of  cows,  giving  his  check  for  $95  in 
payment.  He  drove  the  cattle  to  another 
state  and  then  stopped  pa3anent  of  the 
check,  w^hich  in  the  meantime  had  been  pur- 
chased by  a  bona  fide  holder.  Opinion:  The 
holder  can  enforce  payment  from  the  drawer 
and  prior  indorser,  assuming  the  latter's 
liability  has  been  preserved  by  due  notice  of 
dishonor.  As  to  criminal  liabilitj'',  the 
drawer  could  be  convicted  of  obtaining 
goods  upon  false  pretenses,  provided  a  jury 
could  be  convinced  that  he  gave  the  check 
and  received  the  cattle  with  the  fraudulent 
intent  to  stop  payment  of  the  check.  (In- 
quiry from  La.,  April,  1915,  Jl.) 

Where  depositor  stops  check  after  receiving 
goods 

2988.  A  depositor  purchases  goods  of  a 
wholesaler,  giving  his  check  in  payment. 
After  receiving  the  goods  the  depositor  stops 
payment.  Opinion:  The  drawer's  liability 
to  punishment  for  obtaining  goods  under 
false  pretenses  depends  upon  proof  of  intent 
to  stop  payment  at  the  time  of  giving  the 
check.  A  bank  is  not  liable  to  the  holder  for 
obeying  the  stop  payment  order  of  its  de- 
positor, but  where  the  drawer  continually 
practices  such  fraud,  the  best  course  for  the 
bank  is  to  close  liis  account.  (Inquiry  from 
Pa.,  April,  1915,  Jl.) 


665 


2989-2992] 


DIGEST  OF  LEGAL  OPINIONS 


Revocation  by  cause  other  than 
drawer's  order 

Drawer  of  check  a  fugutive  from  justice 

2989.  A  depositor  committed  a  crime 
and  became  a  fugutive  from  justice,  his 
whereabouts  being  unknown.  A  check 
drawn  by  him  still  remains  outstanding  and 
a  creditor  notifies  the  bank  to  withhold  pay- 
ment of  the  deposit.  Opinion:  While  death, 
insanity  or  insolvency  of  a  depositor  revokes 
the  authority  of  a  bank  to  pay  his  check,  it 
has  never  been  decided  that  the  fact  that  a 
depositor  is  a  fugutive  from  justice  operates, 
ipso  facto,  as  a  revocation.  A  bank  should 
pay  his  outstanding  check  in  the  absence  of 
circumstances  showing  that  the  fugutive  is 
seeking  to  defraud  his  creditors  and  that  the 
check  is  given  in  bad  faith.  (Inquiry  from 
Pa.,  June,  1919,  Jl.) 

Where  payee  or  third  person  requests 
payment  stopped 

Effect  of  notice  not  to  pay  hy  payee  or  indorsee 

2990.  A  gives  B  a  check  for  labor  per- 
formed; B  indorses  the  check  and  hands  it 
to  C,  and  before  the  check  is  presented  at 
paying  bank,  B,  the  payee,  asks  stoppage  of 
payment,  claiming  the  check  was  lost.  Al- 
most immediately  thereafter  the  check  is 
presented  for  credit  by  C  who  has  an  ac- 
count at  the  paying  bank.  Question:  Can 
B  stop  payment?  Opinion:  The  payee  has 
no  legal  right  to  order  payment  of  the  check 
stopped,  as  the  contract  of  the  bank  is  with 
the  drawer  to  pay  his  check  and  the  bank  is 
under  no  contract  obligation  to  the  payee. 
It  has  been  held,  however,  that,  although 
the  notice  by  the  payee  to  stop  payment  is 
not  binding,  because  not  given  by  the  proper 
party,  it  is  sufficient  to  put  the  bank  on 
inquiry  as  to  the  equities  against  the  check 
in  the  hands  of  the  holder,  so  that,  if  it  makes 
a  wrongful  payment  it  is  at  its  peril.  Public 
Grain  &  Stock  Exchange  v.  Kune,  20  111. 
App.  137.  In  the  instant  case  the  payee  had 
received  the  check  for  labor  and  had  in- 
dorsed and  delivered  it  to  C.  Then,  claim- 
ing the  check  was  lost,  he  asked  the  bank  to 
stop  payment,  but  as  C  immediately  there- 
after presents  the  check  for  paj^ment,  this 
indicates  that  the  check  was  not  lost  as 
claimed  and  that  the  reason  given  for  re- 
questing payment  to  be  stopped  falls.  It 
appears,  therefore,  in  this  particular  case, 
unless  some  further  good  reason  is  given 
putting  the  bank  on  inquiry  as  to  the  bona 
fides  of  the  holder,  the  check  could  be  safely 
credited  to  the  account  of  the  holder  and 


request  for  stop  payment  ignored.    (Inquiry 
from  Ida.,  June,  1916.) 

Bank  may  he  put  on  inquiry 

2991.  A  gives  his  check  to  B  and  the 
latter  negotiates  to  a  third  party  who  loses 
the  check.  Has  the  bank  on  which  check 
is  drawn  authority  to  stop  payment  on 
notice  by  the  third  party?  Opinion:  The 
only  person  who  has  the  right  to  stop  pay- 
ment of  a  check  is  the  drawer.  The  payee 
of  the  check  or  indorsee  who  loses  it  might 
request  the  drawer  to  instruct  the  bank  not 
to  pay,  but  would  have  no  right  himself  to  do 
so.  If  the  check  were  indorsed  in  blank 
when  lost  it  might  get  in  the  hands  of  an 
innocent  purchaser  for  value  who  could 
enforce  payment  from  the  drawer  if  the  bank 
refused  payment  pursuant  to  his  instruction. 
The  question  whether  the  check  was  or  was 
not  negotiable  in  form  when  lost — that  is  to 
say,  whether  it  bore  an  indorsement  in 
blank  or  was  specially  indorsed  to  the  third 
person  and  did  not  bear  his  indorsement  in 
blank — might  have  weight  with  the  drawer 
in  determining  whether  or  not  he  should 
stop  payment.  The  notice  of  loss  by  the 
payee,  or  holder,  to  the  bank,  however, 
might  be  held  to  put  it  on  inquiry  as  to  the 
title  and  bona  fides  of  a  person  who  subse- 
quently presents  the  check  for  payment. 
(Inquiry  from  W.  Va.,  May,  1917.) 

Notice  hy  third  person  of  adverse  claim  and 
not  to  pay  depositor's  checks 

2992.  A  gave  B  a  check  on  X  bank,  but, 
before  the  check  was  presented  for  payment, 
C  called  at  X  bank  and  notified  it  not  to 
honor  any  checks  drawn  against  the  account 
of  A.  The  bank  has  no  knowledge  as  to 
whether  C  has  any  right  to  file  a  stop  pay- 
ment order  against  A's  account.  Should  the 
drawee  bank  honor  C's  stop  payment  order 
as  a  safety  measure  to  the  bank?  And 
should  a  bank  for  its  self  protection 
honor  any  and  all  stop  payment  orders 
regardless  of  who  might  file  them?  Opinion: 
A  third  person  has  no  right  to  stop  payment 
of  a  check  given  by  a  customer  of  a  bank  to 
another  by  a  mere  notice  not  to  pay.  Where 
the  third  person  makes  an  adverse  claim  of 
ownership  to  a  deposit  and  forbids  the  bank 
to  pay  its  customer's  checks,  the  bank  will 
thereafter  pay  its  customer's  check  at  its 
peril.  But  a  mere  notice  not  to  pay,  without 
presenting  any  facts  to  afford  a  reasonable 
ground  for  belief  that  the  deposit  belongs 
to  the  person  giving  the  notice,  is  not  suffi- 
cient.   (See  opinion,  A.  B.  A.  JL,  Jan.,  1921, 


666 


STOPPING  PAYMENT 


[2993-2998 


p.  496,  for  collection  of  authorities  governing 
adverse  claims  to  deposit,  and  sufficiency  of 
notice).     {Inquiry  from  N.  Y.,Jan.,  1921.) 

Duty  and  liability  of  bank 

Bank  must  obey  depositor's  instructions 

2993.  Inquiry  is  made  as  to  whether  a 
bank  should  stop  payment  on  a  check  when 
so  instructed  by  a  depositor.  Opinion: 
Where  a  bank  receives  an  instruction  from 
its  depositor  to  refuse  payment  of  a  check, 
it  should  obey  such  instruction  and  there  is 
no  liability  to  the  holder  even  though  the 
depositor  has  obtained  value  on  his  check, 
and  his  countermanding  payment  is  not  in 
good  faith.  Under  the  Negotiable  Instru- 
ments Act,  a  bank  is  not  hable  to  the  holder 
prior  to  acceptance  of  the  check;  its  only 
relation  is  to  the  drawer  and  if  the  latter 
stops  payment,  the  bank  is  in  duty  bound  to 
comply  with  his  instructions  whether  they 
be  rightful  or  wrongful.  It  is  not  for  the 
bank  to  question  his  motive;  that  is  a  matter 
between  the  drawer  and  the  holder  of  the 
check.  After  receipt  of  instruction  not  to 
pay,  the  bank  will  pay  the  check  at  its  peril. 
(Inquiry  from  Okla.,  Aug.,  1910.) 

Bank  cannot  charge  stopped  check  to  customer's 
account 

2994.  Is  a  bank  liable  to  a  customer  for 
its  failure  to  o})ey  his  instruction  to  stop 
payment  of  a  check?  Is  it  material  that  the 
notice  was  given  by  telephone  after  the 
closing  of  the  bank?  Opinion:  It  is  a 
general  rule  that  if  a  bank  pays  a  check  after 
it  has  been  notified  to  stop  payment,  it  pays 
on  its  own  responsibility  and  cannot  charge 
the  amount  to  the  customer's  account. 
Lunt  V.  Bank  of  North  America,  49  Barb. 
(N.  Y.)  221.  It  is  immaterial  that  the  notice 
is  given  after  the  bank  closed  where  it  is 
given  before  the  check  is  presented  and  is 
accepted  by  the  bank  as  a  stop  payment 
order.  It  might  be,  however,  that  if  the 
payee  had  a  valid  claim  against  the  customer 
for  the  amount  of  the  check,  the  bank  could 
succeed  to  his  rights  as  an  equitable  pur- 
chaser of  the  check  and  look  to  the  customer 
for  reimbursement.  Whatever  claim  might 
be  made  along  this  line,  no  charge  could  be 
made  against  the  account  of  the  customer 
until  an  adjustment  of  the  claim,  either  in  or 
out  of  court.  (Inquiry  from  N.  Y.,  Dec, 
1920.) 

Liability  of  bank  paying  stopped  check  through 
oversight 

2995.  A  depositor  drew  his  check  and 
ten  days  later  stopped  payment.    Through 


an  oversight  the  bank  paid  the  check.  Opin- 
ion: The  bank  is  liable  to  depositor  for  any 
resultant  damage;  but  if  the  bank  could 
prove  payment  had  been  made  to  a  holder 
who  had  enforceable  rights  against  the 
drawer,  probably  it  would  escape  liabiUty. 
(Inquiry  from  N.  J.,  March,  1913,  Jl.) 

Mistaken   payment   of  stopped  check    ■ 

2996.  A  gave  B  his  check  which  B  lost, 
after  he  had  indorsed  it  in  blank.  A  stopped 
payment,  but  the  bank  inadvertently  paid 
the  check  contrary  to  the  stop  order.  Opin- 
ion: If  check  paid  to  a  holder  in  due  course, 
bank  not  liable  for  loss  because  drawer  not 
damaged,  holder  having  right  to  enforce 
payment  from  drawer  and  payee  and  check 
operating  as  payment  of  drawer's  debt  to 
payee;  but  if  check  paid  to  finder  or  other 
than  holder  in  due  course,  drawer's  debt  to 
payee  would  remain  and  bank  would  be 
liable  for  loss.  People's  Sav.  Bk.  v.  Lacy, 
(Ala.)  40  So.  346.  German  Nat.  Bk.  v. 
Farmers  Deposit  Nat.  Bk.,  118  Pa.  294. 
Unaka  Nat.  Bk.  v.  Butler,  (Tenn.)  83  S.  W. 
655.  Nat.  Park  B.  v.  Lew,  17  R.  I.  746. 
Holmes  v.  Briggs,  131  Pa.  233.  Brown  v. 
Shintz,  202  111.  509.  Public  Grain,  etc., 
Exch.  V.  Kune,  20  111.  App.  137.  (Inquiry 
from  Pa.,  Aug.,  1917,  Jl.) 

Bank    need    not    notify    payee 

2997.  Should  a  bank  give  notice  to  the 
payee  of  a  stopped  check?  Opinion:  There 
is  no  legal  obligation  upon  a  bank  to  noti- 
fy the  pa^^ee  that  payment  of  a  check  has 
been  stopped  nor  to  request  the  drawer  to 
do  so.     (Inquiry  fr 0771  Pa.,  July,  1914.) 

Recourse  of  bank  paying  slopped  check 

Recourse  upon  drawer  as  equitable  purchaser 

2998.  A  customer  requested  his  bank  to 
stop  payment  on  his  check  of  S200.  The  stop 
order  was  unfortunately  overlooked  and  the 
check  was  paid.  The  bank  had  evidence 
from  the  holder  that  the  maker  received 
value  for  the  check,  and  the  holder  refuses 
to  refund  the  amount.  In  the  event  the 
maker  recovers  the  amount  from  the  bank,  it 
believes  he  will  be  receiving  double  value. 
Opinion:  Where  a  bank  pays  a  stopped 
check  it  docs  so  at  its  peril,  but  where  pay- 
ment is  made  to  a  holder  in  due  course  or 
where  the  drawer  has  received  full  value  for 
the  check,  there  is  ground  for  maintaining 
the  contention  that  the  bank  can  set  off  the 
amount  against  the  drawer's  account  as 
equitable  purchaser  of  the  check.    Where  a 


667 


2999-3001] 


DIGEST  OF  LEGAL  OPINIONS 


stopped  check  is  an  enforceable  obligation 
against  the  drawer  in  the  hands  of  a  holder 
in  due  course,  the  former  is  not  damaged 
because  of  its  payment  by  the  bank,  for,  if 
refused  payment,  the  drawer  would  be 
answ^erable  to  such  holder.  German  Nat. 
Bk.  V.  Farmers  Deposit  Bk.,  118  Pa.  294. 
Bk.  V.  Wilhams,  (Ga.)  90  S.  E.  718.  Ameri- 
can Defense  Soc.  v.  Sherman  Nat.  Bk., 
162  N.  Y.  S.  1081.  Unaka  Nat.  Bk.  v. 
Butler,  (Tenn.)  83  S.  W.  355.  Pease  v. 
State  Nat.  Bk.,  (Tenn.)  88  S.  W.  172.  Bed- 
ford Park  V.  Acoam,  125  Ind.  584.  {Inquiry 
from  Pa.,  Dec,  1917,  Jl.) 

Payment  of  stopped  check  to  holder  in  due 

course  recoverable  from  drawer  in  Indiana 

and  Tennessee  but  not  in  New  York 

unless  ratified 

2999.  A  draws  a  check  payable  to  bearer, 
and  later  stops  payment  on  it  at  the  drawee 
bank.  In  the  meantime  the  check  is  passed 
on  to  a  holder  in  due  course,  who  presents 
it  to  the  bank,  which  refuses  payment  be- 
cause of  the  stop  payment  order.  Has  the 
drawee  the  right  to  stop  payment  on  such 
check?  What  recourse  would  the  bank  have 
had  if  they  had  paid  the  check  under  con- 
ditions recited  above?  Would  they  stand 
in  the  shoes  of  the  holder  in  due  coiu-se? 
Opinion:  Where  a  bank  inadvertently  pays 
a  stopped  check  to  a  holder  in  due  course,  or 
to  the  payee  justly  entitled  to  it,  the  de- 
positor having  suffered  no  loss,  the  bank  can 
charge  the  amount  to  his  account  as  equita- 
ble purchaser  of  the  check  upon  proof  of  the 
payee's  or  holder's  enforceable  rights,  ac- 
cording to  the  rule  laid  down  by  the  Indiana 
and  Tennessee  courts.  Bedford  Bank  v. 
Acoam,  125  Ind.  584.  Unaka  Nat.  Bank  v. 
Butler,  (Tenn.)  83  S.  W.  655.  The  New 
York  Court  of  Appeals,  however,  holds  that 
the  bank  cannot  set  off  the  amount  simply 
by  showing  the  payee  was  justly  entitled  to 
payment,  but  must  further  prove  that  the 
depositor  ratified  the  unauthorized  payment 
of  his  stopped  check.  American  Defense 
Soc.  V.  Sherman  Nat.  Bank  (N.  Y.)  122 
N.  E.  695.  (Inquiry  from  Va.,  Aug. ,  1919,  Jl.) 

Subrogation  of  hank  to  drawer's  rights  against 
payee 

3000.  A  gave  B  a  check  for  SlOO  as  part 
purchase  on  some  lots,  provided  the  land 
was  high.  He  afterwards  found  the  land  to 
be  low,  with  some  water  on  it.  He  stopped 
payment  on  the  check,  but  the  bank  through 
error  paid  it  to  a  third  party,  C.    The  bank 


reimbursed  A  the  $100.  Can  the  bank  re- 
cover from  B,  admitting  it  made  a  mistake 
in  paying  the  check  after  receiving  a  stop 
payment  order  on  it?  In  other  words,  would 
the  court  correct  the  mistake  made  by  the 
bank  and  decide  B  must  return  the  money, 
he  now  having  both  the  money  and  the  land? 
Opiyiion:  Under  the  conditions  named,  the 
bank  is  entitled  to  be  subrogated  to  the 
rights  of  A  against  B,  so  as  to  recover  from 
the  latter  money  to  which  he  is  not  entitled. 
Muir  V.  Berkshire,  52  Ind.  149.  Cobb  v. 
Dyer,  69  Me.  494.  Crump  v.  McMurtry, 
8  Mo.  408.  Arlington  State  Bank  v.  Paulsen 
57  Neb.  717,  78  N.  W.  303.  N.  J.  Mid.  R. 
Co.  V.  Wortendyke,  27  N.  J.  Eq.  658.  Dur- 
ante V.  Eannaeo,  72  N.  Y.  S.  1048.  Moring 
V.  Prevost,  146  N.  C.  558,  60  S.  E.  509. 
Hodson  V.  Dismukes,  77  Va.  242.  Enders  v. 
Brune,  4  Rand.  (Va.)  438.  Underwood  v. 
Met.  Nat.  78  Va.  468.  Dayton  v.  Pueblo 
County,  241  U.  S.  588.  Lewis  v.  Chittick, 
25  Fed.  176.  {Inquiry  from  Va.,  Jan., 
1920,  Jl.) 

Bank's  recourse  against  payee  obtaining  check 
on  misrepresentation 

3001.  A  bank's  customer  issued  a  check 
for  potatoes  and  then  stopped  payment 
because  the  potatoes  were  not  as  represented, 
and  the  United  States  inspector  afterwards 
valued  the  potatoes  and  estimated  that 
there  was  a  shortage  in  value  of  $175.  The 
bank  inadvertently  paid  the  check  notwith- 
standing the  stop  order.  Opinion:  Upon 
the  stated  facts  the  bank  is  clearly  liable  to 
its  depositor  for  said  amount.  The  rule  of 
law  is  clear  that  a  bank  which  pays  a  stopped 
check  does  so  at  its  peril  and  is  liable  to  its 
depositor  for  any  damages  thereby  resulting. 
In  this  case  the  depositor  was  damaged  $175. 
But  it  seems  upon  settling  with  him,  the 
bank  would  be  entitled  to  an  assignment  of 
his  claim  against  the  seller  of  the  potatoes, 
or  would  be  subrogated  to  such  claim,  for 
the  amount  at  which  they  were  over-valued 
and  for  which  they  were  sold.  The  case  is 
one  where  the  goods  sold  were  not  of  the 
value  represented  and  the  money,  being  paid 
in  mistake  of  fact  upon  representation  of 
false  value,  is  recoverable.  The  depositor 
might  ratify  the  payment  of  the  check  by 
the  bank  and  then  sue  the  seller  himself  if 
he  would  agree  to  do  this;  otherwise  the 
bank  is  hable  to  him  for  the  amount,  and  it 
seems  the  bank  has  a  right  of  action  to 
recover  from  the  seller  of  the  potatoes. 
{Inquiry  from  Iowa,  Feb.,  1919.) 


668 


STOPPING  PAYMENT 


13002-3006 


Recovery  of  money  paid  on  stopped  check  where 
payee  guilty  of  fraud 

3002.  1 .  Where  the  payee  of  a  check  had 
already  received  payment  from  the  drawer, 
but  had  not  returned  same,  and  thereafter 
collected  it  from  the  drawee  bank,  does  this 
fact  make  the  payee  guilty  of  such  deceit  as 
would  render  him  liable  to  repay  the  money 
to  the  drawee  bank,  which  had  inadvertently 
paid  same  after  a  stop  payment  order  had 
been  received?  2.  If  so,  would  it  not  render 
the  payee  Hable  criminally  for  getting  money 
under  false  pretenses?  Opinion:  1.  Yes. 
The  rule  is  well  recognized  that  where  a 
check  is  paid  through  fraud  or  deceit  on  the 
part  of  the  payee  or  holder,  the  amount 
thereof  may  be  recovered.  (Bull  v.  City  of 
Quincy,  52  111.  App.  186.  Reynolds  v. 
Rochester,  4  Ind.  43.  Mut.  Sav.  Inst.  v. 
EnsUn,  46  Mo.  200.  Citizens  Bank  v. 
Graflin,  31  Md.  507.  Sheard  v.  Sears,  119 
Mass.  143.  Whiting  v.  Bank,  77  N.  Y.  365. 
Sleep  v.  Heymann,  57  Wis.  495.)  There  is 
another  rule  which  would  justify  recovery 
in  the  instant  case,  namely,  that  money  paid 
under  a  mistake  of  fact  to  one  not  entitled 
thereto,  and  who  cannot  in  good  conscience 
receive  and  retain  the  same,  may  ordinarily 
be  recovered  back.  The  law  raises  an 
impHed  promise  on  the  part  of  the  payee  to 
refund  the  amount  of  such  payment. 
(Hinds  V.  Wiles,  12  Ala.  App.  596.  Bank  v. 
Weber,  19  N.  Dak.  702.  Kane  v.  More- 
house, 46  Conn.  300.  City  v.  Henning,  64 
Ky.  381.  Foster  v.  Kirby,  31  Mo.  496. 
Jones  V.  Bank,  144  Mo.  App.  428.  Nat. 
Exch.  Bank  v.  Ginn,  114  Md.  181.  Egan  v. 
Abbett,  [N.  J.  1906]  64  Atl.  991.  Bone  v. 
Friday,  180  Mo.  App.  577.  Smith  v.  Lum- 
ber Co.,  81  Wash.  111).  2.  No  specific  de- 
cision is  recalled  where  a  payee  has  been 
held  criminally  liable  for  collecting  money 
on  a  check  for  which  he  has  already  re- 
ceived payment  from  the  drawer,  but  it 
would  seem  that  this  might  be  held  to  be  the 
obtaining  money  under  false  pretenses; 
(see  People  v.  BjTd,  1  Wheeler  Cr.  Cas. 
[N.  Y.]  242),  that  is  assuming  the  payee 
collected  the  check  knowing  he  was  not 
entitled  to  the  money.  However,  there  are 
many  cases  of  fraud  and  deceit  which  will 
support  a  civil  action,  although  there  may 
be  no  criminal  liability.  (Inquiry  from  N.  J. 
Aug.,  1916.) 

3003.  The  drawer  of  a  check  stopped 
payment.  The  drawee  attached  a  slip  to 
the  item,  indicating  that  payment  was 
stopped  and  returned  it  to  the  collecting 
bank.    Later,  through  the  fraud  of  the  payee 


the  check  was  presented  a  second  time  and 
paid  by  the  drawee  bank.  Opinion:  The 
drawee  cannot  charge  the  amount  to  the 
drawer's  account,  but  where  payee  induced 
payment  through  fraud,  the  general  rule 
that  payment  to  a  bona  fide  holder  is  a 
finahty  does  not  apply,  and  the  bank  has 
the  right  of  recovery  from  the  payee. 
Schneider  v.  Irving  Bk.,  30  How,  Pr.  (N. 
Y.)  190.  People's  Sav.  Bk.  v.  Lacy,  146 
Ala.  688.  Nat.  Bk.  v.  Berrall,  70  N.  J.  L. 
757;  58  Atl.  189.  Starkweather  v.  Emerson 
Mfg.  Co.,  132  Iowa  266.  {Inquiry  from 
N.  Y.,  April,  1915,  Jl.) 

Payment  of  stopped  check  to  bona  fide  holder 
irrevocable  and  not  recoverable 

3004.  Bank  which  pays  stopped  check 
to  a  bona  fide  holder  cannot  afterwards 
recover  back  the  money,  but  payment  to 
fraudulent  holder  is  probably  recoverable. 
Where,  however,  holder  has  taken  check  as 
gift  and  receives  payment  in  good  faith  with- 
out notice  of  countermand  by  drawer  it 
would  seem  that  payment  is  irrevocable. 
Nat.  Bk.  V.  Berrall,  (N.  J.)  58  Atl.  189,  70 
N.  J.  L.  757.  {Inquiry  from  Mont.,  July, 
1916,  Jl.) 

Payment  of  stopped  check  to  innocent  holder 
under  forged  indorsement  not  recoverable 

3005.  A  bank  was  notified  by  its 
customer  not  to  pay  his  check  and  thereafter, 
in  violation  of  the  stop  order,  makes  pay- 
ment to  an  innocent  holder  under  a  forged 
indorsement.  The  bank  contends  that  the 
holder  is  liable  upon  the  forged  indorsement. 
The  holder  claims  that,  payment  having  been 
stopped,  it  should  have  been  notified  imme- 
diately on  payment,  as  it  might  have  had  op- 
portunity to  protect  itself.  Opinion:  It  has 
been  held  that  the  case  does  not  fall  within 
the  general  rule  allowing  the  drawee  to  re- 
cover money  paid  upon  a  forged  indorsement 
but  that  the  bank,  making  payment  in  face 
of  the  stop  order,  is  precluded  from  setting 
up  the  forgery  of  the  indorsement  and  can- 
not recover  the  money  paid  from  an  innocent 
holder  who  has  received  payment.  Nat.  Bk. 
of  Commerce  v.  First  Nat.  Bk.,  (Okla.) 
152  Pac.  596.  Public  Grain,  etc..  Exchange 
v.  Kune,  20  111.  App.  137.  {Inquiry  from 
Miss.,  Aug.,  1918,  Jl.) 

Bona  fide  holder  offering  to  refund  one-half 

3006.  A  bank  through  oversight  paid 
a  check  the  day  after  stop  payment  notice 
had  been  given.  The  payee  who  had 
received   payment   for  goods   he  had   not 


669 


3007-3008] 


DIGEST  OF  LEGAL  OPINIONS 


delivered  refused  to  reimburse  the  bank  in 
full  but  offered  to  pay  $100,  that  being  one- 
half  the  amount  of  check.  What  action 
would  be  best  for  the  bank  to  take?  Opinion : 
The  courts  have  repeatedly  held  that  money 
paid  by  mistake  on  a  stopped  check  is  not 
recoverable  from  a  bona  fide  holder  to 
whom  paid.  See,  for  example,  National 
Bank  of  N.  J.  v.  Berrall,  70  N.  J.  Law  757. 
The  court  in  that  case  said:  "As  between 
the  holder  of  a  check  and  the  bank  on  which 
it  is  drawn,  the  latter  is  bound  to  know  the 
state  of  the  depositor's  account.  Before 
pajdng  the  check  it  must  take  into  consider- 
ation whether  it  was  drawn  against  funds, 
and  whether  the  order  for  payment,  evi- 
denced by  the  check,  has  subsequently 
been  revoked.  Therefore,  where  a  bank 
receives  in  the  ordinary  course  of  business  a 
check  drawn  upon  it  and  presented  by  a 
bona  fide  holder  who  is  without  notice  of  any 
infirmity  therein,  and  the  bank  pays  the 
amount  of  the  check  to  such  holder,  it 
finally  exercises  its  option  to  pay  or  not  to 
pay,  and  the  transaction  is  closed  as  to  the 
parties  to  the  payment."  It  follows  that 
legally  the  bank  has  no  right  of  action  against 
the  pa3^ee  on  the  check,  and  if  there  is  an 
offer  to  refund  $100  out  of  $200,  it  would  be 
the  part  of  wisdom  to  accept  same.  {Inquiry 
from  Pa.,  April,  1920.) 

Question  of  drawee's  recovery  from  purchaser 
of  check  nine  months  old 

3007.  A  bank  in  Texas  issued  a  draft  to 
a  customer  dated  August  1,  1914,  payable  to 
a  salesman  of  a  company  and  drawn  on  a 
Texas  correspondent.  The  Texas  bank 
requested  correspondent  in  Texas  to  stop 
payment  thereof.  The  draft  was  presented 
and  through  error  paid  by  the  bank  on 
which  it  was  drawn.  It  later  developed 
that  the  payee  of  draft  had  left  the  employ 
of  the  company,  and  cashed  this  draft  at  a 
hotel  in  Oklahoma  on  April  23,  1915.  Who 
is  hable  for  the  loss?  Opinion:  In  the  case 
stated  the  check  was  negotiated  nearly 
nine  months  after  it  was  drawn.  If  it 
should  be  held  that  nine  months  was  an 
unreasonable  time  for  the  check  to  remain 
outstanding  before  negotiation  and  that 
when  the  hotel  keeper  took  the  check  he  was 
put  on  inquiry  and  was  not  a  holder  in  due 
course,  then  the  check  would  not  be  charge- 
able by  drawee  to  drawer,  and  the  bank 
which  paid  the  check  would  be  the  loser, 
unless  it  could  recover  from  the  hotel  keeper 
the  money  paid,  which  is  somewhat  ques- 
tionable.    The  purchaser  has  given   value 


and  has  committed  no  fraud  and,  although 
he  may  be  put  on  inquiry  by  the  age  of  the 
check,  still  if  it  is  paid  by  the  bank,  possibly 
he  might  claim  that  such  payment  satisfied 
the  dut}^  of  inquiry.  It  is  a  doubtful  ques- 
tion whether  money  paid  on  a  stopped  check 
to  a  holder  for  value  can  be  recovered  as 
money  paid  by  mistake,  even  though  the 
holder  could  not  recover  from  the  drawer  in 
a  case  where  the  check  had  not  been  paid, 
because  the  latter  had  a  good  defense  and 
the  holder  was  put  on  inquiry  at  the  time 
of  purchase.  There  could  be  no  recovery 
if  the  holder  had  changed  his  position  as  a 
result  of  receiving  payment,  and  it  is 
doubtful  if  the  bank  would  not  be  bound  by 
the  payment  in  any  event.  {Inquiry  from, 
Mo.,  July,  1915.) 

Recovery  of  payment  of  stopped  check  made 
through  exchanges 

3008.  It  is  the  custom  of  banks  in  a 
certain  city  to  cash  each  others  checks 
during  the  day  and  then  make  an  exchange 
about  3.00  p.  m.  After  such  exchange  was 
made  on  Saturday,  the  inquiring  bank  cashed 
a  check  drawn  on  the  X  bank,  and  when 
this  exchange  was  made,  on  Monday,  the  X 
bank  took  this  check  and  stamped  it  "Paid." 
About  half  an  hour  later  X  bank  sent  the 
check  back,  saying  payment  had  been 
stopped  for  the  reason  it  had  been  cashed 
through  error.  Inquiry  is  made  whether  X 
bank  is  liable.  Opinion:  It  is  a  general  rule 
supported  by  numerous  cases  that  payment 
of  a  check  to  a  bona  fide  holder  is  a  finaHty 
and  cannot  be  recovered  because  the  pay- 
ment was  in  error,  the  check  having  been 
stopped.  This  rule  would  seem  to  apply  to 
the  present  case  in  event  that  there  is  an 
actual  final  payment  of  the  check.  The 
only  question  would  be  whether  the  payment 
by  exchange  was  a  final  payment;  that  is  to 
say,  when  this  exchange  was  made  at  3.00 
p.  m.,  on  Mondaj^  and  the  check  marked 
"Paid,"  was  such  exchange  a  finality  or  was 
it  provisional  so  as  to  give  opportunity  to 
take  the  check  back  to  the  bank  and  ascer- 
tain if  there  were  funds  to  meet  it  or  if  pay- 
ment had  been  stopped.  For  example,  in 
clearing-house  exchanges  in  cities,  after  the 
exchange  has  been  made,  there  is  still 
opportunity  to  take  the  check  back,  and  if  it 
is  not  good,  for  any  cause,  the  check  can  be 
returned  to  the  presenting  bank  within  a 
specified  time.  The  inquiring  bank  does 
not  clearly  state  the  nature  of  this  exchange 
of  checks,  and  whether  there  are  any  rules, 
connected  with  the  exchange,  making  the 


670 


STOPPING  PAYMENT 


[3009-3010 


initial  payment  at  the  exchange  provisional 
upon  verification  when  the  check  goes  back 
to  the  bank.  Without  knowledge  as  to  this, 
it  is  impossible  to  advise  more  definitely  as 
to  the  correctness  of  the  bank's  position,  in 
this  particular  case,  further  than  to  point 
out  the  general  rule  above  stated,  that  the 
payment  of  a  check  to  a  bona  fide  holder  is  a 
finality  and  irrevocable  because  of  error  as 
to  state  of  the  account  or  countermand. 
It  does  not  seem  this  rule  would  appty, 
however,  where  there  was  a  mere  provisional 
exchange  of  checks  with  right  of  the  drawee 
to  return  within  a  specified  time  thereafter 
if  found  not  good.  {Inquiry  from  Minn., 
June,  1916.) 

Limitation  of  bank's  liability  by 
agreement 

3009.  Note:  The  opinions  which  follow 
are  largely  based  upon  Elder  v.  Franklin 
National  Bank,  55  N.  Y.  Supp.  576,  the  only 
decided  case  on  the  subject  down  to  1920. 
In  the  Elder  case  the  agreement  was  as 
follows:  "It  is  further  agreed  that  the 
bank  shall  not  be  responsible  for  the  execu- 
tion of  an  order  to  stop  pajinent  of  a  check 
previously  drawn;  that  the  bank  will 
endeavor  to  execute  such  orders,  but  that 
no  liability  shall  be  created  by  failure  so  to 
do  (where  the  bank  has  exercised  ordinary 
care  in  that  regard)  and  that  no  rule,  usage 
or  custom  shall  be  construed  to  create  such 
liability."  The  words  in  parentheses  were 
not  in  the  agreement,  but  were  read  in  by 
judicial  construction.  The  agreement  did 
not  absolutely  relieve  the  bank  but  the 
test  of  liabilit}^  was  held  to  be  the  exercise 
of  due  care  and  the  bank  was  held  liable  for 
the  failure  to  exercise  that  care.  But  in  April, 
1920,  the  Supreme  Court  of  Massachusetts, 
in  Tremont  Trust  Co.  v.  Burack,  126  N.  E. 
782,  handed  down  a  decision  which  upheld 
the  validity  of  an  agreement  relieving  a 
bank  from  liability  because  of  payment  of 
a  stopped  check  through  inadvertence  or 
accident.  The  agreement  in  the  Tremont 
Trust  Co.  case  was  as  follows:  The  under- 
signed "agrees  not  to  hold  the  Tremont 
Trust  Company  liable  on  account  of  pay- 
ment contrary  to  this  request  if  same  occur 

through    inadvertence    or    accident 

The  Tremont  Trust  Company will  use 

the  best  methods  known  to  it  to  prevent 

oversight  and  accident,  but it  shall  not 

be  in  any  way  liable  for  its  act  should  said 
check  be  paid  by  it  in  the  course  of  its 
business."  The  court  said:  "The  word 
'inadvertence'  in    the    printed    agreement 


embraces  the  effect  of  inattention,  the  result 
of  carelessness,  oversight,  mistake,  or  fault 
of  neghgence  and  the  condition  or  character 
of  being  inadvertent,  inattentive  or  heedless. 
The  word  'accident'  is  used  in  the  sense  of 
a  happening  of  an  event  without  the  con- 
currence of  the  will  of  the  person  by  whose 
agency  it  was  caused.  It  is  manifest  the 
quoted  words  were  intended  to  exonerate 
the  bank  from  the  kind  of  negligence  shown 
bj^  the  record,  and  we  are  unable  to  see 
anything  illegal,  or  anything  opposed  to 
public  policy,  in  a  stipulation  or  agreement 
which  relieves  a  bank  so  circumstanced 
from  the  result  of  the  mere  inattention, 
carelessness,  oversightedness  or  mistakes  of 
its  employees."  Comparing  the  agreements 
in  the  two  cases,  both  contain  an  agreement 
by  the  depositor  that  the  bank  will  not  be 
held  responsible,  or  will  be  held  harmless, 
because  of  payment  of  a  stopped  check — in 
the  Tremont  Trust  Co.  case,  if  the  check  is 
paid  "through  inadvertence  or  accident" — 
and  also  an  agreement  by  the  banks  on  their 
part  that  they  will  endeavor  to  comply  with 
stop  orders,  the  Franklin  National  Bank 
agreeing  to  "endeavor  to  execute  such  or- 
ders" and  the  Tremont  Trust  Co.  to  "use 
the  best  methods  known  to  it  to  prevent 
oversight  and  accident." 

The  essential  points  of  both  agreements 
are  therefore  similar  and  the  divergent  de- 
cisions are  based  on  a  different  viewpoint  as 
to  stipulations  against  negligence.  The 
New  York  court  is  disinclined  to  support 
an  agreement  by  any  person  stipulating 
against  the  result  of  his  own  negligence  and 
therefore  reads  into  the  bank's  agreement  an 
implied  contract  to  use  reasonable  care 
which,  under  the  facts,  it  holds  to  have  been 
broken  because  of  negligence  of  the  bank. 
The  Massachusetts  court,  on  the  other 
hand,  fails  to  see  anj-thing  illegal  or  against 
public  pohcy  in  a  stipulation  which  will 
relieve  the  bank  from  the  results  of  negligence 
of  its  employees  and  therefore  holds  that  the 
agreement  is  valid  and  protects  the  bank. 

The  decision  of  the  New  York  court  in  the 
Elder  case  is  not  bv  a  court  of  last  resort. 
(See  A.  B.  A.  Jl.,  July,  1920.) 

Form  of  disclaimer  of  Alabama  bank 

3010.  In  a  form  submitted  for  protec- 
tion of  a  bank  in  case  of  payment  of  a 
stopped  check,  the  bank  acknowledges  re- 
ceipt of  the  stop  payment  order  and  states 
that  "we  will  ni.iko  every  effort  to  protect 
you,  but  will  not  hold  ourselves  responsible 
in  case  of  payment."    Opinion:    According 


071 


3011-3014] 


DIGEST  OF  LEGAL  OPINIONS 


to  a  decision  in  New  York  the  bank,  not- 
withstanding such  form  of  notice  or  agree- 
ment, will  not  be  relieved  from  responsibility 
for  payment  of  a  stopped  check  unless  it  has 
been  free  from  negligence  in  making  pay- 
ment. Elder  v.  Franklin  Nat.  Bk.,  55  N.  Y. 
S.  576.  {Inquiry  from  Ala.,  March,  1913,  Jl.) 
Note:  But  see  Tremont  Trust  Co.  v. 
Burack,  referred  to  in  previous  note. 

Agreement  not  to  hold  hank  liable 

3011.     This  form  of  agreement  is  sub- 
mitted:    "To  the  Bank.     Please 

stop  payment  on  check  drawn  on  you  *  *  * 
No. ,  dated issued  to  .  . 


for  the  following  reasons: 


and  the 


undersigned  hereby  agrees  to  hold  you 
harmless  for  said  amount  together  with  all 
expenses  and  costs,  including  attorney's 
fees,  if  any,  incurred  by  you  on  account  of 
your  refusing  payment  of  said  check,  and 
further  agrees  not  to  hold  you  liable  on 
account  of  payment  contrary  to  this  request, 
if  same  occur  through  inadvertence  or 
accident  only."  Opinion:  With  respect  to 
the  clause  in  the  form  submitted  reading: 
"and  the  undersigned  hereby  agrees  to  hold 
you  harmless,  together  with  all  expenses 
and  costs,  including  attorney's  fees,  if  any, 
incurred  by  you  on  account  of  3^our  refusing 
payment  of  said  check,"  it  may  be  said  that 
such  clause  is  entirely  unnecessary,  since, 
according  to  the  generally  accepted  view 
(which  also  obtains  in  Louisiana),  a  bank 
owes  no  duty  to  the  holder  of  a  check  with 
respect  to  the  payment  thereof,  and  its 
refusal  to  pay  gives  the  holder  no  right  of 
action  against  the  bank.  State  v.  Bank 
of  Commerce,  49  La.  Ann.  1060.  Cast  v. 
Henderson,  23  La.  Ann.  49;  see  also  Gordon 
V.  Muchler,  34  La.  Ann.  604.  The  agree- 
ment not  to  hold  the  bank  liable  for  pay- 
ment, contrary  to  instructions,  through 
inadvertence  or  accident,  would  be  held, 
under  a  New  York  decision,  to  relieve  the 
bank  only  in  case  it  used  reasonable  care. 
(Inquirij  from  La.,  Feb.,  1919.) 

Note:  But  see  Tremont  Trust  Co.,  v. 
Burack,  decided  in  1920,  referred  to  in 
previous  note,  under  which  such  an  agree- 
ment would  relieve  the  bank  from  liability. 

Bank  must  use  reasonable  care  notwithstanding 
agreement  that  customer  will  not  hold  it 
responsible 

3012.  A  clause  is  inserted  in  a  stop 
payment  order  to  a  bank  which  reads  as 
follows:  "Should  you  pay  this  check  through 
inadvertency  or  oversight,  it  is  expressly  un- 


derstood that  you  will  in  no  way  be  held  re- 
sponsible." Opinion:  It  is  doubtful  wheth- 
er under  this  clause  the  courts  will  relieve 
the  bank  in  all  cases  of  mistaken  payments 
of  stopped  checks,  irrespective  of  whether 
or  not  the  bank  has  used  reasonable  care. 
The  tendency  of  the  courts  is  to  attach  to  all 
agreements  relieving  the  bank  from  liability 
an  implied  condition  that  the  bank  on  its 
part  must  exercise  reasonable  care.  Elder 
V.  Franklin  Nat.  Bk.,  25  Misc.  (N.  Y.) 
716.  Appleby  v.  Bk.,  62  N.  Y.  12.  Allen  v. 
Bk.,  69  N.  Y.  314.  Mynard  v.  R.  R.  Co., 
71  N.  Y.  180.  {Inquiry  from  N.  Y.,  Oct., 
1916,  Jl.) 

Note:  But  see  Tremont  Trust  Co.  v. 
Burack,  referred  to  in  previous  note. 

Agreement  to  hold  bank  harmless 

3013.  A  depositor  agrees  to  hold  a  bank 
harmless  in  the  event  the  bank  inadvertently 
pays  a  check  after  a  stop  payment  notice  has 
been  received.  In  this  case  the  stop  pay- 
ment agreement  is  not  merely  a  statement 
in  the  pass-book,  but  is  actually  signed  by 
the  depositor.  Is  the  bank  absolved  from 
liability?  Opinion:  The  agreement,  being 
virtually  one  exempting  the  bank  from 
liability  for  its  own  negligence,  will  be 
strictly  construed.  Such  exemption  con- 
tracts are  not  favored  by  the  courts  and  will, 
if  possible,  be  construed  in  such  a  way  as  not 
to  relieve  from  negligence.  How  a  specific 
contract  of  this  kind  would  be  construed  has 
not  been  decided  and  cannot  be  foretold 
with  certainty.  Contracts  for  immunity 
from  negligence  will  be  upheld  in  the  State 
of  New  York  if  expressed  in  unequivocal 
terms.  Elder  v.  Franklin  Nat.  Bk.,  55  N.  Y. 
S.  576.  Mynard  v.  Syracuse  R.  Co.,  71 
N.  Y.  180.  {Inquiry  from  N.  Y.,  March, 
1919,  Jl.) 

Note:  In  Tremont  Trust  Co.  v.  Burack, 
decided  in  Massachusetts  in  1920,  referred 
to  in  previous  note,  such  an  agreement 
would  protect  the  bank. 

Agreement  that  depositor  will  not  hold  bank 

3014.  A  bank  incloses  and  asks  an 
opinion  as  to  the  protection  afforded  by 
the  use  of  the  following  form  of  stop  pay- 
ment notice:     " Bank.     You  will 

please  stop  payment  on No. , 

dated to  the  order  of for 


due 


that 


It  being  understood 


will  not  hold  the 


Bank    for    failure    to    comply    with    this 

request ."    Opinion:    It  is  difficult 

to    foretell    whether    the    form    submitted 


672 


STOPPING  PAYMENT 


[3015-3017 


would  afford  any  added  protection  until 
tested  in  the  courts.  In  the  case  of  Elder  v. 
Franklin  Nat.  Bk.,  55  N.  Y.  Supp.  576,  the 
stipulation  was  "that  the  bank  shall  not  be 
responsible  for  the  execution  of  an  order  to 
stop  payment  of  a  check  previously  drawn; 
that  the  bank  will  endeavor  to  execute  such 
orders,  but  that  no  liability  shall  be  created 
by  a  failure  so  to  do,  and  that  no  rule, 
usage  or  custom  shall  be  construed  to 
create  such  liability.  Notwithstanding  such 
stipulation,  the  bank  was  held  liable  for 
inadvertent  payment  of  a  stopped  check, 
the  court  holding  that  such  stipulations 
would  be  construed  strictly  against  the 
parties  who  framed  them  and  that  the 
above  clause  did  not  absolve  the  bank  from 
the  duty  of  exercising  ordinary  care.  Equal- 
ly a  court  might  read  into  the  instant  notice 
containing  the  stipulation  that  the  depositor 
will  not  hold  the  bank  for  failure  to  comply 
with  his  request  a  proviso  making  the 
promise  to  hold  harmless  conditioned  on  the 
exercise  of  reasonable  care  by  the  bank. 
The  form,  however,  contains  the  positive 
statement  that  the  depositor  will  not  hold 
the  bank  for  failure  to  comply  with  his 
stop  payment  request  and  it  may  be  the 
court  might  hold  this  a  clear  and  ambiguous 
release  from  liability,  binding  on  the  de- 
positor. (Inquiry  from  N.  Y.,  June,  1919.) 
Note:  See  Tremont  Trust  Co.  v.  Burack, 
referred  to  in  previous  note. 

Exemption  agreement  construed  as  requir- 
ing reasonable  care 

3015.  A  bank  inquires  whether  there  is 
any  means  whereby  it  can  escape  liabihty 
respecting  stop  payment  notices,  when 
using  utmost  good  faith  and  refraining 
from  promises.  Opinion:  The  courts  hold 
that  a  customer  has  a  right  to  stop  payment 
of  his  check  and  where  he  does  so  the  bank 
thereafter  pays  at  its  peril.  Concerning  an 
agreement  limiting  liaV)ility  of  the  bank, 
there  seems  to  be  only  one  decided  case  in 
which  the  question  has  been  passed  upon. 
Elder  v.  Franklin  National  Bank,  55  N.  Y. 
Supp.  576.  In  that  case  the  bank  inserted  a 
clause  in  the  pass-book  containing  an 
agreement  that  the  bank  should  not  be 
responsible  for  failure  to  execute  a  stop 
order  but  that  it  would  endeavor  to  execute 
such  order.  The  court  construed  the 
agreement  as  relieving  the  bank  from 
liability  if  in  good  faith  it  paid  a  stopped 
check  unless  it  failed  to  exercise  ordinary 
care.  It  held  in  that  case  that  ordinary 
care  had  not  been  exercised  and  that  the 


bank  was  liable.  It  would  seem  that  an 
agreement  relieving  the  bank  from  hability 
for  paying  a  stopped  check  would  be  valid 
and  protect  the  bank  in  any  case  where  it 
exercised  due  diligence,  or,  in  other  words, 
ordinary  care,  and  mistakenly  paid  the 
check  notwithstanding.  The  trouble  would 
be  in  any  case  where  a  stopped  check  had 
been  inadvertently  paid  to  prove  that 
ordinary  care  had  been  used.  This  would  be 
a  question  of  fact  to  be  determined  by  a 
jury.    (Inquiry  from  Ore.,  Nov.,  1917.) 

Note:  But  see  Tremont  Trust  Co.  v. 
Burack,  decided  1920,  referred  to  in  previous 
note. 

Unconditional  release  of  hank  from  liability 

3016.  Would  the  following  clause  at- 
tached to  a  stop-pa>Tnent  order  hold  good  in 
case  a  check  had  been  paid:  "I  ask  this 
as  an  act  of  courtesy  only,  and  hereby 
release  you  from  any  hability  in  case  of 
payment  or  non-pajment?"  Opinion:  The 
agreement  is  an  unconditional  release  of  the 
bank  from  hability  in  case  of  payment  of  a 
stopped  check,  and  in  al)rogation  of  the  rule 
of  law  that  the  bank  must  obey  its  depositors' 
instructions.  It  might  be  a  court  would 
construe  it  as  reheving  the  bank,  but  courts 
are  not  prone  to  construe  agreements  in 
such  a  way  as  to  support  a  waiver  of 
liability  for  negligence.  Elder  v.  Franklin 
Nat.  Bank,  25  Misc.  (N.  Y.)  716.  (Inquiry 
from  III.,  Aug.,  1919.) 

Liability  of  drawer  and  indorsers 
to  holder 

Holder  in  due  course  may  recover  from 
drawer 

3017.  A  gave  B  a  check  for  S500  which 
was  indorsed  by  B  to  C  and  was  supposed  to 
cover  the  pay  roll  of  B.  C  issued  his  checks 
payable  to  B's  employees  and  later  dis- 
covered that  A's  check  was  not  good.  C 
then  stopped  payment  of  his  checks.  Opin- 
ion: Under  the  common-law  rule  the  payees 
of  C's  checks  are  protected  as  holders  in  due 
course  and  as  such  they  are  free  from  C's  de- 
fense of  fraud  or  lack  of  consideration,  which 
he  mav  have  against  B.  Sackett  v.  Johnson, 
54  Cai.  107.  Kerr's  Civ.  Code  Cal.,  Vol.  2, 
Sec.  3123.  Bedell  v.  Herring,  77  Cal.  572, 
11  Am.  St.  Rep.  307.  Armstrong  v.  Am. 
Exch.  Nat.  Bk.,  133  U.  S.  433.  Brown  v. 
Brown,  91  Misc.  (N.  Y.)  220.  Boston  Steel 
Co.  V.  Steuer,  183  Mass.  140.  Ex  parte 
Goldberg  (Ala.)  67  So.  839.  Vander  Ploeg 
V.  Van  Zuuk,  135  Iowa  350.    Charles  Sav. 


673 


3018-3024] 


DIGEST  OF  LEGAL  OPINIONS 


Bk.  V.  Edwards,  243  Mo.  553.     {Inquiry 
from  Cat.,  Nov.,  1916,  Jl.) 

Note :  There  is  the  same  protection  under 
the  N.  I.  Act. 

Drawer  liable  to  innocent  purchaser 

3018.  John  Doe  purchased  from  a 
stranger  an  automobile  appHance,  giving 
his  check  of  $50  in  payment.  Having  be- 
come dissatisfied  with  the  article,  he  stopped 
payment.  In  the  meantime  a  bank  in  good 
faith  cashed  the  check  from  the  stranger,  and 
John  Doe  refuses  to  pay  the  amount.  Opin- 
ion :  A  bank  which  in  good  faith  purchases  a 
check  from  the  payee  without  notice  of  any 
defense  thereto  is  a  holder  in  due  course  and 
can  hold  the  drawer  Hable  for  the  full  amount 
thereof,  free  from  his  defense  against  the 
payee.  Civ.  Code  Cal.,  Sec.  3138.  {Inquiry 
from  Cal.,  Jan.,  1919,  Jl.) 

Recourse  of  holder  against  drawer  and  indorsers 

3019.  A  bank  in  Colorado  sold  its  draft 
on  a  New  York  bank  to  A,  who  gave  it  to 
B  to  close  up  a  deal.  B  cashed  the  draft 
with  C.  Pajonent  was  stopped  by  A 
because  of  fraud.  Opinion:  C,  as  bona  fide 
purchaser  for  value  of  the  stopped  draft 
which  has  been  duly  protested,  has  recourse 
upon  the  drawer  and  prior  indorsers. 
{Inquiry  from  Colo.,  Dec,  1912,  Jl.) 

Check  for  heaver  hides 

3020.  A  gave  his  check  in  payment  for 
beaver  hides.  The  check  was  purchased 
from  the  payee  by  a  bank.  Later  A  was 
arrested  for  having  the  hides  in  his  possession 
during  the  closed  season,  being  contrary  to 
law,  and  accordingly  stopped  payment  of 
the  check.  Opinion:  The  bank  purchasing 
the  check  from  the  payee  may  enforce 
payment  from  the  drawer,  if  it  acquired  the 
check  without  knowledge  of  the  illegal 
consideration.  {Inquiry  from  Colo.,  July, 
1913,  Jl.) 

Drawer  cannot  interpose  defense  against  in- 
nocent purchaser 

3021.  A  lumber  firm  sent  a  check  for 
$100  to  James  Salas  who  brought  the  check 
to  the  inquiring  bank  which,  knowing  Salas, 
the  payee,  cashed  same  for  him.  The  check 
was  sent  to  the  makers  through  the  bank's 
correspondent,  and  was  returned  marked 
"Stop  payment."  Opinion:  The  bank, 
having  purchased  from  the  payee  a  negoti- 
able check,  duly  indorsed  by  him,  paying 
full  value  therefor  without  notice  that  the 
drawer  had  any  defense  to  the  check  against 


the  payee,  is  clearly  entitled  to  recover  the 
amount  from  the  drawer.  The  fact  that  the 
payee  obtained  the  check  from  the  drawer 
for  a  specific  purpose,  and  that  he  did  not  do 
as  agreed,  probably  justified  the  drawer  in 
stopping  payment  and  would  be  a  defense 
in  case  the  payee  sought  to  recover  on  the 
check  from  the  drawer,  but  the  payee  having 
negotiated  the  check  to  an  innocent  pur- 
chaser, namely,  the  inquiring  bank,  no  such 
defense  would  avail.  The  bank  is  a  holder 
in  due  course  and  it  has  a  clear  right  to 
enforce  payment  of  the  check  from  the 
drawer.    {Inquiry  from  Colo.,  May,  1918.) 

Corporation  check  to  employee 

3022.  A  bank  cashed  a  check  drawn  on 
another  bank,  made  payable  to  K,  an 
employee  of  Y  corporation,  the  drawer  of 
the  check.  The  Y  company  stopped 
payment  on  said  check  before  it  could  be 
presented  to  the  drawee  bank,  stating,  as  the 
reason,  that  it  had  been  discovered  that  K 
was  largely  indebted  to  the  corporation. 
Can  the  bank  cashing  this  check,  as  an 
innocent  holder,  recover  the  amount  thereof 
from  the  drawer?  Opinion:  Where  a 
corporation  issues  its  check  to  an  employee, 
who  negotiates  the  same  for  value  to  a 
bank,  which  acquires  the  check  without 
notice  or  knowledge  of  any  defense  thereto, 
the  bank  is  a  holder  in  due  course,  and  can 
enforce  full  payment  from  the  drawer 
corporation,  where  the  latter  has  stopped 
payment.  (Neg.  Inst.  Law,  Sec.  57.) 
{Inquiry  from  Fla.,  Dec,  1920,  Jl.) 

Check  stopped  because  of  fraud 

3023.  A  issued  his  check  to  B  for  $650. 
Before  negotiation  A  notified  B  that  he 
had  stopped  payment  because  of  fraud. 
Disregarding  the  notice,  B  negotiated  the 
check  to  C,  who  had  no  notice  of  the  stop 
payment  and  who  gave  part  cash  and  the 
balance  for  a  bill  owed  by  B  to  C.  Opinion: 
C  may  recover  from  A,  as  he  was  an  innocent 
purchaser  for  valuable  consideration.  {In- 
quiry from  III.,  Jan.,  1916.) 

Check  stopped  because  of  error  in  amount 

3024.  A  bank's  depositor  gave  a  check 
for  labor  and  afterwards  discovered  he  had 
made  an  error  in  amount  and  stopped  pay- 
ment thereof.  The  party  holding  same  had, 
meantime,  cashed  it  and  when  same  was 
presented  the  bank  refused  payment.  The 
merchant  who  cashed  the  check  as  an 
accommodation  inquires  of  bank  whether  he 
can  recover  the  money  from  the  party  for 


074 


STOPPING  PAYMENT 


[3025-3031 


whom  he  cashed  it.  The  bank  asks  whether 
the  merchant  has  any  recourse  on  maker  of 
check.  Opinion:  The  merchant  who  cashed 
this  check  for  value,  being  a  holder  in  due 
course,  has  a  right  to  recover  the  full  amount 
thereof  from  all  parties  liable  thereon.  In 
other  words,  he  can  hold  the  maker  for  the 
full  amount  of  this  check.  {Inquiry  from 
III,  Dec,  1918.) 

Check  stopped  because  drawer  defrauded 

3023.  A  check  was  issued  in  payment 
for  certain  goods.  Shortly  thereafter  the 
drawer  discovered  he  had  been  defrauded 
and  stopped  payment  of  the  check.  In  the 
meantime  a  bank  cashed  the  check.  Opin- 
ion: The  bank  which  cashed  the  check  for 
the  payee  was  a  holder  in  due  course  and 
can  enforce  payment  from  the  drawer. 
(Inquiry  from  Kan.,  April,  1916,  Jl.) 

Check  ''for  labor"  not  performed 

3026.  A  employs  B  to  do  certain  work, 
and  gives  him  a  check  in  advance  marked 
"For  labor."  B  indorses  and  cashes  the 
check  with  a  local  merchant.  A  stops 
payment  on  the  check  before  presentment, 
alleging  failure  of  consideration.  Can  the 
merchant  hold  A  on  the  check?  Opinion: 
Where  a  check  is  given  the  payee,  reciting 
that  it  is  "for  labor,"  and  the  drawer  stops 
payment  because  the  payee  has  not  per- 
formed the  labor,  the  check  is  a  negotiable 
instrument  and  an  innocent  purchaser  of 
the  check  from  the  payee  can  enforce  pay- 
ment from  the  drawer.  The  negotiability 
of  an  instrument  is  not  affected  by  the  fact 
that  it  contains  a  statement  of  the  transac- 
tion which  gives  rise  to  the  instrument. 
(Sec  3,  Neg.  Inst.  Law.)  {Inquiry  fro)n  Ky., 
Feb.,  1920,  Jl.) 

Innocent  purchaser  may  recover  from  drawer 
and  indorsers 

3027.  Bank  A  issued  a  check  payable  to 
W.  &  Co.  Bank  B  cashed  same  for  W.  & 
Co.,  but  the  check  is  returned  by  the  bank 
which  issued  the  check  marked  "Payment 
stopped."  Bank  B  inquires  whether  or  not 
the  issuing  bank  has  the  right  to  stop 
payment  on  this  check.  Opinion:  Where  a 
bank  issued  a  check  drawn  upon  itself  to  a 
payee  and  then  refused  payment  of  the 
check,  an  innocent  purchaser  for  value 
from  the  payee  has  a  right,  as  a  holder  in  due 
course,  to  recover  the  full  amount  of  the 
check  from  the  issuing  bank,  and  also  from 
the  indorser,  provided  the  liability  of  the 
latter  has  been  preserved.    Neg.  Inst.  Law, 


Sec.  57.    {Inquiry  from  La.,  Nov.,  1919,  Jl.) 

Check  of  one  partner  to  another 

3028.  In  carrying  on  the  business  of 
handlers  of  farm  products  A  gave  to  his 
partner  B  a  number  of  checks  which  the 
latter  indorsed  and  received  cash  for  from 
bank  C.  On  presentation,  payment  was 
refused  because  of  a  stop  order  given  by  A. 
B  refused  to  reimburse  the  bank.  What 
action  should  it  take?  Opinion:  The  bank 
purchased  the  checks  from  B  in  good  faith, 
either  before  stoppage  of  payment  or  with- 
out knowledge  thereof.  As  an  innocent 
purchaser  for  value,  the  bank  would  have 
a  right  to  recover  from  A  as  the  drawer  of 
the  checks.  Also  from  B,  provided  he  has 
been  duly  charged  as  indorser.  Of  course, 
if  A  or  B  does  not  settle  voluntarily,  it 
would  require  a  lawsuit  to  enforce  the 
bank's  rights.    {Inquiry  from  La.,  Oct.,  1917.) 

Duplicate  for  stopped  check  already  paid 

3029.  The  payee  of  a  check  indorsed  it 
in  blank,  deposited  it  in  the  mail  and  it  was 
lost  before  reaching  the  addressee.  The 
payee  communicated  with  the  drawer,  and 
the  latter  stopped  payment  and  issued  a 
duplicate.  Afterwards  the  drawee  bank 
refused  payment  of  the  duplicate  because 
the  original  had  been  presented  and  paid 
before  the  stop  order  was  received.  Opinion: 
If  the  duplicate  was  in  the  hands  of  a 
holder  in  due  course,  he  would  have  a  right 
of  recovery  against  the  drawer  aTid  paj^ee. 
But  if  in  the  hands  of  the  payee,  he  cannot 
recover  because  of  payment  of  the  original, 
indorsed  in  blank  by  him.  Assuming  the 
drawer  is  held  liable  on  the  duplicate, 
he  would  have  recourse  upon  the  payee, 
because  of  money  twice  paid.  {Inquiry 
from  Mont.  Feb.  1918.) 

Purchaser  cashing  check  before  notice  of 
stop  payment 

3030.  A  gave  B  his  check,  which  was 
cashed  by  C.  C  was  later  notified  not  to 
cash  the  check,  because  A  had  stopped 
payment.  Opinion:  C,  having  cashed  the 
check  for  B  in  good  faith,  can  recover  from 
the  drawer.  {Inquiry  from  A^eb.,  Oct., 
1912,  Jl.) 

Recovery  by  holder  in  due  course  where 
payment  stopped 

3031.  A  gave  B  his  check,  which  was 
indorsed  by  B  to  C.  For  some  reason  of  his 
own,  B  stopped  payment  of  the  check. 
Opinion:    B  had  no  right  to  stop  payment, 


G"; 


8032-3037] 


DIGEST  OF  LEGAL  OPINIONS 


but  where  the  drawer  stops  payment  at  the 
payee's  request,  a  holder  in  due  course  may 
hold  both  drawer  and  payee  liable.  {In- 
quiry from  Neb.,  Nov.,  1914,  Jl.) 

Recovery  by  merchant  cashing  stopped  check 

3032.  A  customer  stops  payment  of  his 
check  after  learning  he  has  been  defrauded. 
The  check  has  been  given  by  the  payee  to  a 
merchant.  Can  the  latter  recover?  Opin- 
ion: Section  52  of  the  Negotiable  Instru- 
ments Act  defines  a  holder  in  due  course, 
among  other  things,  as  one  who  takes  the 
instrument  before  it  is  overdue,  in  good 
faith  and  for  value,  without  notice  of  any 
infirmity  in  the  instrument  nor  defect  in  the 
title  of  the  person  negotiating  it.  It  follows 
from  this  that  where  value  is  given  in  good 
faith  for  a  check,  the  purchaser  is  a  holder 
in  due  course,  although  payment  of  the 
check  has  been  stopped,  provided  the  pur- 
chaser has  had  no  notice  that  it  has  been 
stopped.  Section  57  of  said  Act  gives  the 
holder  the  right  to  enforce  the  instrument 
free  from  defenses.  The  fact  that  a  check 
was  obtained  from  a  drawer  by  fraud  is  not 
a  defense  against  a  holder  in  due  course. 
Famous  Shoe  Co.  v.  Crosswhite,  51  Mo. 
App.  55.     {Inquiry  from  N.  J.,  Oct.,  1918.) 

Depository  bank  can  recover  on  stopped  check 
to  extent  of  amount  advanced 

3033.  A  customer  deposited  a  check 
and  received  credit  for  the  amount,  $295  of 
which  he  checked  out  before  payment  of  the 
deposited  check  was  stopped.  Opinion: 
The  bank  of  deposit  was  a  holder  in  due 
course  to  the  extent  of  the  amount  paid  out 
against  such  deposit,  and  in  this  case  can  re- 
cover $295  from  the  maker  of  the  deposited 
check.  N.  Y.  Neg.  Inst.  Law,  Sees.  93,  96. 
{Inquiry  from  N.  Y.,  July,  1912,  Jl.) 

Creditor  receiving  stopped  check  may  recover 
amount  and  protest  fees  from  drawer 

3034.  A  gives  his  check  to  B  who  pays 
a  bill  to  C  with  it.  In  the  meantime  A 
stops  payment  on  the  check,  and  it  is  re- 
turned to  C's  bank  and  amount,  with 
protest  fees  added,  charged  to  his  account. 
The  question  is — In  what  manner  is  A 
benefited  by  stopping  payment?    Opinion: 

A,  who  stops  payment  of  his  check,  is  of 
course  hable  to  C  to  whom  the  check  has 
been  negotiated  with  protest  fees  added. 
The  only  possible  advantage  he  gains  by 
stopping  payment  is  in  the  contingency  that 

B,  the  payee,  presents  the  check  in  person 
and  that  the  bank  would  stamp  thereon 


"Payment  stopped,"  which  would  prevent 
its  further  negotiation.  {Inquiry  from  N.  Y. 
^eb.,  1917.) 

Recovery  by  depositary  bank  where  credit  of 
deposited  check  withdrawn 

3033.  John  Jones  gave  a  check  to 
WiUiam  Smith,  drawn  upon  bank  A.  Smith 
deposited  this  check  in  bank  B  and  is 
given  credit  on  his  account.  The  check  is 
presented  through  clearance  upon  bank  A 
and  is  marked  "Payment  stopped."  In 
the  meantime  Smith  draws  upon  the  funds 
thus  deposited,  and  his  checks  are  honored. 
Bank  B  brings  suit  against  Jones,  claiming 
to  be  innocent  purchasers  for  value.  Opin- 
ion: Bank  B  would  be  held  a  purchaser 
for  value  of  this  stopped  check  with  right  of 
recourse  against  the  drawer,  having  ad- 
vanced value  on  faith  thereof.  See,  for 
example,  Jefferson  Bk.  v.  Merchants  Rfg. 
Co.,  139  S.  W.  (Mo.)  545,  in  which  it  was 
held  that,  where  a  bank  allows  the  depositor 
of  a  check  bearing  an  unrestricted  indorse- 
ment to  draw  the  amount  of  the  check  before 
it  is  collected,  the  bank  is  a  holder  for  value 
and  the  defense  of  lack  of  consideration  is 
not  good  against  it.  {Inquiry  from  Ohio, 
April,  1916^ 

Stopped  check  given  for  cotton  which 
was  mortgaged 

3036.  The  drawer  of  a  check,  who  pur- 
chased several  bales  of  cotton  from  A, 
discovered  that  the  cotton  was  mortgaged 
and  inmaediately  stopped  payment  of  the 
check.  In  the  meantime  A  had  received  the 
money  from  a  bona  fide  purchaser  of  the 
check.  Opinion:  The  drawer  had  the  right 
to  stop  payment  of  the  check,  but  he  would 
still  be  liable  to  the  purchasing  bank  which 
cashed  the  check  in  good  faith.  {Inquiry 
from  Okla.,  Jan.,  1912,  Jl.) 

Recourse  of  creditor  of  payee  upon 
defrauded  drawer 

3037.  F.  Brothers  issued  their  check  to 
A.  S.  Brown,  who  used  it  in  payment  of  a 
bill  which  he  owed  to  A.  F.  Brothers,  dis- 
covering that  they  had  been  defrauded  by 
Brown,  stopped  payment  of  the  check. 
Opinion:  A,  the  innocent  purchaser  for 
value  of  the  check,  can  recover  from  F. 
Brothers.  Okla.  Neg.  Inst.  Act,  Sees.  52, 
57.  Famous  Shoe  Co.  v.  Crosswhite,  124 
Mo.  34.  Ketcham  v.  Govin,  71  N.  Y.  S. 
991.  Usher  v.  Tucker,  (Mass.)  105  N.  E. 
360.  First  Nat.  Bk.  v.  Osborn,  (Iowa) 
142  N.  W.  209.    McPherrin  v.  Tittle,  (Okla.) 


676 


i 


STOPPING  PAYMENT 


[3038-3044 


129  Pac.  721. 
1915,  Jl.) 


{Inquiry  from  Okla.,  July, 


Stopped  check  given  for  misrepresented  animal 

3038.  The  purchaser  of  an  animal 
stopped  payment  of  the  check  given  for  the 
price  on  the  ground  of  misrepresentation. 
The  payee  cashed  the  check  at  a  bank,  which 
forwarded  it  for  collection.  Has  the  cashing 
bank  recourse  against  the  maker  of  the 
dishonored  check?  Opinion:  The  bank 
cashing  the  check,  being  a  holder  in  due 
course,  may  recover  from  the  maker,  al- 
though he  was  defrauded  by  the  payee  and 
stopped  payment.  The  effect  of  stopping 
payment  merely  prevents  the  bank  from 
honoring  the  check;  it  does  not  affect  the 
rights  of  an  innocent  purchaser  for  value 
from  having  recourse  upon  all  prior  parties. 
The  underlying  theory  of  the  law  of  negoti- 
able paper  is  that  a  bona  fide  holder  for 
value  takes  the  instrument  free  from 
defenses  of  prior  parties.  (Inquiry  from 
Okla,,  Dec,  1920.) 

Recovery  hy  innocent  purchaser 

3039.  A  gave  his  check  to  B,  who  cashed 
it  with  C,  and  later  payment  was  stopped 
by  A.  Opinion:  C,  who  purchased  from 
B  without  notice,  was  a  holder  in  due 
course  and  can  enforce  payment  from  A. 
Neg.  Inst.  Law  (Commsr's.  dft.).  Sees.  52, 
57.  Lewis  v.  Reeder,  9  Serg.  &  R.  (Pa.) 
193.  Welton  v.  Littlejohn,  163  Pa.  205. 
Kuhn  V.  Gettysburg  Nat.  Bk.,  68  Pa.  445. 
Ihmsen  v.  Negley,  25  Pa.  297.  Real  Est. 
Invest.  Co.  v.  Smith,  162  Pa.  441.  (Inquiry 
from  Pa.,  June,  1916,  Jl.) 

Check  stopped  because  goods  misrepresented 

3040.  A  purchaser  gave  his  check  in 
payment  for  some  goods  which  were  not  as 
represented.  The  drawer  stopped  payment 
but  in  the  meantime  the  payee  of  the  check 
cashed  it  at  a  national  bank.  The  payee  was 
irresponsible.  Opinion:  The  national  bank, 
which  purchased  the  check  in  the  regular 
course  of  business,  is  a  holder  in  due  course 
and  can  recover  the  amount  and  protest 
fees  from  the  drawer.  (Inquiry  from  Pa., 
Dec,  1913,  Jl.) 

Recourse  by  cashing  bank  against  drawer  and 
identifying  indorser 

3041.  A  draws  a  check  payable  to  B, 
who  attempts  to  have  same  cashed  at  a 
bank  in  another  town,  but  the  bank  refused 
for  want  of  identification;  whereupon  B 
secured  the  indorsement  of  C,   upon  the 


strength  of  which  the  check  was  cashed.  A, 
learning  of  some  misrepresentation  of  B, 
stopped  payment  on  check  before  it  was 
presented  to  drawee  bank,  and  check  was 
duly  protested  when  presented.  The  bank 
which  cashed  the  check  has  entered  suit 
against  the  drawer,  A.  Would  they  legally 
have  recourse  against  the  drawer,  or  would 
not  their  recourse  be  rather  against  C,  upon 
the  strength  of  whose  indorsement  the 
check  was  cashed?  Opinion:  A  bank  which 
first  refuses  to  purchase  a  check  from  the 
payee  because  of  lack  of  identification,  but 
later  does  so  upon  the  indorsement  of  a 
third  person,  is  a  holder  in  due  course  and, 
where  payment  of  the  check  has  been 
stopped  because  of  fraud  of  the  payee,  the 
purchasing  bank  has  recourse  for  the  full 
amount  as  well  against  the  drawer  as  all 
prior  parties.  Sec.  57  Neg.  Inst.  Law. 
(Inquiry  from  Pa.,  Jan.,  1920,  Jl.) 

Check  for  stolen  cow 

3042.  A  customer  issued  liis  check  of 
$22  to  a  negro  in  payment  for  a  cow,  and 
later  stopped  payment  thereon  when  he 
learned  that  the  cow  had  been  stolen.  In 
the  meantime  the  negro  had  cashed  the  check 
at  a  bank.  Opinion:  The  bank  was  an 
innocent  purchaser  for  value  and  as  such 
can  enforce  payment  from  the  drawer. 
Robertson  v.  Coleman,  141  Mass.  231. 
Neg.  Inst.  Law  (Commsr's., dft.).  Sees.  55, 
57.    (Inquiry  from  Tenn.,  July,  1915,  Jl.) 

Check  stopped  because  drawer  defrauded 

3043.  A  gave  B  his  check  for  SI 00. 
B  indorsed  to  C,  who  cashed  it  with  Jones, 
an  innocent  party.  B,  on  discovering  that 
C  had  defrauded  him,  requested  the  drawee 
not  to  paj^  which  request  was  complied 
with.  Opinion:  Jones  can  enforce  payment 
from  the  drawer  and  prior  parties,  free  from 
the  defense  of  fraud,  but  cannot  compel  the 
bank  to  pay.  (Inquiry  from  Tex.,  Sept., 
1914,  Jl.) 

Check  stopped  because  no  consideration  received 

3044.  A  bank  cashed  a  check  indorsed 
by  the  payee  and  another.  Payment  of  the 
check  was  stopped  because  the  maker 
received  no  consideration  from  the  payee. 
Opinion:  The  bank  which  purchased  the 
check  in  good  faith  can  enforce  payment 
from  the  drawer,  free  from  the  latter 's 
defense  against  the  payee.  Neg.  Inst.  Law 
(Commsr's.  dft.).  Sec.  57.  (Inquiry  from 
Wash.,  April,  1915,  Jl.) 


677 


3045-3052] 


DIGEST  OF  LEGAL  OPINIONS 


Depository  hank  can  recover  to  extent 
of  advances 


3045.  A  borrowed  $500  from  B  and 
gave  him  a  note  indorsed  by  C.  It  was 
agreed  that  A  would  send  C  certain  stocks 
as  security,  and  in  case  of  A's  faikire  to 
send  same,  B  was  to  stop  payment  of  the 
check.  A  failed  to  send  the  stocks  as 
agreed,  but  deposited  the  check  in  bank 
and  was  permitted  by  it  to  draw  on  the 
funds  before  collection  of  the  check,  which 
had  been  stopped.  Opinion:  In  the  case 
submitted,  the  bank  which  received  the 
check  on  deposit  and  allowed  the  payee  to 
draw  out  the  funds  in  advance  of  collection 
of  the  check  is  a  holder  in  due  course.  It 
has  given  value  for  a  negotiable  instrument 
without  notice  that  the  drawer  had  a  defense 
thereto.  In  view  thereof,  the  bank  can 
compel  B,  the  drawer,  to  pay  the  amount  of 
the  stopped  check  or  such  amount  as  the 
bank  allowed  A  to  draw  thereon  before 
notice  of  the  refusal  to  pay.  {Inquiry  from 
W.  Va.,  Nov.,  1919.) 

Holder's  remedy  on  stopped  check  is  against 
drawer — Bank  not  liable 

3046.  A  customer  issues  his  check  in 
payment  of  an  automobile.  Finding  the 
machine  unsatisfactory,  he  instructs  his 
bank  not  to  honor  the  check.  A  third 
party,  the  collecting  bank,  presents  the  item 
and  payment  is  refused.  Both  the  bank  and 
the  customer  are  sued  for  non-payment. 
Opinion:  Drawee  bank  must  obey  cus- 
tomer's instruction  not  to  pay  check  where 
given  before  acceptance  or  payment  and  is 
not  liable  to  holder  for  refusing  payment. 
S.  C.  Neg.  Inst.  Act,  Sec.  189.  {Inquiry 
from  S.  C,  July,  1918,  Jl.) 

Holder  cannot  recover  from  hank  on 
stopped  check 

3047.  A  gives  his  check  in  payment  of 
a  horse,  and  later,  finding  the  horse  not  as 
represented,  stops  payment  on  the  check, 
which  had  been  indorsed  to  a  holder  in  due 
course.  The  bank  refuses  to  pay.  Opinion: 
Such  holder  has  no  remedy  against  the 
drawee  bank,  but  must  look  to  the  drawer 
and  any  prior  indorsers.  It  is  not  for  the 
bank  to  go  into  the  equities  of  the  case  be- 
tween holder  and  drawer,  as  its  duty  is  solely 
to  its  customer.  The  rule  is  otherwise  in  a 
few  states  where  a  check  is  regarded  as  an 
assignment  of  funds.  {Inquiry  from  Kan., 
Feb.,  1910,  JL) 

Note:  The  enactment  of  the  Negotiable 
Instruments    Law    in    all    states    except 


Georgia  has  abolished  this  last  stated  rule- 

Drawee  hank  not  liable  to  holder  of  stopped 
check 

3048.  A  depositor  purchased  goods, 
giving  his  check  in  payment.  Upon  dis- 
covering an  error  he  stopped  payment.  The 
holder  presented  the  check  at  the  drawee 
bank  and  demanded  payment.  Opinion: 
The  bank  was  in  duty  bound  to  obey  the 
instruction  and  refuse  payment,  and  it 
incurred  no  liability  to  the  holder  for  such 
refusal.  Wagstaff  v.  First  Nat.  Bk.,  (Minn.) 
134  N.  W.  224.  {Inquiry  from  Minn., 
May,  1915,  Jl.) 

Stopped  banker's  drafts 

Issuing  bank  liable  to  holder  in  due  course 

3049.  A  bank  purchased  a  New  York 
draft  of  $50  from  A,  who  received  the 
instrument  in  payment  for  goods  delivered 
to  B.  The  draft  was  presented  and  the  pay- 
ment was  stopped  by  the  bank  issuing  the 
draft  at  the  request  of  B,  the  payee,  who 
discovered  that  the  goods  had  been  mort- 
gaged. Opinion:  The  purchasing  bank,  as 
a  holder  in  due  course,  can  recover  payment 
from  the  issuing  bank  and  from  the  prior 
indorsers  and  its  rights  cannot  be  defeated 
by  stopping  payment.  The  drawee  bank, 
however,  is  in  duty  bound  to  obey  the  stop 
payment  order.  {Inquiry  from  Ariz.,  Jan., 
1917,  Jl.) 

3050.  A  purchased  a  draft  of  Bank  B, 
drawn  on  Bank  N,  payable  to  C.  A  mailed 
the  draft  to  C,  who  negotiated  it  to  D,  a 
holder  in  due  course.  Bank  B  at  A's 
request  stopped  payment.  Opinion:  D,  the 
holder  in  due  course,  can  enforce  payment  of 
the  draft  against  Bank  B,  the  drawer,  free 
from  defenses  available  against  C,  the  payee. 
{Inquiry  from  Ind.,  Nov.,  1914,  Jl.) 

3051.  A  bank  issued  a  draft  and  after- 
wards stopped  payment  because  the  payee 
gave  as  part  payment  a  worthless  check  of 
a  third  person.  Opinion:  The  issuing 
bank  cannot  be  held  liable  by  the  payee  for 
so  much  thereof  as  is  represented  by  the 
worthless  check;  but  if  the  draft  was  trans- 
ferred, the  bank  would  be  liable  to  a  holder 
in  due  course  for  the  full  amount.  {Inquiry 
from  N.  D.,  Jan.,  1913,  Jl.) 

Issuing  bank  should  require  indemnity  as  pre- 
requisite to  stopping  payment 

3052.  A  bank  inquires  whether  it  takes 
any  responsibility  in  stopping  payment  of 


678 


STOPPING  PAYMP]NT 


[3053-3055 


draft  sold  to  one  of  its  customers  and  issued 
to  a  third  party;  and  wishes  to  be  informed 
as  to  the  usual  procedure  in  handling  re- 
quests for  stop-payments  of  this  nature. 
Opinion:  If  payment  of  the  draft  was  stop- 
ped, the  bank  would  still  be  liable  thereon  as 
drawer  to  any  bona  fide  holder.  It  appears, 
therefore,  when  the  purchaser  of  a  bank 
draft  asks  that  payment  be  stopped  he 
should  be  willing  to  indemnify  the  bank 
for  any  costs  and  expenses  it  might  incur  in 
carrying  out  his  wishes  in  event  the  draft 
should  be  in  the  hands  of  a  holder  in  due 
course  who  would  be  entitled  to  enforce 
payment  by  the  drawer  free  from  equities. 
Sometimes,  of  course,  the  purchaser  of  a 
draft  finds  he  has  been  defrauded  and  the 
bank  will,  in  an  endeavor  to  protect  his 
interest,  stop  payment;  but  the  bank  itself 
should  be  protected  by  the  purchaser  from 
any  expense  it  may  be  put  to  as,  in  event  of 
stop  payment,  it  would  be  liable  to  a  bona 
fide  holder  for  protest  fees  in  addition  to  the 
face  of  the  draft,  and,  in  event  of  suit, 
would  be  liable  for  costs  thereof.  {Inquiry 
from  Wis.,  Aug.,  1914.) 

Stopped  banker's  draft  not  yet  presented 

3053.  A  bank  sold  a  draft  on  New  York 
to  a  person  selling  stock  in  an  industrial 
concern,  to  which  it  was  made  payable.  A 
check  of  one  of  the  bank's  customers  was 
tendered  in  payment  of  the  draft.  On  the 
same  day  draft  was  issued  the  bank's 
customer  discovered  that  the  concern  had 
no  financial  standing.  Upon  request  of 
customer  the  bank  stopped  payment  of 
the  draft,  he  assuming  all  responsibility. 
The  draft  remains  unpaid,  never  having 
been  presented.  What  are  bank's  rights 
against  customer  who  asks  reimbursement? 
Opinion:  The  question  whether  the 
customer  will  be  the  ultimate  loser 
will  depend  upon  whether  the  draft 
has  been  negotiated  to  a  holder  in  due 
course,  being  a  negotiable  instrument.  If 
it  has  been  so  negotiated,  the  bank  would 
be  compelled  to  pay  same,  notwithstanding 
stop  payment.  Until  the  bank's  liability  is 
determined  after  presentment  thereof  and 
refusal  to  pay,  it  seems  nothing  can  be  done 
towards  reimbursing  the  customer.  Assum- 
ing the  draft  was  issued  to  a  fraudulent 
holder,  if  the  same  could  be  located,  it  might 
be  possible  to  enjoin  its  further  negotiation; 
and  furtiier  assuming  this  draft  should  be 
presented  by  the  payee,  who  has  no  enforce- 
able rights,  and  the  drawee,  the  liank's 
New  York  correspondent,  marks  it  "pay- 


ment stopped,"  this  would  prevent  Us 
further  negotiation  and  if,  in  such  case,  the 
draft  was  not  enforceable  in  the  hands  of  the 
payee  against  the  bank,  its  customer  would 
l3e  saved  from  loss.  But  if  on  the  other 
hand,  it  is  in  the  hands  of  a  holder  in  due 
course,  the  bank  will  have  to  pay  same  and 
its  customer  will  be  loser.  Until  the  bank's 
liability  or  non-liability  is  determined, 
nothing  further  can  be  done  as  to  settling 
with  the  customer.  (Inquiry  from  Minn., 
Dec,  1917.) 

Holder  not  entitled  to  damages  from  drawer, 
in  addition  to  amount  of  draft 

3054.  A  client  purchased  from  a  bank  a 
draft  drawn  by  it  on  its  Chicago  correspon- 
dent for  $2,500.  Two  days  after  said  issue, 
upon  the  payee's  request  given  at  the  time, 
the  bank  stopped  payment  on  its  draft, 
which  had  come  into  the  hands  of  an  inno- 
cent purchaser  for  value.  The  holder  now 
seeks  to  recover  damages  from  the  drawer  of 
the  check,  besides  the  amount  of  the  draft. 
Opinion:  The  drawer  of  a  check  who  stops 
its  payment  at  the  request  of  the  paj'ee  is 
liable  thereon  to  a  holder  in  due  course  for 
its  face  amount,  with  interest  and  protest 
fees,  together  with  court  costs  in  case  of  suit; 
but  there  is  no  additional  liability  to  such 
holder  for  damages  because  of  such  stoppage 
of  payment.  The  rule  is  that  where  a  bank 
wrongfully  refuses  payment  of  its  customer's 
check,  the  latter  has  a  right  of  action  for 
damages  in  addition  to  the  amount  of  the 
check,  because  of  injury  to  his  credit,  but 
the  reason  for  allowing  damages  in  such  a 
case  does  not  apply  to  an  indorser  as  in  this 
case.  The  holder  does  not  receive  injury  to 
his  credit  by  non-payment  of  the  check, 
because  it  is  not  his  check  which  has  been 
dishonored,  but  the  check  of  someone  else. 
Colo.  Neg.  Inst.  Act,  Sec.  5111.  {Inquiry 
from  Colo.,  Nov.,  1918,  Jl.) 

Cashier's  and  cerlified  chocks  and  cer- 
tificates of  deposit 

Difference  between  cashier's  check  and 
ordinary  check 

3055.  A  bank  desires  to  know  whether 
or  not  a  bank  has  the  same  right  to  stop 
l)ayment  on  its  cashier's  check  as  an 
indiv-idual  has  to  stop  payment  on  his  checlcs. 
Opinion:  The  ordinary  check  is  drawn  b^' 
the  customer  on  the  bank  and  until  it  is 
eerlified  it  is  a  mere  order  on  the  bank 
which  the  customer  has  tiie  right  to  counter- 
mand.   The  cashier's  check  is  drawn  by  the 


079 


3056-3059] 


DIGEST  OF  LEGAL  OPINIONS 


bank  on  itself,  the  bank  being  both  drawer 
and  drawee.  Assuming  the  payee  of  such 
a  check  has  obtained  it  by  fraud  from  the 
bank  or  there  is  other  reason  why  the  bank 
should  not  pay  it  to  the  payee,  it  would,  of 
course,  be  within  the  power  of  the  bank  to 
refuse  payment  of  its  own  check;  but  if  the 
cashier's  check  has  been  negotiated  to  a  bona 
fide  holder,  he  would  have  an  enforceable 
right  against  the  bank,  and  if  it  refused 
payment,  the  holder  could  compel  the  bank 
to  pay  by  suit.  Taking  the  case  where  the 
payee  of  such  a  check  has  lost  it  or  has 
parted  with  it  through  fraud,  and  desires  the 
bank  not  to  pay  it,  he  has  no  right  to  stop 
payment  similar  to  the  drawer  of  an 
ordinary  check;  but  in  a  case  where  the 
payee  has  been  defrauded  or  asserts  he  has 
lost  the  check,  it  would  be  a  matter  resting 
witliin  the  judgment  and  discretion  of  the 
bank  whether  it  should  refuse  payment  if 
the  check  was  presented,  protecting  itself 
by  taking  a  bond  of  indemnity  from  the 
payee  against  ultimate  liability  to  a  bona 
fide  holder.  {Inquiry  from  Wis.,  April, 
1917.) 

Bank's  liability  to  innocent  purchaser  of 
stopped  cashier's  check 

3056.  A  cashier's  check  upon  which 
there  were  three  indorsements  was  pur- 
chased by  a  bank  and  presented  by  it  to  the 
drawee,  where  payment  had  been  stopped 
because  of  fraud.  Opinion:  The  purchasing 
bank  has  recourse  upon  the  drawer  as  well 
as  upon  the  indorsers,  provided  they  have 
been  dulj^  charged.  Mont.  Neg.  Inst.  Act, 
Sec.  5905.  (Inquiry  from  Mont.,  May, 
1915,  Jl.) 

Bank  liable  on  cashier's  check  to  innocent 
purchaser 

3057.  The  customer  of  a  bank  purchased 
its  cashier's  check  of  $600,  payable  to  his 
order.  Afterwards  without  giving  any 
specific  reason  he  wired  the  bank  a  request 
to  stop  payment  and,  upon  presentment  of 
the  check,  payment  was  refused  and  the  item 
protested.  Later  the  bank  learned  that  the 
customer  had  dehvered  the  check  in  some 
trade  and,  becoming  dissatisfied,  wired  the 
stop  payment  order.  The  bank  is  threatened 
with  a  suit  by  the  holder  to  enforce  payment 
of  the  check.  Opinion:  Certified  and  cash- 
ier's checks  being  used  in  place  of  money, 
the  courts  refuse,  as  a  general  proposition, 
to  permit  the  issuing  bank  to  refuse  payment 
and  defend  against  the  holder,  even  though 
he  has  procured  the  check  from  the  bank's 


customer  by  fraud.  In  New  Jersey,  however, 
it  has  been  held — contrary  to  decisions  else- 
where— that  where  a  check  has  been  certified 
for  the  drawer  before  delivery  by  him  (as 
distinguished  from  certification  for  the 
holder  after  delivery  by  the  drawer)  the 
certifying  bank  can  plead  fraud  of  the 
holder  upon  the  drawer  in  defense  of 
payment.  In  this  case  the  bank  is  the 
primary  debtor  upon  the  check  and  is 
liable  thereon  to  the  holder  who  has  the 
legal  title  by  indorsement.  Carnegie  Tr. 
Co.  V.  First  Nat.  Bk.,  (N.  Y.)  107  N.  E. 
693.  Times  Square  Auto.  Co.  v.  Rutherford 
Nat.  Bk.,  (N.  J.)  73  Atl.  479.  Blake  v. 
Hamilton  Dime  Sav.  Bk.,  (Ohio)  87  N.  E. 
73.  Gamel  v.  Hynds,  (Okla.)  125  Pac. 
1115.  First  Nat.  Bk.  v.  Buffalo  Brew.  Co., 
154  N.  Y.  S.  765.  (Inquiry  from  Mo.,  Jan., 
1919,  Jl.) 

Bank  should  require  indemnity  before  stopping 

payment  of  cashier's  check  at  purchaser's 

request 

3058.  A  bank's  customer  purchased 
from  it  a  cashier's  check,  and  sent  it  away  to 
complete  a  land  deal,  but  before  same  was 
returned  for  payment  the  customer  requested 
the  bank  to  stop  payment  thereof.  Opinion: 
If  the  cashier's  check  issued  by  the  bank 
should  be  negotiated  to  an  innocent  pur- 
chaser for  value,  the  latter  could  compel 
payment  by  the  bank  notwithstanding  the 
the  parties  with  whom  the  payee  dealt  did 
not  do  as  they  agreed  to.  Consequently, 
before  refusing  to  pay  on  request  of  the 
payee,  the  customer  should  give  the  bank 
satisfactory  indemnity  to  cover  all  liabihty 
which  the  bank  might  incur  in  case  the 
check  has  been  negotiated  to  a  holder  in 
due  course.  Assuming  the  bank  had  issued 
a  draft  on  its  correspondent,  instead  of  a 
cashier's  check,  the  bank's  position  would 
be  the  same.  In  this  case,  being  the  drawer, 
the  bank  would  have  a  right  to  instruct  the 
drawee  to  refuse  payment,  but  in  that 
event  there  would  be  an  equal  liabihty  on 
the  bank's  part,  as  drawer,  should  the 
check  be  negotiated  to  a  holder  in  due 
course.  Consequently,  in  such  a  case  in- 
demnity would  likewise  be  necessary  for  the 
bank's  protection  before  stopping  payment. 
(Inquiry  from  Kan.,  Oct.,  1917.) 

Cashier's  check  erroneously  issued  for 
too  large  amount 

3059.  A  bank  erroneously  issued  a 
cashier's  check  for  $1,000  instead  of  the 
sum  of  $12.50,  interest  on  $1,000.    When  the 


680 


STOPPING  PAYMENT 


[3060-3062 


check  came  back  for  payment,  same  was 
refused.  Opinion:  The  bank  would  have  a 
right  to  refuse  to  pay  its  cashier's  check 
while  in  the  hands  of  the  payee  on  the 
ground  that  it  was  issued  in  error  as  to 
amount;  but  should  the  payee  wrongfully 
negotiate  the  check  to  an  innocent  pur- 
chaser, the  bank  would  be  compelled  to 
pay  the  full  amount  to  the  latter.  The 
bank  should  immediately  take  legal  steps 
against  the  payee  to  restrain  him  from 
negotiating  the  check  and,  if  legal  pro- 
ceeding are  promptly  taken,  the  bank  may 
be  able  to  impound  it  in  his  hands.  The 
cashier  had  the  right  to  refuse  payment 
and  return  the  check,  but  if  the  holder  of 
the  check  is  an  innocent  purchaser,  he  can 
compel  the  bank  to  pay  it.  If  the  holder  is 
a  mere  confederate  of  the  fraudulent  payee, 
then  the  bank  would  have  a  defense. 
(Inquiry  from  Ga.,  July,  1919.) 

Cashier's  check  fraudulently  obtained 

3060.  The  F  bank  purchased  from  a 
stranger  a  cashier's  check  drawn  by  a 
neighbor  bank.  The  check  was  indorsed  in 
blank  and  by  the  stranger.  After  he  was 
properly  identified  and  the  check  indorsed 
by  a  local  man,  the  F  bank  paid  the  amount 
thereof  and  sent  same  to  the  drawee  bank 
for  payment.  The  check  was  returned 
protested  with  the  words  "Fraudulently 
obtained"  written  on  its  face.  The  F  bank 
received  no  stop  payment  notice  but  soon 
afterwards  received  notice  from  the  drawer 
bank  that  "this  party  obtained  this  check 
on  a  telegram  which  afterwards  proved  to 
be  wrong."  The  F  bank,  asks  whether  it 
can  look  to  the  maker  for  payment.  Opin- 
ion: The  F  bank,  being  a  purchaser  of  the 
cashier's  check  in  good  faith  for  value,  has 
recourse  upon  the  drawer  as  well  as  upon  the 
indorsers,  assuming  that  the  latter  have 
been  duly  charged  with  liability.  The 
Negotiable  Instruments  Act  (Sec.  5905 
Mont.  Stat.)  expressly  provides:  "A  holder 
in  due  course  holds  the  instrument  free 
from  any  defect  of  title  of  prior  parties,  and 
free  from  defenses  available  to  prior  parties 
among  themselves,  and  may  enforce  pay- 
ment of  the  instrument  for  the  full  amount 
thereof  against  all  parties  liable  thereon." 
Under  the  above  statute,  the  F  bank  has 
recourse  upon  the  bank  which  drew  the 
check  and  is  not  compelled  to  look  solely 
to  the  indorsers.  {Inquiry  from  Mont., 
April,  1915.) 

Cashier's  check  issued  for  worthless  check 

3061.  A    responsible    person    buys    a 


cashier's  check  payable  to  himself,  and  gives 
in  payment  thereof  his  personal  check  on  an 
out-of-town  bank,  which  was  returned 
protested.  The  question  presented  is  wheth- 
er the  bank  issuing  the  cashier's  check  has 
the  right  to  stop  its  payment  even  though 
indorsed  over  to  another  party,  and  returned 
to  the  bank  through  clearing  house.  Opin- 
ion: The  bank,  of  course,  has  the  right  to 
stop  or  refuse  paj^ment  thereof,  but  where  it 
has  been  indorsed  over  to  another  party  for 
value,  so  that  the  transferee  is  a  holder  in 
due  course,  the  bank  would  be  hable  to  him 
therefor.  In  a  case  such  as  this  where  a 
check  has  come  in  for  payment  through  the 
clearing  house,  it  would  seem  the  proper 
course  would  be  to  refuse  payment  and 
then  to  investigate  the  rights  of  the  holder 
to  whom  it  has  been  indorsed.  If  the  bank 
is  satisfied  he  is  an  innocent  purchaser  for 
value,  then  payment  could  be  made  to  him 
as  the  bank  would  have  no  ground  of  defense 
should  suit  be  brought  against  it;  but  if 
after  investigation  it  should  appear  that  the 
indorser  did  not  give  value  for  the  check 
but  was  a  confederate  or  in  league  with  the 
payee,  then  it  would  be  proper  to  defend 
payment.  The  bank's  liability  ultimately 
depends  upon  whether  or  not  the  indorsee 
of  the  payee  is  a  holder  in  due  course.  If 
he  is,  the  bank  is  liable  even  though  the 
consideration  failed;  if  not,  then  he  takes 
no  greater  right  than  the  payee  who  gave 
a  worthless  check  in  exchange  for  the 
cashier's  check.  {Inquiry  from  Okla.,  Nov., 
1914.) 

Title  company  stopping  payment  of 
check  issu£d  in  error 

3062.  A  title  company,  in  closing  a  real 
estate  matter,  issued  its  check  on  its  own 
banking  department  to  one  of  the  parties, 
and  upon  discovering  an  error,  stopped 
payment  of  the  check.  In  the  meantime  the 
check  had  passed  through  the  hands  of 
several  holders  for  value.  Prior  to  stoppage 
of  payment,  it  was  deposited  in  another 
bank  which  now  presents  it  in  due  course. 
Is  there  a  different  liability  when  drawn 
upon  an  outside  institution  than  when 
drawn  upon  the  issuing  bank?  Opinion: 
A  check  by  the  title  company  upon  itself 
is  a  negotiable  instrument  to  which  the  rule 
applies  that  the  holder  in  due  course  can 
enforce  payment  free  from  defenses  between 
the  original  parties.  There  is  no  question 
of  the  right  of  an  innocent  purchaser  for 
value  of  such  a  check,  upon  which  payment 
has  been  stopped  because  of  some  failure 


681 


3063-3067] 


DIGEST  OF  LEGAL  OPINIONS 


of  consideration  or  otherwise  between  the 
original  parties,  to  enforce  payment  from 
the  issuing  bank,  and  there  is  no  difference 
in  its  Habihty  because  the  check  is  drawn 
upon  itself  and  not  an  outside  institution. 
{Inquiry  from  Pa.,  May,  1917.) 

Stopping  payment  of  check  certified 
for  drawer 

3063.  A  bank  certified  a  check  for  the 
drawer,  who  later  requested  the  bank  to 
stop  payment,  as  the  agreement  was  not 
fulfilled.  Opinion:  The  drawer  cannot  stop 
payment  as  a  matter  of  right,  but  where  the 
drawer  has  been  defrauded  the  bank  may  in 
some  cases  comply  with  the  drawer's  request 
and  refuse  payment  upon  receiving  proper 
indemnity  against  ultimately  being  com- 
pelled to  pay  the  holder.  Blake  v.  Hamilton 
Dime  Sav.  Co.,  79  Ohio  St.  189.  Meridian 
Nat.  Bk.  V.  First  Nat.  Bk.,  7  Ind.  App.  322. 
{Inquiry  from  Ga.,  May,  1914,  Jl.) 

3064.  A  contractor  delivered  his  certified 
check  for  $1,000  as  liquidated  damages 
prior  to  entering  upon  a  contract  for 
municipal  improvements.  The  contract 
was  offered  to  him,  but  he  refused  to  sign 
and  do  the  work.  His  certified  check  was 
deposited  and  returned  by  the  band  stamped 
"Payment  stopped."  The  municipality 
seeks  to  recover  the  amount.  Opinion: 
Where  check  certified  for  the  drawer  and 
payment  is  stopped  by  the  bank  at  the 
instance  of  the  drawer,  the  bank  can 
defend  against  a  fraudulent  holder,  but 
where  the  certified  check  is  delivered  as 
liquidated  damages  upon  failure  to  perform  a 
contract  according  to  bid,  the  certifying 
bank  and  drawer  are  both  Hable  thereon. 
Times  Square  Auto.  Co.  v.  Rutherford 
Nat.  Bk.,  (N.  J.)  73  Atl.  479.  Whitfield 
V.  Levy,  35  N.  J.  L.  149.  Monmouth  Park 
Ass'n.  V.  WalHs  Iron  Works,  55  N.  J.  L.  132. 
{Inquiry  from  N.  J.,  Aug.,  1917,  Jl.) 

Bank's  liability  on  stopped  certified  check 

3065.  A  firm  in  New  York  received  a 
certified  check  on  a  New  Jersey  bank  in 
payment  of  merchandise.  The  check  was 
forwarded  through  a  local  bank,  and,  when 
presented,  payment  had  been  stopped  by  the 
maker.  Opinion:  The  courts  generally  hold 
that  after  a  bank  has  certified  a  check, 
whether  for  the  drawer  or  the  holder,  it  is 
obligated  thereon  as  for  so  much  money,  and 
cannot  interpose,  in  defense  of  payment,  an 
equity  of  the  drawer  against  the  payee  or 


holder.  In  New  Jersey,  however,  where  a 
check  is  certified  for  a  fraudulent  payee,  the 
bank  is  liable  to  him  and  cannot  plead  fraud 
upon  the  drawer  in  defense;  but  where  the 
check  is  certified  for  the  drawer  the  bank 
can  refuse  payment  and  plead  fraud  of  the 
payee  in  obtaining  check  from  drawer  in  de- 
fense of  Habihty  to  payee.  Times  Square 
Auto.  Co.  V.  Rutherford  Nat.  Bk.  (N.  J.) 
73  Atl.  479.  {Inquiry  from  N.  Y.,  Feb., 
1919,  Jl.) 

Stopping  payment  of  check  certified  for  holder 

3066.  A  purchases  goods  from  B,  giving 
in  payment  his  check  and  B  procures  its 
certification.  B  fails  to  dehver  the  goods 
and  A  requests  bank  to  refuse  payment. 
Opinion:  Where  check  has  been  certified  for 
payee  and  drawer  afterwards  requests  bank 
to  refuse  pajTiient,  some  cases  hold  (a) 
bank  liable  on  check  even  to  fraudulent  pay- 
ee while  others  hold  (b)  bank  not  hable  to 
payee  who  has  received  check  through  fraud 
or  without  consideration  or  where  drawer 
has  set  off  against  payee.  The  point  has  not 
been  decided  in  Pennsj'lvania.  Bank  is 
hable  on  its  certified  check  in  any  event  to 
an  innocent  purchaser  for  value.  Times 
Square  Auto.  Co.  v.  Rutherford  Nat.  Bk., 
(N.  J.)  73  Atl.  479.  Blake  v.  Hamilton 
Dime  Sav.  Bk.  Co.,  (Ohio)  87  N.  E.  73. 
Carnegie  Tr.  Co.  v.  First  Nat.  Bk.,  141  N. 
Y.  S.  745.  {Inquiry  from  Pa.,  April,  1914, 
Jl.) 

Stopping   payment   of  certificate   of  deposit 

3067.  A  bank  issued  a  certificate  of 
deposit  to  A  who  indorsed  it.  B  obtained  it 
from  him  by  fraudulent  means,  and  disposed 
of  it  to  C.  Can  the  bank  refuse  to  pay  if  A 
stops  payment?  Opinion:  A  certificate  of 
deposit  represents  a  direct  obhgation  of  the 
bank  to  the  indorsee  and  the  depositor  has 
no  right  to  stop  payment.  Where,  however, 
the  paj'ee  has  indorsed  the  certificate  to  a 
third  party  because  of  fraud,  the  bank  might 
refuse  payment  of  its  certificate  until  the 
fact  became  established  that  the  holder  was 
an  innocent  purchaser  for  value.  But  the 
bank  should  not  do  this  unless  the  payee 
tenders  it  a  sufficient  bond  of  indemnity  to 
insure  it  against  all  liability.  If  the  holder 
is  an  innocent  purchaser  then  the  bank  is 
liable  to  pay  the  certificate  even  though  the 
person  indorsing  it  to  the  holder  has  pro- 
cured it  from  the  payee  by  fraud.  {Inquiry 
from  N.  D.,Jan.,  1921.) 


682 


[3068-3075 


TAXATION 


State  taxation  of  national  banks 

Occupation  tax  invalid 

3068.  A  national  bank  cannot  be  forced 
to  pay  an  occupation  tax  imposed  by  the 
state.  It  has  been  repeatedly  held  that  a 
state  has  no  power  to  tax  national  banks 
except  as  Congress  permits,  and  Congress 
has  not  authorized  any  taxation  of  national 
banl  3  by  the  states,  except  as  to  real  estate, 
bui  only  a  taxation  upon  the  shares  of  na- 
tional banks  to  the  individaal  shareholders, 
subject  to  certain  restrictions.  Schuster  v. 
City  of  Louisville,  (Ky.)  89  S.  W.  689. 
State  V.  Bk.,  21  Mont.  50.  {Inquiry  from 
Idaho,  Nov.,  1908,  Jl.) 

3069.  States  or  municipalities  have  no 
power  to  impose  special  or  occupation  taxes 
upon  national  banks.  Shelton  v.  Piatt,  139 
U.  S.  591.  City  of  Carthage  v.  First  Nat. 
Bk.,  71  Mo.  508.  Mayor  v.  First  Nat.  Bk., 
59  Ga.  648.  Nat.  Bk.  v.  Mayor,  8  Heisk. 
(Tenn.)  814,  {Inquiry  from  Okla.,  Feb., 
1911,  Jl.) 

License  tax  invalid 

3070.  A  state  or  city  has  no  power  to 
impose  a  license  or  privilege  tax  upon 
national  banks.  Mavor  v.  First  Nat.  Bk., 
59  Ga.  648.  City  of  Carthage  v.  First  Nat. 
Bk.,  71  Mo.  508.  Nat.  Bk.  v.  Mayor,  8 
Heisk.  (Tenn.)  814.  {Inquiry  from  Cal., 
Nov.,  1914,  Jl) 

3071.  May  a  national  bank  be  sub- 
jected to  a  town  ordinance  imposing  a  license 
or  privilege  tax  on  national  banks?  Opin- 
ion: It  is  beyond  the  power  of  a  state  or 
town  to  impose  a  license  or  privilege  tax 
upon  national  banks.  They  cannot  be  taxed 
by  the  states  or  any  subdivision  thereof 
except  as  congress  permits,  and  congress  has 
never  permitted  such  kind  of  taxation.  {In- 
quiry from  Mont.,  April,  1917.) 

Capital   stock   and  workmen's   compensation 
tax  invalid 

3072.  The  North  Dakota  Legislature 
passed  a  law  taxing  all  banks  80.50  per  SIOOO 
on  their  capital  stock,  and  a  national  bank 
has  just  had  a  notice  of  assessments  for 
same.  Under  the  Workmen's  Compensation 
Act  the  bank  has  also  been  assessed  a  tax 
or  premium  covering  accidents  to  emploj^ees. 
The  bank  asks  advice  as  to  whether  it  is 
obliged  as  a  national  bank  to  pay  these 


taxes  or  assessments,  not  being  under  the 
jurisdiction  of  the  state,  except  as  Congress 
gives  them  certain  taxing  power  as  regarding 
national  banks.  Opinion:  A  state  has  no 
power  to  impose  a  tax  on  the  capital  stock 
of  a  national  bank,  nor  to  compel  a  national 
bank  to  pay  a  tax  or  premium  under  a 
Workmen's  Compensation  Act.  Owensboro 
Nat.  Bank  v.  City  of  Owensboro,  173  U.  S. 
664.  U.  S.  Rev.  St.  Sec.  5209.  {Inquiry 
from  N.  D.,  Nov.,  1919,  Jl.) 

Slate  cannot  tax  national  hank  on  its  income 


3073.  Does  the  Mississippi  mcome  tax 
law  apply  to  national  banks?  Opinion:  It 
is  established  law  that  the  states  cannot  tax 
national  banks  except  as  Congress  permits, 
and  the  extent  of  permission  given  by  Con- 
gress is  contained  in  Sec.  5219  U.  S.  Rev.  St. 
permitting  states  to  tax  the  shares  of  a 
national  bank  as  the  personal  property  of 
the  individual  stockholder  and  also  permit- 
ting the  real  property  of  such  banks  to  be 
taxed  by  the  state,  county  or  municipality. 
Owensboro  Nat.  Bank  v.  Owensboro,  173 
U.  S.  664,  holds  that  states  may  levy  no 
other  taxes  upon  national  banks  than  those 
expressly  permitted  by  such  section.  It 
follows  that  the  Mississippi  income  tax  does 
not  apply  to  national  banks.  {Inquiry  from 
Miss.,  Oct.,  1917.) 

3074.  Income  Tax  Law  of  Missouri 
imposing  one-half  of  1  per  cent,  tax  upon  net 
incomes  of  individuals  and  corporations  is 
inapplicable  to  national  banks  and  not 
enforceable  against  such  institutions,  as  the 
states  cannot  tax  national  banks  except 
as  Congress  permits,  and  Section  5219,  U.  S, 
Rev.  Stat.,  which  is  the  measure  of  permis- 
sion by  Congress,  does  not  authorize  such  a 
tax.  U.  S.  Rev.  St.,  Sec.  5219.  Owensboro 
Nat.  Bk.  V.  City  of  Owensl)oro,  173  U.  S. 
664.  City  of  Carthage  v.  First  Nat.  Bk., 
71  Mo.  508.  :Mo.  Income  Tax  Law,  1917, 
Sec.  22.    {Inquiry  from  Mo.,  Feb.,  1919,  J  I.) 

Power  of  state  to  compel  cashier  to  furnish  list 
of  stockholders 

3075.  Laws  of  Maine  (1915).  C.  125, 
applicable  only  to  national  banks,  and  not 
to  state  banks,  requires  the  cashiers  annually 
to  "make  return  to  the  secretary  of  state 
of  the  names  of  all  stockholders,  their  resi- 
dences, the  amount  of  stock  owned  by  each 
and  the  whole  amount  of  stock  paid  in  on 


683 


3076-3080] 


DIGEST  OF  LEGAL  OPINIONS 


said  first  day  of  November."  Are  national 
banks  required  to  obey  this  law?  Opinion: 
National  banks  are  required  to  obey  this 
law.  Waite  v.  Dowley,  24  U.  S.  Sup.  Ct. 
Rep.  181,  is  decisive  of  the  question.  The 
court  held  that  national  banks  are  subject 
to  state  legislation,  except  where  such  legis- 
lation is  in  conflict  with  some  act  of  Congress 
or  where  it  tends  to  impair  or  destroy  the 
utility  of  such  banks  as  agents  or  instrumen- 
tahties  of  the  United  States  or  interferes 
with  the  purposes  of  their  creation.  The 
court  pointed  out  that  the  act  of  Congress, 
which  requires  each  national  bank  to  keep 
a  fist  of  its  stockholders  posted  did  not 
cover  the  same  ground  as  the  Vermont 
statute  there  in  question  but  was  merely 
designed  to  furnish  the  public  with  knowl- 
edge of  the  names  of  its  incorporators  and 
was  wholly  deficient  in  the  information 
needed  for  the  purposes  of  taxation  by  the 
State,  as  conceded  to  it  by  the  act  of  con- 
gress itself.    {Inquiry  from  Me.,  Dec,  1915.) 

3076.  A  county  tax  assessor  sought  to 
compel  a  national  bank  ofiicer  to  furnish  a 
list  of  the  names  of  shareholders  and  the 
number  of  shares  held  by  each.  Opinion: 
Under  the  Oklahoma  statute,  the  county 
assessor  had  the  right  to  compel  the  bank 
ofiicer  to  furnish  the  list.  The  Supreme 
Court  of  the  United  States  has  upheld  such 
right  in  a  state  official,  acting  pursuant  to 
state  law.  It  has  been  held  that  national 
banks  are  subject  to  state  legislation,  except 
where  such  legislation  is  in  conflict  with 
some  act  of  Congress  or  where  it  tends  to 
impair  or  destroy  the  utiHty  of  such  banks 
as  agents  or  instrumentalities  of  the  United 
States,  or  interferes  with  the  purpose  of 
their  creation.  Waite  v.  Dowlev,  94  U.  S. 
527.  Paul  V.  McGrau,  3  Wash.'  296.  {In- 
quiry from  Okla.,  Aug.,  1916,  Jl.) 

Taxation  of  non-resident  shareholders 

3077.  Under  a  North  Carolina  statute, 
a  tax  is  assessed  against  the  value  of  shares 
in  national  banks  for  school,  county  and 
municipal  purposes  to  be  paid  by  the  bank 
and  deducted  from  dividends.  A  bank 
questions  the  right  of  the  state  to  collect  from 
it  taxes  assessed  against  certain  of  its  stock- 
holders, resident  in  Alabama,  where,  it  as- 
serts, such  stockholders  are  also  compelled 
to  list  and  pay  taxes  on  such  shares  under  the 
laws  of  Alabama.  Opinion:  Under  the 
National  Bank  Act,  shares  of  non-residents 
must  be  taxed  in  the  place  where  the  bank 
is  located  and  "not  elsewhere."  It  would, 
therefore,  be  unlawful  to  tax  such  shares  in 


Alabama  and  there  would  be  no  double 
taxation.  It  is  lawful  for  a  state  to  require 
a  national  bank  to  collect  the  tax  out  of  the 
shareholder's  dividends  and  pay  it  as  his 
agent.  Bk.  v.  Commonwealth,  9  Wall. 
(U.S.)  353.  U.  S.  Rev.  St.,  Sec.  5219.  {In- 
quiry from  N.  C,  March,  1910,  Jl.) 

3078.  An  incorporated  town  in  North 
Carolina  has  the  right  to  assess  for  town 
purposes  the  stock  of  national  bank  share- 
holders owned  by  non-residents  of  the  state 
and  to  require  the  bank  to  pay  the  taxes 
so  assessed.  U.  S.  Rev.  St.,  Sec,  5219. 
Buie  V.  Commissioners,  79  N.  C.  267.  Kyle 
v.  Commissioners,  75  N.  C.  445,  N.  C. 
Laws,  1915.  Ch.  286,  Sec.  42.  {Inquiry  from 
N.  C,  Dec,  1916,  Jl.) 

Government  bonds  cannot  be  deducted 

3079.  Government  bonds,  owned  by  a 
national  bank,  whether  held  for  circulation 
or  for  investment,  cannot  be  deducted  from 
the  taxable  value  of  the  shares.  A  decision 
in  Kentucky  holds  that  the  Kentucky  tax 
law  of  1906  imposes  a  tax  upon  national 
bank  shares  which  is  payable  by  the  bank 
and  collectible  from  the  shareholders  and 
not  upon  the  capital  of  the  bank,  and  that 
the  value  of  United  States  bonds  owned  by 
the  bank  cannot  be  deducted  from  the 
assessment.  The  court  makes  no  distinction 
between  bonds  used  as  a  basis  for  circulation 
and  bonds  held  as  a  pure  investment.  Hagar 
V.  Citizens  Nat.  Bk.,  Ky.  Law  Rep.  Jan.  15, 
1908.  Marion  Nat.  Bk.  v.  Burton,  121  Ky. 
876.    {Inquiry  from  Ky.,  Aug.,  1908,  Jl.) 

State  may  permit  owner  to  deduct  non-taxable 
state  bonds 

3080.  It  would  seem  that  a  state  has  a 
right,  in  providing  for  the  taxation  of  na- 
tional bank  shares,  to  permit  the  owner  to 
deduct  the  value  of  non-taxable  state  bonds 
owned  by  the  bank,  although  denying  to  the 
shareholder  the  right  to  deduct  the  value  of 
non-taxable  United  States  Government 
bonds  so  owned,  the  refusal  to  permit  such 
deduction  in  the  latter  case  being  upheld  by 
the  Supreme  Court  of  the  United  States. 
U.  S.  Rev.  St.  Sees.  3701,  5219.  Civ.  Code 
S.  C,  Sees.  294,  341,  346,  347.  Van  AUen 
V.  Assessors,  3  Wall.  (U.  S.)  573.  Tr.  Co.  v. 
Lander,  184  U.  S.  111.  Pullen  v.  Corp. 
Com.,  (N.  C.)  68  S.  E.  155.  Commsr's.  v. 
Tobacco  Co.,  116  N.  C.  447.  Bell's  Gap  R. 
Co.  V.  Pennsylvania,  134  U.  S.  232.  Mer- 
chants, etc.,  Nat.  Bk.  v.  Com.  of  Pa.,  167 
U.  S.  461.    Travellers  Ins.  Co.  v,  Connecti- 


684 


TAXATION 


[3081-3086 


cut,  185  U.  S.  364.  Farmers,  etc.,  Bk.  v. 
Minnesota,  232  U.  S.  516.  (inquiry  from 
S.  C,  Nov.,  1916,  Jl.) 

Liberty   bonds   cannot   be   deducted 

3081.  Does  ownership  of  Liberty  bonds 
by  a  national  bank  result  in  the  reduction  of 
taxes?  Opinion:  The  Supreme  Court  of  the 
United  States  has  repeatedly  held  that  where 
a  state  taxes  the  value  of  national  bank 
shares  to  the  shareholder,  the  latter  is  not 
entitled  to  deduct  the  value  of  government 
bonds  owned  by  the  bank  from  the  taxable 
value  of  such  shares.  There  has  been  a 
recent  decision  by  a  federal  court  in  Iowa 
holding,  however,  that  in  the  taxation  of 
shares  of  a  state  bank,  the  value  of  Liberty 
bonds  can  be  deducted  on  the  ground  that, 
while  the  tax  is  nominally  against  the 
shares  as  the  property  of  the  shareholder,  it 
is  in  reahty  a  tax  against  the  bank  upon  its 
property  and  invalid  so  far  as  the  property 
consists  of  exempt  government  securities.  A 
majority  of  the  federal  courts,  however,  take  a 
contrary  view.  Wherever  the  laws  of  the  state 
provide  that  the  tax  is  against  the  share- 
holder upon  his  property,  even  though  the 
bank  pays  the  tax  as  his  agent,  there  can  be 
no  deduction.  {Inquiry  from  Ky.,  Jan., 
1919.) 

3082.  In  ascertaining  the  taxes  on  shares 
of  stock  in  a  national  bank  in  Oklahoma, 
may  as  much  of  the  surplus  of  the  bank  as 
in  invested  in  Liberty  Loan  bonds  be  de- 
ducted? Opinion:  The  value  of  the  Liberty 
Loan  bonds  is  not  deductible  from  the  tax 
value.      {Inquiry  from  Okla.,  June,   1917.) 

Federal  Reserve  stock  not  deductible 

3083.  Are  shares  of  stock  in  a  national 
bank  exempt  from  state  taxation  to  the 
extent  of  the  federal  reserve  stock  owned 
by  such  bank?  Opinion:  Section  7  of  the 
Federal  Reserve  Act  provides  that 
"Federal  Reserve  Banks,  including  the 
capital  stock  and  surplus  therein  and  the 
income  derived  therefrom,  shall  ,be  exempt 
from  federal,  state  and  local  taxation,  except 
taxesuponreal  estate."  Notwithstandingsuch 
provision  it  is  probable  there  is  no  right  of 
deduction.  The  same  rule  applies  to  exempt 
stock  of  the  Federal  Reserve  Bank  as  ap- 
plies to  United  States  bonds  owned  by  a 
national  bank.  The  United  States  Supreme 
Court  has  held  that  such  bonds  cannot  be 
deducted  from  the  value  of  the  shares  for  the 
purposes  of  state  taxation  of  the  stock- 
holders. Van  Allen  v.  The  Assessors,  3  Wall. 


573.  If  the  tax  were  assessed  against  the 
bank  itself,  the  value  of  the  stock  could  be 
deducted  but  the  states  are  not  permitted 
to  tax  national  banks  directly,  except  as  to 
real  estate,  but  the  extent  of  their  permis- 
sion is  to  tax  the  shares  in  the  hands  of  the 
individual  shareholders.  The  Supreme  Court 
has  held  that  this  taxation  of  the  shares,  even 
though  the  bank  pays  the  taxes  for  its  share- 
holders, is  a  different  thing  from  taxing  the 
bank  itself .  {Inquiries froiyi Okla.  and  Kan., 
July,  1915.) 

Government  bonds  and  Federal  Reserve  Bank 
stock   cannot   be  deducted 

3084.  In  making  returns  as  basis  for 
state  taxation  of  national  bank  stock,  may 
the  bank  deduct  non-taxable  government 
bonds  and  the  amount  invested  in  Federal 
Reserve  Bank  stock  from  the  amount  of  its 
capital,  surplus  and  undivided  profits? 
Opinion:  The  Supreme  Court  of  the  United 
States  has  repeatedly  held  that  the  value 
of  non-taxable  government  bonds  cannot  be 
deducted,  for  the  reason  that  the  tax  is  im- 
posed not  against  the  bank  upon  its  property 
but  against  the  owners  of  the  bank  stock  upon 
their  property  in  the  shares.  The  same 
reasoning  would  apply  to  non-taxable  stock 
of  the  Federal  Reserve  Bank.  The  Federal 
Reserve  Board  published  an  opinion  of  its 
counsel  to  this  effect,  rendered  on  Sept.  14, 
1915.  It  follows  that  the  bonds  and  the 
stock  in  question  cannot  be  deducted.  {In- 
quiry from  Iowa,  March,  1917.) 

3085.  Are  there  any  government  bonds 
which  a  national  bank  may  buy  which  may 
be  deducted  in  the  assessment  of  state  and 
local  taxation  upon  its  shares?  Opinion: 
No  such  bonds  are  known.  {Inquiry  from 
Okla.,  April,  1915.) 

Discrimination  against  national  bank  shares 
in  taxing  other  property  at  lower  rate 

3086.  A  bank  complains  against  dis- 
crimination of  the  state  in  taxing  national 
l)ank  stock  on  full  book  value,  while  real 
estate  and  other  kinds  of  property  are 
taxed  only  on  a  small  percentage  of  actual 
value.  Opinion:  The  taxation  of  national 
bank  shares  at  a  higher  rate  than  moneyed 
capital  invested  in  real  estate,  stock  and 
other  kinds  of  property  has  been  held  not  a 
violation  of  the  anti-discrimination  provi- 
sion of  Section  529,  U.  S.  Revised  Statutes, 
where  the  "moneyed  capital"  so  under-taxed 
is  not  used  in  competition  with  that  of 
national  banks.    U.  S.  Rev.  St.,  Sec.  5219. 


685 


3087-3089] 


DIGEST  OF  LEGAL  OPINIONS 


Mercantile  Nat.  Bk.  v.  New  York,  121  U.  S. 
138.  First  Nat.  Bk.  v.  Chehalis  County,  166 
U.  S.  440.  {Inquiry  from  Miss.,  May,  1917, 
Jl.) 

Note:  The  supreme  court  of  the  United 
States  in  Merchants  National  Bank  of 
Richmond  v.  City  of  Richmond,  decided 
June,  1921  held  that  Section  5219  U.  S. 
Revised  Statutes,  which  provides  that  the 
taxation  of  national  bank  shares  shall  not 
be  at  greater  rate  than  is  assessed  upon 
other  moneyed  capital  in  the  hands  of 
individual  citizens  of  such  state,  was  vio- 
lated where  bonds,  notes  and  evidences  of 
indebtedness  representing  moneyed  capital 
in  the  hands  of  individual  taxpayers  com- 
peting with  national  banks  in  the  loan 
market  were  taxed  at  a  lower  rate  than 
national  bank  shares.  The  court  said: — 
"While  the  words  'moneyed  capital  in  the 
hands  of  individual  citizens'  do  not  include 
shares  of  stock  in  corporations  that  do  not 
enter  into  competition  with  the  national 
banks,  they  do  include  something  besides 
shares  in  banking  corporations  and  others 
that  enter  into  direct  competition  with  those 
banks.  They  include  not  only  moneys 
invested  in  private  banking,  properly  so 
called,  but  investments  of  individuals  in 
securities  that  represent  money  at  interest 
and  other  evidences  of  indebtedness  such  as 
normally  enter  into  the  business  of  bank- 
ing." 

Discrimination  where  hanks  taxed  at  different 
rates  in  different  parts  of  state 

3087.  In  some  parts  of  the  state  of 
Oklahoma,  national  bank  shares  are  assessed 
for  purposes  of  taxation  at  full  valuation  of 
100  per  cent.,  while  in  other  parts  of  the 
state,  shares  of  state  and  national  banks  are 
assessed  at  only  65  per  cent,  of  their  actual 
value.  A  national  bank  assessed  at  full 
value  claimed  that  it  has  been  discriminated 
against  and  demands  relief.  Opinion:  In 
order  to  get  relief  from  such  discrimination 
the  national  bank  would  have  to  prove  at 
least  three  things — (1)  that  the  under  valued 
capital  in  one  part  of  the  state  is  in  competi- 
tion with  the  fully  valued  national  bank 
shares  in  another  part;  (2)  that  such  under- 
valuation constitutes  a  discrimination  in  the 
proportionate  amount  of  taxes  levied  for 
state  purposes,  as  distinguished  from  county 
and  city  purposes;  and  (3)  that  such  dis- 
crimination is  systematic  and  intentional, 
and  not  merely  desultory  and  accidental. 
U.  S.  Rev.  St.,  Sec.  5219.  Whitbeck  v. 
Mercantile  Nat.  Bk.,  127  U.  S.  193.    People 


v.  Weaver,  100  U.  S.  539.  Pelton  v.  Nat. 
Bk.,  101  U.  S.  143.  Cummings  v.  Nat.  Bk., 
100  U.  S.  153.  Nat.  Bk.  v.  Kimball,  103 
U.  S.  732.  First  Nat.  Bk.  v.  Albright,  208 
U.  S.  548.  (Inquiry  from  Okla.,  April,  1911, 
Jl.) 

Discrimination  between  savings  depositors  in 
national  and  state  institutions 

3088.  In  California,  deposits  in  state 
savings  banks  are  exempt  from  state  taxa- 
tion. Would  failure  to  exempt  savings 
deposits  in  national  banks  constitute  unlaw- 
ful discrimination?  Opinion:  In  Clement 
Nat.  Bank  v.  Vermont,  231  U.  S.  120,  the 
method  of  taxing  deposits  in  state  banks  was 
different  from  that  of  taxing  deposits  in 
national  banks,  but  both  classes  of  deposits 
were  actually  taxed,  and  the  court  found 
that  there  was  no  injurious  discrimination. 
Hence,  it  also  came  to  the  conclusion  that 
there  was  no  denial  to  the  depositors  in 
national  banks  of  the  equal  protection  of  the 
laws.  The  court  said  that  the  objection 
must  rest  upon  the  ground  that  the  measure 
adopted  was  essentially  inimical  to  national 
banks,  frustrating  the  purpose  of  the  na- 
tional legislation  or  impairing  their  efficiency 
as  federal  agencies.  "To  be  open  to  such  an 
objection  it  must  appear  that  the  scheme  of 
taxation  constitutes  an  injurious  discrim- 
ination."   {Inquiry  from  Cat.,  July,  1918.) 

Basis  of  value  of  shares 
Book  value  vs.  market  value  in  Illinois 

3089.  A  county  board  of  review  in 
Illinois  took  into  consideration — in  assessing 
national  bank  stock  for  taxation — capital, 
surplus,  undivided  profits,  and  the  amount 
of  dividends  paid  during  a  few  preceding 
years.  Objection  is  made  to  the  inclusion 
of  the  dividend-earning  capacity  of  the  bank. 
Was  the  method  of  assessment  proper? 
Opinion:  The  Illinois  statute  provides  that 
the  tax  upon  national  bank  shares  shall  be 
"upon  the  value  of"  the  shares,  after  de- 
ducting the  value  of  the  real  estate  owned  by 
the  bank.  It  is  the  practice  in  many  states, 
where  a  tax  is  imposed  upon  the  value  of 
stock,  to  take  the  book  value  in  preference 
to  the  market  value.  By  the  book  value  is 
meant  the  value  based  upon  capital,  surplus 
and  undivided  profits.  If  the  board  of  re- 
view insists  upon  its  ruling,  then  the  relief, 
if  any,  is  with  the  courts.  There  are  not 
many  decisions  upon  the  question,  which  de- 
pends to  some  extent  on  the  wording  of  the 
particular  statute.  In  New  Jersey  a  former 
law  required  taxation  upon  the  "true  value." 


^ 


686 


TAXATION 


[3090-3094 


In  Mayor  v.  Tunis,  81  Atl.  (N.  J.)  722,  it  was 
held  that  it  was  erroneous  to  take  the  "book 
value,"  since  this  disregarded  the  elements 
of  good  will,  dividend-earning  power,  abihty 
and  management,  etc.,  that  ordinarily  tend 
to  give  the  stock  a  selling  value  in  excess  of 
pure  book  value.  The  market  value  was 
adopted  as  the  basis  of  assessment.  The 
Illinois  courts  might  follow  this  case  and 
uphold  the  l^oard  of  review  or  they  might 
hold  that  the  legislature  in  using  the  term 
"the  value"  meant  the  actual  "book  value." 
{Inquiry  from  III.,  March,  1917.) 

Book  value  vs.  market  value  in  Wisconsin 

3090.  The  Wisconsin  statute  provides 
that  all  property  shall  be  assessed  at  its 
"true  value."  Does  this  mean  that  the 
market  value  or  merely  the  book  value, 
excluding  the  item  of  good  will,  shall  be 
taken  as  the  valuation  of  national  bank 
stock?  Opinion:  First  Trust  Co.  of  Lincoln 
V.  Lancaster  County,  142  N.  W.  (Neb.)  542, 
is  an  authority  in  point.  The  official  syllabus 
states  with  reference  to  ascertainment  of  the 
true  value  by  the  assessor  that  "if  the  stock 
has  a  'market  value'  he  must  consider  that, 
and  must  also  consider  'the  surplus  and  un- 
divided profits.'  He  must  consider  these 
things  but  is  not  concluded  by  them ....  All 
property  and  assets  and  everything  of  value 
is  included  in  this  true  value  of  the  stock." 
{Inquiry  from  Wis.,  Jan.,  1919.) 

State  taxation  of  state  banks 

License  tax  on  state  bank  in  Alabama 

3091.  Is  the  imposition  of  a  city  license 
of  $15  on  a  bank  and  trust  company,  which 
is  capitalized  at  $15,000  and  has  a  surplus 
of  $5,000,  an  overcharge?  Opinion:  Art. 
18,  Sec.  23G1,  subd.  26  of  the  Alabama  Code 
of  1907  provides:  "All  corporations  or- 
ganized under  the  laws  of  this  state  and 
doing  business  in  this  state,  not  otherwise 
specifically^  required  to  pay  a  license  tax, 
shall  pay  annually  the  following  privilege 
taxes.  .  .  .corporations  whose  capital  stock 
exceeds  ten  and  is  less  than  twenty-five 
thousand  dollars,  fifteen  dollars...."  If 
the  tax  referred  to  is  levied  under  the  above 
statute,  the  $15  imposed  is  in  accordance 
with  the  wording  of  the  statute,  since  your 
"capital  stock  exceeds  ten  and  is  less  than 
twenty-five  thousand  dollars."  The  tax 
may,  however,  have  been  imposed  by  some 
city  license  tax  under  city  ordinance.  {In- 
quiry fro)n  Ala.,  Jan.,  1919.) 


Tax  on  bank  stock  in  Iowa — Place  of 
assessment 

3092.  What  is  the  law  with  respect  to 
reports  for  assessment  of  taxes  when  some 
of  the  stockholders  of  a  bank  five  in  another 
county  in  Iowa  than  that  in  which  the  bank 
is  located?  Opinion:  Section  1322  of  the 
Iowa  Code,  Suppl.  1913,  provides:  "Shares 
of  stock  of  national  banks  and  state  and 
savings  banks,  and  loan  and  trust  companies 
located  in  this  state,  shall  be  assessed  to  the 
individual  stockholders  at  the  place  where 
the  bank  or  loan  and  trust  company  is 
located."  The  section  then  provides  for 
reports  for  assessment  by  the  officers  of 
banks  or  loan  and  trust  companies.  The 
owner  is  not  required  to  make  a  return  on 
the  stock.  Assessment  is  made  where  the 
bank  or  company  is  located.  {Inquiry  from 
Iowa,  Feb.,  1920.) 

Deduction  of  real  estate  in  Massachusetts 

3093.  In  Massachusetts  the  law  pro- 
vides that  Ixank  shares  shall  Ije  assessed  to 
the  owner  in  the  city  or  town  in  which  the 
bank  is  located  and  not  elsewhere,  in  the  as- 
sessment of  state,  county  and  town  taxes, 
whether  such  owner  is  a  resident  of  such  city 
or  town  or  not.  They  shall  be  assessed  at 
their  fair  cash  value  on  the  first  day  of  May, 
first  deducting  therefrom  the  proportionate 
part  of  the  value  of  the  real  estate  belonging 
to  the  bank,  at  the  same  rate  as  other 
moneyed  capital  in  the  hands  of  individuals 
is  by  law  assessed.  The  banks  pay  the  tax 
and  have  a  hen  on  the  shares  for  reimburse- 
ment. Rev.  L.  Mass.  1902.  Ch.  14,  Sees. 
9-11.    {Inquiry  from  Mass.,  Nov.,  1908,  Jl.) 

Recovery  of  illegal  taxes  voluntarily  paid  in 
Missouri 

3094.  A  county  board  of  equahzation 
in  Missouri  raised  the  assessments  on  banks 
from  50  to  65  cents.  A  bank  paid  the  tax 
and  later  asked  a  refund  to  the  amount  of 
the  excess,  which  was  refused  on  the  ground 
that  it  had  ])een  apphed  to  different  funds. 
Is  the  bank  entitled  to  a  refund?  Opinion: 
The  supreme  court  of  Missouri,  in  Mercantile 
Trust  Co.  v.  Schramm,  190  S.  W.  886,  held 
that  tlie  ruling  of  the  state  l)oard  of  equaliza- 
tion fixing  the  basis  of  bank  assessments  at 
fifty  cents  for  the  purpose  of  equalizing 
assessments  for  the  state  was  mandatory 
and  that  a  local  board  could  not  change  the 
rate  to  seventy  cents.  It  would  seem  that 
the  bank  in  the  case  submitted  could  not 
have  been  compelled  to  pay  the  higher  rate. 
However,  as  it  was  paid  voluntarily  and  not 


681 


T*i- 


3095-3099] 


DIGEST  OF  LEGAL  OPINIONS 


under  protest,  there  would  seem  to  be  no 
right  of  recovery.  It  is  a  well  settled  rule 
that  a  tax  paid  voluntarily  cannot  be  re- 
covered in  an  action  at  law.  Gibson  Abstract 
Co.  V.  Chochise  County,  100  Pac.  (Ariz.) 
453.  State  v.  Chicago,  etc.,  R.  Co.,  165  Mo. 
597.  If  Missouri  has  not  followed  the  states 
passing  legislation  allowing  a  refund  of  such 
payments,  the  bank  is  without  redress. 
Even  where  recovery  of  a  tax  voluntarily 
paid  is  permitted,  the  rule  seems  to  be  that 
it  can  be  recovered  only  while  the  fund  re- 
mains in  the  possession  of  the  defendant  or 
county  and,  if  the  county  has  divided  up  and 
paid  over  the  funds,  there  can  be  no  re- 
covery. Cleveland,  etc.,  R.  Co.  v.  Marian 
County,  19  Ind.  App.  58.  The  ground  of 
refusal  would  indicate  that  recovery  would 
be  precluded  under  this  rule  in  the  case 
submitted.  {Inquiry  from  Mo.,  April, 
1917.) 

Non-deduction  by  Montana  bank  of  stock  of 
real  estate  company 

3095.  A  bank  does  not  hold  title  to  real 
estate,  but  holds  title  to  one-half  the  shares 
of  a  corporation  which  owns  the  building  in 
which  the  bank  is  located.  The  Montana 
statute  on  taxation  of  banks  provides  that 
the  value  of  the  real  estate  to  which  the  bank 
holds  title  shall  be  deducted  from  the  total 
value  of  the  bank  shares  and  the  real  estate 
assessed  to  the  bank.  Opinion:  The  statute 
does  not  authorize  deduction  of  the  value  of 
the  bank's  holding  of  stock  of  the  company 
which  owns  the  bank  building.  Laws  Mont. 
1915,  Ch.  31,  p.  45.  In  re  First  Nat.  Bk., 
(N.  Dak.)  146  N.  W.  1064.  Wis.  St.  1911, 
Sec.  1057.  Sec.  Ward  Sav.  Bk.  v.  Leuch, 
(Wis.)  144  N.  W.  1119.  State  Bk.  v.  Leuch, 
(Wis.)  144  N.  W.  1122.  (Inquiry  from  Mont., 
Sept.,  1915,  Jl.) 

Deduction  by   New  Jersey  bank  of  amount 
invested  in  mortgages 

3096.  The  New  Jersey  Act  of  March  29, 
1917,  provides  that  *'No  mortgage  or  debt 
secured  by  mortgage  on  real  property  which 
is  taxed  in  this  State  shall  be  listed  for  taxa- 
tion; and  no  deduction  from  the  assessed 
value  of  real  property  shall  be  made  by  the 
assessor  on  account  of  any  mortgage  debt, 
but  the  mortgagor  or  owner  of  the  property 
paying  the  tax  on  mortgaged  real  property 
shall  be  entitled  to  credit  on  the  interest 
payable  on  the  mortgage  for  so  much  of  the 
tax  as  is  equal  to  the  tax  rateapphedtothe 
amount  due  on  the  mortgage,  except  where 
the  parties  have  otherwise  agreed,  etc."  May 


a  trust  company  deduct  from  its  capital  and 
surplus  the  mortgages  held  by  it  when 
making  its  statement  for  taxes?  Opinion: 
Under  the  provisions  of  the  statute  quoted, 
the  tax  is  ultimately  borne  by  the  holder  of 
the  mortgage  but  is  directly  paid  by  the 
owner  of  the  property.  This  being  so,  the 
bank  would  seem  to  be  entitled  to  deduct 
from  its  capital  and  surplus  the  amount 
invested  in  mortgages  on  New  Jersey  realty, 
for  otherwise  it  would  be  virtually  paying 
double  taxes  on  the  assets  represented  by 
such  mortgages.  {Inquiry  from  N.  J.,  April, 
1917.) 

Deduction  of  real  estate  by  New  Jersey  bank 

3097.  Under  chapter  90  of  the  Laws  of  1914 
(New  Jersey),  banks  are  taxable  upon  the 
value  of  their  capital  stock,  which  is  "deter- 
mined by  adding  together  the  amount  of  the 
capital,  surplus  and  undivided  profits  of  such 
bank .  .  .and  deducting  therefrom  the  assessed 
value  of  the  real  property  of  such  bank." 
In  1913  the  real  estate  of  a  particular  bank 
was  assessed  at  $2200  while  in  1914  it  was 
assessed  at  $9000,  owing  to  the  erection  of  a 
building.  In  1914  the  collector  allowed  a 
deduction  of  $2200  only,  although  a  deduc- 
tion of  $9000  was  claimed.  Should  not  the 
bank  have  been  allowed  a  deduction  of 
$9000?  Opinion:  The  bank  seems  to  have 
been  entitled  to  a  deduction  of  $9000; 
otherwise  the  value  of  the  building  would  be 
doubly  taxed.  {Inquiry  from  N.  J.,  May, 
1915.) 

Double  taxation  of  bank  real  estate  in  N.  Y. 

3098.  A  bank  pays  a  state  tax  of  1  per 
cent,  on  its  capital  stock,  surplus  and  un- 
divided profits.  It  is  also  assessed  for  local 
and  state  taxes  on  its  building  which  is  part 
of  its  capital  and  surplus.  The  bank  objects 
to  the  assessment  on  the  ground  of  double 
taxation  of  its  real  estate.  Opinion:  The 
bank  must  pay  taxes  on  its  real  estate,  not- 
withstanding such  real  estate  is  included  in 
the  value  of  its  shares  upon  which  1  per 
cent,  tax  is  levied.  In  re  First  Nat.  Bk.,  182 
N.  Y.  460.  {Inquiry  from  N.  Y.,  Oct., 
1914,  Jl.) 

3099.  Banks  in  New  York  must  pay 
tax,  assessed  against  the  shareholders,  at  the 
rate  of  1  per  cent,  of  the  taxable  value  of  the 
shares  and,  in  arriving  at  such  taxable  value, 
the  value  of  real  estate  owned  by  the  bank 
cannot  be  deducted,  nor  can  the  bank  deduct 
the  value  of  real  estate  mortgages  owned  by 
it  upon  which  mortgage  tax  has  been  paid 


688 


TAXATION 


[3100-3107 


nor  the  value  of  government,  state  or  village 
bonds  owned  by  the  bank.  N.  Y.  Tax  Law, 
Sees.  183,  251.  Rep.  Atty.  Gen.  N.  Y.,  Vol. 
2,  p.  565.  Matter  First  Nat.  Bk.,  182  N.  Y. 
460.  People  v.  Supervisors,  182  N.  Y.  556. 
Aff'd  105  App.  Div.  319.  {Inquiry  from 
N.  F.,  Oct.,  1918,  Jl.) 

Secured  debts  tax  law  of  New  York 

3100.  The  question  is  raised  whether 
national  and  state  banks,  because  of  the  1 
per  cent,  tax  on  bank  shares  in  lieu  of  all 
other  taxation,  except  real  estate  taxed 
directly  to  the  bank,  do  or  do  not  come  under 
the  provisions  of  the  newly  enacted  Secured 
Debts  Tax  Law  of  New  York  because  of  se- 
cured debts  owned  by  the  bank;  and  whether 
there  is  any  difference  in  the  status  of  na- 
tional and  state  banks  in  this  regard.  Opin- 
ion: A  national  or  state  bank  owning  se- 
cured debts  is  not  taxable  under  the  Secured 
Debts  Tax  Law,  the  latter  because  exempted 
from  all  taxation  on  personal  property  by 
Section  24  of  the  Tax  Law,  in  view  of  the 
tax  on  shares,  and  the  former  class  of  banks 
for  the  additional  reason  that  the  state 
cannot,  in  any  event,  tax  a  national  bank 
upon  its  personal  property.  N.  Y.  Laws 
1915,  Chaps.  169,  465.  N.  Y.  Tax  Law, 
Sec.  24.  {Inquiry  from  N.  Y.,  Nov.,  1915, 
Jl.) 

Tax  for  fraction  of  year 

3101.  The  stockholders  of  a  state  bank 
organized  after  April  1  are  not  liable  to 
taxation  for  the  current  year,  according  to 
a  statute  passed  in  North  Dakota  in  1913. 
Comp.  Laws  N.  Dak.,  1913.  Sec.  2115.  Gaar 
V.  Sorum,  (N.  Dak.)  90  N.  W.  799.  {In- 
quiry from  N.  D.,  March,  1917,  Jl.) 

Right  of  state  to  tax  bank  shares 

3102.  In  Richardson  v.  Shaw,  209  U.  S. 
365,  the  statement  is  made  that  "the  certifi- 
cate of  shares  of  stock  is  not  property 
itself,  it  is  but  evidence  of  property  in  the 
shares,"  and  this  is  quoted  with  approval  in 
Gorman  v.  Littlefield,  229  U.  S.  19.  How 
does  this  affect  the  right  of  a  state  to  tax  a 
certificate  of  bank  stock?  Opinion:  Tiie 
question  as  to  the  taxability  of  certificates 
of  stock  was  not  involved  in  the  Richardson 
and  the  Gorman  cases.  Hawlev  v.  Maiden, 
232  U.  S.  1,  holds  directly  that  the  property 
of  shareholders  in  their  respective  shares  is 
distinct  from  the  corporate  property,  fran- 
chises and  capital  stock  of  the  corporation 
itself  and  may  be  separately  taxed.  The 
North  Carolina  cases  are  to  the  same  effect: 


Belo  v.  Conmiissioners,  82  N.  C.  415. 
Commissioners  v.  Tobacco  Co.,  116  N.  C. 
447.  PuUen  v.  Corporation  Commissioners, 
152  N.  C.  548  (decided  two  years  after 
Richardson  case  quoted).  {Inquiry  from 
N.  C,  July,  1916.) 

Taxation  of  bank  deposits 

Savings  deposits  not  exempt  in  Pennsylvania 

3103.  The  statutes  of  Pennsylvania  do 
not  exempt  savings  deposits  from  taxation 
and  such  deposits  are  subject  to  the  four 
mill  tax  for  state  purposes  as  part  of  the 
personal  property  of  the  depositor  under  the 
Act  of  May  11,  1911.  {Inquiry  from  Pa., 
May,  1917,  Jl.) 

Exemption  in  N.  Y.  does  not  include  savings 
deposits  in  national  banks 

3104.  Opinion:  that  savings  deposit  in 
interest  department  of  national  bank  not 
exempted  from  taxation  by  provision  of  tax 
law  of  New  York  exempting  "the  deposits 
in  any  bank  for  savings  which  are  due  de- 
positors." People  V.  Peck,  157  N.  Y.  51. 
People  V.  Dederick,  158  N.  Y.  414.  People 
V.  Cameron,  140  N.  Y.  App.  Div.  76.  Yazoo, 
etc.,  R.  Co.  v.  Adams,  180  U.  S.  1.  {In- 
quiry from  N.  Y.,  Aug.,  1914,  Jl-) 

Taxation  in  New  York  of  bank  accounts  of 
non-residents 

3105.  What  is  the  law  in  New  York 
with  reference  to  the  taxation  of  bank  ac- 
counts of  non-residents  and  foreign  cor- 
porations? Opinion:  There  is  no  specific 
provision  of  the  New  York  Tax  Law  which 
expressly  taxes  the  bank  accounts  of  non- 
residents and  foreign  corporations.  Sec. 
182  of  that  law  imposes  a  franchise  tax  on 
foreign  corporations  based  on  capital  em- 
ployed within  the  state  and  Sec.  197  makes 
the  tax  a  lien  upon  the  real  and  personal 
property  of  the  corporation.  {Inquiry 
from  N.  Y.,  June,  1917.) 

Other  state  taxation 

Treasury  notes  subject  to  taxation 

3106.  United  States  Treasury  notes  are 
subject  to  state  taxation  as  money  on  hand 
or  on  deposit.  U.  S.  Rev.  St.,  Sec.  3701. 
{Inquiry  from  N.  C,  May,  1915,  Jl.) 

Taxation  of  choses  in  action 

3107.  Oklahoma  session  law,  passed  in 
1917  providing  for  payment  of  a  tax  on 
bonds,  notes  and  choses  in  action  and  ex- 
cluding from  the  courts  all  such  instruments 


689 


3108-3110] 


DIGEST  OE  LEGAL  OPINIONS 


not  registered  and  upon  which  the  tax  is 
not  paid  in  accordance  with  the  Act,  has  for 
its  underlying  purpose  the  taxation  of  a  class 
of  intangible  personal  property  which  would 
otherwise  escape  taxation.  Registration  is 
compulsory.  It  does  not  provide  for  double 
taxation  of  banks  holding  such  bonds, 
notes  or  choses  in  action.  A  similar  law 
exists  in  Connecticut,  and  there  is  a  general 
movement  among  the  states  to  provide 
methods  by  which  a  larger  share  of  personal 
property  is  subject  to  taxation.  Okla.  Sess. 
L.,  1915,  Ch.  105.  Okla.  Sess.  L.,  1913,  Ch. 
246.    {Inquiry  from  Okla.,  July,  1915,  Jl.) 

Tran,sfer  fax  in    Neiv  Jersy    on  deposit  of 
non-resident  decedent 

3108.  A  deposit  of  a  non-resident  de- 
cedent in  a  New  York  savings  bank  is  sub- 
ject to  the  transfer  tax.  The  same  rule 
applies  to  similar  deposits  in  a  trust  com- 
pany. Matter  of  Houdayer,  150  N.  Y.  37. 
Matter  of  Blackstone,  171  N.  Y.  682.  Peo- 
ple V.  Merchanics,  etc.,  Inst.,  92  N.  Y.  7. 
Whitlock  V.  Bowery  Sav.  Bk.,  36  Hun  N. 
Y.  460.  (Inquiry  from  N.  J.,  May,  1911, 
Jl.) 

Taxation  of  trust  estate  in   Maryland  where 
beneficial  ownership  in   North  Carolina 

3109.  A  resident  of  North  Carolina  died, 
leaving  his  estate,  composed  largely  of 
stocks  and  bonds,  in  trust  to  a  Maryland 
trust  company,  the  beneficiaries  residing  in 
North  CaroHna.  It  is  stated  that  the  bulk 
of  the  trust  estate  consists  of  stock  issued 
by  a  New  Jersey  corporation,  and  that 
certain  of  the  stocks  and  bonds  have  been 
pledged  as  collateral  for  loans  granted  by 
New  York  banks.  The  questions  asked  are: 
(1)  Whether  this  estate  is  subject  to  tax 
under  the  Maryland  laws;  (2)  to  what  ex- 
tent the  stocks  issued  by  a  corporation  or- 
ganized under  the  laws  of  New  Jersey  are 
taxable  under  the  laws  of  that  state,  and 
whether  subject  to  inheritance  tax;  and  (3) 
whether  the  stock  and  bonds  pledged  as 
collateral  for  loans  granted  by  New  York 
banks  are  taxable  under  the  law  of  the 
State  of  New  York.  Opinion:  (1)  The 
Maryland  statute  (Art.  81  Code  of  Md., 
Sec.  2)  taxes  shares  of  corporations  located 
in  other  states  owned  by  residents  of  the 
state  to  the  owners  thereof  in  the  county  or 
city  where  the  owners  reside.  It  has  been 
held  that  property  held  by  a  trustee  in 
Maryland  is  properly  assessed  to  such  trus- 
tee, he  being  the  holder  of  the  legal  estate. 
Latrobe  v.  Baltimore,  19  Md.  21.  It  has  also 


been  held  that  personal  property  of  a  ward  in 
the  hands  of  a  guardian  appointed  and  re- 
siding in  another  state  is  not  taxable  in 
Maryland,  the  situs  of  such  property  for 
taxation  being  where  the  guardian  was  ap- 
pointed. Kinehart  v.  Howard,  90  Md.  4, 
(2)  It  has  been  held  in  New  Jersey  that  the 
stock  of  corporations  of  that  state  held  by 
inhabitants  of  another  state  are  not  liable 
to  taxation  in  New  Jersey.  State  v.  Ross, 
23  N.  J.  L.  517.  State  v.  Thomas  26 
id.  181.  Contra,  under  the  inheritance 
tax  law  of  New  Jersey  in  cases  where  "the 
transfer  is  by  will  or  intestate  law  of  proper- 
ty within  the  state,  and  the  decedent  was  a 
non-resident  of  the  state  at  the  time  of  his 
death."  See  Neilson  v.  Russell,  76  N.  J. 
L.  655.  In  re  Delano's  Estate,  74  N.  J. 
Eq.  365.  (3)  It  seems  that  securities  owned 
by  a  non-resident  and  pledged  as  collateral 
with  a  New  York  bank  would  not  be  sub- 
ject to  taxation  as  personal  property  situated 
or  owned  within  the  state.  See  Section  270, 
N.  Y.  Tax  Law.  {Inquiry  from  N.  C, 
Aug.,  1918.) 

Taxation  in  Iowa  of  mortgage  held  in  foreign 
jurisdiction 

3110.  An  opinion  is  asked  on  the  follow- 
ing question  of  taxation  between  parties  in 
Iowa  and  Nebraska:  A,  residing  in  Iowa, 
holds  a  $1,500  mortgage  on  a  piece  of  land 
in  Nebraska,  and  pays  taxes  on  the  mort- 
gage in  Iowa.  Later  he  was  notified  to  pay 
taxes  thereon  in  Nebraska  under  a  statute 
taxing  B,  the  holder  of  the  land  (valued  at 
$3,000),  for  $1,500,  B's  equity  in  same.  A 
claims  he  should  not  pay  taxes  in  Iowa  there- 
on under  those  conditions.  Opinion:  Mort- 
gages, before  foreclosure,  are  choses  in  action, 
and,  as  such,  attach  to  the  person  of  the 
holder,  and  are  taxable  at  the  place  of  his 
domicile.  In  the  absence  of  statute,  the.y 
are  not  taxable  in  the  state  where  the  proper- 
ty is  situated  where  the  owners  of  such  mort- 
gages are  non-residents.  City  of  Davenport 
V.  Miss.  &  Mo.  R.  R.  Co.,  12  Iowa,  539. 
Kirtland  v.  Hotchldss,  100  U.  S.  491.  A 
state,  however,  has  power  to  tax  a  mortgage 
as  such,  in  the  county  where  recorded,  ir- 
respective of  the  residence  of  the  owner  of 
mortgage.  Mumford  v.  Sewall,  11  Ore.  67. 
See  also  City  of  Dubuque  v.  C.  D.  &  M.  R. 
Co.,  47  Iowa  196,  holding  that  the  legislature 
has  the  power  to  fix  the  situs  of  property  for 
the  purpose  of  taxation.  In  the  case  sub- 
mitted there  can  be  no  doubt  of  the  lia- 
bility of  the  mortgage  to  taxation  in  the 
state  of  Iowa,  since  the  domicile  of  the  mort- 


690 


TAXATION 


[3111-3117 


' 


gagee  is  there,  and,  by  the  overwhelming 
weight  of  authority,  mortgages  are  taxable 
at  the  mortgagee's  domicile.  (Inquiry  from 
Iowa,  July,  1916.) 

Agreement  hy  mortgagor  to  pay  taxes 

3111.  A  mortgage  on  realty  contained  a 
provision  that,  in  addition  to  the  payment 
of  principal  and  lawful  interest,  the  mort- 
gagor would  pay  and  satisfy  such  taxes  as 
may  be  assessed  against  the  mortgaged 
premises  during  the  life  of  the  mortgage. 
The  question  asked  is  whether  said  clause 
makes  the  instrument  usurious.  Opinion: 
When  the  lender  requires  of  the  borrower 
that  he  pay,  in  addition  to  the  highest  legal 
interest,  such  taxes  as  may  be  assessed  to  the 
lender  on  account  of  the  loan,  thus  foisting 
upon  the  borrower  his  own  obligation,  it  is 
clear,  on  principle,  that  the  lender  is  guilty 
of  usurious  exaction.  Green  v.  Grant,  134 
Mich.  462.  Mortimer  v.  Pritchard,  Bailey 
Eq.  (S.  C.)  505.  Meem  v.  Dulaney,  88  Va. 
674.  However,  a  provision  in  a  mortgage 
securing  notes  which  require  the  mortgagor 
to  pay  the  taxes  on  the  mortgaged  property 
does  not  render  the  notes  usurious  where  the 
mortgagor  is  by  statute  the  holder  of  the 
legal  title,  and  liable  for  taxes.  Union  Mtg., 
etc.,  Co.  V.  Hagood,  97  Fed.  360.  The  Ne- 
braska statute  on  this  subject  provides: 
"In  the  absence  of  stipulations  to  the  con- 
trary, the  mortgagor  of  real  estate  retains 
the  legal  title  and  right  of  possession  there- 
of." Cobbey's  Anno.  Stat.  Neb.  (1903) 
Vol.  2,  Sec.  10257.  (Inquiry  from  Neb., 
Nov.,  1916.) 

Federal  taxation 

Canadian  bank  notes  and  currency 

3112.  Bank  which  pays  out,  in  the 
United  States,  Canadian  bank  notes  which 
have  been  received  by  it  must  pay  tax  of 
ten  per  cent,  on  all  notes  so  paid  out.  (hi- 
quiry  from  Idaho,  Jan.,  1911,  Jl.) 

Ten  per  cent,  tax  on  Canadian  bank  notes 

3113.  A  bank  in  the  United  States 
which  pays  out  over  its  counter  Canadian 
bank  notes  which  it  has  received  on  deposit 
is  subject  to  the  Federal  tax  of  10  per  cent, 
on  all  notes  so  paid  out,  but  a  bank  in  the 
United  States  may  receive  Canadian  bank 
notes  on  deposit  and  send  them  to  Canada 
for  redemption  without  being  required  to 
pay  tax  thereon.  (Inquiry  from  N.  D., 
Sept.,  1910,  Jl.) 


Ten  per  cent,  tax  on  Canadian  currency 

3114.  A  national  or  state  bank  which 
receives  on  deposit  and  pays  out  Canadian 
currency  is  liable  to  the  10  per  cent,  tax 
thereon  under  U.  S.  Rev.  Stat.,  Sec.  3412, 
but  a  bank  may  receive  on  deposit  and  send 
such  currency  to  Canada  for  redemption 
without  being  required  to  pay  tax  thereon. 
U.  S.  Rev.  St.,  Sec.  3412.  34  Internal  Rev. 
Record,   pp.   53,   61,   77,   93,  94.     (Inquiry 

from  Wash.,  Sept.,1918,  Jl.) 

Federal  income  tax 

Income  tax  on  state  bankers  associatiofis 

3115.  Has  the  question  ever  been  raised 
as  to  whether  state  bankers  associations  are 
subject  to  the  federal  income  tax?  Opinion: 
The  Income  Tax  I^aw  exempts  business 
leagues,  chambers  of  commerce  or  boards  of 
trade  "not  organized  for  profit  or  no  part 
of  the  net  income  of  which  enures  to  the 
benefit  of  the  private  stockholder  or  individ- 
ual." It  would  seem  that  a  state  bankers' 
association  is  a  business  league  not  organized 
for  profit,  and  hence  exempt.  (Inquiry  from 
Tenn.,  July,  1915.) 

Liability  of  trust  company  absorbing  national 
bank  for  latter^ s  income  tax 

3116.  A  national  bank  went  into  volun- 
tary liquidation  at  the  close  of  business  June 
30,  1916,  and  was  succeeded  by  a  trust 
company  which  purchased  all  its  assets  and 
assumed  all  its  liabilities.  Is  the  trust  com- 
pany liable  for  the  federal  corporation  tax  on 
the  income  of  the  national  bank  from  Janu- 
ary 1  to  June  30,  1916?  Opinion:  The 
trust  company  would  seem  to  be  liable  for 
the  tax  on  this  income.  A  corporation  can- 
not evade  liability  by  dissolving  before  the 
time  when  it  is  required  to  make  a  return. 
U.  S.  V.  General  Inspection,  etc.,  Co.,  192 
Fed.  223.  As  the  trust  company  assumed 
all  the  liabilities  of  the  national  bank  it 
would  doubtless  be  liable  for  the  tax  on 
income  for  the  period  in  question.  (Inquiry 
from  N.  J.,  Feb.,  1917.) 

Income  tax — Credit  of  dividends  received  from 
corporation 

3117.  Under  what  circumstances  may  a 
stockholder  in  a  corporation  deduct  from  his 
income,  for  purposes  of  the  federal  income 
tax,  dividends  received.  Opinion:  The 
Federal  Income  Tax  Law  of  1916  allows  the 
individual  taxpayer  to  credit  the  income  em- 
braced in  his  personal  return  with  the  amount 
received  as  dividends  upon  the  stock  of  any 


691 


3118-3121] 


DIGEST  OF  LEGAL  OPINIONS 


corporation  which  is  taxable  upon  its  net 
income.  This  apphes  to  the  normal  tax  only. 
Under  the  War  Revenue  Act  of  1917,  the 
stockholder  is  entitled  to  a  like  credit  for 
computing  the  income  subject  to  the  addi- 
tional 2%  tax. 

Corporations  owning  stock  in  other  cor- 
porations which  receive  dividends  are  not 
allowed  such  credit  under  the  act  of  1916, 
but  the  act  of  1917,  imposing  the  additional 
4%  tax  provides  that  "for  the  purpose  of  the 
tax  imposed  by  this  section  the  income  em- 
braced in  the  return  of  the  corporation .... 
shall  be  credited  with  the  amount  received 
as  dividends  upon  the  stock  or  from  the 
net  earnings  of  other  corporations...  .which 
is  taxable  upon  its  net  income  as  provided 
in  this  title."  In  other  words,  the  individual 
taxpayer  has  the  right  of  deduction  by  way 
of  credit  of  dividends  received  from  cor- 
porations, and  a  corporation  has  the  like 
right  in  case  of  the  4%  but  not  the  2%  tax. 
{Inquiry  from  Pa.,  Feb.,  1918.) 

Deduction   of  loss   caused   by   shrinkage   of 
securities 

3118.  Does  a  shrinkage  in  value  of 
securities  during  a  tax  year  constitute  a 
"loss"  to  be  deducted  from  gross  income  in 
ascertaining  the  federal  income  tax?  Opin- 
ion: The  treasury  department  has  changed 
its  view  as  to  what  constitutes  a  "loss  actual- 
ly sustained"  and  where  formerly  it  allowed 
a  shrinkage  to  be  charged  off  during  the  year 
and  deducted  from  gross  income  as  a  loss, 
the  new  requirement  is  that  the  loss,  to  be 
deductible,  must  be  ascertained  by  actual 
sale  or  disposal  of  the  securities.  (Inquiry 
from  N.  J.,  Jan.,  1915.) 

Contributions  by  national  bank  to  Red  Cross 
not  deductible 

3119.  May  a  national  bank  deduct,  in 
ascertaining  its  income  tax,  contributions 
to  the  Red  Cross?  Opinion:  By  act  of 
May  22,  1918,  it  is  made  lawful  for  any 
national  banks  during  the  continuance  of 
the  war  to  contribute  to  the  American 
National  Red  Cross  out  of  any  net  profits 
otherwise  available  under  the  law  for  the 
declaration  of  dividends. 

But  under  Treasury  Decision  2847,  as 
amended  May  24,  1919,  a  corporation  is  not 
entitled  to  deduct  from  gross  income  con- 
tributions to  the  Red  Cross.  In  the  Digest 
of  Income  Tax  Rulings  No.  10,  issued  June 
1920,  appears  the  following:  "Corporations 
which  erroneously  deducted  contributions  to 
the  Red  Cross  and  other  war  organizations 


in  their  returns  filed  prior  to  the  issuance  of 
T.  D.  2847  need  not  file  amended  returns, 
but  should  immediately  file  with  the  collect- 
or a  statement  showing  the  amount  of  such 
deductions  claimed,  the  amount  of  net  in- 
come as  reported  and  as  corrected,  and  the 
amount  of  additional  tax  due  by  reason  of 
the  erroneous  claiming  of  such  deduction, 
accompanied  by  the  additional  tax  and 
interest  on  the  first  and  second  installment." 
(Inquiry  from  Iowa,  Oct.,  1920.) 

Exemption  of  fees  of  executors  and 
administrators 

3120.  Are  individuals  and  corporations 
acting  as  administrators  and  executors  sub- 
ject to  federal  taxation  in  respect  to  income 
resulting  from  their  services  in  those  capaci- 
ties? Opinion:  By  Art.  85  Reg.  45  Rev., 
April  17, 1919, "compensation  paid  its  officers 
and  employees  by  a  state  or  political  sub- 
division thereof,  including  fees  received  by 
notaries  pubhc  commissioned  by  states  and 
the  commissions  of  receivers  appointed  by 
state  courts  are  not  taxable." 

The  Revenue  Act  of  1918,  Sec.  213  (a), 
provides  that  gross  income  shall  include 
"gains,  profits  and  income  derived  from 
salaries,  wages  or  compensation  for  personal 
service ....  of  whatever  kind  and  in  what- 
ever form  paid."  However,  under  the  well 
settled  rule  that  governmental  agencies  of 
the  states  are  not  subject  to  taxation  by  the 
federal  government,  the  salaries  of  state 
officials  and  the  salaries  and  wages  of  em- 
ployees of  a  state  are  not  subject  to  federal 
income  tax.  Op.  Atty.-Gen.  May  6,  1919 
(T.  D.  2843,  May  17,  1919). 

Compensation  of  a  lawyer  employed  by  a 
municipality  as  special  counsel  to  act  in 
connection  with  the  regular  city  attorney 
in  handhng  particular  litigation  is  not 
exempt,  as  he  is  not  regarded  as  an  officer  or 
employee  of  a  poUtical  subdivision  of  a 
state.  Ruling  of  Assistant  Commissioner 
Callan,  April  15,  1919. 

With  regard  to  the  precise  question  sub- 
mitted, letters  testamentary  and  of  ad- 
ministration issue  from  a  court ;  but  it  is  very 
doubtful  if  executors  and  administrators  are 
to  be  regarded  as  state  officials  or  employees, 
so  that  their  fees  and  commissions  are 
exempt  income.  (Inquiry  from  III.,  Dec, 
1920.) 

Reduction  of  taxes  paid  by  bank  on  shares 

3121.  A  bank  in  Tennessee,  in  making  its 
return  under  the  United  States  Income  Tax 
Law,  deducted  as  expenses  from  its  gross 


692 


TAXATION 


[3122-3125 


income  the  taxes  assessed  against  its  share- 
holders, but  paid  by  the  bank  to  the  state. 
A  provision  of  said  law  allows  a  corporation 
to  deduct  from  the  gross  income  "all  sums 
paid  by  it  during  the  year  for  taxes  im- 
posed." The  department  of  Internal  Rev- 
enue claimed  that  such  deduction  was  not 
lawful.  Opinion:  Where  taxes  are  assessed 
against  bank  stockholders  as  upon  their 
property,  though  paid  by  the  bank,  the 
Federal  courts  hold  the  bank  cannot  deduct 
the  taxes  so  paid  from  its  gross  income,  such 
taxes  not  being  assessed  against  the  cor- 
poration or  its  property,  Elliott  Nat.  Bk. 
V.  Gill,  218  Fed.  600,  210  Fed.  933.  {In- 
quiry from  Tenn.,  April,  1915,  Jl.) 

3122.  The  Federal  Income  Tax  Law 
imposing  a  tax  on  the  net  income  of  cor- 
porations provides  for  the  deduction  of 
"(fourth)  all  sums  paid  by  it  within  the 
year  for  taxes  imposed  under  the  authority 
of  the  United  States  or  of  any  State  or 
territory  thereof."  May  a  bank  deduct 
state  or  municipal  taxes  assessed  against  its 
shareholders  and  paid  by  it  for  them?  Opin- 
ion: No  such  deduction  is  permitted;  it  is 
limited  to  taxes  which  have  been  assessed 
against  the  bank  itself  upon  its  own  proper- 
ty. The  question  is  the  same  as  that  arising 
under  the  similarly  worded  provision  of  the 
Corporation  Tax  Law  of  1909.  The  follow- 
ing cases  have  held  that  there  is  no  right  to 
the  deduction  contended  for.  Northern 
Trust  Co.  V.  McCoach,  215  Fed.  991.  Na- 
tional Bank  of  Commerce  v.  Allen,  211  Fed. 
743.  Eliot  National  Bank  v.  Gill,  Collector, 
210  Fed.  933.  {Inquiries  from  Mont,  and 
N.  Y.,  March,  1911,  Jl,  March,  1915,  Jl.) 

Deduction  by  stockholders  of  taxes 
paid  by  banks  on  shares 

3123.  May  the  stockholders  of  a  bank  or 
trust  company  deduct  taxes  on  their  stock 
paid  for  them  by  the  bank  or  trust  company, 
without  accounting  for  them  as  additional 
dividends?  Opinion:  Article  192,  Regula- 
tions 33,  Revised,  promulgated  January  2, 
1918,  provides:  "Banks  paying  taxes  as- 
sessed against  their  stockholders  on  account 
of  their  ownership  of  the  shares  of  stock 
issued  by  such  banks  cannot  deduct  the 
amount  of  taxes  so  paid  in  making  their 
returns  for  the  purpose  of  the  income  tax 
imposed  by  this  title  unless  and  to  the  extent 
that  the  laws  of  the  State  in  which  they  do 
business  by  specific  terms  make  the  tax  a 
direct  liability  of  such  banks,  that  is,  a  hen 
upon  its  property.  The  shares  of  stock  are 
the  property  of  the  stockholders,  and  to  the 


extent  that  the  taxes  assessed  on  the  value  of 
the  shares  of  stock  are  property  taxes  the 
holders  are  primarily  liable  for  their  pay- 
ment." Article  7  of  the  same  regulations 
contains  a  provision  as  follows:  "Taxes  on 
bank  stock  paid  under  legal  requirement  by 
bank  for  its  stockholders  are  deductible  by 
the  stockholders  and  not  by  the  Imnk. 
Such  payments  are  regarded  as  in  the  nature 
of  additional  dividends  and  should  be  in- 
cluded by  the  stockholder  in  his  dividends 
received." 

Shareholders,  while  allowed  the  deduction 
of  the  taxes  in  question,  will  have  to  ac- 
count for  them  as  additional  dividends. 
{Inquiry  from  Ind.,  Mar.,  1919.) 

Deduction  of  taxes  paid  by  trust  company,  in 
individual  return  of  stockholder 

3124.  The  Treasury  Department  has 
ruled  that,  for  the  purpose  of  making  in- 
come tax  returns  by  bank  stockholders, 
"taxes  assessed  against  stockholders  of  a 
bank  and  paid  by  the  bank  itself  is  an 
allowable  deduction  under  the  heading  of 
'Taxes  Paid'."  The  New  York  State  law 
levies  a  tax  on  trust  companies  based  upon 
their  franchises.  May  the  stockholders  of 
such  companies  deduct  this  tax?  Opinion: 
In  the  case  of  national  and  state  banks, 
state  taxes  imposed  upon  the  stockholders 
may  not  be  deducted  by  the  banks  in  mak- 
ing their  returns  under  the  Federal  Income 
Tax  Law  because  not  paid  upon  their 
property  (except  as  to  real  estate)  but  paid 
as  agents  of  the  stockholders,  and  for  this 
reason  the  shareholder  is  allowed  the  de- 
duction in  making  his  individual  return. 
However,  under  the  New  York  law  the 
stockholders  of  trust  companies  are  not 
taxed,  but  a  franchise  tax  is  imposed  upon 
the  trust  company  itself.  Hence,  it  would 
seem  that  the  franchise  tax  may  be  deducted 
in  the  income  tax  return  of  the  trust  com- 
pany itself  but  not  in  the  income  tax  re- 
turns of  the  individual  stockholders.  {In- 
quiry from  N.  Y.,Feb.,  1915.) 

Deduction  from   income   tax   of  interest   on 
government  bomls 

3125.  Sec.  2  of  the  Federal  Income  Tax 
Law  of  1913  provides  "That  in  computing 
net  income  untler  this  section  there  shall  be 
excluded  the  interest.  .  .  .upon  the  obligations 
of  the  United  States."  Are  banks  entitled 
to  this  deduction?  Opinion:  Although  the 
quoted  provision  is  contained  in  that  part 
of  the  law  relating  to  individuals,  it  apphes 
equally  to  corporations,  as  it  refers  to  all  net 


693 


3126-3128] 


DIGEST  OF  LEGAL  OPINIONS 


income  computed  under  "this  section," 
namely,  the  Income  Tax  Law.  Hence  a  bank 
may  deduct  interest  received  from  govern- 
mental obhgations.  A  letter  was  received 
by  general  counsel  of  the  American  Bankers 
Association  from  Deputy  Commissioner  of 
Internal  Revenue  Speer  relating  to  the  de- 
duction of  such  interest  by  banks,  which 
contained  the  following :  "You  are  informed 
that  such  interest  is  not  to  be  taken  up,  in 
either  gross  income  or  deductions,  on  blank, 
Form  1031,  for  the  annual  return  of  net 
income  of  corporations.  However,  for 
the  information  of  this  office,  the  amount 
should  be  entered  under  3  (c),  'gross  in- 
come from  interest,'  in  the  'supplementary 
statement'  on  back  of  the  return  blank." 
{Inquiry  from  N.  Y.,  March,  1915,  Jl.) 

Constitutionality  of  federal  income  tax  law 

3126.  The  Federal  Income  Tax  Law, 
approved  September  8,  1916,  is  not  un- 
constitutional because  it  imposes  a  tax  of  2 
per  cent,  upon  incomes  received  during 
1916,  prior  to  the  enactment  of  the  law. 
Brushaber  v.  Union  Pac.  Ry.  Co.,  240  U.  S. 
1.  Stockdale  v.  Insurance  Companies,  20 
Wall.  (U.  S.)  323.  {Inquiry  from  Porto 
Rico,  Feb.,  1917,  Jl.) 

Penalty  for  delayed  return 

3127.  A  bank  mailed  its  corporation  tax 
return  to  the  Collector  of  Internal  Revenue 
on  March  1.  The  same  was  not  received 
by  the  collector  until  a  day  late  and  a 
penalty  of  fifty  per  cent  was  imposed. 
Opinion:  That  the  return  was  made  on 
March  1  by  placing  it  in  the  post  office  at 
that  time.  The  safest  course  is  for  the  bank 
to  pay  the  tax,  plus  the  penalty,  under  pro- 
test and  to  request  of  the  Commissioner  of 
Internal  Revenue  that  the  penalty  be  re- 
mitted, because  the  facts  do  not  warrant  the 
imposition  of  such  a  heavy  penalty.  {In- 
quiry from  Miss.,  July,  1910,  Jl.) 

Stamp  taxes 

Stamp  tax  on  notes  secured  by  mortgage 

3128.  In  the  matter  of  the  war  tax 
revenue  bill  is  there  any  ruling  upon  the 
taxation  of  promissory  notes  given  in  con- 
nection with  mortgage  security?  One  sec- 
tion of  the  bill  imposes  a  tax  on  promissory 
notes  of  two  cents  for  each  one  hundred 
dollars  or  fractional  part  thereof;  another 
section  exempts  the  tax  upon  any  instru- 
ment or  writing  given  to  secure  a  debt.  As 
this  tax  goes  into  effect  on  December  1,  it  is 
well  for  all  savings  banks  to  })e  advised  of 


the  departmental  interpretation  of  these 
conflicting  sections  of  the  law.  Opinion: 
There  has  been  no  ruling  by  the  Treasury 
Department  as  yet  upon  the  taxation  of 
promissory  notes  given  in  connection  with 
mortgage  security,  but  that  in  case  of  a  note 
secured  by  mortgage  there  would  be  a 
stamp  tax  on  the  note  of  two  dollars  per  one 
hundred  dollars  as  provided  in  the  para- 
graph on  promissory  notes,  but  there  would 
be  no  tax  on  the  mortgage,  which  is  express- 
ly exempted  from  taxation  in  the  Act  of 
1914  by  the  provision  in  the  paragraph  on 
conveyances  that  nothing  therein  shall  be 
construed  to  impose  a  tax  upon  any  in- 
strument given  to  secure  a  debt. 

There  is  no  inconsistency  between  the 
provision  taxing  promissory  notes  and  the 
provision  exempting  instrmnents  given  to 
secure  a  debt.  Where  a  note  and  mortgage 
are  given  to  a  savings  bank,  the  note  is  the 
borrower's  promise  to  pay  and  is  given  as  an 
evidence  of  the  debt,  while  the  mortgage  is 
the  instrument  given  to  secure  the  debt.  The 
note,  technically  speaking,  is  not  given  to 
secure  the  debt,  but  only  as  an  evidence 
thereof  and  therefore  the  provision  exempt- 
ing instruments  given  to  secure  a  debt 
would  not  apply  to  promissory  notes. 

It  may  be  of  interest  to  note  the  change 
in  policy  as  to  the  taxation  of  mortgages 
between  the  former  war  revenue  law  of 
1898,  and  the  present  law  of  1914.  Under  the 
law  of  1898,  mortgages  as  well  as  notes  were 
taxed,  the  rate  on  mortgages  to  secure  sums 
above  SI, 000  being  fifty  cents  for  each  $500. 
and  a  provision  was  subsequently  added  to 
the  law  that  "Whenever  any  bond  or  note 
shall  be  secured  by  a  mortgage,  or  deed  of 
trust,  but  one  stamp  shall  be  required  to  be 
placed  upon  such  papers:  Provided,  That  the 
stamp  tax  placed  thereon  shall  be  the  highest 
rate  required  for  said  instruments,  or  either 
of  them." 

The  present  law  retains  the  provision  of 
the  law  of  1898  taxing  promissory  notes,  but 
omits  the  provision  specifically  taxing  mort- 
gages and  it  changes  the  provision  of  the 
law  of  1898  as  to  conveyances  by  the  in- 
sertion of  the  words  in  bold  face: 

"Conveyance:  Deed,  instrument,  or 
writing,  whereby  any  lands,  tenements, 
or  other  realty  sold  shall  be  granted,  as- 
signed, transferred,  or  otherwise  con- 
veyed to,  or  vested  in,  the  purchaser  or 
purchasers,  or  any  other  person  or  persons, 
by  his,  her,  or  their  direction,  when  the 
consideration  or  value  of  the  interest  or 
property   conveyed,   exclusive   of  the 


1 


694 


TAXATION 


[3129-3132 


value  of  any  lien  or  encumbrance 
thereon,  exceeds  .^100  and  does  not 
exceed  ^500,  50  cents;  and  for  each  ad- 
ditional $500  or  fractional  part  thereof  in 
excess  of  !5500,  50  cents:  Provided,  That 
nothing  contained  in  this  paragraph 
shall  be  so  construed  as  to  impose  a 
tax  upon  any  instrument  or  writing 
given  to  secure  a  debt." 

Under  the  present  law,  therefore,  mort- 
gages are  not  taxed  and  a  deed  of  land  sub- 
ject to  a  mortgage  is  taxed  on  the  value  of 
the  property  conveyed  exclusive  of  the  value 
of  the  mortgage.  {Inquiry  from  Md.,  Dec, 
1914,  Jl) 

Note:  The  revenue  act  of  1918  imposes 
the  same  tax  as  the  Act  of  1914. 

Authority  in  note  to  confess  judgment 

3129.  Does  the  giving  of  authority  in  a 
note  to  confess  judgment  require  an  addi- 
tional revenue  stamp?  Opinion:  An  addi- 
tional stamp  is  not  required  under  T.  D. 
2081,  revoking  an  earlier  inconsistent  ruling. 
See  Treat,  Collector  v.  Tolman,  113  Fed. 
Rep.  892.    {Inquiry  from  Tenn.,  Dec,  1914-) 

Note   dated   prior    to    and   negotiated   after 
stamp  tax  law 

3130.  Is  it  necessary  for  a  promissory 
note  made  payable  to  a  bank  to  bear  a 
revenue  stamp  where  the  note  is  dated  prior 
to  December  1,  1914,  but  presented  or 
negotiated  to  the  bank  on  or  after  December 
1,  1914?  If  stamp  is  necessary,  what  date 
should  be  used  in  cancelling  the  same? 
Opinion:  Where  a  note  payable  to  a  bank 
was  made  before  December  1  but  pre- 
sented or  negotiated  to  the  bank  on  or  after 
Deceml)er  1,  the  affixing  of  the  necessary 
stamp  would  1)6  required.  Section  five  of 
the  Act  of  October  22,  1914,  provides  that  on 
and  after  December  1,  1914,  "there  shall  be 
levied,  collected  and  paid  for  and  in  respect 
of  the  several"  instruments  and  documents 
descril)ed  in  Schedule  A  "l>y  an}'  person  who 
shall  make,  sign  or  issue  the  same  or  for 
whose  use  or  l)enefit  the  same  shall  be  made, 
signed  or  issued,"  the  prescribed  tax.  Al- 
though the  note  in  question  is  made  or  signed 
before  December  1  it  is  not  issued  until  it 
is  delivered  to  the  bank.  The  Negotiable 
Instruments  Act  defines  "issue"  as  follows: 

"'Issue'  means  the  first  delivery  of  the  in- 
strument, complete  in  form,  to  a  person  who 
takes  it  as  a  holder."  It  seems  clear,  there- 
fore, that  the  delivery  of  the  note  to  the 
payee  bank  on  or  after  December  1   is  an 


issue  of  the  same,  which  calls  for  affixing  of 
the  necessary  stamp. 

It  is  further  asked,  if  stamp  is  necessary, 
what  date  should  be  used  in  cancelling  the 
same.  It  would  seem  in  this  case  that  the 
date  of  issue  would  be  the  date  for  cancella- 
tion of  the  stamp.  The  following  regulation 
concerning  the  cancellation  of  documentary 
stamps  was  published  by  the  Treasury 
Department  under  date  of  November  23, 
1914:  "In  any  and  all  cases  where  an  ad- 
hesive stamp  shall  be  used  for  denoting  any 
tax  imposed  by  Schedule  A  of  the  act  of 
October  22,  1914,  the  person  using  or  affixing 
the  same  shall  write  or  stamp  thereon,  with 
ink,  the  initials  of  his  name  and  the  date 
(year,  month,  and  day)  in  which  the  same 
shall  be  attached  or  used;  or  shall,  by 
cutting  and  cancelling  said  stamp  with  a 
machine  or  punch,  which  will  affix  the  initials 
and  date  as  aforesaid,  so  deface  the  stamp  as 
to  render  it  unfit  for  re-use.  The  cancellation 
by  either  method  should  not  so  deface  the 
stamp  as  to  prevent  its  denomination  and 
genuineness  from  being  readil}'  determined. 
In  addition  to  the  foregoing,  stamps  of  the 
value  of  10  cents  or  more  shall  have  three 
parallel  incisions  made  by  some  sharp  in- 
struments lengthwise  through  the  stamp 
after  the  stamp  has  been  attached  to  the 
document:  Provided,  This  will  not  be 
required  where  stamps  are  cancelled  by 
perforation."  {Inquiry  from  Ark.,  Jan., 
1915,  Jl.) 

Interest  coupon  notes 

3131.  Is  it  necessary  to  place  internal 
revenue  stamps  on  interest  coupons,  that  is, 
notes  given  in  connection  with  a  principal 
note  for  interest  thereon  given  at  the  time 
the  principal  note  is  made?  Opinion:  The 
lastest  ruling  of  the  commissioner  of  internal 
revenue  under  date  of  Dec.  24,  1914  (T.  D. 
2101)  is  to  the  effect  that  coupons  or  interest 
notes  attached  to  and  forming  part  of  the 
Ijond  or  principal  note  are  not  sul)ject  to  tax 
as  promissory  notes  even  though  tiiey  are 
in  the  form  of  promissor}'  notes.  {Inquiry 
from  N.  D.,Oct.,  1915.) 

Note:  See  Art.  58,  Regulations,  No.  55, 
Revised  October,  1920. 

Payment  of  interest  on  demand  notes 

3132.  Is  a  demand  note  subject  to  the 
war  stamp  tax  each  time  that  interest  is  paid 
thereon?  Opinion:  Whether  payment  of 
interest  subjects  a  demand  note  to  the 
Stamp  Tax  Act  depends  upon  whether  it  acts 
as  a  renewal  of  the  note.     Deputy  Com. 


G95 


3133-313GJ 


DIGEST  OF  LEGAL  OPINIONS 


missioner  Fletcher  ruled  January  30,  1915, 
that  unless  the  interest  on  a  demand  note  is 
paid  in  advance  it  does  not  operate  to  renew 
the  note,  or  necessitate  new  tax  stamps. 
{Inquiry  from  N.  Y.,  Aug.,  1916.) 

Note:  Art.  59,  Stamp  Tax  Regulations, 
No.  55,  Revised  October,  1915,  provides: 
"The  mere  payment  of  interest  on  a  demand 
note  without  any  agreement  in  writing 
extending  the  note  is  not  a  renewal  within 
the  meaning  of  this  act." 

Stamp  tax  on  municipal  notes 

3133.  Is  the  stamp  tax  applicable  to 
promissory  notes  of  boroughs,  townships, 
counties,  and  other  municipalities?  Opin- 
ion: Sec.  15  of  the  War  Revenue  Act  pro- 
vides that  all  bonds,  .debentures  or  certifi- 
cates of  indebtedness  issued  by  the  officers 
of  the  United  States  government  or  by  the 
officers  of  any  state,  county,  town,  munici- 
pal corporation  or  other  corporation  exer- 
cising the  taxing  power  are  exempt  from 
stamp  taxes.  Under  this  it  would  seem  that 
promissory  notes  of  municipalities  would  be 
exempt.  This  conclusion  is  fortified  by  T. 
D.  2180,  holding  that  notes  issued  by  the 
Swedish  government  are  not  subject  to  the 
tax.     (Inquiry  from  N.  J.,  Aug.,  1916.) 

Note:  Section  1101  Revenue  Act  of  1918 
exempts  bonds,  notes  and  other  instruments 
issued  by  the  United  States  or  any  foreign 
government  or  by  any  state,  territory,  or 
the  District  of  Columbia,  or  local  sub- 
division thereof,  or  municipal  or  other  cor- 
poration exercising  the  taxing  power. 

Exemption  of  notes  secured  by  U.  S.  obligation 

3134.  All  promissory  notes,  including 
demand  notes,  are  subject  to  stamp  tax 
of  2  cents  for  $100  or  fraction  thereof,  except 
that  promissory  notes  issued  on  or  after 
April  6,  1918,  secured  by  United  States 
bonds  and  obligations  issued  after  April  24, 
1917,  are  exempt  from  stamp  tax.  U.  S. 
Treas.  Dec.  No.  2543,  Oct.  19,  1917.  U.  S. 
Treas.  Dec.  No.  2701,  April  16,  1918.  {In- 
quiry from  Minn.,  Jan.,  1919,  Jl.) 

Note:  Art.  55,  Reg.  55,  rev.  October, 
1920,  exempts  promissory  notes  secured  by 
U.  S.  bonds  and  obligations  issued  after 
April  24, 1917,  of  a  par  value  of  not  less  than 
the  amount  of  such  notes. 

Liability   of  collecting   bank   to   penalty  for 
unstamped  notes  held  for  collection 

3135.  Is  a  bank  liable  to  a  penalty  where 
there  are  no  federal  revenue  stamps  on  notes 
left  with  it  for  collection?    Opinion:    Sec- 


tion 1102,  Title  XI,  of  the  Revenue  Act  of 
1918  provides  "that  whoever  makes,  signs, 
issues,  or  accepts ....  any  instrument  .... 
without  the  full  amount  of  tax  thereon  being 
fully  paid  ....  is  guilty  of  a  misdemeanor." 
When  a  bank  receives  an  unstamped  note  for 
collection,  it  neither  makes,  signs,  issues,  nor 
accepts  the  note,  unless  the  word  "accepts" 
can  be  construed  as  broad  enough  to  include 
not  only  a  person  who  accepts  an  instru- 
ment for  value  but  also  one  who  accepts  it 
for  collection.  It  is  very  doubtful  that  the 
word  will  be  given  the  latter  meaning,  and 
if  not,  the  bank  receiving  an  unstamped  note 
for  collection,  being  merely  agent  of  the 
owner  whose  duty  it  is  to  affix  the  stamp, 
would  not  be  subject  to  the  penalty.  The 
ruling  of  the  department  to  the  contrary 
has  not  been  backed  by  any  judicial  decision. 
{Inquiry  from  Ida.,  June,  1919.) 

Stamp  tax  on  non-negotiable  notes 

3136.  The  federal  law  provides  for  a 
stamp  tax  on  "promissory  notes,"  and  this 
term  is  defined  by  the  Treasury  Department 
as  follows:  "A  promissory  note  is  an  un- 
conditional promise  in  writing  made  by  one 
person  to  another,  signed  by  the  maker, 
engaging  to  pay  on  demand,  or  at  a  fixed  or 
determinable  future  time,  a  sum  certain  in 
money  to  such  other  person  or  to  order  or 
to  bearer,  free  from  restrictions  as  to  regis- 
tration or  transfer  and  usually  without 
coupons."  Art.  48,  Reg.  55.  Approved  Feb. 
24,  1919.  Under  the  statute  and  the  regula- 
tions, is  a  note  without  words  of  negotia- 
bility, such  as  "order"  or  "bearer,"  or  re- 
stricted as  to  transfer  or  conditional  taxable? 
Is  it  advisable  to  use  a  non-negotiable 
non-taxable  note  in  place  of  the  regular 
negotiable  promissory  note  which  is  taxable? 
Opinion:  It  might  be  a  debatable  question 
whether  some  forms  of  non-negotiable  notes 
would  not  be  taxable.  The  fact  that  the 
regulation  defines  a  promissory  note  as  an 
unconditional  promise  in  writing  made  by 
one  person  to  another  engaging  to  pay  "to 
such  other  person  or  to  order  or  to  bearer" 
might  not  exclude  an  interpretation  of  the 
regulation  that  a  note  payable  to  a  specified 
person  without  the  words  "order"  or  "bearer" 
would  come  within  the  definition.  If  there 
was  some  condition  attached  to  the  promise, 
however,  it  probably  would  not  come  within 
the  definition  of  a  promissory  note. 

As  to  advisability  of  using  non-negotiable 
forms  of  instruments,  there  is  no  legal 
objection  to  their  use.  Banks  generally  find 
it  preferable  to  take  negotiable  instruments. 


696 


TAXATION 


[3137-3142 


as  the  liability  of  indorsers  thereon  is  clearly- 
defined  by  law;  if  acquired  from  a  payee 
before  maturity,  the  note  is  enforceable 
free  from  defenses  of  the  maker;  it  is  pro- 
testable;  and  if  in  negotiable  form,  the  bank 
may  itself  negotiate  it.  The  nature  of  a 
bank's  business  might  be  such  that  a  non- 
negotiable  note  would  be  satisfactory.  Each 
bank  must  judge  for  itself  whether,  from  the 
nature  of  its  business,  it  should  take  non- 
negotiable  paper.  {Inquiry  from  Mich., 
Dec,  1920.) 

Unstamped  note  not  "complete  and  regular 
on  its  face" 

3137.  A  note  payable  to  the  order  of  the 
maker  was  indorsed  by  him  in  blank  and 
offered  for  sale  by  another  person.  The 
purchaser  called  attention  to  the  lack  of  the 
required  revenue  stamps  and  the  seller  re- 
plied that  the  maker  had  paid  for  them  and 
asked  to  have  them  put  on  and  cancelled. 
The  purchaser  then  put  them  on  and  can- 
celled them  and  bought  the  note.  Did  such 
purchaser  take  subject  to  the  defense 
of  failure  of  consideration?  Opinion:  Lut- 
ton  V.  Banker,  174  N.  W.  (la.)  599,  holds 
that,  where  necessary  revenue  stamps  are 
not  affixed,  the  instrument  is  not  "complete 
and  regular  upon  its  face"  within  the  mean- 
ing of  the  Negotiable  Instruments  Act  and 
that  a  purchaser  of  such  a  note  takes  sul^ject 
to  anj'-  defenses  available  against  the  payee. 
It  is  assumed  that  the  note  was  payable 
otherwise  than  at  sight  or  demand,  which 
would  seem  to  make  the  Lutton  decision 
applicable,  although  the  purchaser  put  on  the 
stamps  before  purchasing  the  note.  {In- 
quiry from  Iowa,  May,  1921,  Jl.) 

No  stamp  tax  on  certificate  of  deposit 

3138.  Are  interest  bearing  certificates  of 
deposit  payable  on  demand  subject  to  the 
stamp  tax?  Opinion:  The  commissioner 
of  internal  revenue  has  ruled  under  date  of 
Nov.  14,  1914,  that  under  the  act  of  Oct.  22, 
1914,  stamps  are  not  required  to  be  affixed 
to  certificates  of  deposit  issued  by  banks. 
This  ruling  seems  to  be  correct.  (Inquiry 
from  Pa.,  Dec,  1914.) 

Note:  Art.  62,  Reg.  55,  Rev.  Oct.,  1920, 
provides:  "A  certificate  of  deposit  is  not 
subject  to  tax  as  a  promissory  note." 

3139.  Are  certificates  of  deposit  subject 
to  the  stamp  tax?  Opinion:  Internal  Rev- 
enue Commissioner  Roper  has  ruled  under 
date  of  Nov.  16,  1917,  that  "certificates  of 
deposit  issued  by  banks  and  trust  companies 
are  not  taxable  under  Schedule  A,  Act  of 


October  3,  1917,  whether  they  are  time 
certificates  or  contain  clause  reserving  the 
right  of  thirty  days'  notice  for  pajonent." 
A  prior  ruling  was  to  the  effect  that  certifi- 
cates of  deposit  payable  on  sight  or  demand 
are  not  subject  to  tax  as  certificates  of  in- 
debtedness under  the  War  Revenue  Act  of 
October  3,  1917.  This  ruling  was  made 
October  20,  1917.  It  would  appear  that 
certificates  of  deposit  are  not  subject  to  the 
stamp  tax  either  as  certificates  of  indebted- 
ness or  as  promissory  notes.  (Inquiry 
from  Kan.,  May,  1918.) 

Stamp  tax  on  deed  where  consideration  $5000 
hut  mortgage  S2000 

3140.  The  consideration  stated  in  a  deed 
is  $5000,  without  any  reference  to  a  S2000 
mortgage  on  the  premises  conve^-ed.  Does 
this  deed  call  for  stamps  on  a  S5000  or  a 
$3000  consideration?  Opinion:  Although 
there  is  no  specific  ruling  on  this  point  it 
would  seem  that  the  consideration  to  be 
taken  would  be  $3000.  The  law  provides  a 
tax  on  the  consideration  or  value  of  the 
property  conveyed  exclusive  of  the  value  of 
any  lien  or  incumbrance  thereon.  The  value 
of  the  property  here  is  $5000,  and  excluding 
the  value  of  the  $2000  encuml^rance  thereon 
leaves  $3000  to  be  taxed.  The  law  does  not 
provide  that  the  value  of  the  encumbrance 
must  be  stated  in  the  deed  in  order  to  be  de- 
ducted or  excluded  and,  as  the  mortgage  is 
recorded,  the  existence  of  the  lien  is  a  matter 
of  public  knowledge.  (Inquiry  from  Kan., 
Feb.,  1915.) 

Note:  See  Art.  67,  Reg.  55,  Revised 
October  1920. 

Where    consideration    of    deed    SI 500    cash 
and  assignment  of  S2500  mortgage 

3141.  The  consideration  for  a  deed  was 
$1500  cash  and  an  assignment  of  two 
mortgages  for  the  amount  of  $2500  dated 
prior  to  Dec.  1,  1914.  What  is  the  basis  for 
the  stamp  tax?  Opinion:  It  would  seem 
that  the  seller  would  have  to  pay  revenue 
tax  on  the  entire  $4000,  as  that  is  the  amount 
of  the  consideration.  The  case  would  be 
different  if  the  buyer  paid  $1500  and  gave  a 
purchase  money  mortgage  for  $2500.  Then 
only  $1500  would  be  taxable.  (Inquiry 
from  Wis.,  March,  1915.) 

Consideration  S4OO  per  year  for  life 

3142.  How  much  revenue  tax  is  required 
on  a  deed  to  200  acres  of  land,  really  worth 
$200  per  acre,  which  a  man  is  dividing 
among  his  three  children?     The  consider- 


697 


3143-3144] 


DIGEST  OF  LEGAL  OPINIONS 


ation  is  two  dollars  an  acre  per  year  for 
the  grantor's  lifetime.  Opinion:  If  the 
conveyance  were  a  gift  there  would  be  no 
tax.  Ruling  of  Deputy  Commissioner  Flet- 
cher, Jan,  8,  1915.  However,  the  deed 
seems  to  be  for  a  consideration,  namely,  $400 
per  year  during  the  lifetime  of  the  grantor. 
It  would  seem  that  the  tax  should  be  based 
not  on  the  value  of  the  property,  that  is 
$40,000,  but  on  the  consideration.  It  is 
difficult  to  say  just  what  the  law  would  re- 
quire in  a  case  like  this,  but  if  the  property 
were  valued  at  what  the  grantor  expects  to 
receive  before  he  dies,  stamps  upon  this 
value  would  seem  to  be  sufficient.  (Inquiry 
from  III.,  Jan.,  1916.) 

Tax  on  stock  transfer 

3143.  A  shareholder  in  a  bank  has  a 
certificate  for  13  shares  of  stock  and  wishes 
one  share  transferred  to  another  person. 
Do  both  new  certificates  require  revenue 
stamps?  How  much  is  the  tax?  Who  pays 
for  the  stamps?  Opinion:  It  has  been 
ruled  that  the  tax  imposed  is  on  the  transfer 
of  the  shares  by  the  owner  to  another  person 
and  that  there  is  no  tax  where  a  new  cer- 


tificate is  issued  to  the  holder  who  already 
owns  the  shares.  That  is,  the  stamp  tax 
would  be  on  the  new  certificate  for  one  share 
transferred  to  a  third  person,  and  there 
would  be  no  tax  on  the  certificate  for  the 
remaining  twelve  shares  issued  to  the  orig- 
inal stockholder.  The  amount  of  tax  is 
two  cents  on  each  $100  of  face  value  or 
fraction  thereof.  No  specific  ruling  can  be 
found  on  the  question  as  to  who  should  pay 
for  the  stamp  but  it  would  seem  that  the 
transferrer  should  pay,  and  that  it  would 
be  the  duty  of  the  bank  to  see  that  the 
stamp  was  affixed  before  deHvering  the 
new  certificate.  (Inquiry  from  Pa.,  Jan., 
1915.) 

3144.  A  transferred  shares  of  stock  to 
B  with  a  10  cent  internal  revenue  stamp 
affixed.  A  new  certificate  was  issued  to  B 
and  the  old  certificate  was  cancelled.  The 
question  was  raised  whether  or  not  the  new 
certificate  required  a  10  cent  stamp.  Opin- 
ion: Under  a  ruling  by  the  Commissioner 
of  Internal  Revenue,  no  stamp  is  required 
on  the  new  certificate.  Treas,  Dec.  No. 
2073,  Nov.,  1914.  (Inquiry  from  N.  J., 
Jan.,  1915,  Jl.) 


698 


[3145 


3145 


WAREHOUSE  RECEIPTS 


Forms  Recommended   by   American  Bankers   Association  and   the  American  Warehousemen's   Association 


NEGOTIABLE 


Consecutive 
No 


JOHN  DOE  WAREHOUSE  COMPANY 
A  warehouseman  as  defined  in  the  Uniform  Warehouse  Receipts  Act  of  the  State  of. 

New  York 


.192. 


This  is  to  certify  that  we  have  received  and  hold  on  storage  the  following  described  merchandise  and 
will  deliver  same  to or  order  upon  the  surrender  of  this  receipt  properly  indorsed 


;        and  on  payment  of  storage  and  other  charges  as  indicated  below: 

i 

"               Marks  or 
^            Lot  Numbers 

Packages 
Said  to  Contain 

Merchandise 

Location 

Storage  Rate- 
Labor  


Other  charges  for  which  lien  is  claimed: 


Storage  from. 


(Signature  of  warehouseman  which  may  be  made  by  his 
authorized  agent) 


PARTIAL  DELIVERIES  NOTED  ON  THE  BACK  OF  THIS  RECEIPT 


Indorsements 


Reverse  Side 


Released  hereon,  the  following  merchandise;  balance  of  goods  in  store  to  be  responsible  for  all  unpaid 
charges  hereon. 


Date 

Number 

Packages 

Merchandise 

Marks  or 
Lot  Numbers 

Signature  of 
Warehouseman  or 
Authorized  Agent 

Note:  The  word  "Negotiable"  is  printed  across  the  face  of  the  receipt. 

G99 


3146] 


DIGEST  OF  LEGAL   OPINIONS 

NOT  NEGOTIABLE 


•^ 


3146 


Consecutive 
No 


JOHN  DOE  WAREHOUSE  COMPANY 
A  warehouseman  as  defined  in  the  Uniform  Warehouse  Receipts  Act  of  the  State  of_ 

New  York 


.192- 


Received  on  storage  from^ 


.and  deUverable  to 


the  merchandise  described  below,  subject  to  delivery  on  written  authority  without  the  return  of  this  receipt: 

Marks  or 
Lot  Numbers 

Packages 
Said  to  Contain 

Merchandise 

Location 

Storage  Rate- 
Labor  


Other  charges  for  which  lien  is  claimed: 


(Signature  of  warehouseman  which  may  be  made  by  his 
authorized  agent) 


Storage  from. 


Note:  The  words  "Not  Negotiable"  are  printed  across  the  face  of  the  receipt. 


700 


WAREHOUSE  RECEIPTS 


[3147-3151 


Form  of  transfer  of  warehouse  receipt 

3147.  What  is  the  form  of  transferring 
warehouse  receipts  as  a  pledge  or  otherwise? 
Opinion:  At  common  law  a  valid  assign- 
ment of  a  warehouse  receipt  could  be  made 
without  indorsement  by  mere  delivery  with 
intent  to  pass  title  to  the  goods.  Statutes 
authorizing  a  transfer  of  warehouse  receipts 
by  indorsement,  passed  in  a  number  of 
states,  have  been  generally  construed  not  to 
prevent  a  valid  transfer  by  any  method 
previously  effectual.  Under  the  South 
Carolina  statute  (Code  Laws,  1912,  Chap, 
VI,  Sec.  2590),  warehouse  receipts  are  proper- 
ly transferred  by  the  indorsement  of  the 
person  to  whom  the  receipt  was  originally 
drawn,  without  more.  {Inquiry  from  S.  C, 
Oct.,  1917.) 

Warehouse  receipt  for  mortgaged 
goods 

3148.  A  bank  inquires  if  a  bona  fide 
holder  for  value  of  a  warehouse  receipt  has 
title  to  the  goods  against  a  mortgagee. 
Opinion:  Where  the  owner  of  goods  which 
are  subject  to  a  chattel  mortgage,  duly  re- 
corded, deposits  the  goods  in  a  warehouse, 
and  takes  out  a  negotiable  warehouse  re- 
ceipt therefor,  which  he  subsequently  ne- 
gotiates, the  rights  of  a  bona  fide  purchaser 
for  value  of  the  receipt  are  subject  to  the 
claim  of  the  mortgagee,  and  the  warehouse- 
man is  entitled  to  interplead  the  adverse 
claimants  before  making  delivery  to  either. 
(Uniform  Warehouse  Receipts  Act,  Sees.  17, 
18,  41.)  The  person  taking  out  and  nego- 
tiating such  receipt  without  disclosing  the 
existence  of  the  mortgage  is  criminally  liable. 
(Ibid.,  Sec.  55.)  {Inquiry  from  Miss.,  Feb., 
1921,  Jl.) 

Forged  elevator  storage  ticket 

3149.  The  agent  of  an  elevator  com- 
pany borrowed  money  upon  a  forged  eleva- 
tor storage  ticket,  which  was  issued  without 
authority  by  him  in  the  name  of  the  com- 
pany to  a  fictitious  person  and  indorsed  by 
the  same  name.  The  agent  also  indorsed 
the  ticket  in  his  own  name.  Opinion:  The 
elevator  company  is  not  liable  to  the  pur- 
chaser. The  ticket  is  not  negotiable  and  is 
not  transferable  as  a  bearer  instrument  be- 
cause the  supposed  goods  are  made  dehver- 
able  to  a  fictitious  person.  The  purchaser 
required  no  title  as  in  case  of  a  negotiable 
instrument,  and  was  put  in  inquiry  in  any 
event  because  of  negotiation  by  the  issuing 
agent.  Jasper  Tr.  Co.  v.  R.  R.  Co.,  99  Ala. 
416.     {Inquiry  from  S.  D.,  June,  1914,  JI-) 


Warehouse  collateral  note 

3150.  The  following  note  is  submitted 
and  the  question  raised  as  to  its  negotiability 
and  eligibility  for  rediscount  by  a  Federal 
Reserve  Bank. 

"$5,000  Topeka,  Kansas, 

Sept.  16,  1918. 

Ninety days  after  date  we  promise  to 

pay  to  the  order  of  ourselves  Five  Thousand 
Dollars  at  First  National  Bank,  Topeka, 
Value  Received.  Having  deposited  as 
collateral  security  Warehouse  Receipt  No. 
1721,  of  even  date,  covering  3,000  bushels 
of  wheat  which  the  holder  of  this  note  is 
authorized  to  sell,  etc.,  in  case  of  non-pay- 
ment.        The  A.  B.  Mining  Company, 

By  John  Doe,  President. 
Attest:  John  Roe, 

Secretary. 
Indorsements  by  the  Company  and  Joe  Doe, 
President,  and  John  Roe,  Secretary." 
Opinion:  A  note  which  contains  a  provision 
authorizing  sale  of  collateral  upon  non-pay- 
ment is  negotiable  but  where  the  note  is 
issued  by  a  warehouse  corporation,  to  its 
own  order  and  is  secured  by  a  warehouse 
receipt  issued  by  the  same  corporation,  it  is 
ineligible  for  rediscount  by  a  Federal  Re- 
serve Bank.  The  Federal  Reserve  Board  has 
ruled  that  paper  secured  by  warehouse  re- 
ceipts may  be  rediscounted  if  otherwise 
eligible,  but  the  warehouse  receipt  must  be 
issued  by  a  warehouse  which  is  independent 
of  the  borrower.  {Inquiry  from  Kan.,  Oct., 
1918,  Jl.) 

Receipt  issued  by  milling  company  on 
its  own  grain 

3151.  A  mining  company  owning  three 
warehouses  issued  receipts  upon  its  own 
grain  and  pledged  the  receipts  to  a  bank  as 
security  for  a  loan.  In  the  event  of  the 
bankruptcy  of  the  company,  the  bank  wishes 
to  hold  the  grain  as  against  the  bankrupt's 
creditors.  Opinion:  Warehouse  receipts 
issued  by  grain  warehouseman  on  his  own 
goods  in  store  are  generally  held  invalid 
and  are  insufficient  security  to  a  bank  as 
against  the  trustee  in  bankruptcy  of  the 
issuing  warehouseman.  An  additional  pro- 
vision might  be  framed  in  connection  with 
the  Uniform  Warehouse  Receipts  Act,  when 
presented  for  enactment  in  Arizona,  which 
in  substance  would  validate  receipts  of  ware- 
housemen, whether  or  not  issued  for  their 
own  grain  in  store,  upon  a  proper  system  of 
registry  of  such  receipts.  Bell  v.  Ky.  Glass 
Works  Co.,  106  Ky.  7.  Fourth  St.  Bk.  v. 
Milbourne  Mills,  etc.,  Co.,   172  Fed.   177. 


701 


3152-3157 


DIGEST  OF  LEGAL  OPINIONS 


Kastner  v.  Fashion  Livery  Co.,  (Ariz.)  85 
Pac.  120.  Cochran  v.  Ripy,  76  Ky.  495. 
{Inquiry  from  Ariz.,  Feb.,  1912,  Jl.) 

Receipt   issued    by    warehouseman    on 
his  own  whisky 

3152.  A  bank  loans  money  upon  the 
security  of  whisky  certificates  issued  by  the 
proprietor  of  a  bonded  warehouse  repre- 
senting his  own  whisky.  The  warehouse- 
man goes  into  bankruptcy.  Opinion:  Under 
a  recent  decision  the  pledge  of  such  whisky 
certificates  is  valid  and  protects  the  bank  as 
against  the  trustee  in  bankruptcy.  Such 
certificates  are  distinguishable  from  ware- 
house receipts  for  grain  or  flour  issued  by  a 
warehouseman  upon  his  own  goods,  pledge 
of  which  is  invalid  as  against  creditors.  The 
delivery  of  the  last  stated  certificates  does 
not,  while  that  of  bonded  warehouse  receipts 
does,  operate  as  delivery  of  the  goods,  suffi- 
cient to  constitute  a  valid  pledge.  Fourth 
St.  Bk.  V.  Milbourne  Mills  Co.,  172  Fed. 
177.  Miller  Pure  Rye  Dist.  Co.,  176  Fed. 
606.  Miller  Pure  Rye  Dist.  Co.,  187  Fed. 
689.     {Inquiry  from  Wash.,  Oct.,  1911,  Jl.) 

Receipt  issued  by  bankrupt  warehouse- 
man to  himself 

3153.  A  bank  loaned  money  upon  the 
security  of  warehouse  receipts  for  grain  and 
flour,  issued  by  the  warehouseman  to  him- 
self. The  warehouseman  became  bankrupt. 
Opinion:  Such  receipts  are  invalid  as 
against  creditors  and  the  trustee  in  bank- 
ruptcy, and  do  not  protect  the  bank. 
Fourth  St.  Bk.  v.  Milbourne  Mills,  etc., 
Co.,  172  Fed.  177.  Miller  Pure  Rye  Dist. 
Co.,  175  Fed.  606.  In  re  Rohrer,  186  Fed. 
997.     {Inquiry  from  Wash.,  Sept.,  1911,  Jl.) 

Warehouse  receipt  issued  to  owner  on 
his  own  goods 

3154.  Should  a  warehouse  company  be 
organized  and  operated  as  a  separate  con- 
cern for  the  purpose  of  issuing  negotiable 
warehouse  receipts?  Opinion:  The  courts 
have  repeatedly  held  that  a  man  cannot  be 
a  warehouseman  of  his  own  goods;  that  is  to 
say,  a  receipt  issued  by  a  concern  upon  its 
own  goods  would  not  be  a  valid  warehouse 
receipt.  It  is  only  warehouse  receipts 
issued  by  persons  engaged  in  the  business 
of  warehousing  for  profit  that  constitute 
valid  warehouse  receipts.  {Inquiry  from 
Iowa,  Oct.,  1918.) 

Limitation  of  liability  in  warehouse 
receipt 

3155.  A  warehouse  receipt  contains  the 


clause:  "Loss  or  damage  by  riot  or  insur- 
rection, fire,  water,  ravage,  leakage,  shrink- 
age or  from  inherent  qualities  of  the  proper- 
ty, or  from  being  perishable,  at  owner's 
risk."  Is  this  permissible  under  the  Uniform 
Warehouse  Receipts  Act?  Opinion:  This 
clause  would  seem  to  be  permissible  as  these 
limitations  of  liability  are  not  contrary  to 
any  of  the  provisions  of  the  Uniform  Ware- 
house Receipts  Act.  {Inquiry  from  Iowa, 
March,  1917.) 

Responsibility    of    warehousemen    for 
weather  damage 

3156.  Note:  An  act  of  the  Texas  legis- 
lature, which  became  effective  January  2, 
1920,  creates  responsibility  upon  the  part 
of  warehousemen  to  protect  goods  stored 
from  weather  damage.  A  statement  issued 
by  the  Federal  Reserve  Bank  of  Dallas 
states:  "In  considering  notes  secured  by 
cotton,  other  produce  and  merchandise 
submitted  for  rediscount,  the  Federal  Re- 
serve Bank  will  give  careful  consideration 
to  the  manner  in  which  such  goods  are 
stored  and  the  responsibility  of  the  ware- 
housemen as  defined  in  this  act."  {Sept., 
1920,  Jl.) 

Insurance  clause  in  warehouse  receipt 

3157.  A  warehouse  in  its  contract  with 
the  depositor  expressly  excludes  loss  or 
damage  by  fire,  by  the  use  of  the  phrase 
"fire  excepted";  but  itself  carries  insurance 
on  contents  of  warehouse.  Does  this  pro- 
tect the  bank?  Opinion:  The  courts  have 
held  that  where  a  warehouseman  or  carrier 
insures  for  the  benefit  of  "whom  it  may 
concern,"  the  owners  of  the  property  covered 
by  such  a  policy  are  entitled  to  share  pro 
rata  in  the  proceeds.  Symmers  v.  Carroll, 
101  N.  E.  (N.  Y.)  698;  Snow  v.  Carr,  61 
Ala.  363  (where  the  owner  never  requested 
any  insurance  on  goods  stored  with  another, 
did  not  know  that  it  was  taken  out  until 
after  the  loss,  and  failed  to  ratify,  expressly 
or  otherwise,  the  acts  of  the  warehouseman 
in  taking  out  the  policy,  before  the  payment 
of  the  loss).  In  the  case  submitted,  if  in 
fact  the  warehouseman  carried  insurance  to 
cover  all  cotton  in  the  warehouse  and  the 
insurance  was  taken  out  for  the  benefit  of 
whomsoever  might  be  the  owners,  as  well 
as  for  himself,  the  holder  of  the  receipt  would 
seem  to  be  protected,  unless  the  words 
"fire  excepted"  in  the  receipt  should  be 
construed  to  exclude  the  bailor  from  all 
participation  in  the  proceeds  of  any  pohcy 
so  taken.    However,  the  bank  ought  to  have 


702 


n 


WAREHOUSE  RECEIPTS 


[3158-3159 


a  form  of  receipt  more  clearly  protecting  it 
in  case  of  fire,  by  providing  that  the  goods 
were  insured  for  the  benefit  of  the  owner  or 
the  holder  of  the  receipt.  {Inquiry  from 
Ala.,  Oct.,  1915.) 

Necessity    for  Factor's  Acts  in    cotton 
states 

3158.  Is  a  Missouri  bank  safe  in  loaning 
money  upon  receipts,  issued  to  cotton 
factors  in  Tennessee,  on  which  they  have 
made  no  advances  to  their  principals? 
Opinion:  In  view  of  the  fact  that  there  is  no 
Factor's  Act  in  Tennessee,  the  bank  would 
seem  not  to  be  protected  where  the  factor, 
so  receiving  the  goods,  deposits  them  in  a 
warehouse  and  negotiates  the  receipt  to  such 
bank  in  violation  of  the  rights  of  the  owner 
of  the  goods.  The  Uniform  Warehouse 
Receipts  Act  does  not  seem  to  afford  the 
necessary  protection  or  take  the  place  of  a 


Factor's  Act.  Under  the  Warehouse  Act, 
if  the  owner  of  a  negotiable  warehouse 
receipt  should  intrust  it  to  a  factor  and  he 
should  wrongfully  pledge  it  to  a  bank,  it 
would  be  protected  under  Sec.  41;  but  where 
the  factor  is  intrusted  with  the  goods  them- 
selves and  the  factor  obtains  a  warehouse 
receipt  which  he  wrongfully  pledges,  the 
act  does  not  seem  to  afford  protection.  In 
re  Dreuil,  205  Fed.  568.  The  enactment  of  a 
Factor's  Act  would  change  this  rule  and 
afford  protection  to  the  pledgee  bank.  {In- 
quiry from  Mo.,  Nov.,  1913.) 

Uniform  Warehouse  Receipts  legislation 

3159.  Statement:  The  only  states  which 
have  not  yet  adopted  the  Uniform  Ware- 
house Receipts  Act  are  Georgia,  Kentucky, 
New  Hampshire,  Porto  Rico,  South  Carolina, 
and  Hawaii. 


703 


INDEX 


Opinion  Nos. 

Acceptance  and  Certifica- 
tion   1-111 

Acceptance  must  be  written 3-8 

Acceptance  on  note  by  third  party ....  9 
Alteration,  Careless  certification  of  check 

subsequently  raised G8 

Check  raised  after  certification 67 

Date  of  certified  check 66 

Inclusion  of  raised  amount  in  certifica- 
tion   73-74 

Raised  certified  check — Use  of  mislead- 
ing protectograph  stamp  by  certify- 
ing bank 69 

Stamp  including  amount  certified  not 

advantageous 74 

Away  from  bank,  Certification 50 

Bankers'  acceptances  (see  that  title) . . 

Banking  hours.  After 1-2 

Bank  officer's  authority  to  guaranty 
genuineness    of    certified    check    of 

another  bank Ill 

Bearer  checks,  Refusal  to  certify 10-11 

Certifying  bank's  liability  to  fraudu- 
lent holder 25 

Certification  equivalent  to  acceptance  24 
Certification  for  drawer  and  for  holder, 

Distinction  between 18-19 

Charge  customer's  account,  Immediate 

right  of  bank 41 

Check  payable  on  condition 108 

Consent  of  drawer  unneces.sary 17 

Decedent,  Certified   check  payable   to, 

offered  for  deposit 1267 

Drawer's  liability  on  accepted  draft ...  28 
Duty    of  collecting   bank   to   request 

certification 36 

Forged  checks 29-31 

Forged  indorsement,  Payment  of  certi- 
fied check  on 27,  1685 

•'Garnishment,"  Certification  subject  to  35 

"Good  if  presented  within  six  months"  54-55 
"Good    when    properly    indorsed" — 

Voluntary  certification 40 

Identification  before  paying  check 26 

Indorsement  must  be  properly  made. . .  37-39 

Indorsement  of  payee  necessary 1966 

"In  full  of  accounts,"  etc..  Check  con- 
taining memorandum 107 

Injunction  against  bank  paying  certi- 
fied check 109 

Language  expressing  certification 42-49 

"Check  of  A.  Brown  for  $500  now  good"  42 

"A's  check  good  for  amount" 44 

"A's  check  on  us  good  for  $100" 45 

"John  Smith  good  on  our  books  for  $50 

to-day" 46 

Letters  "O.  K." 52-53 

Lost  and  outstanding  certified  checks 

56-60,2158-2160 

Mistaken  certification  of  stopped  check  71-84 

Revocation 71 

"Not    payable    through    an    express 

company,"  Check 106 

Obligation  to  pay,  not  to  certify 12-15 

Overcertification  by  national  bank.  .  .  .  101 

Pass-book,  Non-presentation  of 2590 

Possession  of  paid  certified  check 102-104 

Possession  of  unused  certified  check. .  .  .  105 

Post-dated  checks 20-22 

Preferred  creditor.  Certified  check  hold- 
er not  a  preferred  creditor 65 


Opinion  Nos. 

Protest  for  non-certification 70,  2733 

Remittance  stamp.  Effect  of 75 

Revocation  by  wire 100 

Right  of  holder  of  unindorsed  check 

to  recover  from  certifying  bank 110 

Rubber  stamp 1412 

Stopping  payment  of  certified  checks 

76-79,  3063-3066 

Check  certified  without  authority 83 

Checks  certified  for  drawer 80-82 

Recovery  of  stopped  certified  checks .  .  84 

Stranger,  Certification  for 32-33 

Telegraph,  By 85-89 

Telegraph,  Does  promise  to  honor  check 
for  $550  cover  two  checks  aggregating 

$550? 51 

Telegraphic  Order  to  pay  money  waiv- 
ing identification 1717 

Telephone,  By 90-99,311 

Trade  acceptances  (see  that  title) 
Twenty-four   hours   for   acceptance. 

Rule  of 61-64,1051 

Undated  check 23 


Acceptances,  Bankers'. .  .  112-120 

Accommodation  indorsement  by  bank.  222 
Difference  between  bankers'  and  trade 

acceptance 112 

Insolvency  of  acceptor 117 

Investment  in  bankers'  acceptances  by 

New  York  savings  bank 120 

Liability  of  drawer  to  holder 113-115 


Addition  of  words  "without  recourse". 

Liability  of  drawer  to  acceptor  (a) 
where  purchaser  arranges  credit;  (b) 
where  drawer  arranges  credit 

Revocation  of  acceptance  made  through 
error 

Right  of  state  banks  and  trust  com- 
panies to  accept 


115 


116 
118 


119 


Acceptances,  Trade 121-195 


Acceptance  indorsed  on  back  of  bill, 

Effect  of 

Consideration 

Manufacture  and  installation  of  eleva- 
tor supplies 

Monthly  balance  of  open  account 

Date 

Ante-dating 

"After  March  7th,  1919,  pay  to  order 

of,"  etc 

Necessity  of  date 

Discount  in  Connecticut 

Form,  for  physicians 

Standard 

Holder,  Rights  of. 

Mechanic's  licMi  rights 

Original  contract,  EtTect  of  acceptance 

on 

Replevin,  Seller's  right  of 

Suit    on    original    indebtedness   where 

acceptance  not  paid 

Interest  rate 

Negotiability — Clauses  and  provisions. . 

Costs  of  collection 

"5  per  cent,  discount  will  be  allowed  if 
this  acceptance  is  taken  up  within  30 
days  from  date" 


137 
139-140 

140 

139 

129-132 

131 

132 
130 
478 
122 
121 
163-170 
166 

170 
168 

169 

136, 2076 

141-158 

149 


145 


705 


Opinion  Nos. 

Acceptances,  Trade — Continued 

Negotiability — Continued 

Fulfillment  of  contract  of  sale 157 

Interest  clause 151 

Invoice  number,  Insertion  of 155 

"In  settlement  of  invoice  No. ". . .  154 

Marginal  statement  of  consideration.. .  156 
"Maturity  being  in   conformity  with 

original  terms  of  purchase" 146 

Payment    of   interest   after   maturity, 

Provision  for 150 

"Per  invoice  of" 153 

"Subject  to  discount  of per  cent. 

if  paid  on  or  before  . . . . ". . .  .  144 


152 
141 
148 
147 
162 

162 
159 


161 
160 

127-128 

126 

2529 

125 


173 
171 

177 
174 
175 


Title  to  goods  remain  in  the  seller  until 

instrument  paid 

Unconditional  or  qualified  acceptance . 
Waiver  of  exemption  and  attorney's  fee 
"With  Chicago  or  New  York  exchange" 

Negotiation 159 

Acceptance    discounted    for    acceptor 

(buyer) 

By  acceptor 

Discount  of  fraudulent  acceptance — 

Criminal  liability 

Ten  per  cent,  loan  limit 

Note  and  trade  acceptance,  Legal  effect  of 
Note  stamped  "This  is  a  trade  acceptance" 

Obligation  of  bank  to  pay 

"Ourselves,"  Use  of  word 

Parties,  Liabihty  of 171-178 

Acceptor's  Uabihty — Defense  that  goods 

not  delivered 

Drawer's  hability 

Duty  of  collecting  bank  in  obtaining 

acceptance 

Payor  bank's  non-Uability  to  holder. . . 

Non-hability  to  indorsers 

Presentment  and  collection  by  acceptor's 

bank  as  collecting  agent  for  holder. . 
Protest,  Duty   of   collecting  bank    to 

make 

Payment  at  maturity 179-186 

Charge   acceptor's   account,    Duty   of 

payor  bank  to 

Direction  to  bank  to  pay — Form 

Liability  of  bank  to  holder  for  failure  to 

pay    customer's    acceptance    made 

payable  at  bank 

Neg.    Inst.    Act,    Suggestions    as    to 

amending 

Right  of  bank  to  return   acceptance 

"not  good"  before  3  o'clock  on  day 

of  maturity 

Payment  after  maturity 187-190 

Overdue  acceptance.  Bank's  authority 

to  pay 

Place  of  payment  by  acceptor,  Change  in 

Protest,  Necessity  of 

Duty  of  collecting  bank  to  make 

Restraint  of  trade,  Trade  acceptance 

propaganda 

Signatures 133-135 

Completing  signature  of  drawer  after 

acceptance 133 

Corporation  signature  and  indorsement 

by  "Cashier" 134 

Proper  form  of  signature  of  corporation  135 

Stopping  payment 192,  2969-2971 

"The  drawee  may  accept  this  bill 
payable  at  any  bank,  banker  or 
trust  company  in  the  United  States 
which  he  may  designate" 123 


176 
178 


179 
183 


185 
182 


186 


187 
124 
191 
178 

138 


Opinion  Nob. 

Taxation 193-195 

Stamp  tax 193 

Who  shall  affix? 195 

Accommodation  Paper. . .  196-257 

Accommodation  and  commercial  paper 

distinguished 196 

Accommodation  guarantor  of  payment  223 

Accommodation  indorsers'  liabihty. . .     201-208 

As  between  themselves 209-213 

Liabihty  in  order  of  indorsement  unless 

they  agree  otherwise 213 

Certificate  of  deposit 203 

Corporation  note 1828,214-216,2812 

Does  accommodation  indorser  of  check 

warrant  amount  to  drawee? 204 

Note  pledged  as  collateral 202 

Release  by  extension  of  time  of  payment    236-243 
Renewal  notes,   with  other  indorsers' 

names  left  off 207-208 

Accommodation  maker's  habihty ....      197-200 
Effect  of  extension  of  time  of  payment     236-243 

Liability  to  indorsee 197 

Application  of  payment  by  accommo- 
dation indorser 217 

Corporation  as  accommodation  maker 

and  indorser 218-222 

Accommodation  indorsement  by  bank 

of  banker's  acceptance 222 

Demand  and  notice,  to  hold  accommo- 
dation indorser 2655-2656,  2810-2811 

Not  necessary  to  hold  accommodated 

indorser 2809 

Not  necessary  to  hold  accommodation 

maker 225-227 

False  oral  statement  to  procure  credit 

by  accommodation  indorser 1752 

Forgery  of  accommodation  indorsement.  1651 

Form  of  indorsement  for  accommodation 

of  maker 1826-1827 

Indorsement  for  accommodation  as  a 

valuable  consideration 224-227 

Liability  of  officers  indorsing  for  accomo- 
dation note  of  corporation 2812 

Married  women  as  accommodation  party   244-257 
Protest  not  necessary  to  hold  accommo- 
dation maker 225-227 

Protest  waiver,  above  signature  of  first 

of  three  accommodation  indorsers . . .  2838 

Binding  on  accommodation  indorser. . .  2836 

Release  of  accommodation  indorser  by 

holder  receiving  interest  in  advance .  2469 

Release  by  extension  of  time  of  payment     236-243 
Receipt  of  interest  in  advance  prima 

facie  an  extension 240 

Signature  or  indorsement  after  de- 
livery      228-235 

Accommodation  maker's  Uabihty 229 

Subsequent  accommodation  indorse- 
ment in  pursuance  of  prior  arrange- 
ment    230 

Liability  of  additional  surety  on  note. .  234 

Actions 

Appearance,  Necessity  for  person  whose 

name  forged  to  appear  and  defend .  .  1674 
Bill  of  lading  draft,  Suit  for  neghgence 

in  collection  of 1067 

Certificate  of  deposit,  Rights  of  holder .  814-819 

Checks,    Wrongful  dishonor 995-1004 

Collecting  bank's  liability  for  surrender- 
ing note  before  full  payment 1140 

Deed,  Remedy  on  breach  of  covenants.  .  1288 

Deposits,  Adverse  claims  to 1393-1394 


706 


Opinion  Nos. 

Actions — Continued 

Directors  refuse  to  call  meeting,  Proce- 
dure where 618 

Evidence  (see  that  title) 

False  pretenses,  Obtaining  money  under.  1736-1744 

False  statements  for  credit 1750-1756 

Foreign  corporation,  Right  to  sue  in 

New  York  state 1202 

Garnishment,  Maker  of  note   in   suit 

against  payee  not  subject  to 377 

Garnishment  proceedings  may  be  insti- 
tuted before  judgment 390,  391 

Injunction  against  bank  paying  certified 

check 109 

Joint  maker's  action  against  co-maker 

of  note 2382 

Liability  of  bank,  Threatening  debtor 

with  criminal  prosecution 463 

Where   customer  injured  on  premises.  503 

Limitation  of,  (see  Statute  of  limita- 
tions.) 

Mismanagement,  Remedy  against  in- 
solvent corporation  and  officers 657 

Mortgage,  Foreclosure 2311-2313 

Non-resident  corporation,  Suit  on  note 

by 1204 

Non-resident  correspondent,  Bank  as 

bondsman  in  action  by 485 

Notes,  Action  on .2510-2514 

Note  executed  in  Missouri  and  sued  on  in 

South  Dakota 423 

Note,  Rights  of  holder 2455-2461 

Overdraft,    Action   against   maker  and 

indorser  of  check 2572 

Overdraft  on  Nebraska  bank  negotiated 

in  Iowa 947 

Postdated  check.  Dishonored 1005 

Revenue   stamps,    undelivered.    Claim 

against  government 2230 

Stopped  check.  Liability  of  drawer  and 

indorser  to  holder 3017-3048 

Trade  acceptance,  Seller's  right  of  re- 
plevin   168 

Trade  acceptance.  Suit  on  original 
indebtedness  where  acceptance  not 
paid 169 

Usury  pleaded  as  a  defense 2103-2105 

Advertisement 

Bank  advertising  when  business  estab- 
lished    259 

Banking  hours,  Announcement  of  change 

in 439 

Building  and  loan  association,  Power 

of,  to  advertise  bu.sine.ss 1210 

Capital,  Advertising  of 258 

False  advertisement,  By  national  bank .  .  265 

Of  rival  bank 2127 

Interest  on  savings  accounts,  New  rate  of  2045 
Lost  pass-book.  Waiver  by  bank  of  re- 
quirement of  advertisement 2213 

Newspaper  notice  insufficient  unless 

purchaser  of  lost  note  reads  article. .  2197 
Sale  of   collateral,  Contents  of  adver- 
tisement for 2603 

"Save,"  Use  of  word  by  trust  company 

in  New  York 613-614 

"Savings,"  Use  of  word  by  state  bank .  .  465-466 
Savings  department.  Right  of  private 

bank  to  advertise 467 

Savings  departments  of  national  banks  598-606 

Unclaimed  deposits 1395-1400 

U.  S.  Flag,  On  bank's  statement  folder .  261-263 


Opinion  Noe, 

On  circulars 264 

On  draft 260 

Unofficial  statement  of  bank's  condi- 
tion, Circulation  of 502 

Administrator  and   Exec- 
utors 

Action  upon  note  and  deed  of  trust 2513 

Fees 611 

Liability  for  accepting  certified  check  in 

payment  of  debt  due  the  estate 1081 

Payment  of  decedent's  deposit  with  or 

without  administration 1260-1264 

Preference  of  trust  estate  on  failure  of 

national  bank  administrator 596 

Right  to  vote  shares  of  stock 721 

Rights,  powers  and  duties 1268-1272 

Taxation,  Exemption  of  fees  from 3120 

Transfer  of  stock  of  decedent,  Adminis- 
trator entitled  to 1223 

Agency 

Alteration  of  check  by  bookkeeper  of 

corporation 304 

Authority  to  act  for  corporation 1371 

Authority  to  indorse  checks,  1659-1661, 1861-1881 

Branches  and  agencies  of  national  banks     529-532 

Broker  as  sub-agent.  Bank's  authority 

to  appoint 454 

Checks  drawn  and  indorsed  in  representa- 
tive capacity 956-971 

Collecting  agent  for  holder.  Acceptor's 

bank  as 176 

Collection  agencies  generally 1047-1053 

Restriction  in  check  of  channel  of  col- 
lection  1054-1060,106 

Collection  agent.  Bank's  obligation  to 

act  as 1042-1046 

Default  of  correspondent,  Liabihty  or 

non-Uability  of  collecting  bank  for .  .  1099-1 105 

Drawee  bank  as  collecting  agent  to 

pay  or  refuse  check  of  its  depositor.  2713 

Election  of  directors,  Appointment  by 

proxy  of  substitute ■  ■  •  616 

Freight  agent  who    allows    inspection, 

Liability  for  act  of 749 

Forms  of  indorsement  in  representa- 
tive capacity 1829-1833 

Husband  and  wife.  Deposits  by 1339-1341 

Messenger,  Cash  for  deposit  stolen  by. .  281 

Minors  as  agents 2251 

Payment    of    note    to    agent   without 

authority 2500 

Power  of  attorney  (see  that  title) 

Procuring  loan.  Bank  as  agent  in 456 

Proxies  (see  Voting) 

Real  estate  agent  for  customer.  Cashier 

as •  645 

Renewal  of  agent's  note  in  ignorance  of 

principal's  death 1256 

Salesman's    authority    to    indorse    for 

pavcc 1858 

Signature,     Of    checks    by    agent   for 

principal 866-868 

Of  drawer  of  draft  by  hand  of  another  859 

Transmission    of    money    to    foreign 

countries,  Agency  for 464 

Altered  and  Raised  Paper,  266-361 

Accommodation  paper — Does  accom- 
modation indorser  warrant  raised 
amount? 204 

707 


Opinion  Nos. 

Altered  and  Raised  Paper 

— Continued 

Blank  form  of  another  bank 319-322 

Use  by  drawer 319 

Care  required  of  drawer  in  preparing 

check 297-304,  827-828 

Alteration   by   bookkeeper   of   drawer 

corporation 304 

Amount  need  not  be  perforated 300 

Different  handwriting 302-303 

Stamping  amount  in  figures  or  in  words  842 

Where     protectograph     cutting     not 

changed 301 

Careless  execution,  Liability  of  drawer 

for 291-296 

Blank  spaces  carelessly  left 291 

Check  signed  in  blank  or  partly  unfilled  296 

Certified  checks,  Alteration  of  date ...  66 

Certification  of  raised  check 72-74 

Check  raised  after  certification 67-69 

Charging  original  amount  to  depositor    312-316 
Deed,  Rights  of  purchaser  of  altered  deed  361 

Drawee's  name,  Alteration  by  payee. . . 

323-325,1489-1491 

Where  check  bears  forgery  of  drawer's 

signature 

Drawer's  liability  to  purchaser 

Examination  of  pass-book.  Duty  of  de- 
positor to  make 

Forged   and   raised   check,  Difference 

between 

Forged  paper  (see  that  title) 
Lead  pencil  checks  (see  also  that  title) 
Blanks  in  check  written  with  indelible 
pencil  filled  in  with  ordinary  lead 

pencil 

Payee  a  stranger  to  drawer 

Negotiation    for   settlement   between 

drawer  and  payee 318 

Payor  bank's  right  of  recovery 269-290 

Alteration  apparent  on  face  of  check .  .  284 

Amoimt  raised  and  payee  changed ....     274-275 
Apparent  overdraft  created  by  payment 

of  raised  check 289 

Bank  responsible  for  signature  but  not 

for  amount 270 

Cash  for  deposit  stolen  by  messenger 

and  raised  check  substituted 281 

"Cash"  substituted  for  payee's  name. .  272 

Check  fiUed  out  by  payee  for  drawer .  .  282 

Check  poorly  raised 273 

Express  company  money  order 1723 

Money  paid  under  mistake  of  fact  is 

ground  for  recovery 271 

Marginal  figures  raised 276 

Typewritten  amount  raised 278 

Report  of  alteration  within  reasonable 

time.  Duty  to  make 356-359 

Delay  in  notice  after  discovery 357 

Specific  cases  of  alteration 326-355 

Attorney  fee  clause  struck  out 326 

Check  "in  full" — Right  of  bank  to  pay 

where  indorser  signs  "not  in  full".  .  .  337 

"Collection"  rubber-stamped  on  note. .  352 

Counter  check 327 

Date 328-66 

Erasure,   "for  account  indebtedness," 

etc 331,     333-334 

Name  of  payee 344-346 

Name  of  joint  payee 343 

"Payable  in  New  York  exchange"  349 

Holder  in  due  course,  Rights  of 353 


325 
317 

360 

266 

305-311 


308 
307 


Opinion  Noa. 

Indorser's  name  struck  out 338 

Interest   clause  inserted  in  trade  ac- 
ceptance    340 

Interest  rate  and  marginal  figures 339 

Marginal  figures  on  check 341-342 

Partly  erased  figures  on  check 351 

Place  of  payment 347-348 

Second  signature  under  drawer's  signa- 
ture   2717 

Statement    of    consideration 332 

Time  of  payment 350 

Teller's  responsibility  to  bank. .  .267-268,627-628 
Trade  acceptance.  Completing  signature 

of  drawer  after  acceptance 133 


Assignment 


Accounts  receivable 2614r-2616 

Attachment,  Effect  of  assignment  before 

service  of  writ 398 

Bankruptcy  and  insolvency 

Assignment  for  benefit  of  creditors .  .  .  655 

"For  present   consideration"   not  a 
preference 667,  669 

Of  accounts  within  four  months  of 

bankruptcy 670 

Certificate  of  deposit  payable,  in  event 

of  death 1232 

Check  as  an  assignment.  .  1237-1255,  2961a,  979 

Collateral 2395 

Delivery  of  deposit  slip  does  not  assign 

deposit 1300 

Deposits 1308-1310 

Dividends  Right  to  cancel  assignment  of  688 

Municipal  warrant 2953 

Payment    to    creditor    after    notice    of 

assignment 1413 

Pledge  and  collateral  (see  that  title) 
Pass-book  (See  also  that  title.).  .  .2580,2584-2589 

Attachment  and  Garnish- 
ment  362-406 

Account   owned  by   one  in    name    of 

another 363 

Account  subject  to  checks  signed   "A 

by   B" 362 

Bank  not  indebted  at  time  writ  is  served    367-368 

Bank  stock 392 

Bill  of  lading  draft.  Collection  proceeds 

of 387-389 

Rights  of  attaching  creditor  of  shipper  752-762 
Cashier's  check.  Deposit  represented  by  379-381 
Certificate  of  deposit.  Funds  represented 

by 370-376 

Certificate  payable  "in  current  fimds".  371 

Time  certificate  of  deposit 372 

Certification  "subject  to  garnishment" .  35 

Collection  proceeds 401 

Debt  of  check  holder.  Bank  garnished 

for 365-366 

Disclosure  of  balance,  Bank's  obliga- 
tion to 369 

Drawer  of  draft  not  subject  to  garnish- 
ment in  suit  against  payee 378 

Incorrect  name  in  notice 382-383 

InsuflScient  deposit  attached  by  two 

creditors 364 

Maker  of  note  not  subject  to  garnish- 
ment in  suit  against  payee 377 

Partnership  account   or   trust  fund 

garnished  for  an  individual  debt ....  400 

Precedence  over  checks  not  presented 

before  service  of  writ 384-386 


708 


Opinion  Nos. 

Attachment  and  Garnish- 
ment—  Continued 

Proceedings  may  be  instituted  before 

judgment 390-391 

Safe  deposit  box,  Contents  of 393-395 

Bank  deposit  and  safe  deposit  box ....  395 

Savings  account 396-399 

Assignment  before  service  of  writ 398 

Set-off  by  bank  to  defeat  attachment. .  403-406 
Set-off    of    unmatured  mortgage  note 

against  garnisheed  account 406 

Shares  in  hands  of  stockholder 703 

Subsequent  deposits,  Liability  of  bank 

as  garnishee  for 402 

Attorney's  Fees 407-428 

Alteration  by  striking  out  attorney's  fee 

clause 326 

Attorney's  fee  note  payable  at  bank. . .  407 

Claim  in  bankruptcy 408 

Negotiability  of  notes  with  attorney's 

fee  clause 410-418 

Trade  acceptances 413,  148 

Reasonable  fee 409 

Tax  exemption 3120 

Usury  fees,  As  cover  for 2102 

Validity  of  attorney's  fee  clause 419-428 

Note  executed  in  Missouri  and  sued  on 

in  South  Dakota 423 

Banking  Hours 428-447 

Certification  or  payment  after  hours .  .  .  1-3 

Daylight  saving 445-447 

When  is  12  o'clock  noon? 445 

Delivery  after  hours  of  express  package 

of  money 436 

Oral  stop  payment  order  given  away 

from  bank  after  hours 2981-2982 

Payment  of  check  after  hours 429-433 

Deposit  of  check  of  another  depositor .  431 
Payment  with  funds  borrowed  by  assist- 
ant cashier 429 

Refusal  to  pay  or  certify  justified 430 

Validity  of  payment 432 

Payment  of  note  during  evening 434 

Payment  on  Saturday  evening  of  check  437 

Protest  before  closing  hour 

Check 2766-2767 

Note 2556,  2767-2768 

Trade  acceptance 186 

Receiving    deposits    after    hours    and 

entering  as  deposits  on  following  day  435 

Right  to  fix 438-442 

Right  to  close  for  funeral 443 

On  non-legal  holiday 444 

On  Saturday  afternoon 440 

Banks  and  Banking 448-514 

Advertisement  (see  that  title). 

Bank  as  borrower 470-472 

Bonds  borrowed  by  bank 472 

Personal  note  of  executive  officer,  Loan 

to  bank  on 470-471 

Banking  hours  (see  that  title). 

Books  and  records  (see  also  that  title) .  508-514 
Bound     books     vs.     card    system    in 

Wisconsin 511 

Destruction  of  old  checks  and  drafts.  .  513 

Inspection 705-708 

Length  of  time  of  preservation 514 


Opinion  Noa. 
Preservation   and   destruction   of   old 

records 512 

Production  in  court 508-509 

Use  of  loose  leaf  books 510 

Branches  and  agencies  of  national  banks 

(see  also  Branch  banks) 529-532 

By-laws  and  resolutions  (see  also  By- 
laws)   505 

Clearing  house.  Incorporation  as 1029 

Collection  (see  also  that  title). 

Duty  in  checking  up  daily  statement 

from  correspondent 1434 

Exchange  charge,  Right  to  collect 1142 

Necessity   of   license    at    place   where 

collection  made 1053 

Obligation  to  undertake . 1042-1046 

Unstamped  notes — Liability  of  collect- 
ing bank  for  penalty 3135 

Contracts  and  dealings  in  general ....  448-464 
Agency  of  private  bank  for  transmission 

of  money  to  foreign  countries 464 

Borrower's  financial  statement  coupled 

with  collateral  agreement 462 

Cancellation  of  contract  for  purchase  of 

supplies 461 

Checking  accounts,  Charge  for 448 

Contingent  fund,  Creation  of 451 

Foreign  exchange,  Sale  of .•■.•••  449-450 

Foreign  lottery  bonds  on  commission. 

Sale  of 455 

Notes  with  agreement  to  repurchase. 

Sale  of 457 

Paid  checks 985-990 

Payment  on  order  by  wire  prior  to 

remittance 458 

Pledge  of  assets  to  secure  deposits ....  459-460 

Procuring  loan.  Bank  as  agent  in 456 

Purchase,  of  Bill  of  lading  drafts 773-779 

Bonds  for  customer 453 

Notes 452 

Stock  for  customer 454 

Right  to  accept  drafts 119 

Threatening     debtor     with     criminal 

prosecution 463 

Customer,  Injury  to,  on  premises 503 

Customer's  account,  Right  to  close . . .  941 

Customer  and  public,  Duty  as  between  492-498 
Disclosure  of  customer's  balance.  For 

tax  purposes,  etc 493-496 

To  check  holder. 497 

When  bank  is  garnished 369 

Private  affairs,  Investigation  by  Con- 
gressional Committee 498 

Secrecy  as  to  customer's  affairs 492 

Customer's  financial  condition,  Lia- 
bility for  misrepresentation 499-500 

False  overstatement  of  as.sets 500 

Mistaken  statement  that  drawer  has 

no  account 499 

Depositaries,  Banks  as 488-491 

Deposits    of    state     Federal    Reserve 
member     with     non-member     state 

bank 490 

Estates  in  bankruptcy 674 

Funds  of  county 488 

Postal  savings 489 

State  Federal  Reserve  member  banks  as 

Government  depositaries 491 

Deposits  (.see  also  that  title). 

Deposit  liabilitv,  Statutorv  limit  of .  .  .  1403 

Made  outside  of  bank 1298-1299 

Not  obliged  to  receive r292-1293a 

Relation  and  duty  of  bank  and  deposi- 
tor  1294-1297 

Right  to  close  customer's  account 941 

Unclaimed 1395-1400 


709 


Opiuion  Nos. 

Banks  and  Banking — Con- 
tinued 

Derogatory  statements 2123-2132 

Guaranty  by  bank  (see  also  Guaranty),    482-487 

Draft  of  third  person 482-483,  565-570 

Postdated   check 486 

Signature  to  stock  assignment 484 

Bank   as   bondsman   for   non-resident 

correspondent 485 

Indemnity  bond  covering  risk  of  un- 
authorized indorsements 487 

Guaranty  of  drawer's  signature,  Right  to 

require 1439 

Knowledge  of  director  not  chargeable 

to  bank 2461 

Lien  of  state  bank  on  stock 691-699 

Limitation  on  loans  to  single  borrower     478-481 
Discount     of     trade     acceptance     in 

Connecticut 478 

Interpretation  of  Idaho  20%  limit.  . . .  479 

Loan  Umit,  In  Illinois 480 

Of  Kentucky  banks 481 

Liquidation  and   merger,   Change   of 

national  into  state  bank 521-523 

Distribution  of  surplus  upon  liquidation 

of  mutual  savings  bank 468 

Satisfaction  of  mortgage  acquired  by 

merger 2307 

Liquidated  bank,  Maturity  of  certifi- 
cates of  deposit  of 507 

Loans  in  general 473-477 

By  New  York  to  Wisconsin  bank 474 

On  Canadian  farm  land 473 

To  bank  official 476 

To  contractor — Rights  against  surety 

company 475 

Custody  of  U.  S.  bonds  securing  15-day 

loan 477 

National   banks,    (see    Banks,    etc. — 

National  Banks). 
Notes  payable  at  bank.  Obligation  to 

pay  (see  also  that  title) 2524-2540 

Protested  or  dishonored  check,  Pay- 
ment of 2795-2798 

Publication  of  debtors  in  delinquent 

book  of  collection  agency 501 

Reserve  against  savings  deposits  (see  also 

Reserve) 606 

Savings  bank  and  commercial  bank 
in    same    room    (see    also    Savings 

Banks) 504 

Savings  department.  Right  of  private 
bank  to  advertise  in  Iowa  (see  also 

Savings  Departments) 467 

"Savings," Use  of  word,  by  state  banks.     465-466 
By  commercial  bank  in  Kentucky ....  466 

By  state  bank  in  New  York 465 

Set-off  (see  that  title). 

Statement    of    condition,    Unofficial 

circulation  of 502 

Stopping  payment  of  checks  (see  also 
Stopping  Payment). 
Agreement  limiting  liability  for  mis- 
taken payment 3009-3016 

Duties  and  Uabilities 2993-2997 

Liability  on  stopped  certified  check .  .  .  3063-3066 

Non-habiUty  to  holder 3046-3048 

Oral  stop  order  given  away  from  bank 

after  hours 2981-2982 

Recourse  of  bank  paying  stopped  check  2998-3008 

Surety,  Power  to  become 2222 

Taxation 3068-3144 


Opinion  No8. 

Trust  powers,  Suggested  exercise  of,  by 

state  bank  in  New  Mexico 469 

Unsafe  practice  to  cash  instead  of  credit 

checks 1380-1382,1842 

Unsafe  practice  to  pay  lead  pencil  checks  830 
to  wire  money  on  tele- 
gram from  customer.  1717 
Vouchers,  Duty  to  return  to  customer. .  1438 

Banks,  etc.— National 515-606 

Attachment  of  shares  in  hands  of  stock- 
holder    703 

Bank  officers,  directors  and  employ- 
ees (see  that  title) 
Branches     and     agencies     (see     also 

Branch  banks) 529-532 

Acceptance  agency 530 

Agency   in    another    to\\Ti    to    receive 

deposits  and  pay  checks 531 

Distinction  between 529-530 

Right  to  estabUsh 532 

Books  and  records  (see  also  that  title) .  508-514, 

705-708 

Circulation,  Retirement  of 525 

Contracts  and  transactions  in  general  537-548 
Increase  of  book  value  of  banking  house  544 
Payment  of  premium  on  bpnd  of  town- 
ship treasurer 548 

Power,    to   act   as   broker   in   sale   of 

securities 543 

Donate  services  of  clerk 546 

Give  cash  bonus  to  officers  and  em- 
ployees    547 

Invest  in  stock  of  safe  deposit  com- 
pany    548 

No  power  to  act  as  bond  broker.  . . .  646 

Purchase  industrial  bonds 541-542 

Purchase  stock 537 

Sell  foreign  exchange 545 

Purchase  of  stock  and  disposal  by  trust 

agreement 539 

Syndicate  to  float  stock  of  industrial 

corporation 540 

Control  and  supervision 515-519 

Controller's  prohibition  against  over- 
drafts. . 2557 

Examination  by  revenue  oflBcer 518 

Federal  jurisdiction 519 

Pubhcation  of  salaries,  Power  of  Comp- 
troller to  require 515 

Reports  of  member  banks  to  federal 

reserve  board 517 

Reports  to  Comptroller 516 

Deposits  (see  also  that  title) 527-528 

Assignment 1310 

Deposits  with  trust  company  permitted  527 
Notice  of  withdrawal  of  savings  deposit  1338 
Payment  of  decedent's  deposit — Mass- 
achusetts statute 1244 

Savings  deposits   (see  Saving  Depart- 
ments under  this  title). 
State  law  authorizing  payment  to  mi- 
nors   2243-2246 

Unclaimed  deposits 1395,  1397.  1399-1400 

Substitution  of  bank  security  for  public 

deposits 528 

Extension  of  corporate  existence 520 

Time  of  shareholder's  notice  of  with- 
drawal    520 

Guaranty    and    suretyship    (see    also 

Guaranty) 565-574 

Draft  on  third  person 565-570,482-483 

Loans  to  customer 571 

Note  of  warehouse  company 572 


710 


4 


BankS)  etc. — National 

Continued 


Opinion  Noa. 


Guaranty  and  suretyship — Continued 


573 


564 

558 
554 
553 
551 


523 

595 

1178 
1039 


Surety  on  bond  of  county  official 

Surety    on   indemnity   bond    covering 

duplicate  for  stolen  collateral 574 

Increase  of  stock 711-712 

Interlocking  directorates 638-641 

Interest  rates 2098 

Usury 2100-2102,  2107-2109 

Limitation  of  loans 551-564 

Additional  loan  to  stockholder 552 

Accepted   demand  draft   for  price   of 

cotton  delivered 563 

Collateral  security  for  excess  loans ....  555 

Farm  land 561-562 

Interest  not  included  in  fixing  limit .  .  .  557 

Limitation  to  single  borrower 479 

Limit  of  borrowing  power  from  corre- 
spondent  

Loan  to  A  on  note  of  B  where  latter  has 

full  borrowing  limit 

Meat  packer's  notes 

Notes  signed  by  36  farmers 

Overdraft  as  excess  loan 

Partnership  liability  included  with  that 

of  partner 559-560 

Trade  acceptance  not  within  loan  limit,  160 

Unaccepted  drafts  with  b/1  attached .  .  556 

Liquidation  and  merger 521-523 

Change  of  national  into  state  bank 521-522 

Conversion  of  state  into  national  bank 

without  cancellation  of  old  stock. . . . 

Conversion    of    trust    company    into 

national  bank 

Distribution  of  assets  of  failed  national 

bank  is  within  federal  jurisdiction  .  . 

Transfer  of  securities  after  bankruptcy 

Loans  in  general 549-550 

On  certificates  of  deposit 549 

To  borrowers  outside  of  state 2071-2072 

Two-name  paper  of  directors 550 

National  Bank  Notes,  Legal  tender  to 

other  national  banks 2118 

Unsigned  notes  stolen  and  circulated.  .  2227 

Overcertification 101 

Real  estate  transactions 533-536 

Loans  on  real  estate  security 534-536 

Mode  of  execution  of  deed 533 

Reserve,  Federal  reserve  notes  as 524 

Savings  departments 598-606 

Assignment  of  savings  deposit  as  secur- 
ity for  loan 1308 

Invalidity  of  state  prohibitorj'  law   in 

California 598 

Investment  of  funds 600-601 

"Savings"    accounts,    Advertising    in 

New  York 604-605 

"Savings  Department,"  Use  of  words, 

in  New  York 602-603 

Right  to  install  in  New  Jersey 599 

Withdrawals     in     savings     pass-book. 

Stipulation  governing 606,  2591,  2583 

Stockliolders'  double  liability 684-686 

Stock  dividends 690 

Stock,  Lien  on 700-704 

Taxation,  By  states. 3068-3090 

Contribution  of  national  bank  to  Red 

Cross  not  deductible 3119 

Liability   of  trust  company  absorbing 

national  bank  for  latter's  income  tax  3116 

Trust  powers 575-597 

Exercise  of  trust  powers  in  various  states    575-59 1 
Amount  of  surplus 575e 


Opinion  Nob. 

Capital  and  surplus 575d 

Deposit  of  securities 575f 

Federal  Reserve  Board  decision 575b 

Jurisdiction  of  state  court  to  decide 

"contravention" 575c 

State  examination  of  trust  depart- 
ments of  national  banks 575g 

Supreme  Court  decision 575a 

Various  states  considered 576-591 

California 576 

Connecticut 577 

Delaware 578 

Illinois 579 

Michigan 580 

Minnesota 581 

New  Hampshire 582 

New  Jersey 583 

New  York 584 

North  Carolina 585 

North  Dakota 586 

Ohio 587 

Oklahoma . 588 

Pennsylvania 589 

South  Dakota 590 

Wisconsin 591 

Conversion  of  trust  company  into  nat- 
ional bank,  Effect  on  trusteeship  of .  595 
Exercise  in  states  other  than  one  bank 

located 594 

Preference  of  trust  estate  on  failure  of 

national  bank  administrator 596 

"Trust  company"  as  part  of  title 592 

Trustee    of    bank    building,    National 

bank  as 593 

Trustee    for    participating    owners    of 

Government  bonds 597 

Usury,  By  National  bank 2100-2102 

Penalty 2107-2109 

Voting  Trust  agreement 720 

Workmen's  compensation  law 526 

Banks,    etc. — Trust   Com- 
panies    607-614 

Annuities,  Power  to  issue 608 

Branches  as  members  of  Federal  Reserve 

system 607 

Conversion  into  national  bank,  Effect  on 

trusteeship  of 595 

Deposits  of  national  banks  with  trust 

company  permitted 527 

Directorates,  Interlocking 639 

Fees  of  fiduciaries 611 

Fees,  Schedule  not  violation  of  anti-tnist 

law 612 

Guaranty  of  draft  on  third  person 570 

Investment   in  stock  of  other  banks, 

Limitation  on 609 

Preference    in    deposits    held    by    trust 

company  as  fiduciary 1329 

Private   affairs.    Investigation   by   con- 
gressional committee 498 

Purchase  of  stock  for  customer.  Liability 

for 454 

Right  to  accept  drafts 119 

Safe-keeping  of  valuables,  Agreement 

liniifiiig  liability 1360 

Savings  or  interest  departments 613-614 

"Save,"    "accumulate"    and    "thrift," 

Use  of  words 614 

"Savings,"  Use  of  word,  in  advertising  614 

Stockholders'  double  liability 681-682 

Treasurer  of  a  society.  Power  to  act  as  610 
"Trust   Company"  Words,  as  part  of 

title  of  national  bank 592 


711 


621 

622 

619 

619 

111 

486 

50 

623-624 

623 


624 


Opinion  Nos. 

Bank  Officers,  Directors 

and  Employees 615-641 

Acceptance     of     note     with     renewal 

privilege 620-622 

No  power  to  relieve  makers  of  notes 

from  liability 

No    power    to    relieve    indorser    from 

liability 

Cashier  (see  also  that  title). 

Powers 

Transfer   of   stock  and   issue   of   new 

certificate 

Certified     check     of     another     bank, 

Authority  to  guarantee 

Postdated  check,  Authority  to  guaran- 
tee payment  of 

Certification,    away    from    bank,    by 

president 

Competency  of  officer  in  other  capacities 

As  attesting  witness 

As  Notaries  (see  Notaries) 
Disqualification  of  judge  who  is  bank 

officer 

Criminal  liability 633-634 

Embezzlement  by  bank  officer 633 

Overdraft  by  director 634 

By  officer 951 

Duty  as  between  customer  and  public. . .     492-498 
Duty  of  secrecy  as  to  customer's  affairs.  492 

Election  of  directors 615-618 

Appointment  by  pro.xy  of  substitute .  .  616 

Transaction   of   other   business  where 
notice  of  meeting  only  for  election  of 

directors 615 

Interlocking  directorates 638-641 

Director  of  national  bank  as  trustee  of 

savings  bank 

National  and  non-member  state  banks. 

National  and  state  bank 

National  bank  and  trust  company .... 
Knowledge  of  director  not  chargeable 

to  bank 

Loan  to  bank  official 

Loan  to  bank  on  personal  note  execu- 
tive officer 470-471 

Misconduct,  Liability  to  bank  for 632 

Deriving  personal  profit  and  wrongfully 

declaring  dividend 632 

Mismanagement,  Liability  for 657 

National    bank   officers,    directors   and 

employees 642-653 

Negligence,  Liability  to  bank  for 625-631 

Altered  and  raised  paper 267-268 

Bank  officer  allowing  overdraft 631, 951 

Mistaken  payment  of  raised  check ....     627-628 
Mistaken  payment  to  wrong  person . .  .  629 

Neglect  of  directors  to  examine  bank . .  625 

"0.  K."  of  overdraft  by  bookkeeper 

without  verifying  balance 

Supervision  of  employees  by  officers . . . 
Notice  to  teller.   Whether  binding  on 

bank 

Power  and  duty  of  directors — Agree- 
ment by  several  banks  to  jointly 
indemnify  bank  if  loss  sustained  in 

purchasing  weak  bank 

Directors  refuse  to  call  meeting,  Pro- 
cedure where 

Qualification    shares    of    director    as 

member  of  partnership  holding  stock 

Savings   bank  officer  prohibited  from 

being  officer  of  other  banks 

Wrongful  acts  of  officers.  Liability  of 

bank  for 635-637 


641 
640 
638 
639 

2461 
476 


630 
626 

1345 


617 
618 


713 


504 


Opinion  Nos. 
Fraudulent    bond    of    indemnity    for 

duplicate  stock  certificate 637 

Fraudulent  negotiation  of  notes.  .....  635 

Misappropriation  of  deposit  by  cashier  636 

Bank  Officers,  Directors  and 
Employees  —  National 
Banks 642-653 

Bank    officers,    directors    and    em- 
ployees (see  that  title). 

Cash  bonus  to  officers  and  employees .  .  547 
Cashier  (see  that  title). 

Clerk's  services.  Power  to  donate 546 

Criminal  liability  of  officer  for  unau- 
thorized loan  to  himself 653 

Eligibility  of  directors 643-644 

Cashier  may  but  need  not  be  a  director  644 

Single  or  married  women 643 

Eligibility  of  officers 650-651 

Officer  cannot  act  as  proxy 651 

President  serving  in  army 650 

Increase  of  directors 642 

Loan  on  two-name  paper  of  directors .  .  .  550 

Loans  to  officers 652 

Written  application  unnecessary 652 

Overcertification  by  officer 101,  951 

Powers  and  duties  of  officers 645-649 

645 
649 
505 


648 
647 
646 
526 


674 


Cashier  as  real  estate  agent  for  customer 
Duty  to  deface  counterfeit  money .... 

Inherent  powers 

Power  of  vice-president  to  assign  or 

satisfy  mortgage 

Power  to  borrow  money  for  use  of  bank 

President  as  bond  broker 

Workmen's  compensation  law 


Bankruptcy    and    Insol- 
vency   654- 

Bankers'    acceptance.    Insolvency    of 

acceptor 117 

Check,  Drawer's  liability  where  deposited 

in  insolvent  bank 983 

Drawn  on  insolvent  bank 2652,  2661 

Revocation  by  bankruptcy 2989 

Collection,  by  insolvent  bank 1162-1166 

By  insolvent  drawee  bank .  .1167-1171,  1080-1098 
Insolvency    of    collecting    bank     (see 

Collection). 
Priority  in  assets  of  failed  collecting 

bank 1172-1189 

Depositaries  for  estates  in  bankruptcy. .  674 

Indorser 's  bankruptcy. 2012-2013 

Collection  of  indorsed  bills  receivable 

from  maker 2013 

Liability  on  note  of  corporation 2012 

Negotiable  paper  transferred  by  bank- 
rupt, Status  of  innocent  purchaser .  .  661 
Note  payable  at  bank.   Discharge  of 

maker  where  bank  fails 2555 

Preferences 662-673 

Assignment  "for  present  consideration"  667 
Bonds,  Lender's  claim  against  borrow- 
ing bank 472 

Certified  check  holder  not  a  preferred 

creditor 65 

Collecting  bank's  assets 1172-1189 

Deposits   held   by   trust   company   as 

fiduciary 1329 

Fraud  of  insolvent  bank  in  incurring 

debt  as  ground  for  preference 666 

Mortgage  notes  assigned  "for  present 


712 


I 


Opinion  Nos. 

Bankruptcy    and    Insol- 
vency— Continued 

Preferences — Continued 

consideration" — Surplus  payable  to 

trustee 669 

Pledge  of  securities  with  clearing  house 

association 1039 

Trust  estate  on  failure  of  national  bank 

administrator 590 

Trust    receipt,    Rights    under,    upon 

bankruptcy  of  borrower 1199 

When  judgment  a  preference 673 

Within  four  months. 

Collateral    previously    received   but 

collected  within  four  months 672 

Mortgage 671 

Payment  by  assignment  of  accounts.  670 

Payment  of  note  by  insolver.t 665 

Renewal  of  collateral  note  and  in- 
crease of  loan 663 

Siibstitution,  of  mortgage  collateral .  662 

Of  previously  surrendered  collateral  664 

Protest,  Bankruptcy  does  not  excuse .  .  .  2696 

Savings  pass-book,   Rights  of  assignee 

against  receiver 2586 

Secured  and  unsecured  claims,  En- 
forcement of 654-660 

Attorney's  fee 408 

Co-partner's   claim   against   bankrupt 

partner 658 

Creditor's  right  to   apply  surplus   of 
collateral  on  secured  note  upon  second 

unsecured  note 654 

Discharge  as  bar  to  unlisted  claim ....  659 

Interest  claim  against  corporation ....  2049 

Proof  of  claim  on  (1)  secured  and  (2) 

guaranteed  note 656 

Proof  of  secured  claim  under  general 

assignment 655 

Property  inherited  after  adjudication. .  660 

Remedy  against  insolvent  Nebrasaka 

corporation  and  officers 657 

Set-off,    Where    depositor  insolvent  or 

bankrupt 2880-2900 

By  depositor  in  insolvent  bank 2938-2946 

Set-off  in  bankruptcy  (see  Set-oflf). 
Warehouse  receipt.  Pledge  of,  issued  by 

warehouseman  on  own  goods 3151-3154 

Bank   Stock    and    Stock- 
holders  675-722 

Assessment  upon  impairment  of  capital  675-677 

Liability  of  transferee  after  assessment  675 

Power  of  majority  to  assess  minority. .  676 

Where  stock  in  hands  of  pledgee 677 

Books,  Inspection  of 705-708 

Depositor  has  no  right  of  inspection . . .  708 

Minority  stockholder's  right 705 

National  bank  stockholder's  right 706 

Power  of  state  to  compel  cashier  to 

furnish  list  of  stockholders 3075 

Stockholder  can  inspect  stock  book  but 
cannot  compel  bank  to  furnish  list  of 

stockholders 707 

Book  transfers 716,  2634 

Dividends  (see  also  that  title) 687-690 

Assignment  of 688 

Proving   claim   on   dividend  check  of 

failed  national  bank 689 

Stock  dividends  by  national  banks.  .  .  .  690 

Transfer  of  stock  after  declaration  .  .  .  687 

Double  liability 678-683 

Arkansas 678-679 


Opinion  Noe. 

Mississippi 680 

National  bank  stockholders 684-686 

After  transfer 686 

Meaning    of    "in    addition    to    the 

amount  invested  in  such  stock" .  .  684 

Stockholder  who  receives  for  debt. . .  685 

Pennsylvania 682 

Washington 683 

Election  of  directors.  Appointment  by 

proxy  of  substitute 616 

Increase  of  directors 642 

Garnishment ^      392 

Increase  in  bunk  stock 709-712 

In  proi)ortion  to  increased  deposits 1403 

National  bank  stockholder,  though  not 
voting  for  increase,  has  subscription 

rights '^^^ 

Procedure  for  increase  of  national  bank 

stock "12 

Right  of  existing  stockholders  to  sub- 
scribe to  increase '^^ 

Status  of  authorized  but  unsubscribed 

capital '}^ 

Lien  on  bank  stock  by  state  banks 691-699 

Arkansas  bank 691 

Iowa  savings  bank 692 

Kansas  bank's  rights  as  against  pledgee  693-694 
Michigan  bank's  lien  covers  debt  of 

stockholder's  firm 695 

New    York    statutory    lien    must    be  ^ao? 

printed  on  certificate 696-697 

Ohio  bank ......••  ^^^ 

Pennsylvania's    statutory    prohibition 

of  lien 699 

Stock  transfer  act,  Effect  of 699 

Lien  on  bank  stock — National  banks.  .  700-704 
Attachment  of  shares  in  hands  of  stock- 
holders   "^S'tSo 

No  lien  of  national  bank  on  stock J?  ^l^X 

Liquidation  and  merger ^'^"-^o 

Change  of  national  into  state  bank 521-o22 

Conversion  of  state  into  national  bank 

without  cancellation  of  old  stock. . . .  5-3 
Loans,  National  bank  cannot  loan  on  its 

own  stock _     09-Q 

Minors  as  stockholders '-25S-22o9 

Notice  of  withdrawal  by  stockholder .  .  o'-O 

Partnership,  Stock  issued  in  name  of. . .  713 
Pledge  and  collateral  (see  that  title). 
Set-off,  Depositor  can  set  off  note  but  not 

stockholder's  liability oill 

Taxation,  Stamp  tax  on  stock  transfer. .  ■•^^^"onon 

State  taxation  of  national  banks 3068-30 JO 

Transfer  of  bank  stock '^       -{i 

^Vrkansas  statute  requiring  registry 'l* 

Book  transfers 717. 2634 

Cashier's  power ^o-m. 

Decedent'.s  stock .•    ■  •  1—'* 

Question  of  full  negotiabihty  of  national 

bank  stock  under  Stock  Transfer  Act  715 

Voting 717-722 

Election  of  directors 642,  616 

Executor's  right  to  vote '^'■ 

Liquidation    and    merger — State    and 

national  hank am 

Persons  eligible  to  vote  by  proxy oyi 

Proxy  under  general  power  of  attorney  717 
Retention  of  voting  power  on  sale  of 

stock '^■^ 

Sufficiency  of  vote  by  majority  of  those 

present ■  '  ^^ 

Trustee    in    bankruptcy   of   registered 

owner  of  pledged  stock '1° 

Voting    trvist    agreement    of    national 

bank  stockholders '  20 

Witness,  attesting,  Bank  stockholder  as,  623 


713 


Opinion  Nos. 

Bills  of  Exchange 

See  "Checks,"  and  "Drafts  and  Bills 
of  Exchange." 

Bills  of  Lading 723-784 

Attaching  creditor  of  shipper,  Rights  of 

752-762,  387-389 
Drawee's    claim    to    proceeds    where 

goods  not  according  to  contract ....  754 

General  rule  stated 760 

Liability  of  collecting  bank  to  attaching 
creditor  for  wrongfully  deducting 
attached  proceeds  from  his  account .  762 

Superior  right  to  proceeds  of  draft. 
Attaching  creditor  versus  shipper's 

collecting  bank 761 

Conflicting  claims 755 

Creditor  versus  shipper 753 

Owner's  right  to  proceeds 756 

Purchasing  bank 752,  756 

Superior  right  to  proceeds  of  goods. 

Acquired  by  bank  by  giving  credit. .  759 

Pledgee  bank 757 

Purchasing  bank 758 

Bill  of  lading  collateral  held  for  unpaid 

draft.  Remedy  of  bank  on 2609 

Carrier's  liability  upon  b/1  issued  without 

receipt  of  goods 726-728 

To  bona  fide  holder  of  order  bill 727 

To  drawee  of  b/1  draft 726 

Under  state  b/1  act  upon  bill  purporting 

interstate  shipment 728 

Collection 734-749 

Bank  purchasing  b/1  draft,  collecting 
same  through  agent,  cannot  charge 
back  to  customer  upon  agent's  default  1158 

Collecting  bank  not  liable  for  act  of 

freight  agent  who  allows  inspection  749 

Deduction     from     draft    because     of 

damaged  goods 741 

Deduction  of  freight  charges 739 

Delay  in  presentment  of  draft 742-743 

Duty  as  to   demand  and  protest  of 

demand  b/1  draft 747 

Failure  to  demand,  wire  non-payment 
and  return  before  arrival  of  goods 

when  subject  to  inspection 735 

Misdirecting  to  consignee 738 

Notation     "payable     through     A     B. 

Bank"  cannot  be  disregarded 1059 

Provisional  credit  of  b/1  draft 1066 

Right  to  examine  goods 736-737 

Suit  for  negligence 1067 

Surrender  of  b/1  upon  acceptance  of 

draft 746 

Surrender  of  b/1  without  payment  of 

sight  draft 745 

Unconditional    payment    required    in 

absence  of  instructions 744 

Violation  of  instructions 734 

Violations  of  instructions  to  protest .  .  .  740 

"With  exchange" 748 

Delivery  of  goods  without  surrender  of 

bill.. 750-751 

By  carrier  on  order  of  consignee 750 

To  notify  party  in  straight  bill  without 

authority  from  shipper 751 

False  pretenses,  Obtaining  b/1  under. . .  1743 

Form  of  b/1  draft 723 

Indorsement. 729-733 

Bank    purchasing    draft    and    b/1    in- 
dorsed in  blank  need  not  indorse  b/1  729 
Indorsement  of  b/1  in  blank  followed  by 


Opinion  Nos. 
733 


730 


731 
732 
479 


782 
780 


775 
776 

778 


777 


774 


special  indorsement 

Indorser  of  draft  does  not  warrant  b/1 . 

Liability  of  indorser  of  60-day  b/1  draft 
cashed  by  drawee's  bank  before,  but 
refused  payment  at  maturity 

Shipper's     indorsement     supplied     by 

collecting  bank 

Loans  on  bUls  of  lading  as  commercial 

paper 

Non-negotiable  b/1  drafts  and  rights 

thereunder 780-782 

B/1  draft  payable  "on  arrival  of  goods" 

not  protestable 781, 2736 

Purchaser  holds  subject  to  defense  of 
party  liable 

Recovery  by  drawee  of  money  paid .  . . 
Protest   of   b/1   drafts,    Because  accom- 
panying b/1  not  indorsed 2729 

Because  b/1  not  attached 2702 

Draft  payable  "on  arrival  of  goods" . . .    781-2736 
Rights  of  banks  as  purchasers 773-779 

Acceptor's  liability  on  b/1  draft 779 

Bank  discounting  order  b/1 773 

Conflicting  claim  of  title  between  bank 
holding  bill  of  sale  and  copy  of  b/1 
and  consignee  claiming  under  prior 
bill  of  sale 

Consignor  cannot  change  routing 

Conversion  of  lost  order  b/1  by  con- 
signee  

Estoppel  of  carrier  to  claim  lien  for 
freight  against  bona  fide  holder  where 
b/1  recites  "freight  prepaid" 

Where  order  b/1  is  consigned  to  broker 
and  order  on  broker  is  attached  to 

draft 

Shipper's  signature 724-725 

Effect  of  absence 724 

Not  necessary 725 

Straight  bills  of  lading 783-784 

Foreign  shipments  under  straight  b/1 
containing  requirement  that  bill  be 
surrendered  by  consignee  before 
delivery  of  goods 784 

Straight  b/1   insufficient   as   collateral 

security 783 

Warrantor  liability  of  purchasing  bank     763-772 

Bank  negotiating  b/1  for  value  warrants 

genuineness  imless  liability  disclaimed  768 

Disclaimer,  Effect  of 769 

Does  not  weaken  bank's  special  title  771 

Should  be  placed  on  draft  rather  than 

on  b/1 772 

Unnecessary  except  in  Mississippi. . .  770 

Distinction  between  negotiation  of  bill 
of  lading  and  collection  of  debt 
secured  thereby 767 

Exceptional  rule  in  Mississippi 765 

No  warranty  of  bill  of  lading  to  acceptor 
of  draft 763 

No  warranty  of  goods  to  payor  of  draft  764 

By-laws 

Adoption  by  a  "majority"  vote 1201 

Affecting  banking  hours 430-432 

Affecting  transfer  of  stock 1217 

Certified  copy  of  by-laws  and  resolutions 
to  be  filed  when  opening  corporation 

account 1372 

Co-operative  association  by-lay?  pro- 
viding for  members  sharing  liability 

on  its  notes 2385 

Lien  by  corporation  on  its  own  stock .  .  .  696 

Meaning  of  by-laws  and  resolutions ....  505 


714 


4 


Opinion  Nos. 
National   bank — Minimum   and   maxi- 
mum number  of  directors 642 

Mode  of  execution  of  real  estate  deed .  .  533 

Power  of  vice-president  to  assign  or 

satisfy  mortgage 648 

Variation  between  resolution  of  directors 

and  by-laws 1200 

Blank  Spaces 

Blank  space  for  interest  left  in  note . . .  2026 

Checks,  Spaces  carelessly  left  to  facilitate 

raising 291-296,  68 

Confession  of  judgment  clause,  Un- 
filled blanks  in 2402 

Notes  containing  blank  spaces 2359-2361 

Pen  line  drawn  through  payee  blank  or 

blank  left  unfilled 844-845 

Unauthorized    amount    in    check    in- 
serted by  payee 850 

Inserted  by  agent 849 

Branch  Banks 

Agency  and  branch  bank  distinguished  529 

National    banks,    Right    to    establish 

branches 532 

Agency  to  receive  deposits  away  from 

bank 530-531 

Presentment,     Branches    regarded    as 

distinct 2681,  2691 

By  parent  bank  cashing  check  drawn 

on  branch 2680 

Note  payable  at  branch  presented  at 

main  office 2679 

Savings     bank.     Right     to     establish 

branches 532 

Stopping  payment  of  check  on  branch.  2965 
Trust  company  with  branches  as  mem- 
ber of  Federal  Reserve  System 607 

Bonds,    (see    also     Liberty 
Bonds) 

Banks,   As  bondsman  for  non-resident 

correspondent 485 

Bonds  borrowed  by  bank 472 

Collection  of  municipal  bonds  payable 

at  bank 2956 

Liability    in    purchase    of    bonds    for 

customer 453 

Payment  of  premium  on  bond  of  town- 
ship treasurer 548 

Bonds  and  mortgages  (see  Mortgages 

and  Liens) 
Foreign  lottery  bonds.  Sale  on  com- 
mission    455 

Forgery  of  municipal  bonds 1733 

Government  securities  as  collateral.  .  .2624-2626 

Guaranty  by  bond  salesman 1769 

Indemnity  bonds,  Covering  risk  of  un- 
authorized indorsements 487 

Fraudulent  bond  for  duplicate  stock 

certificate 637 

National  bank  as  surety 574 

Lost  and  stolen  paper.  Bank  draft.  .  .  .2177-2185 

Cashier's  check 2174-2176 

Certified  check 2158-2160 

Certificate  of  deposit 2161-2173 

Pass-books 2209-2216 

Stock  certificates 2217-2224 

Interest  rate  on  bond  sold  on  installment 

plan 2056 


Opinion  Nos. 
Investment  of  trust  funds  in  state  bonds  1330 

Liberty    bonds,    (see    also    that   title) 

Erroneous  delivery 2960 

Lost  and  stolen  bonds 2198-2208 

Coupon  bonds 2205,  2206 

Municipal  bonds 2207. 2208 

Government  coupon  bonds 2198,  2202 

Liberty  coupon  bonds 2199-2201, 2204 

Liberty  registered  bonds 2203 

National  bank.  As  surety  on  bond  of 

countj'^  official 573 

As  surety  on  indemnity  bond 574 

As    trustee   for   participant   owner   of 

Government  bonds 597 

Power  to  deal  in  stocks  and  bonds ....     537-543 

President  as  bond  broker 646 

Railroad  bonds,  Corporation  as  guaran- 
tor   1208 

Refunding  bond  to  executor  as  protec- 
tion against  overpajTnent  to  legatee  1272 
Right  of  holder  of  depositary  bond  to 
look   to   surety  before   resorting  to 

collateral  security 2596 

Safe-keeping,  Bonds  kept  in  vault  out- 
side of  safe 1353 

Custody  of  U.  S.  bonds  securing  15-day 

loan 477 

Duty    of    care    of    Liberty    bonds    in 

Arkansas 1352 

Bonus 

Power  of  national  bank  to  give  cash  bonus 

to  officers  and  employees 547 

Books  and  Records 

Book  transfers  of  stock 716,  1219-1220 

Book  value  vs.  market  value  of  shares 

as  basis  of  taxation 3089-3090 

Bound    books    vs.    card    system    in 

Wisconsin 511 

Inspection 705-708 

Depositior  has  no  right  of  inspection . .  708 

Minority  stockholder's  right 705 

National  bank  stockholder's  right 706 

Power  of  state  to  compel  cashier  to  fur- 
nish list  of  stockholders 3075 

Stockholder  can  inspect  stock  book,  but 
cannot  compel  bank  to  furnish  list  of 

stockholders 707 

Loose  leaf  books.  Use  of 510 

Preservation  and  destruction  of  old 

records 512 

Destruction  of  old  checks  and  drafts.  .  513 

Length  of  time  preservation 514 

Production  in  court 495,  508-509 

Evidence  of  transactions  with  decedent,  1279-1280 
Unrecorded  deed,  Pledge  of 1286 

Capital 

Increase 709-712 

National  bank  stockholder,  though  not 
voting  for  increase,  has  subscription 

rights 711 

Procedure  for  increase  of  national  bank 

stock 712 

Right  of  existing  stockholders  to  sub- 
scribe to  increase 710 

Status  of  authorized  but  unsubscribed 

capital 709 

Increase  and  reduction 1205-1207 

Limitation  of  loans,  By  national  banks     551-564 
To  a  single  borrower 478-481 

715 


Capital — Continued 

Statutory  limit  of  deposit  liability  in 
proportion  to  capital 


Opinion  Nos. 


1403 


Cashier 

Cashier  as  director  of  national  bank. . .  644 

Cashier's  checks,  Payment  of 926-928 

Check  for  private  debt 969 

Lost  checks 2174-2176 

Stopping  payment 3055-3061 

Corporation  signature  and  indorsement 

by  "cashier" 134 

Fraudulent  bond  of  indemnity  issued  by 

cashier 637 

Loan  to  bank  on  his  personal  note 470-471 

Misappropriation  of  deposit  by  cashier  636 

Mortgage  in  name  of  cashier 2282 

Powers  and  authority 619-622 

Acceptance     of     note     with     renewal 

privilege 620 

Guaranty  of    payment    of    postdated 

check 486 

No   power   to   relieve   indorser   from 

liability 622 

No  power  to  relieve  maker  of  notes 

from  liability 621 

Transfer  of  stock 619 

Real  estate  agent  for  customer 645 

Witness,  to  indorsement  by  mark 1837 

Carriers 

Bank  unlike  a  common  carrier 1292,  1293a 

Bank's  liability  for  act  of  freight  agent 

who  allows  inspection 749 

Delivery  after  banking  hours  of  express 

package 436 

Delivery  of  goods  without  surrender  b/1        750-751 
Express  company's  liabihty  for  shortage 

of  currency  shipped 1196 

Indorsements  on  b/1.  Care  in  scrutiniz- 
ing   733 

Liability  on  b/1  issued  without  goods. . .     726-728 

Lien  for  freight 777 

Registered  mail.  Railroad's  liabihty  for 

loss. 2229 

Transmission    of    money    to    foreign 

countries 464 

Certified  Checks  (see  Accept- 
ance and  Certification) 

Certificate  of  Deposit 785-826 

Accommodation  indorser's  liability ....  203 

Attachment   of  funds   represented   by 

c/d 370-376 

Check  and  c/d  distinguished 1227,1231 

Conversion  of  c/d  by  collecting  bank. . .  1154 

Death  of  payee,  Payment  after 1227-1231 

Payable  in  event  of 1232-1234 

Payable  to  either  or  survivor 1236,  1318-1319 

Forgery,  Of  indorsement 1678-1684 

Of  indorsement  by  mark 1504 

Form  and  interpretation 785-787 

C/d  with  foreign  correspondent  pay- 
able by  check  on  correspondent 787 

Demand  and  time  c/d  distingmshed.  . .     785-786 

Indorsement  by  alternative  payee 1821,1825 

Indorser's  liability 825 

Before  delivery 1093 

Interest 811-813 


Opinion  Nos. 

Compound  interest 2038 

Indorsement  of  interest  pajonents 811 

Interest   clause   where    "per   annum" 

omitted 812 

Payment  of  interest  after  maturity .  ...  813 

Joint  c/d 1236,1318-1319 

Liberty  Bonds,  c/d  given  for 2626 

Loans  of  national  bank  on  its  own  c/d .  .  549 

Lost  and  stolen  c/d 2161-2173 

Minor,  c/d  payable  to 2247,2249 

Negotiability 788-792 

Advantages  and  disadvantages  of  non- 
negotiable  form 790 

c/d  payable  on  condition 791 

"Non-negotiable,"  Effect  of  words.  .  . .  789 

"Not  transferable,"  Effect  of  words.  . .  788 

Payable  six  or  twelve  months  after  date  792 

Payable  "In  current  funds". 801-803 

Payee's  signature.  Bank's  obligation  to 

know 823—824 

Effect  of  "prior  indorsements  guaran- 
teed"    823 

Rule  limited  to  signature  kept  on  file .  . .  824 

Payment 804-810 

C/d  obtained  through  fraud 809 

C/d  payable  in  Mexican  money 807 

Insanity  of  payee.  '. 804 

Of  non-negotiable  c/d  to  third  person. .  805 

Of  time  c/d  before  maturity 806 

On  conditional  indorsement 808 

Validity  of  payment  to  indorsee 810 

Protest  of  unmatured  c/d 2755 

Where  payee's  indorsement  doubtful .  .  2782 

Rights  of  holder 814-819 

Defense  against  payee 815 

Innocent  purchaser  of  c/d  issued  against 

imcollected  funds 819 

Innocent  purchaser's  rights 816 

Laches  of  holder  where  bank  closed .  .  .  817 
Non-liability  to  payee  where  c/d  out- 
standing   818 

Purchase  of  c/d  with  money  fraudulent- 
ly obtained 814 

Set-off  of  overdraft  against  c/d 2870 

Stamp  tax,  c/d  not  subject  to 3138-3139 

Stopping  payment 3067,966,1318 

Time  of  payment 793-800 

Interpretation  of  maturity  clauses ....  797-800 

Maturity  of  c/d  of  liquidated  bank 507 

Statute  of  limitations 794-796 

Withholding  payment  of  time  c/d 793 

Transfer _. .  820-822 

Negotiation    of    c/d    restrictively    in- 
dorsed to  issuing  bank 821 

Time  limit  for  negotiation 822 

Without  indorsement 820 

Use  as  collateral  by  officer  of  bank ....  826 

Chattel  Mortgages  (see 
Mortgages). 

Checks 827-1028 

Alteration     (see    Altered    and    Raised 

Paper). 
Attachment    and    garnishment    (see 
that  title) 

Banking  hours,  Payment  after 429-433 

Bearer  checks 878-883 

"Cash"  checks.  Indorsement  of 1994-1997 

Certification 10 

Check  payable  to  "Cash"  is  payable 

to  bearer 880-881 

To  "J.  S.  (bearer)"  not  payable  to 

bearer 882 


716 


Opinion  Nos. 

Checks — Continued 

Bearer  checks — Continued 

Check  to  fictitious  person 1647 

Forgery  of  indorsement 1653 

Indorsement 1991-2005 

Lost  bearer  checks 2155-2157 

"Or  bearer"  struck  out 883 

Possession  prima  facie  evidence  of  title  878 

Recovery  of  money  paid  on  forgery.  .  .1499-1500 

Special  indorsement 2006-2010 

Stranger  entitled  to  payment 879 

Cashier's  checks 926-928 

Forgery  of  indorsement 1686-1693 

Garnishment  of  deposit  represented  by 

cashier's  check 379-381 

Holder  as  guaranteed  depositor 1402 

Innocent  purchaser  may  enforce 926-927 

Lost  cashier's  checks 2174-2176 

Possession  by  bank  presumes  payment  928 

Stopping  payment 3055-3062 

Certified    checks  (see  Acceptance  and 
Certification). 

Lost  certified  checks 2158-2160 

Checks  for  more  than  balance,  Order 

of  payment 908-918 

Bank    holding    check    while    account 

depleted  by  drawer 911 

Drawee  as  collection  agent  for  check 

holder 910 

Holder  of  overdraft  has  no  priority  over 

checks  within  balance 908-909 

Priority  of  checks  in  morning  mail  oyer 
checks  received  later  from  clearing 

house 917 

Return  of  overdraft  through  clearing 
house     and     cancellation     of     word 

"Paid"  stamped  through  error 918 

Selection  where  checks  aggregate  more 

than  balance 912-916 

Clearance  in  clearing  house  (see  Clear- 
ing Houses). 
Collection  (see  that  title) . 

Conditional  payment  of  check 906-907 

Counter  checks 929-930 

Alteration  of  form 326 

Negotiability 2157 

Receipt  as  substitute 930 

Refusal  of  payment  to  payee  other  than 
drawer  where  contrary  to  terms  of 

check 929 

Death    of   drawer,    Payment   after    (see 
Death  and  the  Decedent's  Estate) 
Deposit  of  checks  (see  Deposits) 

Giving  cash  instead  of  credit  unsafe 

1380-1382,1842 

Drawn  and  indorsed  in  representa- 
tive capactiy 956-971 

Abuse     of     check-signing    power    by 

authorized  agent 967 

Cashier's  check  for  private  debt 969 

Check  drawn  by  supervisor  to   "My- 
self"    962 

Check  of  third  person  payable  to  agent 

deposited  to  personal  credit 956 

Check  upon  payee  bank  to  confidential 

clerk  of  drawer 958-959 

Drawee  not  liable  if  payee  misappro- 
priates money 957 

Form  of  check  to  corporation 963 

Indorsement,  Unauthorized,  by  secre- 
tary of  trust  company 964 

By  agent  of  company 965 

Indorsement,  Authorized,  by  agent. . .  .  966 

Indorsement,  Forms  of 1829-1833 


Opinion  Nos. 

OflBcial  check,  to  oflBcer's  order 960 

To   personal    order    deposited    in 

personal  account 968 

Partnership  check  for  partner's  private 

debt 971 

Treasurer's  check  to  personal  order. .  .  .  961 

Official  check  for  private  debt 970 

Exchange  clauses 871-877 

"In  exchange,"  Effect  on  negotiability. .     875-876 
"Payable  only  in  New  York  exchange 

at  current  rates" 877 

"With  exchange" 871-874 

False  pretense,  Cashing  check  by 1742 

Form,  interpretation  and  execution       827-856 
Amount    need    not   be    protected    by 

perforation 300-301 

Amount,    Unauthorized,    inserted    by 

agent 849 

Inserted  by  payee 850 

Blank  form  of  another  bank  used 319-325 

Care,  In  preparing  check ^"^^"qoq 

Of  check  book ■  •  829 

Certificate  of  deposit  and  check  dis- 
tinguished   1227,1231 

Check  indorsed  in  another  state,  not  a 

foreign  bill  of  exchange 855-856 

Check  payable  to,     A  for  account  of 

B 848 

A  or  order  and  to  order  of  A 852 

Drawee    and    presented    by    third 

person -.  •     846-847 

Figures    in    body    control    figures    in 

margin 836 

Figures  only,  in  check ^^     o^ri 

Lead  pencil  checks 305-311,830 

Memorandum  on  check 853 

Payroll  check  to  protect  against  loss .  .  851 

Pen  line  drawn  through  payee  blank  or 

blank  left  unfilled •     844-845 

Stamping    amount    in    figures    or    in 

words 8^^ 

Validity  of  typewriting  body 843 

Words  and  figures  differ 831-835 

Gambling  consideration ^'^^ffe 

Check  for  gambling  debt 884-885 

Enforceabihty   of  bank  draft  lost  at 

gambling 886 

Holder's  rights ^^^~q?2 

Conversion  of  check  by  bank 978 

Deduction  of  debt  of  presenting  check- 

holder 977 

Holder  cannot  sue  drawee 979 

Obligation  of  drawee  to  indorse  reasons 

for  refusal 980 

Holiday,    Paj-ment    on    (see  Holidays, 

Saturday  and  Sunday) 
Indorsement  (see  Indorser — Indorse- 
ment) 

"In  full,"  Checks ^^^"?n3 

Certification 1^7 

Decisions  upon  legal  effect 931 

For    less    amount,     Where    account 

liquidated 932 

Where  claim  disputed nq^ 

For  less  than  price  of  car 934 

Negative  indorsement  by  payee      935-938 

Release  of  balance  due  upon  liquidated 
debt  written  by  drawer  on  back  of 

check  ineffectual 933 

Lead  pencil  checks,  (See  also  Lead  Pencil 

Checks)   Raised 305-311 

Lost  and  stolen  checks  (see  Lost  and 

Stolen  paper) 

Minors  and  incompetents,  Checks  of 
(see  that  title) 


717 


Checks — Continued 


Opinion  Nos. 


Negotiability,     Provisions     affecting 

(see  also  Negotiability) 887-897 

Indorser's   liability  on  non-negotiable 

check 1798 

Not  payable  through  express  company  894-895 
"Not  payable  through  Federal  Reserve 

Bank" 896-897 

"Order  of  payee  shown  on  back" 887 

"Or  order"  erased 888 

"Payable  if  desired  at"  another  bank. .  890 

Payable  "On  April  1st  if  then  living"..  892 

Payable  out  of  particular  fund 891 

"Pay  to  order  of  self" 889 

Restriction  of  channel  of  collection. . . .  893 

Overdrafts  (See  also  that  title) 2557-2572 

Paid  Checks,  Dealings  with 985-990 

Check  on  another  bank  paid  through 
error    and    charged    to    customer's 

account 989 

Depositor's  right  to  paid  checks 2576 

Drawee's  liability  where  check,  after 
payment  on  unauthorized  indorse- 
ment, re-delivered  as  evidence 988 

Return  of  cancelled  vouchers  without  re- 
ceipt unsafe 985-986 

Second  payment  of  check 987 

Stipulation  acknowledging  correctness 

of  account  on  non-report  of  errors. .  .  .  990 

"Paid"  Stamp,  Use  of 919-920,1070 

Responsibility  of  collecting  bank 
stamping  check  "Paid"  where  in- 
dorsement forged 919 

Right    of   presenting   bank   to   stamp 

check  "Paid" 920 

Parties,  Liability  of 981-984 

Of  drawee  on  check  deposited  in  in- 
solvent bank 983 

Of  drawer  on  unpaid  check 981 

Recovery  of  overpayment 984 

Right  of  bank  to  look  to  indorser  or 

drawer 982 

Partnership  checks 1265 

Payment?  What  constitutes 898-905 

By  insolvent  drawee 1167-1171 

Clearance  of  check  in  same  town 1070 

Crediting    depositor's    account,     with 

checks  on  same  bank 900 

With    check   of    drawer   having   no 

account 901 

Deduction  of  exchange 905 

Dishonored  or  protested  check 2795-2798 

Holder  has  knowledge  that  check  paid 

is  a  kite 899 

Legal  tender 2116-2117 

Payment,     of  overdraft  to  bona  fide 

holder 898 

Of    unindorsed    check    by    issue    of 

exchange  to  payee 904 

Point    of    time   when    check    received 

through  mail  is  paid 902-903 

Postdated  checks 1005-1028 

Certification  illegal 20-22 

Duty  of  collecting  bank 1006-1007 

Guaranty  of  payment 486 

Instrument  payable  at  future  date ....  1028 
Issuer     of     subsequently     dishonored 
postdated     check     not     punishable 

criminally 1005 

Negotiation  before  date 1015 

Not  protestable  for  non-acceptance .  .  .  1025 
Payment  before  date  unauthorized. . .  .  1008-1014 

Premature  protest 1017-1021 

Fees  not  chargeable 1022-1024 


Opinion  Nos. 

Protest  at  maturity 1026 

Recovery  from  drawer 1016 

Set-off  of  postdated  check 1027 

Wrongful  dishonor 997 

Presentment,     protest     and     notice 

(see  that  title) 
Protested   or   dishonored   checks,    Pay- 
ment of 2795-2798 

Set-off  (see  that  title) 

Against  checkholder 2936-2937 

Against  deposit  of  pension  checks 2869 

Signatures. . 857-870 

By  agent  of  insurance  company 868 

By  attorney 863-865 

By  mark,  attested  by  witness 861 

With  notary's  certificate  in  foreign 

language 862 

By  corporation 869-870 

Check  signed,   "John  Doe  per  Jennie 

Doe" 866 

"BbyA" 867 

Checks  drawn  and  indorsed  in  repre- 
sentative capacity 956-971 

Drawer's  signature  by  hand  of  another  859 

Hectograph 858 

Indorsement  but  not  signature  in  hand- 
writing of  "drawer 860 

Where  signature  does  not  correspond 

with  one  filed  with  bank 857 

Special    and    specific    deposits,    Pay- 
ment from 1345-1347 

Stale  checks 974-976,2674 

Stopping  payment  (see  that  title) 
Practice  of  stamping  check  "Payment 

stopped" 2984r-2986,3034 

Stranger  payee,  Checks  issued  to 924-925 

To  impersonator 925 

Strangers,    (See  also  that  title)   Checks 

issued  and  paid  to 921-923 

Identification,  Drawee  entitled  to  re- 
quire   921 

Of  distant  payee 923 

Of  holder  of  check  indorsed  in  blank. .  922 

Travelers'  checks.  Forgery 1724-1728 

Undated  checks 972-973 

Unwise  to  certify 23 

Voucher  checks 991-994 

Effect  of  clauses  "Given  in  payment  of 
a/c,"     "When     properly     indorsed, 

correctness  acknowledged" 992 

Forgery 1693-1694 

Form  of  non-negotiable  voucher  check. .  994 
Indorsement  acknowledging  receipt  in 

full 993 

Negotiability    where    clause    requires 

payee's  receipt 991 

Without  funds.  Checks 940-955 

Criminal  liability  (see  note  preceding 

940) 940 

Deposit    by    payee    of    maker's    bad 

check 955 

For  advance  interest,  Florida 944 

For  existing  debt 940 

In  payment  of  account 953 

Missouri   bank   officer   allowing   over- 
draft   951 

Necessity  of  notification  under  Florida 

statute 945 

Ohio  bad  check  statute 954 

Overdraft,  On  Connecticut  bank  nego- 
tiated in  Mississippi 950 

On  Kansas  bank 948 

On    Nebraska    bank    negotiated    in 

Iowa 947 

On  New  York  bank  cashed  in  New 

Jersey 952 


718 


Opinion  Nos. 

Checks — Continued 

Without  funds — Continued 

On  Washington  bank  negotiated  in 

Michigan 949 

Payment   from   account   subsequently 

opened 946 

Remedy  against  one  who  continually 

overdraws 941-942 

Return  through  clearing  house 943 

Wrongful  Dishonor 995-1004 

Checks   drawn   against   Liberty   bond 

credit 998 

Check  returned  unpaid  without  pre- 
sentment    1003 

Damages  by  non-trading  depositor ....  1002 

Exclusion  of  evidence  of  habitual  over- 
drawing erroneous 1001 

Habit  of  overdrawing  can  be  shown  in 

mitigation 999 

Liability  not  decided  in  Washington .  .  .  1004 

Substantial  damages,  Bank's  Liability .     995-997 

Clearing  Houses 1029-1041 

Articles  of  association 1041 

Collection  charges  as  violation  of  anti- 
trust laws,  state  and  federal 1031-1032 

Effect  of  incorporation    1032 

Inter-city  agreement 1033 

Collection    through    clearing    house    of 

draft  drawn  "through  Bank  B" 1161 

Incorporation 1029-1031 

Right  of  majority  to  dissolve 1030 

Interest  rates,  Uniform,  as  violation  of 

anti-trust  law 1034 

Inter-city    agreement    for    maximum 

rates 1035 

Penalty  for  violation  of  maximum  rate  1036 

Modification  of  rule  by  custom 1040 

"Payable    through     N.     Y.     Clearing 

House,"  Negotiability  of  check 1060 

Pledge  of  securities  to  secure  draft  in 

settlement  of  debtor  balances 1039 

Purchase  of  notes  through  each  other 
rather  than  throughn  ote-brokers. 
Inter-city  agreement  of  members ....  1038 

Rules,     Defacement  of  counterfeit  coins 

and  notes 649 

Delayed  return  of  bogus  check  through 

clearing  house 943 

Modification  by  custom 1040 

"Paid"  stamp  equivalent  to  guaranty .  .  1932 

Requiring  drawee   to  indorse  reasons 

for  refusal  to  pay  check 980 

Requiring  prior  indorsements  guaran- 
teed   1940,1912 

Stamping    "paid    through    clearing 

house"  as  irregular  indorsement ....  1933 

Uniform  service  charge  for  small  ac- 
counts and  for  return  of  items  not 
good 1037 

Collection 1042-1046 

Attachment   of  collection   proceeds  in 

hands  of  collecting  bank 387,389,401 

Bank's  obligation  to  undertake  col- 
lection   1042-1046 

Duty  of  drawee  bank 1046 

Notice    to    remitter    that    draft    held 

awaiting  fee 1044 

Right  to  return  draft  and  refuse  col- 
lection    1045 


Opinion  Nos. 

Where  no  fee  enclosed 1043 

Where  return  postage  not  enclosed 1042 

Bill  of  lading  drafts  (see  also  that  title)       734-749 

Shipper's     indorsement     supplied     by 

collecting  bank 732 

Channel  of  collection,   Restriction  in 

check  of 1054-1060,  893-897 

Custom   to   ignore    "Payable   through 

A.  B.  Bank"  invalid 1059 

"Not  payable  through  any  post  office, 
express  company  or  federal  reserve 
bank" 1054 

"Not  payable  through  express  com- 
pany"    1055 

"Not  payable  through  express  company 
or  postmaster" 1056-1057 

"Payable  at  par  through  N.  Y.  Clearing 

House" 1060 

"Payable  through  A.  B.  Bank" 1058 

Circuitous  routing  of  checks 1071-1079 

Check,    On    Kentucky    deposited    in 
Illinois    forwarded    through  New 

York 1073 

On  interior  Pennsylvania  forwarded 

through  Pittsburgh 1078 

On  North   Dakota  forwarded  from 

there  through  Chicago 1077 

On   South   Dakota  forwarded  from 

there  through  Chicago 1079 

Forwarding  through  commercial  center  1076 

Minnesota  rule 1075 

Routing  through  a  correspondent 1072 

Sending  through  federal  reserve  bank    .  1074 

Statutory    rule    in    Florida,    Georgia, 

Vermont  and  South  Dakota 1071 

Clearance  in  same  town 1070 

Form  of  indorsement  by  collecting  bank 
and    time    when    check    irrevocably 

paid 1070 

Collection  agencies  generally 1047-1053 

Bank  supervisor  cannot  compel  bank  to 

pay  express  company 1049 

Drawee  as  collection  agent 1050 

Duty  of  drawee  where  depositor  pro- 
vides list  of  checks  to  be  paid 1051 

Is  mailing  to  drawee  a  demand  of  pay- 
ment or  entrustment  for  collection?.  1052 

Necessity  of  bank  license  at  place  where 

collection  made 1053 

Power  of  express  company  to  act 1047 

Publication  of  debtors  in   delinquent 

book 501 

When  express  company  not  a  suitable 

agent 1048 

Default  of  correspondent.  Liability  or 

non-liabihty  of  collecting  bank  for .  .  .  1099-1105 

Correspondent   selected   by   owner   of 

paper 1 103 

Due    care,     in    selection    of    suitable 

correspondent 1099 

Rule  substituted  by  statute  for  Ua- 

bilityrule 1100 

Liability  for  defaults  of  correspondent . .  1101 

Liability  of  successive  correspondents 
depends  upon  law  of  state  of  loca- 
tion   1102 

Refusal  of  correspondent  to  act  causing 

loss  and  delay 1105 

Exchange  and  remittance 1142-1151 

Against  federal  reserve  banks 1149 

Bank  paying  money  at  request  of  an- 
other entitled  to  reimbursement 
without  exchange  deduction 1151 

By  non-member  banks 1144-1147 

Cannot  be  made  against  drawer 1150 

Clearing  house  charges 1031-1033 

719 


Collection — Continued 


Opinion  Nos. 


Exchange  and  remittance — Continued 

Par  collection 1144-1151,  895-897 

Par  list  of  federal  reserve  bank 1148 

Right  to  exchange  charge 1142 

Termination   of  arrangement   for  par 

remittance 1143 

Forwarding  direct  to  drawee  or  payor. . .  1080-1091 

Collecting  bank  liable  for  loss  from 
forwarding  direct  to  drawee,  unless 
authorized  or  permitted  by  statute. .  .  1082 

Correspondent  liable  for  forwarding 
direct 1089 

Forwarding  savings  pass-book  direct 
to  payor.  Liability  of  Wisconsin 
bank 1091 

Liability  of  bank  forwarding  direct .... 

Colorado 1086a 

Ilhnois 1084 

Maryland 1083 

Mississippi 1088 

Pennsylvania 1088a 

Tennessee 1081 

Texas 1085-1086 

Virginia 1090 

Wisconsin 1091 

No  statutory  prohibition  of  forwarding 

direct  to  payor 1087 

Statutes  authorizing  forwarding  direct  1080 

Tennessee  bank  liable  for  loss  from  direct 
presentment  but  administrator  de- 
positing check  not  liable 1081 

Forwarding  direct  to  payor,     Assent  of 

depositor 1096-1098 

Agreement  or  instruction  to  send  direct  1096-1097 

Ratification    of   act   of   bank   sending 

check  direct 1098 

Forwarding  direct  to  payor  where  only 

bank  in  place 1092-1095 

Non-liability  of  Minnesota  bank 1093 

Sanctioned  by  custom  in  Texas 1094 

States  where  custom  not  sanctioned 
and  where  sending  to  only  bank 
justified 1092 

When  sanctioned  by  custom  in  Illinois. .  1095 

Insolvent  bank,  Collection  by 1162-1166 

Discharge,    By  payment   to   insolvent 

collecting  bank  of  drawer 1162-1163 

Of  drawee 1166 

Of  indorser 1164-1165 

Insolvent  collecting  bank,  Priority  in 

assets  of 1172-1189 

Check  or  proceeds  received  after  insol- 
vency can  be  reclaimed 1188-1189 

Federal  courts  favor  trust  fund  theory. .  1177-1178 

No  preference  in  assets  where  check  is  on 

failed  bank 1183-1188 

Not  regarded  as  a  trust  fund.    North 

Carolina 1181 

Washington 1175-1176 

Regarded  as  a  trust  fund,     Alabama ...  1172 

Michigan 1179 

South  Carolina 1 182 

South  Dakota 1174 

Texas 1180 

Insolvent  drawee  bank,  Payment  and 

collection  by 1167-1171 

Conflict  of  authority  on  discharge  of 

drawer 1168-1169 

Discharge  of  drawer  although  drawee's 

remittance  draft  dishonored 1170-1171 

Discharge  of  drawer  and  indorser  on 
check  paid  by  check  of  drawee  which 
is  dishonored 1167 


Opinion  Nos. 

Lien  on  paper  held  for  collection 1111-1114 

Lien   for   indebtedness   of   forwarding 

bank  having  apparent  title 1111-1112 

No  lien  for  indebtedness  of  forwarding 

bank  agent 1113-1114 

Limitation  of  liability  by  special  agree- 
ment  1106-1110 

Agency  and  disclaimer  clause 1108 

Clause  on  deposit  slip  "Checks  and 
drafts  credited  subject  to  final  pay- 
ment"  1106,1307 

Pass-book  clause 1109 

That  bank  is  agent  and  disclaims 

liability  for  out-of-town  paper 1107 

Printing  of  clause  on  deposit  ticket  as 

well  as  pass-book 1110 

Stipulation  against  liability  does  not  in- 
ure to  benefit  of  prior  or  subsequent 

banks 1109a 

Negligence  of  collecting  bank 1115-1141 

Acceptance  of  paper  in  payment  in- 
stead of  money 1137-1138 

Delay  in.  Collecting  drafts  on  failing 
consignee  and  disobedience  of  pro- 
test instructions 1115 

Collecting,  note 1117 

Collecting  note  until  outlawed 1116 

Notifying  of  loss,     of  certificate  of 

deposit 2173 

Of  Check 2133 

Reporting  non-payment 1128  -1129 

Delay     in     tracing     unacknowledged 

items,    For  forty-seven  days....  1125 

Several  months 1127 

Two  months 1123-1124 

Two  years 1126 

Duty  to  promptly  return  unpaid  draft. .  1131 

Effect  of  dishonor  of  drawee's   draft 

taken  instead  of  cash 1139 

Forwarding  draft  in  usual  course  with- 
out attempting  to  procure  acceptance 

by  wire  not  neglect 1122 

Non-pajrment,  Failure  to  report 1130 

Failure  to  wire  as  instructed 1134-1136 

Non-presentment    of    time    draft    for 

acceptance 1121 

Protest  instructions.  Violation  of .  1118-1119,1130, 

2775-2794,2697,2700 

Retention,    Of   check   by   drawee   for 

seven  days 1132 

Of   checks,    partly   good,    for   three 

days. 1133 

Return  for  indorsement  before  forward- 
ing for  payment  not  negligent 1120 

Selling  note  to  stranger  instead  of  col- 
lecting from  maker 1141 

Surrender  of  paper  before  full  payment .  1 140 
Overdrafts,  Collection  of  (see  also  Over- 
drafts)             2570 

Payment  by  drawee  of  subsequent 
smaller  check  while  overdraft  held  for 

collection 2564 

Presentment  of  checks.  General  duty  of 

collecting  banks 2653,2670-2674 

Proceeds,     Accountability  for  collection  1152-1154 
Conversion  of  item  by  collecting  bank . .  1 154 

Delivering  proceeds  to  sales  agent  of 

owner 1153 

Return  of  payment  to  drawee 1152 

Real  estate  paper 1068-1069 

Mortgage  notes 1069 

Real  estate  contracts 1068 

Refund  after  collection 1161 

Draft  drawn  "through  bank  B"  collect- 
ed through  clearing  house 1161 

Rescission    of    advice,    Of    credit    or 


720 


Opinion  Nos. 

Collection — Continued 

Rescission — Continued 

payment 1 155-1 156 

Of  credit  given  before  collection 1155 

Of  payment  recalled  by  wire 1156 

Title  to  paper  in  process  of  collection 1061-1067 

Checks  bearing  restrictive  indorse- 
ments  1934-1956 

Necessity  for  special  guaranty  of  prior 

indorsements 1900-1928 

Provisional  credit  of  b/1  draft 1066 

Right  to  check  against  uncollected 
funds 1061-1064 

Status  of  agent  bank  allowing  depositor 
to  check  against  paper  prior  to 
collection 1065 

Suit  for  negligence  in  collection  of  b'l 

draft 1067 

Trade  acceptance 176-178 

Duty  of  collecting  bank,  In  obtaining 

acceptance 177 

To  protest 1 78 

Provisions  for  costs  of  collection 149 

Uncollected  items,  Charging  back  of .  .  .1157-1160 

Bank  purchasing  b/1  draft  and  collect- 
ing same  through  agent  cannot 
charge  back  to  customer  upon  agent's 
default 1158 

Negligent  collecting  bank  cannot 
charge  back  item  if  forwarding  bank 
damaged 1157 

Recovery  of  proceeds  paid  in  advance  of 

collection 1160 

Where  remittance  before  collection 
promptly  followed  by  notice  of  pro- 
test   1159 

Uniform  code  of  collection 1190 

Various     duties     and     liabilities     of 
collecting  bank 

Loss  of  securities  in  registered  mail 2228 

Necessity  for  special  guaranty  of  prior 

indorsements 1900-1928 

Postdated  checks 1006 

Question  whether  duty  to  request  cer- 
tification of  check 36 

Return  of  bogus  check  through  clear- 
ing house 943 

Unstamped  notes  held  for  collection. .  . .  3135 

Use  of  "PAID"  stamp 919-921,1929-1933 

Commercial  Paper 

Accommodation  and  commercial  paper 

distinguished 196 

Discount    of    business    paper     actually 

owned  by  person  negotiating  the  same  479 

Limitation  of  loans  by  national  bank. .  .     557-564 

Purchase     of     commercial     paper     not 

affected  by  usury  law 2075-2079 

Consideration 

Accommodation  paper 197-199 

Alteration  of  statement  of  consideration .     331-337 
Assignment  "for  pre.sent  consideration" 

not  a  preference  in  bankniptcy 667-669 

Checks,     Given  for  gambling  considera- 
tion      884-886 

Stopping  payment  because  no  consider- 
ation received 3044 

Statement  "in  full"  embodied  in  check       931-939 
Stopping    payment    because    no    con- 
sideration received 3044 


Opinion  Nos. 
Deeds    and    mortgages,     Affidavit    of 
consideration     under     New     Jersey 

chattel  mortgage  statute 2263 

Deed  given  in  consideration  for  amount 

to  continue  after  grantor's  death . .  1285 

Stamp  tax  on  deed.     Where  consider- 
ation $5000  but  mortgage  $2000 .  3140 
Where  consideration  is  $400  a  year 

for  life.... 3142 

Where  consideration  is  $1500  cash 

and  assignment  of  $2500  mortgage  3141 

Sufficiency  of  consideration  for  chattel 

mortgage 2264 

Validity  of  chattel  mortgage  securing 

pre-existing  indebtedness 2265 

Notes 2413-2414,2417,2819,2422 

Renewal  of  note  as  new  consideration. . .  2480 

Trade  acceptances 139-140 

Contracts  and  Agreements 

1191-1199 

Banks,     Contracts  and  dealings 448-464 

Agreement  between  banks  as  to  uni- 
form rate  of  interest  on  deposits  and 

loans .2043-2044 

Agreement  by  several  banks  to  jointly 
indemnify  bank  if  loss  sustained  in 

purchasing  weak  bank 617 

Bank's  rights  under  trust  receipt  on 

bankruptcy  of  borrower 1199 

Contract  with  bank  to  collect  its  delin- 
quent claims 1 195 

Form  of  contract  authorizing  bank  to 
set  off  unmatured  paper  upon 
maker's  insolvency . . .  2886 

Loan      to      contractor-Bank's      right 

against  surety  company 475 

Municipal  improvements  as  basis  for 

loan 2959 

Bill  of  lading  goods  not  according  to 

contract 754 

Clearing  houses.  Agreement  of  mem- 
bers to  purchase  notes  through  each 
other    rather    than     through     note 

brokers 1038 

Collection  charge  agreement 1031-1033 

Members  fixing  uniform  interest  rate. . .  1034-1036 
"Paid"  stamp  may  constitute  guaranty 

by  agreement 1932 

Rules  constitute  agreement  binding  on 

members 1040 

Uniform  charge  for  small  accounts  and 

for  return  of  items  not  good 1037 

Compensation  of  promoters  of  corpor- 
ations    1211 

Collection,     Depositor's  right  to  check 

against  uncollected  funds 1061-1065 

Contract  limiting  bank's  liability,     For 

default  of  correspondent 1106-1110 

For  forwarding  direct  to  drawee  or 

payor .  1080-1098 

Pass-book  clause  that  checks  are  credit- 
ed conditionally 2578 

Consideration  (see  that  title) 
Consignment  contract  of  wool — Ad- 
vances  by   commission   merchant — 
Liabilit}'    of    consignor    where    ad- 
vances exceed  proceeds  of  wool 1194 

Contract  to  pay  commission  on  sale.  .  .  1197 
Deposit    in    escrow,    of    deed — Bank's 
dufv  upon  non-performance  of  con- 
dition            1289 

Deposit  slips  and  clauses 1300-1307 

Express  company's  liability  as  carrier 

for  shortage  of  currency  shipped 1196 


721 


Opinion  Nos. 

Contracts  and  Agreements 

— Continued 

Guaranty,  Contracts  of. 1766-1769 

Contract  of  guaranty  and  indorsement 

distinguished 223 

Payment  of  notes 2484-2488 

Indorser,  Contract  and  liability  of 1794-1808 

Agreement  by  holder  with  indorser  to 
receive  pajinent  of  protested  note  in 
instalment  does  not  discharge  prior 

indorser 2495 

National  banks,  Contracts  and  trans- 
actions       537-548 

Agreement  to  guaranty  outside  loans 

of  customer 57 

Voting  trust  agreement  of  stock- 
holders    720 

Offer  and  acceptance.    By  mail 2232 

As   completing  contract  for  purchase 

or  sale  of  real  estate 1193 

Payment  of  stopped  checks,  Contract 

limiting  bank's  liability 3009-3016 

Persons    under    disability    (see    also 

Minors  and  Incompetents) 2260 

Real   estate   contracts.    Collection   by 

bank 1068 

Safe  keeping  of  valuables.  Agreement 
disclaiming     bank's      liability      for 

loss 1354,1360-1363 

Sales 2947-2951 

Statute    of    limitations    in    Montana 

(see  also  that  title) 1198 

Subscription  contract,     for  one  year — ■ 

Liability  for  publication  beyond  year  1192 

Contract  with  publisher  of  bank 
directory.    Right     to     abrogate     on 

ground  of  fraud 1191 

Tra  de  acceptance,  Its  effect  on  original 

contract 170 

Suit    on    original    indebtedness    when 

acceptance  not  paid 169 

Corporations  and    Corpo- 
rate Stock 1200-1226 

Accommodation   maker   and  indorser, 

Liability  of  corporation 218-222 

Bank    Stock    (see    Bank    Stock    and 

Stock-holders) 
Books,  Inspection  of  (see  also  that  title). .      705-708 

Building  and  loan  associations 1210 

Power  to  advertise  business 1210 

By-laws  (see  also  that  title) 1200-1202 

Adoption  by  corporation — Meaning  of 

"majority" 1202 

Failure  to  adopt  by-laws 1201 

Variation  between  by-laws  and  resolu- 
tion of  directors 1200 

Certificate    of    stock.     Conversion    or 

embezzlement 1747 

Obtained  under  trust  receipt 1748 

Lost  certificates 2217-2224 

Negotiability 1215 

Stolen  certificate  with  blank  indorse- 
ment   1215 

Clearinghouses,     Incorporation  of .  .  .  .  1029 

Articles  of  association 1041 

Effect    of    incorporation    in    legalizing 

collection  charges 1032 

Collateral,  Use  of  stock  as 2629-2641 

Corporation  as  guarantor 1208 

Of  railroad  bonds  substituted  for 
railroad  notes  on  which  corporation 
liable  as  indorser 1208 


Opinion  Nos. 

Deposits  of  corporation 1371-1372 

Withdrawal    of    partnership    account 

carried  in  corporation  name 1370 

Dividends 1213-1214 

Nature  of  unpaid  dividends 1213 

Right  of  purchaser  of  stock  to  dividend .  1214 

Federal  income  tax 3115-3117,3120-3125 

Foreign  corporations 1203-1204 

Distinction     between     domestic     and 

foreign 2244 

Right  to  sue  in  New  York  State 1203 

Suit  on  note  by  non-resident  corpor- 
ation    1204 

Increase  and  reduction  of  capital 1205-1207 

Distribution  of  existing  surplus 1206 

Failure    of    Nebraska    corporation    to 

publish  notice  of  increase 1205 

Reduction  of  preferred  capital  out  of 

earnings 1207 

Indorsement,    By  corporation 1819-1820 

Checks  drawn  and  indorsed  in  repre- 
sentative capacity — Bank's  duty  of 

inquiry. 960-961,963-964,968 

Indorser's     liability     on     corporation 

note 1828 

Interest  certificate  not  classed  as  stock  2394 

Lien  of  corporation  on  its  stock   (see 

also  Bank  stock  and  stockholders)  1216 

Lien  of  Wisconsin  corporation 1216 

No  hen  at  common  law 692 

Loans  to  corporation 1209 

Bank's  recourse  on  real  estate  security 
of  corporation  where  proceeds  of  loan 
delivered  to  unauthorized  person ....  1209 

Mismanagement   of   corporation,    Lia- 
bility of  stockholders  and  officers .  .  .  657 

Notes,  Corporations  as  parties 2383-2385 

Accommodation      indorsers      liability 

214r-216,218-222 

Indorser's  liability 1828 

Signature  to  corporation  note 2365-2372 

Promoters  of  corporations 1211 

Compensation 1211 

Seal,  Use  of 2375 

Signatures  of  corporations 

By  "cashier" 134 

Proper  form 135 

To  checks 869-870,2721 

To  notes 2365-2372 

Transfer  of  stock 1217-1220 

Assignment  and  power  of  attorney  in 

separate  instrument 1217 

Book  transfer  not  necessary  in  North 

Carolina 1219 

Book  transfers 717,  2634 

Cashier's  power 619 

Decedent's  bank  stock 1224 

Decedent's  stock 1221-1223 

Estoppel  of  bank  to  refuse  book  trans- 
fers   1220 

Guaranty  of  signature  to  stock  assign- 
ment   484 

Written  transfer  apart  from  certificate. .  1218 

Usury  pleaded  as  a  defense 2105 

Validity  of  lease  of  real  estate  to  non- 
existent but  prospective  corporation  1290 
Voting  power  of  stock  (see  also  Voting),   1225-1226 

Voting  control  by  fraction  of  share 1225 

Voting  power  of  stockholder 1226 


Currency 

Canadian  bank  notes.  Federal  taxation.3 112-3 114 
Counterfeit  money.  Duty  of  national 

bank  officers  to  deface 649 


722 


n 


Opinion  Nos. 

Currency — Continued 

Gold   coin,    Provision  for  payment   of 

note 2489 

"In   current   funds"   Negotiability  of 

certificate  of  deposit 801-803,822 

Legal  tender .2111-2119 

Mexican  money,  Certificate  of  deposit 

payable  in 807 

Retirement  of  circulation 525 

Shortage  of  currency  shipped,  Liability 

of  express  company 1196 

Treasury  notes  subject  to  taxation.  .  . .  3106 

Unsigned  national  bank  notes  stolen 

and  circulated 2227 

Custom  and  Usage 

Bank's  notice   of  increased   rate   on 

collateral  loans 2607 

Broker  as  sub-agent,  Bank's  authority 

to  appoint 454 

Calculation  of  interest  on  basis  of  30 

days  to  a  month 2022 

Cash  Bonus  to  bank  officers  and  em- 
ployees   547 

Certificate  of  protest  signed  by  notary's 

check 2773 

Circuitous  routing  of  checks 1071-1079 

Clearing  house  rule  modified  by  custom  1040 

Collecting  bank's  acceptance  of  paper 

in  payment  instead  of  money 1137-1139 

Custom  of  ignoring  "payable  through 

A.  B.  Bank"  invalid 1059 

Forwarding  direct  to  drawee  or  payor 

for  collection 1080-1098 

Giving    cash    instead    of    credit  for 

deposited  item  unsafe 1380-1382 

Indorsement  of  note  by  single  oflBcer  of 

corporation 1819 

Indorsement  of  payee  as  prerequisite  of 

payment 852,1984-1990 

Notice  of  dishonor  to  collection  bank .  . .  2354 

Payment    of    check    in    ignorance    of 

drawer's  death 1251 

Payment  of  undertaker's  bill  out  of 

decedent's  deposit 1263 

Retention  of  checks  the  day  following 

presentation 1040 

Right    to    check    against    uncollected 

funds 1061-1065 

Small  loans,  Minimum  charges  for 2080-2083 

Stamping  check,  "Payment  stopped" 

2984-2986,3034 

"Paid" 919-920,1070 

Wiring  money  on  telegram  from  cus- 
tomer, dangerous 1717 


Damages 


1116 


Delay  in  collecting  note  until  out- 
lawed   

Holder  of  stopped  check  not  entitled 
to  damages  from  drawer  in  addition 
to  amount  of  draft 3054 

Injury  to  customer  on  bank  premises. .  .  503 

Liability  of  collecting  bank  which 
allows  deduction  from  b/1  draft 
because  of  claim  of  damaged  goods. .  .  741 

Surrender  of   bill   of   lading  without 

payment  of  sight  draft 745 

Wrongful  dishonor  of  checks 995-1004 


Opinion  Nos. 

Date 

Alteration  of  date — Certified  check. .  .  66 

Checks 329-330 

Note 328 

Postdated  note 2357 

Trade  acceptance 129-132 

Undated  checks 972-973 

Protest 2716 

Unwise  to  certify 23 

Death  and  the  Decedent's 

Estate 1227-1280 

Administrators  and  executors.     Their 
rights,  powers  and  duties  (see  also 

that  title) 1268-1272 

Accounting  by  administrator 1271 

Action  by  executor  of  deceased  payee 

on  note  and  deed  of  trust 2513 

Authority  to  renew  notes  of  testator. . .  .  1268 

Liability    for    investment     of    estate 

funds 1270 

Payment  of  legacy  to  wTong  person ....  1269 

Refunding  bond  to  executor  as  protec- 
tion against  overpayment  to  legatee. .  1272 
Certificate     of     deposit     payable     in 

event  of  death 1232-1234 

Assignment  to  be  paid  in  event  of  death 
invalid    as    contrary    to   statute    of 

wills 1232 

Certificate  paj'^able.    To  A  in  event  of 

death  to  B 1234 

To  person  named  in  event  of  pur- 
chaser's death 1233 

Certificate  of  deposit  payable  to  either 

or  survivor 1236 

Subject  to  transfer  tax  law 1236 

Certificate  of  deposit.     Payment  after 

death.  . ...1227-1231 

Certificate  indorsed  to  wife  to  receive 

money  in  case  of  husband's  death ....  1231 

Not  subject  to  inheritance  tax  law 1230 

Payment  to  indorsee 1227-1229 

Check,  Payment  after  drawer's  death. .  .  .  1237-1255 

Check  as  an  assignment 1237-1255 

Check  "for  all  my  deposit" 1248 

Rule  overturned  in  South  Carolina  and 

Minnesota 1246-1247 

Check  drawn  under  power  of  attorney . .  1253 

Check  holder  cannot  recover  from  bank  1255 

Check  of  authorized  agent 1252 

Death  revokes  bank's  authority  to  pay .  1237-1242 
Husband's    death    revokes    wife's    au- 
thority to  draw  checks 1254 

Ignorance  of  depositor's  death 1249 

Check  drawn  under  power  of  attor- 
ney    1250 

Validity  of  payment  to  agent 1251 

Massachusetts  statute 1243 

Applies  to  national  bank 1244 

When  statutory  ten  day  limit  ends  on 

Sunday 1245 

Statutes.  .  .  .  (sec  note  preceding  1237)..  1237 

Death  of  donee  before  delivery  of  gift .  .  .  2233 

Deed,     Given  in   con.sidcration   for  an- 
nuity   to    continue    after    grantor's 

death 1285 

Satisfaction  of  record  of  deed  of  trust 

after  holder's  death 1287 

Deposit  of  decedent,  Payment  of 1260-1265 

Deposit  bv  one  in  name  of  another 1332-1336 

Partner's  death 1265,1369 

Pa}^nent,  In  the  absence  of  letters  of 

administration 1261 


723 


Opinion  Nos. 

Death  and  the  Decedent's 
Estate — Continued 

Deposi  t — C  ontinued 

Of  deposit  on  death  of  "A,"  agent 1334 

Of  time  certificate  without  administ- 
ration  to   widow,   where  nodebts, 

and  other  heirs  consent 1262 

To  trustee  upon  death  of  beneficiary .  .  .  1323 

To  survivor  of  joint  account  as  against 

widow  of  decedent 1314 

Proof  of  appointment  before  payment 

to  administrator 1260 

Savings  deposit  of  foreign  decedent ....  1264 

Undertaker's  bill 1263 

Deposits     received     after     death     of 

depositor 1266-1267 

Certified  checks  payable  to  decedent 

offered  for  deposit 1267 

Credit  of  deposit  by  debtor  of  decedent .  1266 

Evidence  of  transactions  with  decedent .  .  1279-1280 
Admissibility  of  minutes  of  bank  as 

evidence 1279 

Minute  book  of  bank  amended  after 

decease  inadmissible 1280 

Heirs,     Their  rights  and  liabilities ......  1273-1278 

Bank  has  lien  on  its  stock  as  against 

heirs  of  stockholder 695 

Heir's  note  for  decedent's  debt 1274 

Partial  payment  by  widow  on  mort- 
gage of  deceased  husband 2301 

Promise  to  make  donation  to  charitable 

institution  not  enforceable 1276 

Renunciation  of  interest  by  heir  pro- 
cured by  fraud 1764 

Right  of  surviving  husband  and  child.  .  1277 

Right  to  intestate's  deposit  where  sole 

survivors  are  son  and  divorced  wife  1275 

Rights  inter  se  of  grandson,  surviving 

brothers  and  divorced  husband 1273 

Title  of  surviving  husband  under  deed 

to  husband  and  wife 1278 

Widow's  statutory  rights  in  mortgaged 

personal  property  in  Missouri 2270 

Protest  of  decedent's  check. . 1257,2694-2695 

Renewal  of  note  of  agent  in  ignorance  of 

principal's  death 1256 

Death    of    maker    after    execution    of 
renewal    but    before    maturity    of 

original  note 2483 

Savings  deposit  payable  to  another  in 

event  of  death 1235 

Deposit  of  A,  in  case  of  death  B  may 

draw 1235 

Set-off  of  unmatured  note  against  de- 
cedent's deposit 1258-1259 

Against  widow's  account  of  decedent's 

debt  assumed  by  her 2866 

Where  depositor  is  deceased 2929-2935 

Transfer  of  stock  of  decedent 1221-1224 

Transfer  Tax  in  New  Jersey  on  deposit  of 

non-resident  decedent 3108 

Trust  deposits 1320-1331 

Deeds  and  Conveyances,  1281-1291 

Alteration  of  deed.  Rights  of  purchaser. .  361 

Consideration 1285 

Deed  given   for   annuity   to   continue 

after  grantor's  death 1285 

Stamp  tax  based  on  consideration 3140-3142 

Deeds  of  trust  (see  also  Mortgages) 2282-2318 

Action  by  executor  of  deceased  payee 

upon  note  and  deed  of  trust 2513 


Opinion  Nos. 
Difference  between  deed  of  trust  and 

mortgage 2286 

Deeds  pledged  as  security  for  loans 1286-1287 

Pledge  of  unrecorded  deed 1286 

Real  estate  collateral 2647-2649 

Satisfaction  of  record  of  deed  of  trust 

after  death  of  holder 1287 

Delivery 1281-1282 

After  death 1282 

Essential  to  completeness  of  deed  of  gift  1281 

Deposit  in  escrow 1289 

Duty  of  bank  on  non-performance  of 

condition 1289 

Description 1284 

Discrepancy  in  description  of  deed  to 

homestead 1284 

Execution  of  deed  by  national  bank 533 

Power  of  vice-president 648 

Leases 1290 

Validity  of  lease  of  real  estate  to  non- 
existent but  prospective  corporation  1290 

Names  of  parties 1283 

Right  to  change  name  when  deeds  are 

executed  in  original  name 1283 

Offer   and   acceptance   as   completing 

contract  of  sale  of  real  estate 1193 

Remedy  on  breach  of  covenants ......  1288 

In  warranty  deed.  Statute  of  limita- 
tions   1288 

Recital  that  note  secured  by  vendor's 

lien  as  notice  of  contents  of  deed 2456 

Stamp  tax,     Where  consideration  $5000 

but  mortgage  $2000 3140 

Where  consideration  $400  per  year  for 

life 3142 

Where  consideration  of  deed  is  $1500 

cash  and  assignment  of  mortgage ....  3141 

Torrens  system 1291 

Delivery 

Checks,    Incomplete  without  delivery. . .    904,2194 

Bearer  check  transferable  by  delivery .  .    881 ,2003 
Deed,  Dehvery  after  death  of  grantor. .  .  .  1282 

Gift,   Completed  by  delivery 1328,1281,1231 

Delivery  of  pass-book 1379 

Goods  delivered.   Without  surrendering 

bill  of  lading _. .  .750-751,784 

Without  taking  up  warehouse  receipt. . .  1 76 1 

Liberty  Bonds,  Erroneous  dehvery 2960 

Notes,    Dehvered  on  Sunday 1773-1774 

Accommodation  signature  or  indorse- 
ment after  delivery 228-235 

Deposits 1292-1403 

Adverse  claims  to  deposit 1393-1394 

Deposit  by  A  claimed  by  B 1393 

Sufficiency  of  notice 1394 

Assignment  of  deposit 1308-1310 

As  security  for  loan 1308 

Assignee  should  notify  bank 1309 

In  national  bank 1310 

Attachment    and    garnishment    (see 
that  title) . 

Bank  not  obliged  to  receive  deposits . .  1292-1293a 

Not  compelled  to  open  account 1292 

Right  to  close  account 1293-1293a,941 

Banks  as  depositaries 488-491 


County  funds . 
Deposits  of  state  member  with  non- 
member  state  bank 

Estates  in  bankruptcy 

Government  funds 

Postal  savings 


488 


490 
674 
491 
489 


724 


B9   41 

J 


Opinion  Nos. 

Deposits — Continued 

Cashing  instead  of  crediting  item  to 

depositor 1380-1382 

Cashing    for    messengers,    instead    of 
crediting  checks  indorsed  with  rubber 

stamp 1382 

Difficulty  of  proof  of  return  of  cash  for 

deposited  item 1381 

Practice  unsafe 1380 

Checks  without  funds 940-955 

Order  of  payment  of-  checks  for  more 

than  balance 908-918 

Corporations,  Deposits  of. 1371-1372 

Agent  acting  for  corporation 1371 

Opening  of  corporation  account 1372 

Deposit  by  one  in  the  name  of  an- 
other  1332-1336 

A's  check  on  deposit  by  him  in  B's  name  1333 

Government's     deposit     to     soldier's 

credit 1332 

Judgment  debtor's  deposit  in  name  of 

son 1335-1336 

Payment  on  death  of  "A  agent" 1334 

Deposit  for  collection 

Indorsement  "for  deposit" 1940-1942 

Authority  of  bookkeeper  of  firm 1872 

By  rubber  stamp 1838-1839 

"Credit   account    of   withm    named 

payee" 1976-1981 

Title  to  paper  deposited 1061-1067 

Deposit  in  escrow,  Of  deed 1289 

Deposit  made  after  banking  hours. .  . .  435 

Deposit  made  outside  bank 1298-1299 

Deposit  slips  and  clauses 1300-1307 

Clause     "credited     subject     to     final 

payment" 1307 

Comparative  effectiveness  of  clause  on 

pass-book  and  on  deposit  slip 2579 

Deposit   slip    for    check    conditionally 

deposited 1304,1065 

Limitation      of    liabiUty    for    corres- 
pondent's default 1106,1108,1110 

Nature  of,  deposit  shp 1300-1301 

Duplicate  deposit  slip 1302-1303 

Protective  clause  limiting  liability 1305 

Of  New  York  bank  limiting  liability. .  1306 

Deposits  by  mail 2234 

Deposits    for    safekeeping    and    safe 

deposit  bo.xes 1350-1367 

Access    to    box,    by    customer's    wife 

presenting  key 1367 

Of   surviving   joint   owner   in    New 

York 1366 

Burglary  of  safe  deposit  boxes 1357-1358 

Bank's  liabiUty,  as  gratuitous  bailee. .  1362 

As  renter 1365 

Contract   of  trust    company    Umiting 
liability   to  exercise   of  accustomed 

diligence 1360 

Duty  of  care  in  safe  keeping  of  securi- 
ties   1350 

Bonds  kept  in  vault  outside  of  safe . . .  1353 

Liberty  Bonds  in  Arkansas 1352 

Reasonable  care  a  question  for  jury .  .  1359 

Redeposit  for  safekeeping  with  city 

correspondent 1355 

Rule  of  ordinary   care  where  safe- 
keeping gratuitous 1357 

Forms,     Disclaimer    of   liability,   and 

method  of  .safekeeping 1354 

Of  responsibility  for  loss  from  safe 

deposit  box 1361 

Safe  deposit  receipt  protecting  bank. . .  .  1363 

Safekeeping  receipt  protecting  bank. . .  1356 

For  hire  and  gratuitous 1356 


Opinion  Nos. 

Insurance  of  safe  deposit  boxes 1364-1365 

Deposits  in  various  relations 1373-1376 

Of  attorney 1373 

Of  Indians  on  Reservations 1376 

Of  married  woman  in  former  name 1375 

Of  military  company 1374 

Erroneous  credit,  Over  payment  and 

dispute  as  to  deposits 1383-1392 

Claim  that  deposit  made  not  shown  by 

bank's  records 1392 

Credit  to,  wrong  account 1383 

Wrong  correspondent 1384 

Entry  in  pass-book  by  error .  1S86 

Excess  total  of  deposit  slip,  entered  in 

pass-book 1395 

Figured  by  cashier 1391 

Overpayment    of    balance    incorrectly 

figured 1390 

Recovery    from    depositor    to    whom 

credit  given 1387-1389 

Gift  of  deposits 1377-1379 

Account  opened  by  husband  in  name 

of  wife  and  daughter 1378 

Attempted  testamentary  gift 1377 

By  dehvery  of  pass-book 1379 

Guaranty  of  deposits 1401-1402 

Holder  of  cashier's  check  as  guaranteed 

depositor  in  Texas  bank 1402 

Protection  of  holder  of  interest-bearing 

certificate  in  Oklahoma 1401 

State  laws 1402 

Husband  and  wife.  Deposits  by 1339-1341 

Authority  of  wife  to  check  out  hus- 
band's account 1340,2253 

Husband's  check  on  wife's  account 1339 

Wife  signing  husband's  name  to  check. .  1341 

Incompetents,  Deposits  of 2253-2257 

Interest  on  deposits 2043-2047 

Joint   deposits,    And   deposits   in   two 

names 1311-1319 

Approved    form    of    account    in    two 

names 1312 

Form  protecting  Pennsylvania  bank  in 

paying  survivor 1317 

Joint  depositor's  authority  to  indorse 

co-depositor's  name 1876 

Notes  payable  at  bank.     No  authority 

to  pay   A's  individual   note   (  ut  of 

joint  savings  account  of  A  and  B 2547 

Jouit  and  several  note  which  carries 

account  of  onlj'  one  maker 2548 

Payment     of     c/d     to     survivor     in 

Mississippi 1319 

Savings  account  payable  to  another  in 

event  of  death 1235 

Statutory  authority  to  bank   to  pay 

survivor •  •  •  ■  1313 

Stopping  payment  to  survivor  on  joint 

certificate  of  deposit 1318 

Survivor's  right  as  against  widow  of 

decedent 1314 

Ultimate  title,  to  joint  account 1315 

Under  form  of  Alabama  bank 1316 

Uniform  statute 1311 

Minors,  Deposits  of 2235-2250 

National  Banks 

Deposit.^,  in  .savings  departments 598-606 

With  trust  company  permitted 527 

Substitution     of     bond     security     for 

public  deposits 528 

Notes  payable  at  bank  charged  against 

deposit  (see  Notes  Payable  at  Bank) 

Overdrafts  (see  al.so  that  title) 2557-2572 

Partnership,  Deposit  by 1368-1370 

Sufficiency  of  firm  signature 1368 


725 


Opinion  Nos. 

Deposits — Continued 

Partnership — Continued 

Withdrawal,  by  surviving  partner 1369 

Of   partnership    account    carried   in 

corporation  name 1370 

Pass-book    as    evidence    of    deposit 
(see  Pass-books) 

Postal  savings 489,491 

Receipt  and  payment  after  death  of 
depositor  (See  Death  and  the  De- 
cedent's Estate) 
Relation  and  duty  as  between  depositor 

and  pubKc 492-498 

Relation   and   duty   of  bank  and   de- 
positor.   1294-1297 

Bank  entitled  to  written  order  but  can 

pay  on  oral  order 1295 

Bank  not  obliged  to  make  partial  pay- 
ment nor  disclose  balance  to  check- 
holder. ..  . 1296 

Depositor  objecting  to  account  stated 

after  eight  years  estopped  by  laches .  .  1297 

When  is  debtor  and  creditor  relation 

created? 1294 

Savings  deposits 1337-1338,2580-2593 

Assignment 1308-1309 

Forged  orders 1695-1704 

Notice  of  withdrawal  in  national  bank. .  1338 

Reserve 506 

Savings  account  payable  to  another  in 

event  of  death 1235 

Set  off  of  overdraft  where  depositor  has 

two  accounts 2924-2925,  2927-2928 

Subject  to  garnishment 396-399 

Taxation 3103-3104 

When  classed  as  time  deposits 1337 

Set  Off  against  deposit  (see  Set  Off) 
Small  accounts,  Uniform  service  charge.  1037 

Requirement  that  certain  amount  be 

kept  on  deposit — Usurious  loan 2095 

Special  and  specific  deposits 1342-1349 

Bank  receiving  deposit  for  specific 
purpose     a     trustee     according     to 

majority  view 1343 

Deposits  in  escrow 1349 

Deposit  of  Mexican  bank  bills 1348 

Mistaken  pajonent  of  customer's  check 

from  specific  deposit 1346 

Money  borrowed  for  specific  purpose 

deposited  in  general  account 1347 

Notice  to  teller  that  deposit  is  to  pay 

specified  check 1345 

"Special"  and  "specific"  deposits  dis- 
tinguished    1342 

Theft  of  proceeds  of  check  set  aside  for 

delivery  for  pay-roll  purposes 1344 

Statutory  limit  of  deposit  liability 1403 

Limit  in  proportion  to  capital 1403 

Taxation  of  bank  deposits 3103-3105 

Time  deposits 785-787 

Trust  deposits 1320-1331 

Deposit  accounts 

A  and  B  or  survivor  in  trust  for  C 

andD 1326 

"A  as  guardian  for  B" 1328 

"A  in  trust  for  B" 1321 

"John  Doe,  trustee" 1331 

Disaffirmance  of  trust 1324 

Form  of  gift  to  minor  payable  at 

majority 1327 

Investment  of  trust  funds 1330 

Preference  in  deposits  held  by  trust 

company  as  fiduciary 1329 

Right  of  bank  to  pay  trustee 1322 

On  death  of  beneficiary 1323 


Opinion  Nos. 
Where  both  parties  die  in  same  disaster .  1325 

Uniform  statute 1320 

Unclaimed  deposits 1395-1400 

Crediting  of  interest  does  not  obviate 

bank's  reporting 1398 

New  York  law 1396 

Unclaimed  deposits  in  national  banks .  .  1397,1399 
Escheat    act    of    Pennsylvania    not 

applicable  to  national  banks 1400 

New  Mexico  statute  requiring  publi- 
cation inapplicable  to  national  banks .  1395 

Dishonor  (See  also  Present- 
ment Protest  and  No- 
tice) 

Wrongful  dishonor  of  checks 995-1004 

Dividends 

Assignment     of     dividends — Right     of 

assignee 688 

Income  Tax — Credit  of  dividends  re- 
ceived from  corporation 3117 

Pledgee's  right  to  dividends  on  pledged 

stock 2640-2641 

Proving   claim    on    dividend    check    of 

failed  national  bank 689 

Right  of  purchaser  of  stock  to  dividends 

declared  after  sale 1214 

Right  of  unrecorded  pledgee  of  stock 
to  dividends  as  against  attaching 
creditor 2633 

Stock  dividends  by  national  banks 690 

Stockholder  transferring  stock  after 

declaration  entitled  to  dividend 687 

Unpaid  dividends,  Nature  of 1213 

Wrongfully  declaring  dividends — Bank 

officer's  liability 632 

Draf  tsand  Bills  of  Exchange 

1404-1415 

Banker's  domestic  drafts 1410-1411 

Bank  exchange  on  another  town 1411 

Statute  of  limitations  on  long  outstand- 
ing demand  drafts 1410 

Banker's  foreign  drafts 1408-1409 

Liabihty  of  drawer 1408 

Taking  up  unpresented  draft 1409 

Bill  of  lading  drafts 723-784,483 

Draft    drawn     "through     bank    B" 

collected  through  clearing  house 1161 

Exchange  clauses 1404-1405 

Draft  payable  "with  exchange" 1404 

Effect    of    words    "with    New    York 

exchange" 1405 

Guaranty  of  draft  of  third  person,  565-570,  482-483 
Indorsement  of  cotton  draft  "Pay  any 

bank  or  banker" 1955 

Lost  bank  draft 2177-2185 

Mistakes  in  payment 1413-1415 

Draft  payable  to  creditor  after  notice 

that  debt  assigned 1413 

Remittance  of  proceeds  of  b/1  draft  to 

wrong  person 1414-1415 

Original  and  duplicate 1406-1407 

Rights  of  purchaser  of  original  where 

duplicate  paid  another  holder 1407 

Words  "duplicate  unpaid"  on  draft ....  1406 

Presentment,  Reasonable  time  for 2664 

Rubber  stamps 1412 

Acceptance  of  draft  by  rubber  stamp . . .  1412 

Stopped  banker's  drafts 3049-3054 


726 


Opinion  Nos. 

Duplicates 

Deposit  slips 1302-1303 

"Duplicate  unpaid,"  Effect  of  words  on 

draft 2185 

Lost  paper  (see  also  that  title) 

Certificates  of  deposit 2161-2173 

Certified  check 2159 

Checks  lost  in  mail 2139-2144,  2148-2149 

Letter  of  credit 2226 

Pass-books 2209-2216 

Stopped  check  already  paid 3029 

Executors     (see  Administrators    and 
Executors 

Evidence 

Bank's  books  and  records 508-514 

Preservation    and    destruction    of    old 

records 512-514 

Burden  of  proof,     Of  forged  indorse- 
ment  1675-1677 

Habit  of  overdrawing  shown  in  mitiga- 
tion of  damages  for  wrongful  dis- 
honor of  checks. 999-1001 

Intention  to  create  joint  tenancy 1316 

Obtaining  money  under  false  pretenses 

by  issuing  checks  without  funds 940-955 

Payee's  indorsement 2138 

Payment  of  note 2507 

Return  of  cash  for  deposited  item.  .  .  .  1381 

Erroneous  Credit,  Overpayment  and 

dispute  as  to  deposits 1383-1392 

Indorsement    by    payee    when    check 

presented  in  person 1984-1990 

Notary's   certificate.     In   foreign   lan- 
guage      862,2774 

Certificate  of  protest  as  evidence .  .  2699,2701,2774 
Paid  checks.     Retention  as  evidence  of 

overdraft 2576 

Return  of  cancelled  vouchers  without 

receipt  unsafe 985-986 

Pass-book,    as   evidence   of   receipt   of 

deposit 2575 

Deposit  ticket  and  entry  in  pass-book 

as  prima  facie  evidence 13 

Payment     of     advance     interest     as 

evidence  of  extension  of  note 2468-2469 

2059-2062 

Possession  of  bearer  check  prima  facie 

evidence  of  title 878 

Transactions  with  decedent 1279-1280 

Usury  pleaded  as  a  defense 2103-2105 

Exchange 

Exchange  and  remittance  charges. . .  .1142-1151 

Deduction  of  exchange 905 

Bank  exchange  in  another  town 1411 

Clearing  house  agreement 1031-1033 

Exchange  clauses  in  drafts  and  bills  of 

exchange 1404-1405 

Foreign  exchange.     Sale  of 449-450,545 

Banker's  foreign  drafts 1408-1409 

Certificate     of     deposit     payable     in 

Mexican  money 807 

Deposit  of  Mexican  bank  bills 1348 

•'In  exchange"  clauses 875-876 

"In  Kansas  City  exchange"  Protest  of 

draft 2739 

"In  New  York  exchange" 877,2447 

Erasure  of  words 349 

"With  exchange"  clauses 2491-2492,871-874 

Bill  of  lading  draft 748 

Trade  acceptance 147 


Opinion  Nos. 

Express  Companies 

As  collection  agency 1047-1049 

Checks  not  payable  through  express 

company 893-895,1054-1057 

Certification 106 

Liability  as  carrier,     For  shortage  of 

currency  shipped 1196 

Delivery  of  express  package  of  money 

after  banking  hours 436 

Money  order,  Forgery  of 1718-1723 

Burden    of    procuring    duplicate    of 

lost  money  order 2145 

Sale  of  foreign  exchange 450 

Agency  of  private  bank  for  transmission 

of  money  to  foreign  countries 464 

Shipping  negotiable  instruments  as 

merchandise 1763 

Federal  Reserve  Act 

Branches  of  national  banks 529,532 

Collection  charges  against  Federal  Re- 
serve Bank 1 149 

Checks  "not  payable  through  Federal 

Reserve  Bank" 895-897 

Exchange     charges     by     non-member 

banks 1144-1147 

Par  list  of  Federal  Reserve  Bank 1 148 

Custody  of  U.  S.  bonds  securing  15  day 

loan 477 

Deposits,  Of  National  Bank  with  Trust 

Companies  permitted 527 

National  banks  may  carry  savings 

accounts  as  well  as  time  deposits. .  .  2583 

Deposits  of  state  member  with  non- 
member  state  bank 490-491 

Examination     of     national     bank     by 

revenue  officer 518 

Interest  rates  for  national  banks 2098 

Federal  Reserve  Banks  exempt  from 

Usury  law 2078 

Power  of  Congress  to  fix  state  interest 

rates 2099 

Interlocking  directorates 638-641 

Limitation  of  loans  on  farm  land 561-562 

Loan  by  National  Bank  on  real  estate 

security 535 

Trade    acceptance    not    within    loan 

limit  of  Federal  Reserve  Banks 160 

Negotiability  of  certificate  of  deposit 

under  Federal  Reserve  Act 792 

Reports  from  Federal  Reserve  Bank  and 

members 517 

Retirement  of  circulation 525 

Savings      departments      of      national 

banks 598-606 

Taxation,  Non-exemptions  from  state 
taxation  of  national  bank  shares  to 
extent  of  Federal  Reserve  Stock 3083-3084 

Trade  acceptance  form 123 

Trust  powers  of  national  banks 575-597 

Flag 

Flag,  use  of  U.  S.  flag  as  advertisement 
(.see  Advertisement). 


Forged  Paper 1416-1735 

Altered   and    raised    paper    (see   that 
title). 


727 


Opinion  Nos. 

Forged  Paper — Continued 

Authority  of  agent  to  indorse 1659-1661 

Agent's  authority  to  collect  does  not 
include  authority  to  indorse  princi- 
pal's name  to  checks  taken  in  col- 
lection    1660 

Check  given  to  company  indorsed  and 

negotiated  by  agent 1659 

Implied  authority  of  agent  succeeding 

agent  who  had  express  authority .  ...  1661 
Cashier's  check,     Forgery  of  indorse- 
ment  1686-1692 

Cashier's  check,   To  name  supplied  by 

forger 1690 

To  stranger  payee 1691-1692 

Issuing  bank  not  bound  to  know  in- 
dorsement and  may  recover  money 

paid  on  forgery 1686-1688 

Recovery  of  money  paid  on  forged 
indorsement   by  mark  and   witness 

guaranteed  by  collecting  bank 1689 

Certificate    of    deposit.     Forgery    of 

indorsement 1678-1684 

Bank  loaning  money  on  c/d  of  loan 
association  transferred  through  for- 
gery of  indorsement 1684 

Holder  notifying  of  loss  after  payment . .  1 682 

Indorsement  "C  as  conservator  of  B". . .  1683 

Issuing  bank,     Bound  to  know  payee's 
signature     where     kept     on    file. 

1679-1680,  823-824 

Not  bound  to  know  payee's  signa- 
ture where  no  file  kept 1681 

Liability  of  express  company  to  refund 

money  received  by  agent 1678 

Certified    check,     Forgery   of   indorse- 
ment..       1685,27 

Bond  of  indemnity  to  protect  bank  in 
making    payment    if    allegation    of 

forgery  not  sustained 1685 

Check  cashed  for  stranger.     Recovery 

by  drawee 1516-1528 

Majority  of  courts,  including  Illinois, 

allow  recovery 1516-1517 

States  considered 

California 1518 

Colorado 1519 

Illinois 1516-1517 

Indiana 1520 

Kansas 1522 

Minnesota 1523 

Missouri 1524 

New  York 1525 

Oklahoma 1526-1527 

Virginia 1528 

Conflict  of  law 1486-1488 

Difference  in  New  Jersey  and  Pennsyl- 
vania rule 1487 

Drawee's  right  of  recovery  from  holder 
in  another  state  where   conflict   of 

law I486 

Non-recovery  by  Pennsylvania  drawee 

from  Oregon  bank 1488 

Criminal  liability 1734-1735 

Check  dated  on  Sunday 1734 

Checks  signed  in  fictitious  name 1735 

Possession  of  instrument  as  a  crime ....  1762 

Delay  in  notification  or  discovery. . .       1618-1627 
Conflict    between    Federal    and    State 

rules 1623 

Delay  after  discovery  of  forged  indorse- 
ment 

Eight  months 1618 

Two  months 1626 


Opinion  Nos. 

Limitation  of  time  of  making  claim 
upon  forged  indorsement  in  New 
Jersey 1625 

Notice    by    drawee    of    forgery    four 

months  after  payment 1627 

Payee's  right  of  recovery  from  pur- 
chasing bank  unaffected  by  delay 
unless  latter  prejudiced 1622 

Pennsylvania  rule 1621 

Notice  of  forged  indorsement  by  drawee 
Discovery,     After     eleven     months 

and  prompt  notice  given 1619 

Four  months'  delay 1624 

More  than  one  year 1620 

Two  months 1626 

Drawer's  signature  and  payee's  in- 
dorsement both  forged 1529-1562 

Conflict  of  law  between  Nebraska  and 

Iowa 1546 

Depositor  not  liable  for  blank  checks 
carelessly  left  around  and  drawee 
cannot  recover  in  Indiana 1537 

Liability  of  indorser  who  vouches  for 

presenter 1533 

Recourse  of  Illinois  drawee  bank  upon 
Illinois  bank  collecting  for  Missouri 
bank 1545 

Recovery  by  drawee  where  cashing 
bank  attests  payee's  signature  by 
mark 1530 

States  considered 

Alabama 1531 

Arkansas 1532 

Connecticut 1534 

Idaho 1535 

IlUnois 1536,1545 

Iowa 1538 

Kansas 1539 

Kentucky 1540-1541 

Louisiana 1542-1543 

Michigan 1544 

New  York 1547-1548 

Ohio 1549 

Oklahoma 1560 

South  Carolina 1561 

Washington 1562 

Duty  of  care.     Of  check  book 829 

In  preparing  check 827-828 

Elevator  storage  ticket 3149 

Express  company  money  orders 1718-1723 

Question  of  recovery  of  payment  on 

forgery  of  signature  of  issuing  agent. .  1718-1721 

Recovery  of  money  paid.     On  forged 

countersignature  of  payee 1721 

Upon  raised  express  company  money 

order 1723 

Fictitious  payees 1646-1650 

Check  of  principal  signed  by  authorized 

agent  to  fictitious  payee 1649 

Conflict  of  decision  whether  check  to 
fictitious  person  issued  through  fraud 
of  agent  is  bearer  instrument 1647 

Draft  to  fictitious  payee  procured  by 
agent  of  drawer  and  indorsement 
forged 1646 

Indorsement  of  fictitious  payee  forged 

by  agent  of  drawer 1648 

Purchaser  of  c/d  issued  to  fictitious 
payee  without  knowledge  of  fiction 

acquires  no  title 1650 

Forged  and  raised  check,  distinguished  266 

Forged  and  raised  check  statute 1416 

Forged  indorsement,  Burden  of  proof .  .  1675-1677 

Affidavit,  Of  forgery  by  payee  suffi- 
cient to  entitle  charge  of  amount  to 
customer 1676 


728 


Opinion  Nos. 

Forged  Paper — Continued 

Forged  indorsement — Continued 

By  "John  Philip"  that  indorsement  of 
check  payable  to  "John  Phillips"  a 
forgery 1677 

Mere  allegation  of  forgery  of  indorse- 
ment does  not  justify  repayment ....  1675 
Forged  indorsement,  Non-recovery  of 

money  paid  on 1588-1590 

Liability  of  drawer  to  payee  of  lost  draft 
on  German  bank  paid  on  forged 
indorsement 1 588 

Non-recovery,     From  agent  bank  after 

payment  of  proceeds  to  principal .  .  1589 

By  drawee  of  money  paid  on  forged 

indorsement  of  stopped  check 1590,3005 

Forged     indorsement,     Recovery     of 

money  paid  on 1568-1587 

By  drawee 1584 

By  drawee  from  holder  receiving  pay- 
ment under  forged  indorsement 1574 

Charge  to  customer's  account  of  check 
cashed  for  him  on  forged  indorse- 
ment   1580 

Check  cashed  by  merchant  on  forged 
indorsement  and  collected  through 
bank 1573 

Check  paid  before  receipt  of  stop  order  1 572 

Collecting  bank  must  refund 1579 

Drawee  cannot  charge  drawer  but  may 

recover  from  holder 1578 

Dispute  as  to  authority  for  indorse- 
ment   1583 

Fact  that  payee  whose  name  forged  is 
also  customer  of  drawee  does  not 
affect  recovery 1568 

Foreign  draft 1575 

Grounds  upon  which  drawee  may 
recover 1585 

Indorsement  "John  Doe,  Treasurer" . .  .  1576 

Lost  check  paid  on  forged  indorsement 
after  receipt  of  stop  order  which 
misdescribed  check 1569 

Payment  made  after  stop  order  re- 
ceived describing  another  check 1581 

Procedure  where  check  never  re- 
ceived by  payee  paid  on  forged  in- 
dorsement    1570 

Railway  pay  check 1587 

Recovery  from  express  company 1582 

Unauthorized  indorsement 1586 

Of  corporation's  name  by  treasurer. . .  1577 

Check  payable  to  corporation 1571 

Indemnity  bond 487 

Government  as  a   party.     To  forged 

name 1729-1732 

Fact  of  forgery  in  dispute 1731 

Payment  by  government  on  forged  in- 
dorsement of  postal  money  order 
recoverable  notwithstanding  delay. .  .  1732 

Recovery  of  money  paid,     On  forged 
indorsement    of   check   on    U.   S. 

Treasurer 1729 

On  forged  indorsement  of  treasury 

check ".  1730 

Guaranty     of     drawer's     signature. 

Right  of  bank  to  require 1439 

Indorsement  by  mistake 1670 

Liability  of  person  indorsing  by  mistake 
where  payee's  indorsement  subse- 
quently forged 1670 

Indorsement  by  person  of  same  name 

1628-1640 

Check  addressed  to  payee  at  one  city 


Opinion  Nos. 

readdressed  to  another  city 1630 

Check    mailed    to    payee    addressed 

"Rome  N.  Y." 1633 

Drawee  liable  although  person  of  same 
name  as  payee  personally  known  to 
it 1635 

Indorsement  a  forgery  and  purchasing 

bank  takes  no  title 1628 

Mailing  draft  to  payee  without  street 

address  not  negligent 1629 

Purchaser,     Acquires  no  rights 1631 

Acquires    no    title    but    could    hold 

indorser 1634 

Must  refvmd 1637 

Purchasing  Bank  liable  to  drawee. .  .  .  1636 

Question  undecided  whether  drawer 
negligently  mailing  to  wrong  address 
estopped  to  deny  purchaser's  title. . .  .  1638-1639 

Recovery  by  drawee 1632 

Where  drawer  misnames  payee 1640 

Indorsement   by  precise   person   in- 
tended.. 1641-1645 

Check  of  savings  bank  fonvarded  to 

impostor  mailing  book 1645 

Check  payable  to  impostor  impersonat- 
ing owner  of  property 1641 

Money  forwarded  by  one  bank  to  an- 
other in  response  to  impostor's  tele- 
phone request  for  funds 1644 

Railroad  pay  check  delivered  to  im- 
personator of  payee 1642 

Rights  of  purchasing  bank 1643 

Indorsement,  Estoppel  to  assert  forgery 

of 1654-1658 

Drawer  not  estopped  by  opinion  that 
sample  signature  and  payee's  forged 
signature  agree 1658 

Pay-roll  check  cashed  for  stranger  on 

forged  indorsement 1656 

Waiver  of  indentification  of  payee  by 

drawer  not  available  to  purchaser. . .  1657 

Where  person  sees  note  containing 
forgery  of  his  indorsement  and  fails 

to  disclose  forgery 1654-1655 

Indorsement,  Forgery  of 1651-1653 

Accommodation  indorsement  of  colla- 
teral note 1651 

Indorsement  in  trade  name 1652 

On  check  payable  to  A  or  bearer 1653 

Indorsement    guaranteed.     Recovery 

where 1594-1604 

Agent  bank  not  liable  after  proceeds 
paid  principal  unless  bank  has  spe- 
cially guaranteed  forged  indorse- 
ment   1600 

Drawee    liable    to    drawer    but    may 

recover  on  guaranty 1596 

Guaranty  does  not  warrant  genuine- 
ness of  drawer's  signature 1595 

Guaranty  of  prior  indorsements  covers 

forged  indorsement 1917 

Guaranty  of  wife's  indorsement 1603 

Liability  of  bank  upon  guaranty 1597 

Indorsement  by  owner  "For  collec- 
tion;" "Pay  any  bank"  not  a  guar- 
anty   '....'. 1604 

Payee's  indorsement  irregular 1599 

Recourse    of    drawee     upon     remote 

guarantor 1598 

Recovery,     By  drawee  from  guaran- 
teeing bank .  1594,1601 

On  special  guaranty  of  money  paid 
on  forged  endorsement  of  stopped 

check 1602 

Indorser's  liability.  To  subsequent  pur- 
chaser   1617 


729 


Opinion  Nos. 

Forged  Paper — Continued 

Indorser's  liability — Continued 

Indorsement  "without  recourse" 1849 

Indorser  of  forged  check  warrants  gen- 
uineness to  indorsee 1617 

Indorser  on  forged  check  liable  without 

demand,  protest  and  notice 2658 

Municipal  bonds,  Forgery  of 1738 

Warrantor  liability  of  seller 1733 

Non-recovery  by  drawee  of  money  paid 

on  forged  check 1440-1485 

Attempted  identification  of  proceeds  in 

hands  of  third  person 1445 

By  railroad  drawee 1485 

Check,  Given  to  Alabama  payee 1440-1441 

Paid  to  indorsing  customers 1443 

Taken  in  payment  for  goods 1444 

Drawee  in  Iowa  cannot  recover  from 
subsequent  holder  though  first  holder 

neghgent 1449-1450 

Guaranty    of    indorsements    does    not 

apply  to  drawer's  signature 1473 

Indorser    does    not    warrant    drawer's 

signature  in  Arizona 1442 

Indorsers  not  liable 1453 

No  warranty  of  genuineness  of  drawer's 

signature  by  indorser  in  Indiana 1448 

States,  Arizona 1442 

Illinois 1446 

Iowa 1449-1450 

Indiana 1447-1448 

Maine 1454 

Massachusetts 1463 

Michigan 1455 

Mississippi 1456 

Missouri 1457-1458 

Montana 1459 

Nebraska 1460-1462 

New  Jersey 1464 

New  Mexico 1465 

New  York 1466-1467 

North  Carolina 1468 

Ohio 1469 

Oklahoma 1470-1472 

Oregon 1474 

Tennessee 1475-1477 

Texas 1478-1479 

Washington 1480-1482 

West  Virginia 1483 

Wisconsin 1484 

Notes,  Forgery  of 1672-1674 

Maker  paying  interest  on  note  ratifies 

forgery  of  his  signature 1672 

Necessity  for  person  whose  name  forged 

as  maker  to  appear  and  defend 1674 

Surety  on  forged  note 1673 

Pass-book,  Forged  entry  in 1671 

Bank  not  responsible  for  forged  entries 

made  by  person  entrusted  with  book .  1671 

Payment    chargeable    where    drawer 

negligent  or  estopped 1423-1438 

Bank's  duty  to  return  vouchers  to  de- 
positor    1438 

Check    bearing    forged    and    genuine 

signatures 1429 

Estoppel  of  labor  union  to  question 

forgery  of  countersignatures 1430 

Check  signed  by  treasurer,  left  ex- 
posed       and        countersignature 

forged 1427 

Delay  in  notif  jdng  bank  after  discovery 

of  forgery 1423-1425 

Drawer  in  North  Carolina  estopped 

to  claim  forgery  after  six  months .  .  1431 


Opinion  Nos. 

Payment    on  forged  indorsement  to 
treasurer  of  drawer  who  delays  two 

years 1432 

Statutory  limit  of  bank's  liabiUty  in 

South  Dakota 1428 

Ten  months'  delay 1437 

Does   duty   of   verification   extend   to 
erroneous  payment  of  check  where 

forgery  not  involved? 989 

Drawer  cashing  his  own  forged  check. . .  1426 

Drawer    delivering    check    to    person 

believed  to  be  payee 1433 

Drawer's    duty    of    examination    and 

verification 1435-1436 

Due  diligence  in  examining  statement  1434 
Payment  of  forged  check  not  charge- 
able to  depositor 1417-1422 

Check    bearing    genuine    signature    of 
treasurer  but  forged  countersignature 

of  president 1418 

Claim   of  forgery  by  depositor  three 

months  after  return  of  vouchers 1417 

Drawer  not  liable  to  purchaser  unless 

negligent 1421 

No  duty  of  drawer  to  purchaser  to 
examine  returned  check  and  detect 

forged  indorsement 1422 

Payment   on  forged  indorsement  not 

chargeable 1420 

Person  identifying  payee.  Liability  of . .  1662-1665 
Identifier  not  liable  unless  he  indorses 
or  makes  a  false  statement  of  fact 

which  is  relied  on 1662 

Indorsement  by  identifier  desirable ....  1665 

Liability  for  false  statement  of  fact ....  1663-1664 

Protest  of  forged  check  unnecessary 1669 

Indorser  warrants  genuineness  to  in- 
dorsee    1669 

Protest    does    not    apply    to    forged 

instruments 2734-2735 

Purchaser  acquires  no  title 1615-1616 

Bank  purchasing  draft  under  forged 

indorsement 1615 

Bank  purchasing  forged  draft 1616 

Recovery  by  drawee  of  money  paid  on 

forged  check 1489-1500 

Alteration  of  name  of  drawee 1489-1491 

Forged  bearer  check 1499-1500 

Holder   has    knowledge    of   suspicious 

facts 1492 

Holder  has  not  parted  vdth  funds  but 
issued     pass-book     against     forged 

check 1495 

Recourse  of  drawee  against  indorser  in 

South  Dakota 1497-1498 

Recovery,  from  payee 1493-1494 

From  payee  in  South  Carolina 1496 

Recovery  where  holder  negligent 1514-1515 

Recourse  of  Iowa  drawee  upon  prior 

negligent  indorser 1514 

Rule  in  Tennessee 1515 

Right  of  true  payee  to  recover  from 

drawee 1609-1614 

Decisions  conflict  but  majority  hold, 
under  N.  I.  Act,  drawee  not  liable  to 

payee 1609 

Drawee  not  liable  to  payee  in  Georgia .  .  1613-1614 
Liability   of    Indiana   drawee,    paying 
check  on  forged  indorsement,  to  true 

payee 1610-1612 

Right  of  true  payee  to  recover  from 

purchaser 1605-1608 

Bank    cashing    checks    for    employee 

under  unauthorized  indorsement ....  1606 

Liability  for  conversion  continues  until 

outlawed  by  statute  of  limitations .  . .  1607 


730 


I 


Opinion  Nos. 

Forged  Paper — Continued 

Right  of  true  payee  to  recover  from 
purchaser — Continued 

Liability  of  purchasing  bank  to  payee 
corporation  for  check  acquired  under 
unauthorized  indorsement  of  presi- 
dent    1605 

Recourse  of  payee  upon  bank  cashing 
check  for  building  material  on  forged 

indorsement 1608 

Savings  deposit,  Forged  order  on 1695-1704 

Collecting  bank's  duty  as  to  drawer's 

identity 1700 

Comparison  of  signatures  as  reasonable 

care.... 169S 

Mother's  signature  forged  by  daughter .  1699 

Printed  regulations  only  protect  bank 

where  due  care  used 1701-1703 

Protection  of  bank  under  savings  bank 

rule  where  due  care  used '. . .  1695-1697 

Rule  of  due  care  in  West  Virginia 1704 

Signature  by  mark.  Forgery  of 1501-1504 

Drawee   can  require   guaranty  before 

payment 1501 

Recovery  by  drawee,  from  witness  to 

signature 1502 

From  holder  and  from  witness 1503 

Recovery  of  money  paid  on  forged 
payee's  signature  by  mark  to  certi- 
ficate of  deposit 1504 

Special   Statutory  rule   in   Pennsyl- 
vania   1505-1513 

Delay  of  thirty  days  between  payment 

and  notification 1509 

Drawee  can  sue  collecting  bank  or  prior 
indorser 1511 

Forgery  where  signatures  of  drawer  and 

payee  are  the  same 1505 

Non-recovery    by    Pennsylvania   from 

Ohio  bank 1513 

Notice  seven  days  after  payment 1510 

Prompt  notice  of  forgery  necessary .  .  .  .1506-1507 

Statutory  rule  not  repealed  by  N.  I. 

Act 1512 

Where  bank  notified  of  blank  check 

stolen 1508 

Statute  of  limitations  as  applied  to 

forged  indorsement 1591-1593 

California 1591 

New  Jersey 1592-1593 

Telegrams 1705-1717 

Bank  receiving  forged  telegram  in  name 
of  depositor  and  wiring  another  bank 
to  make  payment 1712-1713 

Bank  receiving  forged  customer's  tele- 
gram and  wiring  telegraph  company 
to  pay  on  identification 1714 

Bank  wiring  telegraph  company  to  pay 

money  to  sender  of  message 1715 

Danger  in  practice  of  wiring  money  on 

telegram  from  customer 1717 

Delivery  to  bank  of  forged  telegram 

by  messenger  of  telegraph  company. .  1710 

Forged    telegram,  Of    bank    ordering 

pajonent  and  waiving  identification  1705-1 708 

From  bank  advising  collection 1711 

From  bank  ordering  payment 1709 

Of  A  to  bank  asking  to  wire  remit- 
tance   1716 

Travelers'  checks 1724-1728 

Purchaser    acquires    no    title    where 

countersignature  forged 1726-1728 

Recovery  of  money  paid  on  forgery  of 

countersignature  of  purchaser 1724-1725 


Opinion  Nos. 
Voucher  checks 1693-1694 

Money  paid  on  forgery  of  payee's  name 
recoverable 1693 

Recovery  of  money  paid  on  forged 
signature  to  voucher  check  after  four 

years'  delay 1694 

When  is  forged  check  paid? 1566-1567 

Credit  by  teller  in  depositor's  pass-book 

as  payment 1566 

Forged  check  on  same  bank  received  on 

deposit 1567 

Where  money  refunded  drawee 1563-1565 

Holder  voluntarily  refunding  money 
collected  on  forged  check  cannot 
hold  prior  indorser 1563 

Holder  voluntarily  refunding  money 
paid  on  forged  check  cannot  re- 
cover it  back 1564 

Liability  of  drawee  after  money  re- 
funded    1565 

Witness  to  forged  signature,  Liability 

of 1666-1668 

Indorser  signing  as  witness  to  payee's 

signature 1666 

Liability  of  bank  witnessing  signature 

by  mark  of  drawer  of  check 1668 

Officers  of  benevolent  society  signing 

as  witnesses 1667 

Forms 

Acknowledgment,  Form 2350-2352 

Banker's  letter  of  credit 2120 

Bill  of  lading  draft 723 

Certificate  of  deposit 785-787 

Checks — Form,  interpretation  and  exe- 
cution       827-856 

Clearing  house  articles  of  a.ssociation. . .  1041 

Confession   of   judgment,    Negotiable 

form 2404 

Deposits  in  two  names 1312 

Form    protecting    Pennsylvania    bank 

against  paying  survivor 1317 

Deposit  slips,  Protective  clauses 1305-1307 

Exchange  clauses  (sec  Exchange) 

Gift  to  minor  payable  at  majority 1327 

Guaranty,  to  bank 1766 

Continuing  guaranty 1767 

Guaranty    of    payment    of    note    on 

separate  instrument 2485 

Indorsement     forms,     discussed     and 

constnied 1939 

Non-negotiable  voucher  check 994 

Notes,      Collateral 2386,2597-2602 

Joint  and  several 2378-2381 

Livestock 2412 

Warehouse  collateral 3150 

Payment  of  stopped  checks — Contract 

limiting  bank'.s  liability 3009-3016 

Safekeeping  receipt  for  valuables.  .  . .  1356,1363 
P'orm  of  disclaimer  of  responsibility  for 

loss 1354,1361 

Trust  receipt 1199 

Warehouse  receipts 3145-3147 

Fraud  and  Crimes 1736-1765 

Bank  officer's  liability.  Misconduct. . .  .  632 

Unauthorized  loan  to  himself 653 

Bank's   liability.    Misrepresentation  of 

customer's  financial  condition 499-500 

For  burglary  of  safe  deposit  box. .  .  1357-1360,1362 
For  threatening  debtor  with  criminal 

prosecution 463 

For  wrongful  acts  of  oflficers 635-637 


731 


Fraud   and 

tinued 


Opinion  Nos. 


Crimes — Con- 


Bank's  liability — Continued 

Fraud  of  insolvent  bank  in  incurring 

debt  as  ground  for  preference 666 

Items    received    by    insolvent    banker 

knowing  of  his  insolvency 1189 

Checks,    Drawn   or   indorsed   in   repre- 
sentative capacity 956-971 

Cashier's  fraud  in  issuing  cashier's.  . 

checks  for  personal  use 927 

Forged  check  dated  Sunday 1734 

For  less  than  one  dollar,  Prohibition 

against  use 854 

For  stolen  property 3042 

Overcertification  by  national  bank. . . .  101 

Signing  in  fictitious  name  with  intent 

to  defraud 1735 

Stopping    Payment,     After    receiving 

goods 2987-2988 

Because  goods  misrepresented 3038,3040 

Because  of  fraud 3023,3025 

Recovery  of  money  paid  on  stopped 

check  where  payee  guilty  of  fraud. .  3002-3003 

Without  funds 940-955 

Issuer    of    subsequently    dishonored 
postdated    check    not    punishable 

criminally 1005 

Conversion 1747-1749 

Certificate  of  deposit,  Conversion  by 

collecting  bank 1154 

Lost  order  Bill  of  Lading,  Conversion 

by  consignee 778 

Notes  by  innkeeper 1748 

Stock  certificates 1747 

Stock  obtained  under  trust  receipt — 

Lack  of  criminal  intent 1748 

False  statements  for  credit 1750-1756 

Borrower     omitting    indebtedness     of 

$2,000  from  statement  of  Habihties. .  .  1751 

By  accommodation  indorser  to  procure 

credit  for  maker 1752 

Civil  liability  for  deceit 1753 

Loan     to     depositor — Rescission     on 

ground  of  fraud 1754 

Statement  signed  by  husband  and  wife 
showing  "Real  Estate"  as  assets 
where  same  belongs  solely  to  wife .  .  1755 

Verification    under    oath    of    financial 

statement 1756 

Fraud  in  negotiation  of  check 1757-1758 

Guaranty  of  prior  indorsements  does 

not  cover  fraud  of  payee 1916 

Introducing  swindler  to  bank 1758 

Liability  of  person  identifying  payee 

1757,1662-1665 

Fraud  in  procurement  of  notes 2458-2460 

Larceny  and  embezzlement 1745-1746 

Abstraction     of     overpayment     when 

money  handed  bank  for  recount 1745 

By  bank  officer 633 

Overpayment  of  check  by  mistake 1746 

Libel  and  slander 2123-2132 

Misappropriation,  Of  funds.  1861-1863,1873-1875 
Checks     drawn     and    indorsed    in 

representative  capacity 956-971 

Of  deposit  by  cashier 636 

Obtaining  money  or  property  under 

false  pretenses 1736-1744 

Bank's  recourse  against  payee  obtain- 
ing check  on  misrepresentation 3001 

By  means  of  stopped  check 1740 

Cashing  check  by  false  pretenses 1742-1743 

Certificate  of  deposit  obtained  through 


Opinion  Nos. 

fraud 809 

Checking    out    money     credited    by 

mistake 1739 

Obtaining   bill   of   lading   imder   false 

pretenses 1744 

Passing  worthless  state  bank  bill 1741 

Person  receiving  money  knowing  he  is 

not  entitled  to  it 1738 

Pretense   relied  upon   must  relate   to 

existing  fact 1737 

Procuring  discount  of  worthless  notes 

as  ostensible  lumber  paper 1736 

Overdrafts,    Remedy    against    habitual 

overdrafts 941-942 

Unlawful  overdraft  by  director 634 

Various  frauds  and  crimes 1759-1765 

Bank's  right  to  abrogate  subscription 

contract  for  bank  directory 1191 

Conspiracy  to  commit  robbery 1760 

Contract  with  bank  to  collect  delin- 
quent claims 1195 

Dehvery  of  goods  without  taking  up 

warehouse  receipt 1761 

Discount  of  fraudulent  trade  accept- 
ance    161 

Extradition  from  one  state  to  another — 

Duty  of  diligence  of  public  official. . .  .  1765 

Photographing  United  States  notes. . . .  1759 

Possession  of  forged  instruments  with 

intent  to  defraud 1762 

Renunciation  of  interest  by  heir  pro- 
cured by  fraud 1764 

Set-off  of  customer's  note  against  his 
account  put  in  partnership  name  to    *^ 
defraud  bank 2918 

Shipping  negotiable  securities  as  mer- 
chandise    1763 

Transfer  of  pass-book  containing  ficti- 
tious entries 2584 

Gambling  Transactions 

Checks  given  for  gambling  consideration .     884-886 
Lost  cashier's  check  indorsed  in  blank 

purchased  from  gambler 2176 

Gifts 

Bonus,  Power  of  National  Bank  to  give . .  547 

Deposits 1377-1379 

DeUvery  of  pass-book 1379 

Deposit  by  "A  as  guardian  for  B" 1328 

Gift  of  bank  deposit  through  mail 2233 

Form    of    gift    to   minor   payable   at 

majority 1327 

Gift  completed  by  delivery 1231,1281,1379 

Power  of  national  bank.   To  donate 

services  of  clerk 546 

To  give  cash  Bonus  to  employees 547 

Promise   to  make  donation  not  en- 
forceable   1276 

Taxation,     Conveyance  of  land  as  gift 

not  subject  to  taxation 3142 

Contributions  by  national  bank  to  Red 

Cross  not  deductible 3119 

Guaranty 1766-1769 

Accommodation    guarantor    of    pay- 
ment   223 

Bank's    guaranty,      Of   draft  of  third 

person 482-483,565-570 

Authority  of  officer  to  guaranty  certi- 
fied check  of  another  bank Ill 

Guaranty  by  national  banks 565-574 


732 


Opinion  Nos. 

Guaranty — Continued 

Bond  salesman,  Guaranty  by 1769 

Continuing  guaranty — Assignment  of 

notes 1767-1768 

Corporation  as  guarantor 1208 

Deposits 1401-1402 

Form  of  guaranty  to  bank 1766 

Indorsements,  Drawee  not  obliged  to 
pay  on  guaranty  of  defective  in- 
dorsement    1893 

Drawee's  right  to  require  guaranty ....  1897 

Forged  indorsements 1594-1604 

Guaranty  does  not  apply  to  drawer's 

signature 1473 

Indorsement  guaranteeing  payment  of 

notes ...  1811-1815 

Liability   of   third   person's   indorsing 

guaranty  of  payment 1860 

Necessity  for  guaranty  of  prior  indorse- 
ments by  restrictive  indorsee 1944-1946, 

1952-1953 

Prior  indorsements 1900-1928,2728 

Mortgage  bonds,  LiabiUty  of  guarantors  2313 

Payment  of  notes 2484-2488 

Indorsement  guaranteeing  payment.  .  .1811-1815 
Proving  claim  in  bankruptcy  on  guar- 
anteed note 656 

Statute  of  Limitations  on  guaranty .  .  .  2520 

Payment  of  post-dated  check 486 

Protest,  Unnecessary  to  hold  guarantor 

of  payment  of  note 2708 

Protest  where  payee's  indorsement 
lacking  and  prior  indorsements  guar- 
anteed    2728 

Signatures,    To  stock  assignment 484 

Certification  guarantees  signature  and 

sufficiency  of  funds  of  check  drawer .  .  34 

Right  of  bank  to  reguire  guaranty  of 

drawer's  signature 1439 

Guardians 

Contracts  of  persons  under  guardianship.  2260 

Deposit  by  "A  as  guardian  for  B" 1328 

Fees 611 

Parent  as  natural  guardian  cannot  con- 
trol minor's  deposit 2237-2243 

Payment    of    certificate    of    deposit 

where  payee  insane 804 

Trust  powers  of  national  banks 575-597 


Holder  in  Due  Course 

Altered  and  raised  paper 353-355 

Banker's  draft,     Payment  having  been 

stopped 304^-3054 

Bankruptcy,    Status   of   innocent   pur- 
chaser of  negotiable  paper  transferred 

by  bankrupt 661 

Proving  claim  on  dividend  check  of 

failed  national  bank 689 

Certificate  of  deposit,     Lost  or  stolen 

certificate 2161-2173 

Obtained  through  fraud 809 

Payment  having  been  stopped 3067 

Checks,     Given  for  gambling  considera- 
tion   884-886,2110 

Forged  checks 1440-1500 

Indorsement  "without  recourse"   does 
not  affect  bank's  status  as  holder  in 

due  course 1850 

Payee  as  holder  in  due  course 847 

Checks,  Payment  having  been  stopped. . .  3017-3048 


Opinion  Nos. 

Cashier's  checks 3055-3061 

Certified  checks 3063-3066 

Lost  or  stolen  paper.     Bank  draft  in- 
dorsed under  threat  and  stolen 2181-2182 

Bearer  checks 2155-2156 

Bonds 2198-2208 

Burden  of  proof  of  payee's  indorsement 

to  check  is  upon  holder 2138 

Certificate  of  deposit 2161-2173 

Draft  negotiated  eight  and  one  half 

months  after  issue 2184 

Government  bearer  bonds 2198 

Paper  signed  and  indorsed  in  blank .  .  .  .2186-2197 

Stock  certificate 2217-2221 

Notes,     Holder's  rights 2455-2461 

Negotiation   after  reasonable  time  of 

demand  note 2453-2454 

Note  based  upon  executory  considera- 
tion  2421-2422 

Notes  void  under  usury  statute 2110 

Transferee  of  note  where  installment 

overdue  not  a  holder  in  due  course .  .  .  2409 

Trade  acceptance 163-165 

Holidays,     Saturday     and 

Sunday 1770-1793 

Bank's  right  to  close,     On  non-legal 

hoUday 444 

On  Saturday  afternoon 440 

Dating  on  Sunday  or  holiday 1775-1778 

Check  dated  on  Sunday  or  holiday  in 

South  Carolina 1776 

Check   or   note   dated   on   Sunday   in 

South  Dakota 1777 

Criminal  Hability  for  uttering  forged 

check 1734 

Validity  of,     Note  dated  on  Simday  in 

Texas 1778 

Renewal  note  dated  on  Sunday  in 

Missouri 1775 

Instrument  executed  on  holiday 1771-1772 

Note  and  mortgage  executed  and  de- 
livered on  holiday 1772 

Validity  of  document  signed  on  holiday  1771 
Instrument  maturing  on  Saturday. . .  1779-1783 
Creditor's  right  to  interest  from  Satur- 

^  day  to  Monday 2048 

Notice  of  dishonor  of  note 2818 

Presentment  in  Missouri 1779 

Presentment  on  Saturday  afternoon  in 

North  Carolina 1780 

In  South  Carohna 1781 

Time  instrument  falling  due  on  Satur- 
day—When payable 1782-1783 

Maturity  of  Sunday  or  holiday  paper ....  2497 
Notes    executed    and    delivered     on 

Sunday 1773-1774 

Note  executed  but  not  delivered  on 

Sunday 1774 

VaUdity  in  New  York 1773 

Payment  of  check  on  holiday 1784-1791 

Missouri '. 1787-1789 

Of  uncertain  validity 1784 

Payment  after  drawer's  death  when 
statutory  ten  day  limit  falls  on  Sun- 
day   1245 

Saturday  afternoon  in  Ohio 1790 

Saturday  evening 437 

Saturday  half  holiday 1770 

In  Pennsylvania 1791 

Saturday  in  Illinois 1785 

VaUd  under  Kansas  statute 1786 

Protest,     Check  protested  on  Saturday 
afternoon  by  drawee  legally  doing 

733 


m 

'^  Opinion  Nos. 

Holidays,    Saturday    and 
Sunday — Continued 

Protest — Continued 

business  in  afternoon 2763 

Check    received    by    drawee    in    mail 

Saturday  morning 2761 

Payment  and  protest  of  check  on  holi- 
day in  North  Carolina 1792 

Protest  of  check  dishonored  on  Satur- 
day in  Pennsylvania 1793 

Time  of  protest,     Of  check  dishonored 

Saturday  forenoon 2760 

Demand  Paper  presented  on  Satur- 
day and  time  paper  maturing  on 
Saturday 2762 

Husband  and  Wife 

Checks,     Husband's  authority  to   sign 

wife's  checks 1339 

Unauthorized  indorsement  by  wife  of 

husband's  check 1870 

Wife's    authority    to    sign    husband's 

checks 866,1341 

Where  husband  physically  disabled .  .  1340,2253 
Deeds  and  Mortgages,    Joinder  of  wife 

in  chattel  mortgage 2261 

Partial  pajmnent  by  widow  on  mort- 
gage of  deceased  husband 2301 

Signature  of  wife  to  purchase  money 

mortgage  without  signature  to  note .  .  2283 

Title  of  surviving  husband  under  deed 

to  husband  and  wife 1278 

Deposits,     By  husband  and  wife 1339-1341 

Access  to  safe  deposit  box  by  customer's 

wife  presenting  key 1367 

Certificate  of  deposit  indorsed  to  wife 
to  receive  money  in  case  of  husband's 
death 1231 

Opening  account  by  husband  in  name  of 

wife  and  daughter 1378 

Right  of  survivor  of  joint  account  as 

against  widow  of  decedent 1314 

Wife's  authority  to  withdraw  accoimt 

when  husband  in  sanatarium 2253 

Fraudulent  statement  signed  by  hus- 
band and  wife  showing  "Real  Es- 
tate" as  assets  where  same  belongs 

solely  to  wife 1755 

Insurance  policy  of  wife  as  collateral 

for  husband's  note 2643 

Stock   certificate   of   wife   pledged   by 

husband 2639 

Indorser  and  Indorsement 

1794-2020 

Absence  of  payee's  indorsement 1964-1983 

Certifying   bank   justified   in   refusing 

payment 1966 

Check  indorsed  by  drawer  but  not  by 

payee . 1970 

Check    with    missing    indorsement    of 

payee  indorsed  in  blank  by  drawer. .  .  1967-1968 

Drawee  not  obliged  to  pay 1964-1965 

Drawer  indorsing  check  to  credit  of  his 

own  account 1969 

Indorsement,     By     depositary     bank 
"credit  account  of  within  named 

payee" 1976-1980 

Of  depositary  bank  supplying  missing 
indorsement  of  payee 1981 


Opinion  Nos. 
Liability  of  bank  receiving  pa5rment  of 

unindorsed  check 1975 

Payment,     Of  draft  to  only  authorized 
representative     of    non-indorsing 

payee 1971 

By  dtawee  on  guaranty 1972  • 

Of  unindorsed  check  to  wrong  person  1973 
Of  unindorsed  check— Right  of  re- 
covery   where    payee's    title    de- 
fective            1974 

President  of  depositary  bank  supplying 

missing  indorsement  of  payee 1982 

Protest  of  checks  with  missing  indorse- 
ments  ._.  .2724-2728 

Transfer  of  note  and  mortgage  security 

without  indorsement 1983 

Accommodation  indorsement  (see  also 

Accommodation  Paper) 1826-1828 

Form  of  indorsement  for  accommoda- 
tion of  maker 1826-1827 

On  corporation  note 1828 

As  warranty 1856-1860 

Genuineness  of  raised  check 269 

Indorsement  but  not  signature  in  hand- 
writing of  drawer 860 

Indorsement  does  not  warrant  genuine- 
ness of  signature  to  drawee 

1859,1442,1448,1453 

Indorser  warrants  to  indorsee  authority 

of  salesman  to  indorse  for  payee 1858 

Liability    of    third    persons    indorsing 

guarantee  of  payment 1860 

Question  whether  indorser's  warranty 

of  genuineness  runs  to  drawee 1857 

Warranty  of  genuineness  to  indorsee .  .  .  1856 

Authority  to  indorse 1861-1881 

Attorney  indorsing  client's  name 1861-1862 

Bookkeeper  authorized  to  indorsed  for 

deposit  cannot  indorse  for  discount. . .  1872 

Clerk  indorsing  employer's  name  with 

rubber  stamp 1863 

Corporation's  name  indorsed  by  presi- 
dent.   1877 

Indemnity  bond  covering  risk  of  un- 
authorized indorsements 487 

Indorsement  by  agent  of  payee  without 

authority 1867-1869 

Insurance  agent 1879 

Joint  depositor's  authority  to  indorse 

co-depositor's  name  as  payee 1876 

Railroad  agent 1873-1875 

Ratification,     By    corporation    of    in- 
indorsement  of  payee's  name  by 

officer 1881 

Of  unauthorized  indorsement 1880 

Secretary  of  corporation 1878 

Traveling  agent 1863-1866 

Unauthorized  indorsement  of  payee's 

name  by  another 1871 

Wife's  indorsement  of  husband's  check .  1870 

Bankruptcy  of  indorser 2012-2013 

Collection  of  indorsed  bills  receivable 
from  maker  where  indorser  bank- 
rupt   2013 

Liability    of   insolvent   indorser   upon 

note  of  corporation 2012 

Bearer  paper 1991-2005 

Bearer  checks  do  not  legally  require 

indorsement 1991,881 

Check  indorsed  in  blank  presented  by 

subsequent  holder 2001 

Check  payable,     To  "cash" 1994-1998 

To  "A  or  bearer" 1999-2000 

Identification    of    holder    cannot    be 

required 2002-2003 

Note  to  A  or  bearer  transferred  by  A 


734 


Opinion  Nos. 

Indorser  and  Indorsement 

— Continued 

Bearer  paper — Continued 

without  indorsement 2004 

Rights  of  purchaser  of  check  received 

under  blank  indorsement 2005 

Right  to  require  indorsement  before 

payment 1992-1993 

Special  indorsement 2006-2011 

Instrument   indorsed   in    blank   fol- 
lowed by  special  indorsement 2009-2010 

Instruments   payable   to   bearer   on 

their  face .2006-2008 

Special  indorsement  can  be  written 

over  blank  indorsement 2011 

Bill  of  lading,     Indorsement  of 729-733 

By  mark 1834-1837 

Competency  of  witness  to  indorsement 

by  mark 1837 

Payment  to  responsible  owner  although 

mark  unwitnessed 1836 

Where  payee  can  write 1834 

Witness'  signature  warrants  genuine- 
ness    1835 

By  payee  when  check  presented  in  per- 
son   1984-1990 

Drawer's  check  to  order  of  "self" 1989 

Drawee's  right  to  require  indorsement 

by  payee 1984-1988 

Payment    by    drawee    to    fraudulent 

payee  without  indorsement 1990 

By  person  of  same  name 1628-1640 

By  rubber  stamp 1838-1847 

Bank   indorsement   by   rubber   stamp 

without  officer's  signature  in  ink 1846-1847 

Deposit  of  check  indorsed  in  blank  by 

payee 1839 

Discount  of  note  having  payee's  rubber 

stamp  indorsement 1840 

For  deposit 1838,1382 

Indorsement,  In  blank  by  payee  cor- 
poration without  official's  written 
signature 1843-1844 

Of  voucher  check  by  payee  corpora- 
tion   1845 

Legahty 1841 

Unsafe   practice   to   cash,    instead   of 

credit  to  customer  checks  indorsed 

by  rubber  stamp 1842 

Certificate  of  deposit,     Indorser's  lia- 

bihty 825 

Indorsement  by  minor 2249 

Indorsement  of  interest  payments 811 

Payment  on  conditional  indorsement. .  .  808 

Payment    to    indorsee    after    payee's 

death 1227 

Transfer  without  indorsement 810,820-821 

Checks    in    full.     Indorsement    "Part 

payment  only" 936 

Indorsement  acknowledging  receipt  in 

full 993 

Negative  indorsement  by  payee 935-936 

Stopping  payment  does  not  excuse  de- 
mand and  notice  as  against  indorser. .  2654 

Contract  and  liability  of  indorser 1794-1808 

Certificate  of  deposit 825 

Check    indorsed    "pay    yourselves    or 

order" 1803 

Check  purchased  at  drawee's  request. . .  179G 

Collateral  note 1797 

p]ffect  of  acceptance  indorsed  on  back 

of  bill 137 

"For  identification  only" 1799 

Indorsement,     To  bank  for  credit  to 


f 

Opinion  Nos. 

account  of  third  person 1804 

By  minor,  of  certificate  of  deposit 2249 

By  payee  to  drawee 1808 

By  payee  to  whom  check  delivered 

though  drawer  intended  for  another  1806 

Declaring  note  free  from  offsets  and 

consenting  to  negotiation 1805 

Of  assignee  of  payee  of  checks  given 

by  receiver 1807 

Of  payee  (a)  where  check  payable  to 
him  in  care  of  bank;  (b)  where 
payee's  address  follows  his  name. .  .  1801 

Indorser  can  be  sued  as  soon  as  Uability 

fixed 2511-2512 

Non-negotiable  check 1798 

Power  of  attorney  on  back  authorizing 
confession  of  judgment  binds  first 
indorser  only 2405 

Proper  place  for  indorsement  on  check. .  1802 

Striking  out  indorser's  name  on  note  an 

alteration 338 

"Value  in  account" 1800 

Corporation,     Indorsement  by 1819-1820 

Indorsement  of  note  by  single  officer .  .  .  1819 

Renewal  indorsement 1820,2384 

Signature  by  "cashier" 134 

Discharge  of  indorser 2014-2020 

Agreement  by  holder  with  indorser  to 
receive  payment  of  protested  note 
does  not  discharge  indorser 2495 

By  payment 2017,1165 

Consent  of  indorser  to  extension 2020 

Indorser  of  mortgage  note  discharged 

by  failure  of  presentment 2016 

Indorser's  right  to  tender  payment  of 

unmatured  note 2493 

Omission  of  demand  and  notice 2014-2015 

Partial  payment  of  note 2019 

Payment     by     drawee     to     insolvent 

collecting  bank 2018,1164 

Release  of  non-consenting  indorser  by 

extension 2475-2476 

Agreement  in  advance 2020 

Faulty  indorsements. 1889-1899 

Certification    of    defectively    indorsed 

check  or  payment  on  guaranty 1896 

Check  returned  for  defective  indorse- 
ment not  a  lien  on  funds 1894 

Check  to  "A  &  Co,"  indorsed  "A  &  Co., 

Inc." 1892 

Drawee,     Not  obliged  to  pay  on  guar- 
anty of  defective  indorsement 1893 

Not  liable  to  holder  for  refusal  to 

pay  or  certify 1895 

Right  to  require  guaranty 1897 

Individual  signing  for  company  with- 
out official  designation 1891 

Indorsement  must  be  properly  made 

to  justify  certification 37-39 

Liabihty  of  collecting  bank 1898 

Obhteration  of  indorsement  by  stamp- 
ing one  over  another 1889 

Protest  because  of  incorrect  indorse- 
ments  ..2730-2733 

Recovery  by  drawee  of  money  paid 
upon  irregular  indorsement 1899 

Technical  defect 1890 

Voluntary    certification    "good    when 

properly  indorsed" 40 

Forgery    of   indorsements    (see  Forged 

Paper) 
Guaranteeing  payment  and  consent- 
ing to  extension  liy  indorsement.  .  .  1814-1815 

Form    of    clause    on    notes    of    South 

Carolina  bank 1815 

Vahdity  of  clause 1814 


735 


Opinion  Nos. 

Indorser  and  Indorsement 

— Continued 

Guaranteeing  payment  and  waiving 

protest  by  indorsement 1811-1813 

Holder  not  required  to  exhaust  security 

of  maker  before  suing  indorser 1812 

Indorsee  takes  title  and  full  enforceable 

.rights 1811 

Liability  of  indorser  guaranteeing  pay- 
ment   1813 

Guaranty     covers     imperfections     and 

irregularities 1923-1928 

Guaranty    by    owner    as    commercial 

indorsement 1928 

Guaranty   of   previous   indorsement — 

Does  it  cover  missing  indorsement? .  . .         1926 
Guaranty,  where  indorsement  missing, 

that  payee's  account  credited 1927 

"Indorsement  O.  K.,  James  Smith"  is 

guaranty 1924 

Successive  guaranties  of  prior  indorse- 
ments   1925 

Guaranty  of  prior  indorsement 1900-1922 

Clearing  house  stamp 1912 

Collecting  agent  not  liable  imless  prior 

indorsements  guaranteed 1915 

Collecting  bank's  Uability,     On  guar- 

^  anty 1909-1911 

Collecting  bank  not  liable  to  drawee 
for  money  collected  on  forged  in- 
dorsement, unless  guaranteed 1906 

Collecting  bank  not  negligent  for 
failure  to  guarantee  prior  indorse- 
ments..   1902 

If  collecting  bank  owner,  real  or 
apparent,    special    guaranty    not 

necessary 1903 

Special  guaranty  by  collecting  bank 
when  prior  bank  makes  no  guar- 

anty  to  it 1904 

Covers  rubber-stamp 1908 

Covers  unauthorized  as  well  as  forged 

indorsements 1917-1922 

Does  it  cover  missing  indorsements? .  .  .  1926 

Does  not  apply  to  drawer's  signature . . .  1473 

Does  not  cover  fraud  of  payee 1916 

Effect  of  "indorsements  guaranteed"  on 

certificate  of  deposit 823 

Indorsement  of  payee  manifestly  not 

genuine 1901 

Legal  effect  of  mdorsement,  "Pay  any 
bank,  banker  or  trust  company,  all 
prior  indorsements  guaranteed" .  1905 

Necessity  for  special  guaranty 1900 

Owner  bank  liable  to  drawee  for  money 
collected     on     forged     indorsement 

without  guaranty 1907 

Payment  by  drawee  on  guaranty 1914 

Right  of  drawee  to  require  guaranty 

from  collecting  agent 1913 

Indorsement  before  payee 1957-1963 

Liability  of  indorser  before  delivery  of 

certificate  of  deposit 1093 

Liability  where  payee  again  indorses .  .  .  1962 

Not  necessary  to  first  proceed  against 

maker  when  indorser's  hability  fixed  1961 

Person  indorsing  before  payee  liable  as 

indorser 1957-1960 

Liable  for  full  amount  of  note 1963 

Joint  or  alternative  payees 1821-1825 

Indorsement,     By  alternative  payee. . .  1821 

By  one  of  two  payees 1822-1824 

Of  certificate  of  deposit  by  alterna- 
tive payee 1825 


Opinion  Nos. 
Lost   and    stolen    paper,     Signed,   in- 
dorsed in  blank  and  stolen 2186-2197 

Burden  of  proof  of  payee's  indorsement 

of  lost  check  is  on  holder 2138 

May  an  indorsee  for  collection  sell  or 

transfer  the  instrument? 1948-1956 

Indorsement  of  cotton  draft,  "Pay  any 

bank  or  banker" 1955 

"Pay  any  banker  with  full  recourse  to" 

indorser 1956 

"Paid"  stamp 1929-1933 

Liability  of  bank  stamping  "Paid 
through  clearing  house"  for  irregu- 
larity of  indorsement 1933 

May  constitute  guaranty  by  clearing 

house  agreement 1932 

Not  a  guaranty  of  prior  indorsement .  .  .  1929-1931 
Protest,     Because      incorrect     indorse- 
ment  2730-2733 

Of  checks  with  missing  indorsements . .  .  2724-2728 
Representative      capacity,       Indorse- 
ment in 1829-1833,956-971 

Check  to  "A  for  a/c  of  B,  trustee"  in- 
dorsed by  A  to  C 1829 

Indorsement,     By  "A,  Tax  Collector," 

after  retirement  from  office 1830 

"A  and  B  per  A" 1833 

Of  check  to  "A,  general  agent" 1831 

"Treasurer,  Congregational  Church"  1832 

Restrictive  indorsement 1934-1947,1204 

Certificate  of  stock  indorsed  "for  collat- 
eral purposes" 2631 

"Cleared  through  Bank  B" 1938 

Disclaiming  liabiUty  for  genuineness . . .  1943 

"For  deposit" 1940-1941,1382 

"For   deposit,"    Not    a   direction   to 

drawee  but  to  immediate  indorsee. . . .  1942 

Forms  of  indorsement — Discussed  and 

contrued 1939 

"Indorsed  only  for  exchange  of  draft  to 

order  of  A" 1937 

Necessity   for   guaranty   of    prior   in- 
dorsements by  restrictive  indorsee. .  .  1944-1945 
Negotiation  of  c/d  restricti vely  indorsed  821 

"Pay  any  bank  or  banker" 1946-1947 

"Pay  bank  of  X  only" 1935 

"Pay  to  order  of  A  for  collection  on 

account  of  X" 1936 

Restrictive  indorsee  cannot  negotiate. . .  1934 

Set-off,     Against  indorser's  deposit ....  2901-2906 
Against  maker's  deposit  in  interest  of 

indorser 2907-2909 

Indorser's    right    to    set    off    deposit 

against  note  held  by  insolvent  bank . .  2943 

Notice  must  be  given  indorser  in  South 

Carolina 2878 

Stopped  checks,     Indorser  not  entitled 

to  damages  from  drawer 3054 

LiabiUty  of  drawer  to  indorser 3017-3048 

Sufficiency  of  indorsement 1882-1888 

Check  "G.  T.  Jones"  indorsed  "Geo.  T. 

Jones" 1888 

Check  to  J.  W.  Smith  and  wife  indorsed 

J.  W.  Smith  and  Mrs.  B.  Smith 1887 

Prefix  "Miss"  or  "Mrs."  unnecessary. . .  1882-1886 
Trade  acceptance,     Indorser's  liability.  128 

Non-liability    of   payor   bank   to   in- 

dorsers 175 

Trade  names 1816-1818 

Indorsement,     In  name  of  extinct  cor- 
poration   1817 

By    proprietor    in    name    of    unin- 
corporated companies 1818 

Indorser's  liability  on  note  signed  in 

trade  name 1816 

Waiver  of  protest,     Indorsement  with . .  1809-1810 


736 


Opinion  Nos. 

Indorser  and  Indorsement 

— Continued 

Waiver  of  protest — Continued 

Binds  indorsers  when  placed  on  face  of 

instrument 2830,2832 

How  long  indorser  liable 1810 

Operates  to  transfer  title  as  well  as 

waive  protest 1809 

"Without  recourse" 1848-1855 

Check  indorsed  "without  recourse" ....  1855 

Does  not  relieve  indorser  as  warrantor 

of  fraudulent  note 1848 

Guaranty  of  payment  by  payee  after 

indorsing  note  without  recourse 2486 

Holder  in  due  course  can  recover  from 

maker 1850-1851 

Indorser  liable  where  note  a  forgery. . .  .  1849 

Indorser   relieved   from   obligation   to 

pay  but  liable  for  genuineness 1853 

Not  applicable  to  subsequent  indorser. .  1852 

Rediscount  of  note  indorsed  "without 

recourse" 2462 

Reheves  from  responsibility  for  non- 
payment   1854 

Insane  Persons 

Insane   persons    (see  also  Minors  and 

Incompetents)  Deposits.  .2253-2254,2256-2257 
Payment  of  certificate  of  deposit  to 
insane  payee 804 

Insurance 

Authority  of  insurance  agent  to  in- 
dorse name  of  company 1879 

Clause  in  Warehouse  receipt 3157 

Insurance  policies  as  collateral 2642-2646 

Mortgage  clause  in  insurance  policy.  .  .  2302 

Safe  deposit  boxes 1364-1365 

Workmen's  compensation  law 526 

Interest  and  Usury..  ..2021-2110 

Alteration  of  rate  of  interest  in  note .  .  .  339 

Blank  space  for  interest  left  in  note. . .  2026 

Promise  to  pay  interest  "at per 

cent."  means  legal  interest 2026 

Calculation  of  interest 2021-2025 

Basis  of  30  days  to  a  month 2022 

Computation  according  to  actual  num- 
ber of  days 2023 

New  York  rule  requires  computation 

for  actual  number  of  days 2024-2025 

Note  due  in  leap  year 2021 

Certificate  of  deposit,     Indorsement  of 

interest  payments 811 

Interest   clause   where    "per   annum" 

omitted 812 

Running  of  interest  after  maturity. ...  813 

Collection  annually  and  at  maturity,  2027-2030 
Long  term  notes  with  interest  at  stated 

rate  per  annum 2028-2030 

Three  year  note  "with  interest  at  6% 

per  annum" 2027 

Compound  interest 2031-2038 

Effect  of  clause  upon  negotiabihty ....  2426 

Illegality  in  Minnesota 2034-2035 

Missouri  rule 2037 

South  Dakota  statute 2032 

Time  certificate  of  deposit  with  com- 
pound interest 2038 


2031 
2036 


2033 


2051 

2052 
2007 

2048 


2050 
2049 


Opinion  Nos 
Unpaid  interest  does  not  draw  interest 

in  absence  of  contract 

Validity  in  Mississippi 

Validity  of  contract  that  unpaid  interest 

at  maximum  rate  shall  bear  maximum 

Creditor's  right  to  interest 2038-2052 

Correction   of   mistake   as   to   interest 

after  account  stated  and  settled .... 
Creditor    cannot    exact    greater    rate 

without  consent  of  debtor 

Debtor's  accjuiescence  in  increased  rate 
For  two  added  days  when  time  note 

payable  at  bank  falls  due  on  Saturday 
Maker's  readiness  to  pay  stops  running 

of  interest .  .2552-2554 

Omission    to    charge    interest-bearing 

note   payable   at   bank   to   maker's 

account  at  maturity,  stops  running 

of  interest 

Right  to  interest  against  corporation 

in  receiver's  hands 

Demand  notes 2063-2065 

Do  not  draw  interest  unless  provided.  .2063-2064 
Interest  from  date  on  demand  note .  .  .  2065 

Demand  notes  secured  by  collateral, 

Interest  on 2066-2067 

Matured    time    notes    equivalent    to 

demand  notes 2066 

New  York  call  loan  statute 2067,2607 

Deposits,     Interest  on .2043-2047 

Agreement  between  banks  as  to  uni- 
form rate 2043-2044,1034-1036 

Credit   of   interest   does   not   obviate 

reporting      dormant      accounts      in 

Georgia 

Effect   of    charging   interest   for   time 

uncollected  check  is  outstanding.  .  .  . 
Legal  rate  on  deposit  in  closed  bank .  . 
Liability  of  bank  for  interest  on  pubhc 

deposits 

Savings  accounts  of  national  banks .  .  . 
Savings  bank  pass-book  rule  stopping 

interest  after  ten  years  on  dormant 

accounts 2044-a 

Discount  at  maximum  legal  rate.  .  .  .2087-2093 

Conflict  of  decision 2088 

Deduction  of  interest  in  advance  on  five 

year  loan 2089 

Legal  in  Oklahoma,  where  loan  does 

not  exceed  one  year 2092 

Not  usurious  in  Arkansas 2087 

Texas  case 2093 

Discount  greater  than  legal  rate 2085-2086 

Discount  of  note  for  indorser  without 

recourse  at  excessive  rate 

Oral  agreement  for  higher  rate  than  6% 

in  Connecticut 

Interest  certificates  not  cla.ssed  as  stock 
Interest  departments  of  Trust  Com- 
panies  

Interest  on  loan  not  included  in  fixing 

limit  to  single  borrower 

Legal  rate  collectible  after  maturity. . .  .2068-2070 

Certificate  of  deposit 813 

Interpretation  of  interest  clauses.....  2070 

One  year  note  at  four  per  cent,  carries 

six  per  cent,  after  maturity 2069 

Rate  under  extension  clause 2068 

Minimum  charge  for  small  loans 2080-2083 

Fiftv  cents  miniimim  charge 2082 

Legahty 2083 

Interest  charge  of  50  cents  where  above 

legal  rate 2081 

Minimum  charge  of  $1  for  interest  and 

service 2080 


1398 

1064 
2047 

2046 
2045 


2086 

2085 
2394 

613 

557 


737 


Opinion  Nos. 

Interest  and  Usury — Con- 
tinued 

Mortgage  debt  extended  at  greater  rate.  2300 

Negotiability  affected  by  interest  clause,  2039-2042 
Clause    for    10%    interest    on    unpaid 
interest  and  for  lower  rate  if  principal 

paid  when  due 2039 

Compound  interest  clause 2426 

Interest  at  five  per  cent,   if  paid  in 

advance;  otherwise,  six  per  cent.  .  .  .  2042 

Provision,     In     interest-bearing    note 

waiving  interest  if  paid  when  due,  2040 

That  unpaid  interest  and  principal 
shall    bear    increased    rate    after 

maturity •         2441 

Unpaid    interest    added    to    principal 

drawing  same  rate 2041 

Notes,   Doubtful   authority   of  bank  to 
pay   overdue    and    dishonored   note 

and  accrued  interest 2546 

Loans    at    excessive    rate    and    redis- 

counted  without  recourse 2462 

Maker  paying  interest  on  note  ratifies 

forgery  of  his  signature 1672 

Option  to  declare  note  due  on  non- 
payment of  interest 2445-2446 

Receipt    of    past    due    interest    after 

maturity  not  an  extension 2468-2469 

Partial    payments    of    principal    and 

interest 2053-2056 

Applied  to  reduce  interest 2053-2054 

Note  due  "one  day  after  date" 2055 

Rate  of  interest  chargeable  on  bond 

sold  on  installment  plan 2056 

Payment  of  interest  in  advance,  2059-2062,2466 
Prepayment  of  interest  not  conclusive 
evidence  of  agreement  to  extend  and 

real  agreement  may  be  shown 2062 

Prima  facie  evidence  of  agreement  to 

extend 2059-2061,240 

Release  of  accommodation  indorser  by 

holder  receiving  interest  in  advance .  2469 

Payment  of  principal  before  maturity,  2057-2058 
Forfeiture,     By     creditor     of     unpaid 

interest  for  unex^Dired  term 2057 

By  debtor  of  paid  interest  for  unexpired 

term 2058 

Penalty  for  usury 2106-2109 

National  bank  penalty 2107 

Oklahoma 2108 

Proposed    Oklahoma    usury    penalties 

inapplicable  to  national  banks 2109 

Under  Georgia  law  of  1916 2106 

Power  of  Congress  to  fix  interest  rates,  2098-2099 
Constitutional  power  to  regulate  state 

interest  rates 2099 

To  fix  7%  interest  rate  for  national 

banks 2098 

Purchase   of   commercial   paper   not 

affected  by  usury  law 2075-2079 

Distinction  between  purchase  and  loan 

at  greater  than  legal  rate 2075 

Purchase,     Of    acceptance   at    greater 

than  legal  rate 2076 

Of  commercial  paper  as  distinguished 
from  loan — Federal  Reserve   banks 

exempt  from  usury  law 2078 

Of  commercial  paper  at  discount  at 

greater  than  legal  rate 2079,  2077 

Rate  on  loans  outside  of  state 2071-2074 

Loan,     By  national  bank  to  borrower 

outside  state .2071-2072 

By  New  Jersey  bank  on  Canadian 
note 2073 


Opinion  No8. 
Rate,     On    note    payable    in    another 

state 2074 

On  trade  acceptance 136 

Rights   of   holder   in   due   course   of 
negotiable    instrument    void    under 

usury  statute 2110 

School  district  warrants,  Interest  on. .  2957 

Slight  excess  interest 2084 

Taken  for  convenience  of  calculation . .  2084 
Taxation,     Deduction  from  income  tax 

of  interest  on  government  bonds. . .  .  3125 
Payment  of  interest  on  demand  notes 

does  not  necessitate  new  tax  stamps.  3132 
Stamp   tax   not   required   on   interest 

coupon  notes 3131 

Trade  acceptance,     Insertion  of  interest 

clause 340,150-151 

Rate  of  interest 136 

Usurious  loans 2094-2097 

Consent   of   borrower   does   not   make 

usurious  loan  lawful 2094 

Requirement  that  certain  amount  be 

kept  on  deposit 2095 

L^sury  in  Tennessee 2096 

Usurious  note  payable  at  bank 2097 

Usury  pleaded  as  a  defense 2103-2105 

By  Tennessee  corporation 2105 

Defense  by  surety 2103 

Parol  evidence 2104 

Usury  by  national  banks 2100-2102 

Attorney's  fee  as  cover  for  usury 2102 

Payment  of  interest  on  greater  amount 

than  loan 2100 

Usury  by  national  bank  in  Georgia .  .  .  2101 

Investments 

Investment,     By    New    York    Savings 

Bank  in  banker's  acceptances 120 

Of    funds    in    savings    department    of 

National  Bank 598-606 

Limitation    on    investment    by    trust 

company  in  stock  of  other  banks .  .  .  609 

Power  of  national  banks,     Purchase  of 

high  class  marketable  stock 537 

To    invest    in    stock    of    safe    deposit 

company 538 

To  join  syndicates  to  float  stock  of 

industrial  corporation 540 

To  purchase  industrial  bonds 541-542 

Purchase  of  stock  and  disposal  by  trust 

agreement 539 

Taxation,     Deduction  of  loss  caused  by 

shrinkage  of  securities 3118 

Discrimination  against  national  bank 
shares  in  taxing  other  forms  of  in- 
vestment at  lower  rate 3086 

Trust  funds 1330 

Joint  Accounts  (see  also  De- 
posits)  1311-1319 

Judgment  Notes   (see  also 

Notes) 2396-2408 

Jurisdiction 

Checks  without  funds  drawn  in  one 

state  and  negotiated  in  another,  947,948-950,952 

Control  and  supervision  of  national 

banks 515-519 

Distribution  of  assets  of  failed  national 
bank  within  jurisdiction  of  federal 
court 1178 


738 


Opinion  Nos. 

Jurisdiction — Continued 

Extradition  of  fugitive 1765 

Investigation    of    bank's    affairs    by 

congressional  committee 498 

Notes,     Clause  in  note  giving  justice  of 

peace  jurisdiction  up  to  $300 2442 

Collateral  note  to  foreign  corporation .  .  2606 

Note  governed  by  law  of  place  where 

payable 2509 

Suit  against  maker  of  note  who  has 

removed  to  another  state 2514 

Right  of  foreign  corporation  to  sue  in 

New  York  State 1202 

Taxation,  in  Iowa  of  mortgage  held  in 

foreign  jurisdiction 3110 

Place  of  assessment  of  tax  on  bank 
stock 3092 

Lead  Pencil  Checks.  .830,  305-311 
Legal  Tender 2111-2119 

Deposit  in  gold  coin  payable  in  legal 

tender 2114 

Legal  tender  qualities  of  money 2113 

Legal  tender  substitute  for  gold  coin..  2112 
National   bank   notes   legal   tender  to 

other  national  banks 28 

National  banks  notes  not  legal  tender 

money 524 

Obligation  of  bank  to  pay  deposits  of 

Mexican  Funds  in  U.  S.  legal  tender.  2119 

Payment  of  check  in  legal  tender 2116-2117 

Provision  for  payment  in  gold  coin.  .  2111 

Standard  silver  dollars 2115 

Letters  of  Credit 2120-2122 

Lost  letter  of  credit 2225-2226 

Payment  of  overdrawn  letter  of  credit,  2121-2122 
Liability  of  issuing  bank  for  overdraft 
where  credit  exhausted  by  previous 

drafts  not  indorsed  on  letter 2122 

Revocation  of  banker's  letter  of  credit. .  2120 

Libel  and  Slander 2123-2132 

Derogatory      statements      affecting 

banks.  . 2123-2132 

Bank's    liability    for    misrepresenting 

customer's  financial  condition 499-500 

Circulation  of  false  stories  concerning 

national  bank 

False  statement,     By  banker  that  rival 
would  "bust" 

By  former  president  affecting  bank's 
credit 

By  hotel  man  that  national  bank  has 
closed 

Published  by  editor  of  newspaper. .  . 

That  bank  in  bad  shape 

Legislation 

Malicious  reports  of  unsoundness  of 

bank 

No  federal  statute  punishing  slander- 
ers   

Publication  of  debtors  in  delinquent 

book  of  collection  agency 

Liberty  Bonds 

As  collateral 2622,  2626 

Cannot  be  deducted  from  taxable  value 

of  national  bank  shares 3081-3082 


2124 

2129 

2132 

2130 
2126 
2131 
2123 

2128 

2125 

501 


Opinion  Nds. 

Erroneous  delivery 2960 

Federal  Reserve  Bank  as  custodian  of 

bonds  securing  15  day  loans 477 

Liberty  bond  credit.  Refusal  of  checks 

drawn  against 998 

Lost  and  stolen  bonds.     Coupon  bonds 

2199-2201,2204 

Registered 2203 

Liens  (see  also  Mortgages 
and  Liens,  Pledge  and 
Collateral  and  Set-ofiE) 

Agister's  lien  vs.  mortgage  lien 2274 

Bank  stock  hen,  National  Banks 700-704 

State  Banks 691-699 

Carrier's  right  to  lien  on  goods  may  be 

waived  by  giving  credit 777 

Chattel  mortgage  lien  on  after  acquired 

property 2268 

Chattel  mortgage  on  future  crops 2269 

Priority  of  record  determines  priority 

of  lien 2272 

Vendor's  lien  vs.  chattel  mortgage. .  .  .  2318 

Check  is  not  a  lien  on  funds 910 

Check  returned  for  defective  indorse- 
ment   1894 

Collecting  bank's  lien,     On  paper  held 

for  collection 1111-1114 

Lien  on  check  deposited  for  collection 

to  extent  of  advances  made 1065 

Corporation  stock  lien 1216 

Of  corporation  after  notice  of  pledge .  .  2635 

Laborer's  lien  vs.  chattel  mortgage  on 

crops 2317 

Landlord's  lien  on  crops 2315-2316 

Liens  within  four  months  of  bank- 
ruptcy   (see    Bankruptcy    and    In- 
solvency) 
Mechanic's  lien  rights.  Effect  of  trade 

acceptance 106-167 

Mortgage  liens 2314-2318 

Questions  of  priority 2289,2297,2272 

Rights  of  recorded  mortgagee  as  against 

subsequent  agister's  lien 2274 

Vendor's  lien  vs.  chattel  mortgage 2318 

Note  retaining  vendor's  lien 2450 

Recital  that  note  secured  by  vendor's 

lien  as  notice  of  contents  of  deed .  .  .  2456 

Loans  (see  also  Pledge  and 
Collateral  and  Notes) 

Assignment    of    savings    deposit    as 

security  for  loan 1308 

Bank  loans  in  general 473-477 

Bank,     .\s  agent  to  procure  loan 456 

Bonds  borrowed  by  bank — Title  does 

not  pass 472 

Contract  for  municipal  improvements 

as  basis  for  loan 2959 

Loan    to    bank    on    personal    note    of 

executive  officer 470-471 

Power  to  purchase  notes 452 

False  statement  for  credit 1750-1756 

Interest  and  usurv   (.see  also  Interest 

and  Usury)     On  loans 2021-2110 

Collateral  loans  at  any  rate  of  interest.  2607 

Loans  at  excessive  rate  and  rediscounted 

without  recourse 2462 

Minimum  charge  for  small  loans 2080-2083 

r.^urious  loans 2094-2097,2100-2102 

Judgment  Note  does  not  cover  new  loan  2408 


739 


Opinion  Nos. 

Loans — Continued 

Limitation  of  loans 

By  national  banks 551-564 

Liability  of  firm  included  with  that 

of  partner 559-560 

Trade   acceptance   not  within   loan 

limit 160 

Farm  land 561 

Loan  to  A  on  note  of  B,  where  latter  has 

full  borrowing  limit 558 

To  single  borrower 478-481 

Loans  to  corporations 1209 

National  bank  loans 

Cannot  loan  on  its  own  shares  of  stock .  549 
Guaranty  by  national  bank  of  loans  to  . 

customer 571 

Limitation  of  loans 551-564,160 

On  its  own  certificate  of  deposit 549 

On  two  name  paper  of  directors 550 

Real  estate  security 534-536,2282 

To  its  owTi  officers 652-653 

Usurious  loans 2100-2102 

Trade  acceptance,     Discounted  for  ac- 
ceptor (buyer) 162 

Discoimt  of  fraudulent  acceptance ....  161 
Effect  on  negotiabihty  of  clause  "sub- 
ject to  discount" 144-145 

Lost  and  Stolen  Paper.  .2133-2227 

Bank  draft  lost .2177-2185 

Bank  draft  in  hands  of  insane  joint 

payee  who  has  disappeared 2183 

Bank    entitled    to    indemnity    before 

issuing  duplicate 2177-2178 

Effect  of  "duplicate  unpaid"  on  draft .  .  2185 

Holder  in  due  com-se  of  bank  draft  in- 
dorsed under  threat,  and  stolen 2181 

Lost  draft  negotiated  83^  months  after 
issue 2184 

Indorsement  of  payee  procured  by  force  2182 

Issuing  bank  liable  to  innocent  pur- 
chaser of  lost  bank  draft  notwith- 
standing payment  of  dupHcate 2179 

Non-necessity    for    indemnity    where 

bank  is  payee 2180 

Bearer  check,  lost  or  stolen 2155-2157 

Holder  in  due  course 2156 

Lost  counter  checks  payable  to  bearer.  2157 

Rights  of  innocent  purchaser 2155 

Bonds,  lost  and  stolen 2198-2208 

Bank's    liability    for    loss    of    Liberty 

coupon  bonds  in  unregistered  mail .  .  2201 

Duplicate  not  issued  for  lost  govern- 
ment coupon  bonds 2202 

Holder  in  due  course,     Banks  as  inno- 
cent purchasers  of  stolen  Liberty 

coupon  bonds 2199-2201 

Coupon  bonds 2205 

Government  bearer  bonds 2198 

Municipal  bonds 2207-2208 

LiabiUty    of    government    on    stolen 

registered  bonds 2203 

Procedure,     To    obtain    duphcates    of 

destroyed  Liberty  coupon  bonds. .  . .  2204 

To   protect   holder   of   stolen    coupon 

bonds 2206 

To  protect  holder  of  stolen  municipal 

coupon  bonds 2208 

Cashier's  check  lost 2174-2176 

Bond  of  indemnity  as  prerequisite  to 

paying  lost  cashier's  check 2174-2175 

Lost  cashier's  check  indorsed  in  blank 

purchased  from  gambler 2176 


Opinion  Nos. 
Certificate  of  deposit,  lost  and  stolen.  .2161-2173 
Bank  entitled  to  indemnity  before  issu- 
ing duphcate 2161-2163 

Bank  takes  risk  in  issuing  duplicate 

without  indemnity 2165-2166 

Customary  procedure  as  to  indemnity.  2167 

Delay  of  one  month  by  collecting  bank 

in  notifying  of  loss 2173 

Holder  notifying  of  loss  after  payment 

on  forged  indorsement 1682 

Necessity  for  indemnity  and  statute  of 

Umitations 2169 

Pennsylvania 2168 

Reasons  why  indemnity  necessary  . .  2164 

Indemnity  note  necessary  where  lost 

certificate  not  negotiable 2171 

Payee's  afiidavit  of  loss  of  unindorsed 

certificate  as  substitute  for  indemnity  2172 

Right  of  innocent  purchaser  of  certifi- 
cate indorsed  in  blank  and  stolen.  .  .  2170 

Certified  checks,  lost 2158-2160 

Bond  of  indemnity  for  duphcate  of  lost 

certified  check 2159,56 

Certifying  bank  entitled  to  bond 2158 

No  statutory  requirement  for  bond .  .  .  2160 

Checks,  Lost  and  stolen 2133-2138 

Burden  of  proof  of  payee's  indorsement 

upon  holder,  where  denied 2138 

Checks  misplaced  by  bank  before  credit  2135 

Depositor    denying    issue    of    check, 
returned  as  paid  voucher  and  lost  in 

mail 2137 

Liabihty  of  collecting  bank  for  delay  in 

reporting  loss 2133 

Negotiation  to  bank  by  thief  of  check 

indorsed  by  depositor  to  bank 2136 

Stopping  payment 3029 

Title  of  finder 2134 

Checks  lost  in  the  mail 2139-2154 

Bond  of  indemnity 2144 

Burden  of  obtaining  duplicate  falls  on 

owner 2140-2141 

Lost  express  company  money  order,  2145 

Owner  bank  must  procure  duphcate 

and  charge  customer  as  indorser.  .  2142 

Check  credited  as  payment  on  note 

and  lost  in  mail 2152 

Collecting  bank,     Bank  receiving  check 

as  collection  agent  can  charge  back,  2146-2148 
Duty  to  keep  record  of  description  of 

deposited  checks 2149 

Duty  to  trace  unacknowledged  items,  1123-1127 
Not  neghgent  in  using  unregistered 

mail 2153 

Delay  of  two  months  prevents  charging 

back... 2154 

Loss  falls  on  owner 2139 

Payment    of    lost    check    by    drawee 

without  authority 2150 

Recovery  by   owner   on   duplicate   or 

written  particulars 2143 

Right  of  holder  against  indorser 2151 

Letter  of  credit,  lost 2225-2226 

Bank  purchasing  forged  draft  against 

lost  letter 2225 

Issue  of  duphcate 2226 

Order   bill   of  lading,   Conversion  by 

consignee 778 

Paper  signed  or  indorsed  in  blank.  .  .2186-2197 
Drawer  not  liable  to  innocent  purchaser 

of  check  signed  in  blank  and  stolen .  2194 

Negotiation  of  lost  check  indorsed  in 

blank 2196 

Newspaper  notice  of  loss  insufficient 

unless  purchaser  reads  article 2197 

Note  indorsed  in  blank  by  payee  and 


740 


Opinion  Nos. 


Lost  and   Stolen   Paper — 

Continued 

Paper  signed  or  indorsed  in  blank — 

Continued 


2195 


lost  or  stolen 

Payment    of    check   signed    in   blank, 
stolen    and    filled    in — Drawee    can 

charge  depositor 2191-2193 

Rights  of  purchaser  of  stolen  instrument 

indorsed  in  blank 2187-2190 

Holder  in  due  course  of  stolen  check 

indorsed  in  blank 2186-2186a 

Pass-books,  lost  or  stolen .2209-2216 

Indemnity  not  necessary  unless  bank  in 

doubt  as  to  identity  of  depositor.. 2210-2212 
Right  to  require  indemnity  in  absence 

of  contract 2216 

Without  indemnity 2215 

Issue  of  duplicate 2214 

Savings  pass-book  not  negotiable 2209 

Waiver    by    bank    of    requirement    of 

advertisement  and  indemnity 2213 

Presentment  in  case  of  lost  instrument.  2659 

Stock  certificate,  lost 2217-2224 

Bank's  return  of  stock  collateral  by 
unregistered  mail — Responsibility  for 

loss 2224 

Bond  of  indemnity  for  duplicate  of  lost 

stock  certificates 2219-2220 

Right  of  national  bank  to  require 

bond 2223 

Issue  of  duplicate  for  undelivered  and 

lost  certificate 2218 

Issuing     corporation     cannot     require 

surety  company  bond 2221 

Power  of  bank  to  become  surety  on 

indemnity  bond 2222 

Right   of   innocent   purchaser   of   lost 

certificate  indorsed  in  blank 2217,1215 

Stopping  payment  of  lost  check 3029 

Unsigned  national  bank  notes  stolen 

and  circulated 2227 


Mail 2228-2234 

Acceptance  of  offer  by  mail 2232 

Mailing  letter  of  acceptance  completes 

contract 2232 

Checks  lost  in  mail 2139-2154 

Collection  of  checks  and  drafts 

Collecting  bank  not  negligent  in  using 

unregistered  mail 2153 

Drawee's  duty  as  to  protest  of  check 

received  through  mail 2712-2713 

Is  mailing  draft  to  drawee  demand  for 
payment  or  entrustment  for  collec- 
tion?   1052 

Mistaken  charge  of  overdraft  received 

through  mail 2559 

"Not  payable  through  post  office", 1054, 1056-1057 
Priority  where  checks  presented  through 

mail  or  over  coimter 2685 

Deposits  by  mail 2234 

Dishonor  of   customer's   check  where 

sufficient  deposit  in  P.  O.  box 2234 

Gift  of  bank  draft  through  mail 2233 

Death  of  donee  before  delivery 2233 

Loss  of  registered  mail 2228-2231 

Claim  against  government  for  unde- 
livered revenue  stamps 2230 

Collecting  bank  not  responsible  for  loss 

of  securities 2228 

Non-liability  of  postmaster  for  failure 


Opinion  Noe: 
to    properly    identify    addressee    of 

registered  package 2231 

Railroad    as    government    agent    not 

responsible  to  owner 2229 

Loss  of  unregistered  mail 

Bank's  hability,     For  loss  of  Liberty 

coupon  bonds 2201 

Loss  of  stock  collateral 2224 

Collecting  bank  not  negligent  in  for- 
warding checks  by  unregistered  mail  2153 
Notice   of   shareholder's   withdrawal 

given  by  mail 520 

Postal  money  order.     Forgery 1732 

Postal  savings 489 

Tax  return  sent  by  mail,   Penalty  for 

delay 3127 

Married  Women    (see  also 
Husband  and  Wife) 

As  directors  of  national  bank 643 

As  sureties  or  accommodation  parties,  244-257,2246 

Deposits 2246 

By  married  woman  in  her  former  name  1375 

Maturity 

Certificate    of    deposit,    Demand    and 

time  certificates  distinguished 785-786 

Interpretation  of  maturity  clauses ....     793-800 
Maturity   of   certificate   of   liquidated 

bank 507 

Payment  before  maturity 806 

Running  of  interest  after  maturity. .  .  .  813 

Interest,      Collection   annually   and   at 

maturity 2027-2030 

Legal  rate  collectible  after  maturity. . .  2086 

Payment    of    interest    after    maturity 

of  trade  acceptance 150 

Payment  of  interest  in  advance  as 
evidence  of  extending  time  of  pay- 
ment  .....2059-2062 

Running  of  interest  after  maturity  of 

certificate  of  deposit 813 

Meaning  of  "month" 2497 

Notes,    Date  of  maturity 2496-2499 

Demand  note 2510 

Extensions  and  renewals.  .  .2465-2483,2059-2062 
Clause  maturing  note  upon  failure  to 

deposit  additional  security .2387-2389 

Effect  of  extension  clause  on  negoti- 
ability  2427-2438 

Judgment  notes 2398-2404 

Maturity  of  Sunday  or  holiday  paper 
(see  Holidays,  Saturday  and  Sunday) 
Payment  of  princijial  before  maturity,  2057-2058 
Notes  payable  at  bank 

Bank's  obligation  to  pay  at  maturity.  .2524-2540 

Pavnicnt  after  maturity 2541-2546 

Protest,     Of  unmatured  Paper 2755-2757 

Post  dated  check 1026 

Set-off  where  debt  not  matured 2879-2880 

Trade  acceptance _  146 

Payment  after  maturity 187-190 

Payment  of  interest  after  maturity 150 

Minors  and  Incompetents 

(see  also  Guardians )  2235-2260 

Contracts  of  persons  under  disability 

(see  also  Ciuardians) 2260 

Note  of  aged  maker  under  guardianship 

in  exchange  for  prior  valid  notes. . .  .  2260 


741 


Opinion  Nos. 

Minors  and  Incompetents 

— Continued 

Deposits  of  incompetents 2253-2257 

Authority  of  wife  to  withdraw  savings 

account  of  husband  in  sanatarium .  .  .  2253 
Checks  of  depositor  taking  "gold  cure"  2255 
Payment,     Of  deposit  to  foreign  com- 
mittee of  lunatic 2257 

Bank  draft  in  hands  of  insane  joint 

payee  who  has  disappeared 2183 

By  Georgia  bank  of  check  of  minor 

and  of  insane  depositor 2256 

Of   certificate  of  deposit   to  insane 

payee 804 

To  incompetent  depositor,  unsafe. .  ."  2254 

Deposits  of  minors 2235-2250 

Applicability  to  national  bank,  Of 
Kansas  statute  authorizing  pay- 
ment of  deposit  to  minor 2243 

Maryland  statute 2246 

New  York  statute 2244-2245 

Deposit  by  A,  trustee  for  minor 2248 

Payment  by  Idaho  bank  of  check  of 

minor 2250 

Time  certificate  payable  to  minor 2247 

Indorsement  by  minor 2249 

Withdrawal,     By  parent 2238-2242 

Minor  has  no  legal  capacity  to  with- 
draw except  by  statute 2236 

Parent  as  natural  guardian  cannot 

control  deposit 2237 

Minors  as  agents  and  mortgagors 2251-2252 

Payment  of  check  to  infant  agent 2251 

Power  of  infant  to  buy  and  mortgage 

real  estate 2252 

Minors  as  stockholders 2258-2259 

Infant  as  joint  owner  of  national  bank 

stock 2259 

Of  national  bank 2258 

Trustee  cannot  borrow  money  on 
security  of  trust  funds  for  personal 
use 2595 

Mistake 

Certification    by    mistake    of    stopped 

check,  Revocation 71 

Revocation  of  acceptance  made  through 

error 118 

Checks,  Check  stopped  because  of  error 

in  amount 3024 

Bank's    liability    in    paying    stopped 

check  by  mistake 2995-2996 

Cashier's  check  erroneously  issued  for 

too  large  an  amount 3059 

Check  drawn  on  another  bank  through 
error    and    charged    to    customer's 

account 989 

Mistaken  payment  of  customer's  check 

from  specific  deposit 1346 

Overpayment  by  mistake 984,1746 

Deposits,    Checking  out  money  credited 

by  mistake 1739 

Erroneous    credit,    overpayment    and 

dispute. 1383-1392 

Mistaken  payment  to  wrong  person, 

Liability  of  bank  employee 629 

Drafts,     Mistakes  in  payment 1413-1415 

Erroneous  delivery  of  Liberty  Bonds .  .  2960 

Garnishment     notice    with    incorrect 

name 382-383 

Indorsement  by^mistake 1670 


Opinion  Nos. 

Interest     shortage     discovered     after 

account  stated  and  settled.  ........  2051 

Mortgage  containing  wrong  description .  2284 

Notes,  Effect  of  note  reading  February 

30th 2496 

Underpayment  by  mistake 2506 

Overdrafts,  Mistaken  charge  of  overdraft 

received  by  mail 2557 

Recovery  of  money  paid  on  overdraft 

because  of  erroneous  credit 2568,2571 

Pass-books,     Duty  of  depositor  to  ex- 
amine    2577 

Mistaken  entry 2574 

Payment  of  legacy  to  wrong  person .  .  .  1269 

Raised  checks  mistakenly  paid.    Liabil- 
ity of  officer  (see  also  Altered  and 

Raised  Paper) 627-628 

Money  paid  under  mistake  of  fact  is 

ground  of  recovery 271 

Mortgages  and  Liens. .  .2261-2318 

Chattel  mortgages 2261-2281 

After  acquired  property 2268 

Chattel  mortgage  by  A  to  C  of  property 

A  has  agreed  to  sell  B 2273 

Colorado  statute  allowing  thirty  days 

after  maturity  to  take  possession .  .  .  2280 

Combined  note  and  chattel  mortgage 

non-negotiabe 2392-2393 

Date 2262 

Form  in  Wyoming  to  secure  additional 

advances 2266 

Future  crops 2269 

Joinder  of  wife  in  chattel  mortgage  for 

purchase  price  unnecessary 2261 

Ohio  law 2276 

Recorded  chattel  mortgages.  Priority  of 

record  determines  priority  of  lien.  2272 

Doubling  registry  or  filing  of  mort- 
gage   embracing    both    real    and 

personal  property 2275 

Purchaser    of    goods    covered      by 

recorded  mortgage 2278 

Requirement  of  filing  in  Idaho 2271 

Right    of    recorded    mortgagee    as 

against  subsequent  agister's  lien .  .  2274 

Release  in  Nebraska 2281 

Rights  of  mortgagee  superior  to  garnish- 
ing creditor  of  mortgagor — ^LiabiUty 

of  clerk  of  sale 2279 

Rights  of  purchaser  and  mortgagee  of 

stolen  cattle 2277 

Statement  of  amount  secured 2267 

Sufficiency  of  consideration 2264 

Affidavit  of  consideration  under  New 

Jersey  statute 2263 

Validity  of  chattel  mortgage  securing 

pre-existing  indebtedness 2265 

Widow's  statutory  rights  in  mortgaged 

personal  property  in  Missouri 2270 

Extension  of  time  payment 2298-2301 

Extension  of  mortgage  debt  at  greater 

rate 2300 

Methods  of  extending  unpaid  mortgage 

security 2298-2299 

Partial  payment  by  and  extension  to 

sole  heir  of  mortgagor 2301 

Foreclosure  of  mortgage 2311-2313 

Forclosure,     Of  second  mortgage 2312 

Of     mortgage     securing     corporate 

bonds — Liability  of  guarantors.  .  .  2313 

Remedy  in  Iowa 2311 

Insurance 2302 

Mortgage  clause  in  insurance  policies. .  2302 


742 


Opinion  Nos. 

Mortgages     and     Liens — 

Continued 

Liens 2314-2318 

Laborer's  lien  as  chattel  mortgage  on 

crop 2317 

Landlord's  lien,     On  crops 2315 

Statutory  lien  on  crops  for  rent  in 

Kansas 2316 

Priority  between  mortgage  and  me- 
chanics lien 2314 

Vendor's  lien  note  v.  chattel  mortgage.  2318 

Minors  as  mortgagors 2251 

Mortgage  notes,  Assignment  not  a 
j)reference  in  bankruptcy  in  stated 
case 669 

Combined  note  and  chattel  mortgage 

non-negotiable 2392-2393 

Indorser  discharged  by  failure  of  pre- 
sentment    2016 

Set-off    of    unmatured    note    against 

garnishced  account 2880 

Transfer  of  note  and  mortgage  without 

indorsement 1983 

Payment  and  satisfaction 2305-2310 

Notice  of  intention  to  pay  principal  at 

maturity  of  interest  installment ....  2305 

Payment  of  coupons  on  called  bonds.  .  2310 

Place  of  payment  of  mortgage  note.  .  .  2308 

Power  of   V'ice   President  of  national 

bank  to  satisfy  mortgage 648 

Release  by  alternative  payee  of  mort- 
gage note 2306 

Satisfaction  acquired  by  bank  merger .  2307 

Satisfaction  of  record  after  death   of 

holder 1287 

Surrender  by  mortgagee  of  uncancelled 

note  and  mortgage  to  stranger 2309 

Questions  of  priority 2289-2297 

Agreement    subordinating    senior     to 

junior  mortgage 2289 

Assignment  of  negotiable  note  secured 

by  mortgage 2292 

Priority,  Of  mortgage  lien  over  subse- 
quent judgment 2293 

Between  judgment  and  mortgage 2294 

Of  judgment  over  mortgage  discharged 

by  payment  and  subsequently  pledged         2295 

Extended  first  mortgage  retains  priority 

over  second  unless  outlawed 2297 

Mortgage  to  secure  future  advances — 
Priority  over  second  mortgage  where 
advances  made  after  second  mort- 
gage recorded 2291 

Recorded  writing  subordinating  first  to 

second  corporate  mortgage 2290 

Second  mortgage  cannot  claim  priority 

because  first  mortgage  extcndctl ....  2296 

Real  estate  mortgages  and  deeds  of 

trust— Parties  and  contents 2282-2286 

Difference  between  deed  of  trust  and 

mortgage 2286 

Mortgage  covering  other  indebtedness.  2285 

Mortgage  in  name  of  cashier 2282 

Signature  of  wife  to  purchase-monej' 

mortgage  without  signature  to  note.  2283 

Wrong  description  in  mortgage 2284 

Statute  of  limitations 2303-2304 

Fifteen  year  period  in  Minnesota 2303 

Twenty  year  i)eriod  in  New  York 2304 

Taxation 3110-3111 

Deduction     of     amount     invested     in 

mortgages,  rouiinitation  of  tax 3096 

Stamp  tax,  On  deed  where  considera- 
tion $5000  but  mortgage  $2000  on 
notes  secured  by  mortgage 3128 


Opinion  Nos. 
Where  consideration  of  deed  is  $1500 
cash   and   an   assignment   of   $2500 

mortgage 3141 

Validity  of  mortgage 2287-2288 

Clause  requiring  mortgagor  to  pay 
taxes  upon  mortgage  debt  in  addi- 
tion to  maximum  interest 2287 

Execution  on  holiday 1772 

Execution     within     four     months     of 

Bankruptcy 671 

Substitution     of     mortgage     within 

four  months  not  a  preference 662 

Relinquishment    of    h,omestead    after 

mortgage  thereof 2288 

Warehouse  receipt  for  mortgaged  goods  3148 

Banks,     Responsibility  for  collection. .  1069 

Loan  by  national  bank  on  mortgage,     535-536 
Power  of  Vice  President  of  national 

bank  to  assign  or  satisfy  mortgage  648 

Names  (see  also  Signatures) 

Change  of  name  by  individual 1283 

Deposit,      By   one   person   in   name   of 

another 1331-1336 

Account  opened  by  husband  in  name 

of  wife  and  daughter 1378 

By  married  woman  in  former  name .  .  .  1375 

In  two  names 131 1-1319 

Garnishment    notice    with    incorrect 

name 382-383 

Indorsement,    By  person  of  same  name,  1628-1640 

In  trade  names 1816-1818 

Prefix  "Miss"  or  "Mrs."  unnecessary,  1882-1887 
"Trust    company"    as    part    title    of 

national  bank 592 

National  Banks  (see    Banks, 
etc.,  National  Banks) 

Negligence    and    Duty    of 
Care 

Bank's  liability  for  injury  to  customer 

on  premises 503 

Checks,    Blank  spaces  carelessly  left ..  .     291-296 

Delav  in  notification  of  forgery 1618-1627 

Delay  in  presentment. 2670-2674,1051 

Duty  of  care,    In  preparing  check ....     827-828 

Of  check  book .  829 

Stamping  amount  in   figures   or  in 

words •  842 

Duty     to     report     alteration     within 

reasonable  time 356-359 

Paj'ment  of  forged   check  chargeable 

when  drawer  is  negligent 1423-1438 

Payment  of  stopjicd  check 3009-3016 

Collection,    Circuitous  routing 1071-1079 

Bill  of  lading  draft. 1067 

Misdirecting  to  consignee 738 

Violation  of  instructions 734-735,740 

Default  of  correspondents 1099-1105 

Limitation    of    liability    by    special 

agreement 1 106-1 1 10 

Forwarding  direct  to  drawee 1080-1098 

Where  only  bank  in  place 1092-1095 

Negligence  of  collecting  bank 

1115-1141.1153,1157 

Deposits,    Duty  of  care  in  safekeeping. .  1350-1367 
Depositor  objecting  to  account  stated 

after  8  years  estopped  by  laches.  .  .  .  1297 

Savings  bank's  duty  of  care  in  paving 

deposit ' " .  .  .2592-2593 

Liability  of  bank  officers  directors  and 

employees  to  bank  for  negligence.  . .     625-631 


743 


Opinion  Nos. 

Negotiability 

Certificate  of  deposit 788-792 

Payable  "In  current  funds" . 801-803,822 

"On  return  when  properly  indorsed"  2168 

Checks,    Negotiability  (see  also  Checks)     887-897 

Bearer  checks 878-883 

Check  not  payable,  "Through  Federal 

Reserve  Bank" 895-897 

"Through    express    company    or 

post  office" 1054-1057 

Check  payable,    "To  order  of  self" .  .  .  2706 

"At    par    through    N.    Y.    Clearing 

house"         1060 

"Through  A.  B.  Bank" 1058-1059 

Counter  checks 2157 

Effect  of  provision  "in  Exchange" ....     875-877 

Effect  of  remittance  stamp 75 

In  figures  only 837-841 

On  non-existent  bank 2704 

Undated  checks 972-973,2716 

Voucher  checks 991-994 

"Duplicate  unpaid"  stamped  on  draft.  1406 

Elevator  storage  ticket 3149 

Notes  (see  also  Notes) 2414-2454 

Collateral  notes 2387-2393 

Effect  of,    Extension  clause 2427-2438 

Attorney's  fee  clause 410-428 

Clause  that  mortgagor  shall  pay  taxes  2287 

Interest  clause 2039-2042 

Indorsement  declaring  note  free  from 

off-sets  and  consenting  to  negotiation  1805 

Installment  note  payable  to  order  of 

bank 2410 

Judgment  notes 2398-2404 

Live  stock  notes 2412 

Negotiable  notes  as  collateral 2617-2623 

Note  with  payee's  name  missing 2360 

Pass-books 2209-2216,2580-2581,2584-2589 

Seal  does  not  destroy  negotiability 2373-2375 

Stock  certificates 1215 

National  bank  stock 715 

Trade  acceptance 141-158 

Warehouse  receipt 3145 

Warrants,     Municipal. .2952-2953 

City  warrant  not  negotiable,  but  in- 

dorser  warrants  validity 2953 

County 2737 

State  warrants 2955 

Township  order 2954 

Negotiable   Instrument 
Law — Provisions 

Banker's  acceptance.     Drawer's  liabil- 
ity to  holder 114 

Bearer  checks 1999 

Special  indorsement 2008,  2010 

Transferable  by  delivery 881 

Checks,    Negotiability 887-897 

Bank's  obligation  to  pay  runs  only  to 

drawer 2566 

Blank  spaces  left  imfilled 844-845 

Check  does  not  operate  as  an  assign- 
ment   1255 

Definition  of  inland  and  foreign  bill .  .  .  855 

Given  for  gambling  consideration 884-886 

Holder  in  due  course  of  stopped  check,  3017-3048 

In  figures  only 837-841 

Non  recovery  by  drawee  of  money  paid 

on  forged  check  in  Oklahoma 1470 

Signature  may  be  made  by  agent 860 

Validity  of  typewritten  check 843 

Words  and  figures  differ 831-835 


Opinion  Nos. 
Indorsement,     By  payee  whose  name  is 

misspelled 1892 

Accommodation  indorser's  liability ....     204-205 
Indorser  discharged  by  agreement  to 

extend  time  of  payment 2020 

Irregular  indorser's  liability 1963 

Of  instrument  payable  to  two  or  more 

payees 1823-1825 

Restrictive  1940 

Warranty  of  indorser'. '. '. .  .' .  .  . .  .  .  .1858,1900,1902 

Instrument  obtained  through  fraud, 

force,  duress  or  fear 2181 

Negotiation    of    instrument    an    un- 
reasonable length  of  time  after  issue,  2184 
Notes,    Blank  space  filled  in  "in  accord- 
ance with  authority" 2360-2361 

Judgment  notes 2398-2404 

Liability  of  one  who  signs  in  trade  or 

assumed  name 1818 

Negotiability  of  note  payable  "to  order 

of  myself" 2415 

Surety  makers  not  discharged  by  ex- 
tension  2471-2477 

Unstamped   note   not   "complete   and 

regular  on  its  face" 3137 

Notes  payable  at  bank 2524-2540 

Notice  of  dishonor.    How  given 2815-2816 

Time  of  giving  notice 2817 

Presentment,    Days  of  grace  abolished .  2494 

Where  check  is  lost  or  destroyed 2151,  2659 

Burden  of  proof  of  payee's  indorse- 
ment   2138 

Within  reasonable  time 742-743,1810,2667 

Protest,    Inland  check 2698 

Check  retained  by  payor  without  con- 
sent   2692 

Check  with  missing  indorsement 2725 

Instrument   drawn   in   one   state   and 

negotiated  in  another 2742-2750 

Must  be  made  on  day  of  dishonor  unless 

excused 2758 

No  provision  for  protest  of  non- 
negotiable  instrument 2736 

Sealed  instruments 2373-2375 

Stale  checks 974-976,2674 

Trade  acceptance 124 

Suggestion  as  to  amending  Nebraska 

law 182 

Non-Negotiable  Paper 

Bill  of  lading  drafts 780-782 

Certificate  of  deposit.  Effect  of  words 

"not  transferable" 788 

Advantages  and  disadvantages  of  non- 
negotiable    form 790 

Indemnity  not  necessary  where  certifi- 
cate lost 2171 

Payable  "in  current  funds"  in  Iowa. .  .  802 

Payment  of  non-negotiable  certificate 

to  third  person 805 

Checks,  Counter  checks 929,  2660 

Check  payable  "on  April  1st  if  then 

living" 892 

Liability  of  indorser  on  non-negotiable 

check 1798 

Voucher  check 994 

Notes,    Clause  authorizing  confession  of 

judgment  at  any  time 2398-2400,2404 

Combined  note  and  chattel  mortgage . .  2392-2393 

Containing  provision  authorizing  holder 
to  take  and  sell  all  mortgaged  prop- 
erty   2392 

"Non-negotiable"  written  across  face. .  2416 

Stamp  tax 3136 


744 


Opinion  Nos. 

Non-Negotiable  Paper — Cont'd 

Protest,    Not  required  of  non-negotiable 

instruments 2736-2741 

Counter  check 2660 

Draft  "payable  at  sight  on  arrival  of 

car" 2738 

Public  and  municipal  securities  (see 
that  title) 
Warehouse  receipts 3146 

Notaries 2319-2356 

Certificate    of    protest,       Of    foreign 

notary  as  evidence 2774 

Signed  by  notary's  clerk 2773 

Written  in  foreign  language , . . .  .  862 

Competency  of  bank  and  corporation 

notaries 2319-2323 

Acknowledgment  of  paper,     Held  by 

bank  as  collecting  agent 2322,  2328 

Owned  by  bank 2327 

Legislation 2319 

Notary-stockholder  of  mortgage  bank 

2326,2324,2321,2342 

States  considered 

Alabama 2319 

Arkansas 2321 

California 2323 

Colorado 2324 

District  of  Columbia 2322 

Florida 2325 

IlUnois 2326-2328 

Indiana 2329 

Iowa 2330 

Kansas 2331 

Massachusetts 2332 

Missouri 2333-2334 

Nebraska 2335 

New  Hampshire 2336 

Ohio 2337 

Oklahoma 2338 

Pennsylvania 2339 

South  Carolina 2340 

Tennessee 2341 

Texas 2342 

Wisconsin 2343 

Other  states 2319 

Weight  of  authority  unless  changed 
by  statute  disquaUfies  notary  stock- 
holder   2325 

Disqualification  by  relationship  or  where 

party  to  instrument 2348-2349 

Brother  of  mortgagee  taking  acknowl- 
edgment    2348 

Disquahfication  of  notary  as  trustee ....  2349 

Eligibility  of  woman  as  notary 2347 

Qualified  elector  in  Mississippi 2347 

Fees 2353-2356 

Alabama 2353 

Exemption  from  taxation 3120 

Iowa 2355 

Right  of  bank  to  share  notary's  fee .  .  .  2356 
Right  to  charge  for  notice  of  dishonor 

given  to  collecting  bank 2354 

Form  of  acknowledgment 2350-2352 

Acknowledgment  over  telephone 2351 

Certificate  valid  where  in  substantial 

compliance  with  statute 2350 

Jurisdiction  of  notary 2345 

Protest  in  government  camp 2345 

Prerequisite  of  appointment 2346 

Notary  not  living  in  state  one  year ....  2346 


Opinion  Nos. 

Notes  (see  alsoNotes  Payable 

at  Bank) 2357-2523 

Accommodation  notes  (see  Accommo- 
dation Paper) 
Action  on  notes 2510-2514 

Against  maker  and  indorser 2511 

Against   maker  who   has  removed  to 

another  state 2514 

By  executor  of  deceased  payee 2513 

By  non-resident  corporation 1204 

On  demand  note 2510 

Enforcement  of  secured  or  unsecured 

notes  in  bankruptcy 654,  656 

Indorser  can  be  sued  as  soon  as  liability 

fixed 2512 

Banks,  Agreement  of  clearing  house 
members  to  purchase  notes  through 
each  other  rather  than  through  note 
brokers .  103S 

Discount  of  worthless  notes  as  ostensible 

lumber  paper 1736 

Loan    to    bank    on    personal    note    of 

executive  officer 470-471 

Meat    packers   notes   not   commercial 

paper  in  stated  case 554 

Power  to  purchase  notes 452 

Sale  of  notes  with  agreement  to  re- 
purchase    457 

Blank  spaces 2359-2361 

Blank  space  filled  in   "in  accordance 

mth  authority" 2361 

Name  of  payee  missing 2360 

Unfilled    blank   for   personal   pronoun 

referring  to  maker 2359 

Collateral  notes   (see  also  Pledge  and 

Collateral) 2386-2395,2597-2609 

Assignment  of  collateral 2395 

Clause,    Maturing  note  upon  failure  to 

deposit  additional  collateral 2387 

Authorizing  holder  to  take  and  sell 

mortgaged  property 2392 

Maturing  note  if  collateral  depreci- 
ates   or    additional    security    not 

deposited 2389 

Permitting  sale  of  collateral 2390-2391 

Combined  note  and  chattel  mortgages.  2393 

Form 2386 

Illinois  Central  stock  interest  certifi- 
cates   2394 

Negotiable  notes  as  collateral 2617-2623 

Warehouse  collateral  note 3150 

Conditional  sales  notes 2411 

Filing  of  copy 2411 

Consideration 2413 

Note  signed  by  A  and  proceeds  credited 

toB 2413 

Recital  of  consideration 2417 

Of  executory  consideration 2419-2422 

Renewal  of  note  as  new  consideration .  2480 

Conversion  of  notes  by  iimkeeper 1749 

Corporations  as  parties 2383-2385 

By-law  of  co-operative  association 
providing  for  members  sharing  liabil- 
ity on  its  notes 2385 

Corporation  as  accommodation  maker 

and  indorser 218-222 

Indorsement  by  corporation 1819-1820 

Renewal  note 2384 

Liability  of  accommodation  indorser  on 

corporation  note 214-216 

Note  of  municipal  corporation 2383 

Date .• 2357 

Date  of  maturity  where  no  correspond- 
ing day  in  month  of  maturity 2499 


745 


Opinion  Nos. 

Notes — Continued 

Date — Continued 

Note  dated  Sunday 1778 

Note  with  impossible  date 2496 

Post-dated  note 2357 

Demand  notes,    Interest  on 2063-2067 

Reasonable  time,     For  negotiation ....  2453-2454 

For  presentment 2665-2667 

Statute  of  limitations 2515-2519,810 

Extension  and  renewal 2465-2483 

Acceptance     of     note     with     renewal 

privilege ■;  620 

Bmding  nature  of  extension 2465 

Death    of    maker    after    execution    of 
renewal    but    before     maturity    of 

original  note 2483 

Extension    to    assignee    of   mortgaged 

property 2470 

Indorsers  consenting  to  extension  after 
maturity  released  by  extension  before 

maturity 2474 

Interest  Payments,     Extension  of  de- 
mand note  by  payment  in  advance  2466 
Payment    of    interest    in    advance 

prima  facie  evidence  of  extension .  2469 

Receipt  of  past  due  interest  not  an 

extension 2468-2469 

Release  of  accommodation  indorser 
by    holder    receiving    interest    in 

advance 2467 

Liability  of  accommodation  party  on 

renewal  note 207-208,234 

Indorsement  by  corporation 2384 

Release  by  extension  of  time 236-243 

Release  of  non-consenting  indorser  by 

extension 2475-2476 

Renewal  of  agent's  note  in  ignorance  of 

principal's  death 1256 

Stamping  original  "paid"  on  taking  of 

renewal 2478 

Surety-makers,      Not    discharged    by 

extension 2471-2473 

Additional  surety  signing  at  maturity 

condition  for  renewal 2480 

Extension  granted  on  forgery  of  their 

consent 2477 

Taking  new  note  and  retaining  old. . . .  2481 

Holding  old  note  as  collateral 2482 

Renewal  note  taken  without  signa- 
ture of  surety  on  retained  original 

note 2479 

Execution  on  holiday 1772 

Federal  reserve  notes  as  Reserve 524 

Forgery 1672-1674 

Guaranty  of  payment  (see  also  Guar- 
anty)   2484-2488 

Guaranty  of  paymept.    By  payee  after 

indorsing  note  without  recourse . . .  2486 

By  president 2488 

By  separate  instrument 2485 

Letter  construed  as  guaranty  of  pay- 
ment   2484 

Liability    of    guarantor   when    cashier 

buys  his  own  note  for  bank 2487 

Note  of  warehouse  company  guaranteed 

by  national  bank 572 

Indorsement  (see  Indorsement) 

Installment  notes 2409-2410 

Dishonor 2819 

Note  payable  to  order  of  bank  to  be 
paid  into  maker's  industrial  savings 

account 2410 

Transferee  where  installment  overdue 

not  a  holder  in  due  course 2409 


Opinion  Nos. 
Interest  and  usury,  on  notes  (see  that 
title) 

Joint  and  several  notes 2378-2382,2521-2522 

Forms 2378 

Indorsement   by   joint   or   alternative 

payees 1823-1824 

Joint  note  of  corporation  and  individual  2381 

Note,    "we  promise  to  pay"  signed  by 

A,  Principal  and  B,  Surety 2379 

"I"  promise  to  pay  signed  by  two  or 

more 2380 

Right  of  joint  maker  taking  up  note  to 

enforce  against  co-maker 2382 

Judgment  notes 2396-2408 

Advantages. 2396 

Clause  authorizing  confession  of  judg- 
ment.    At  any  time 2398-2400 

If  not  paid  at  maturity 2401 

Unfilled    blanks    in    confession    of 

judgment  clause 2402 

Discharge  of  surety 2407 

Entry  of  judgment  against  indorser .  . .  2406 

Judgment  note  does  not  cover  new  loan  2408 

Negotiability 2403 

Power  of  attorney  on  back  binds  first 

indorser  only 2405 

Suggestion  of  negotiable  form  of  con- 
fession of  judgment 2404 

Validity 2397 

Liability  of  parties 2462-2464 

Indorsement  without  recourse 2462 

Maker  not  subject  to  garnishment  in 

suit  against  payee 377 

Note  broker's  liability 2463 

Provision  that  all  parties  be  regarded  as 

principals 2464 

Live-stock  notes 2412 

Negotiability    affected    by    provisions 
such  as  retaking  possession,  keeping 

and  non-removal  of  stock 2412 

Mortgage  notes  (see  also  Mortgages  and 

Liens) 1069 

Place  of  payment 2308 

Transfer  without  indorsement 1983 

Negotiability  (see  also  that  title) 2414-2454 

Advantage  of  demand  note  over  note 

payable  one  day  after  date 2454 

Clauses,    Attorney  fee  clause 407-428 

Agreement  of  sureties  to  renew 2439 

Agreement  that  sureties  shall  be 
liable  as  principals  and  consenting 
that    holder    may    release    other 

makers  on  renewals 2449 

Compound  interest 2426 

Giving  justice  of  peace  jurisdiction 

up  to  $300 2442 

Indorsement  declaring  note  free 
from    off-sets    and    consenting   to 

negotiation 1805 

"Payable  at  Bank"  . 2425 

Provision  that  unpaid  interest  and 
principal  shall  bear  increased  rate 

after  maturity 2441 

Effect  of  extension  clause  on  negotiabil- 
ity   2427 

Arizona 2428 

Colorado 2429 

Idaho 2430 

Iowa 2431-2433 

Kansas 2434 

Missouri 2435-2436 

Oklahoma 2437 

Tennessee 2438 

Necessity  that  note  be  payable  to  order 

or  bearer 2414 

"Non-negotiable"  written  across  face. .  2416 


746 


Opinion  Nos. 

Notes — Continued 

Negotiabilty — Continued 

Not  affected  liy  waiver  of  presentment, 

protest  and  notice 2451 

By  waiver  of  homestead  and  exemption 

rights 2452 

Note,       Containing     statement     that 

instrument  is  renewal  note 2440 

Not  payable  at  bank 2424 

Payable,    To  "A  and  others" 2423 

"In  New  York  Exchange" 2447 

"On  or  before"  specified  date 2448 

Retaining  vendor's  lien 2450 

To  "order  of  myself" 2415 

Option,     To  declare  note  due  on  non- 
payment of  interest 2445-2446 

To  declare  note  due  before  maturity  2443 

Reasonable    time    for    negotiation    of 

demand  note 2453 

Recital  of  consideration 2417 

Of  executory  consideration 2419-2422 

Statement  of  transaction 2418 

Payment 2489-2509 

Agreement  by  holder  with  indorser  to 
receive  payment  of  protested  note  in 
installments  does  not  discharge  prior 

indorser 2495 

Application  of  payment 2504-2505 

By  accommodation  indorser 217 

By  indorser 2493 

Designation  of  place  of  payment 2490,2308 

During  evening  banking  hours 434 

Law  of  place  of  payment  governs 2509 

Partial  payments.    Before  maturity  by 

consent 2508 

Release  of  indorser 2019 

Payment,      Before    maturity    without 

requiring  surrender 2501 

By    application    of    deposit    before 

maturity 2503 

To  agent  without  authority 2500 

Without  requiring  surrender  of  note 

— Liability  to  transferee 2502 

Proof  of  payment 2507 

Protest  of  note  where  check  given  in 

payment  dishonored 2764 

Provision  for  payment,    In  gold  coin . .  2489 

"With  exchange" 2491 

"With    exchange"    and    "with    ex- 
change on  New  York" 2492 

Time    of   payment,     Of   note   having  ••*  ^ 

impossible  date 2496 

Date    of    maturity  where  no  corre- 
sponding day  in  month  of  maturity         2499 
Rules     for     determining     date     of 

maturity 2497-2498 

Where  grace  aV^olished  before  maturity         2494 

Underpayment  by  mistake 2506 

Requirement  as  to  writing 2358 

Two  kinds  of  handwritting  in  body  of 

note 2358 

Rights  of  holder 2455-2461 

Bank  holding  note  not  obliged  to 
charge  to  indorser's  account  in  relief 

of  maker. 2458 

Enforceability,     By  Bank  where  note 
obtained  by  payee  in    fraudulent 

deal 2459 

By  holder  in  due  course  where  note 

procured  by  trickery 2460 

Of    homestead    exemption     waiver 

clause 2455 

Knowledge  of  director  from  whom  note 
purchased    not   chargeable    to   pur- 


Opinion  Nos. 

chasing  bank 2461 

Maker's  defense  against  payee  not 
available  against  discounting  bank, 

holder  in  due  course 2457 

Note  indorsed  in  blank  by  payee  and 

lost 2195 

Recital  that  note  secured  by  vendor's 

lien  as  notice  of  contents  of  deed .  .  .  2456 

Seal 2373-2377 

Does  not  destroy  negotiabiUty 2373-2374 

Of  corporation 2375 

To  signature  of  indorser  of  judgment 

note 2377 

To  signature  of  judgment  note 2376 

Set-oflf  (see  that  title) 

Signature  (see  also  that  title) 2362-2372 

By  mark  attested  by  witness 861 

Corporation  note  to  own  order  signed 
by  treasurer  and  secretary  and  in- 
dorsed by  secretary 2372 

Individual   liability   of   officer  signing 

corporation  note 2371 

Omission  of  prefix  "by" 2366 

Proper  form  on  corporation  note 2369 

Signature,      By    "A    Corporation,    B 

Treasurer" 2367 

"Doe  Company,  John  Doe,  President"         2370 

"John  Jones,  Treasurer" 2368 

To  corporate  note 2365 

To  partnership  note 2363-2364 

Third  maker  signing  under  bottom  line  2362 

Use  of  trade  or  assumed  name 1816-1818 

Stamp  tax 3128-3137 

Statute  of  limitations  (see  also  that 

title) 2515-2523,810 

Acknowledgment  as  reviving  debt ....  2523 

N.  Y.  statute  on  guaranty  of  payment  2520 

Outlaw  of  demand  note  in  California. .  2515 

Louisiana 2516 

New  Jersey 2517 

New  York. 2518 

Pennsylvania 2519 

Partial  payment  by  joint  maker  as 
affecting  running  of  statute  as  to  co- 
maker  2521-2522 

Trade   acceptance   and   note,     Legal 

effect 127-128 

Note  stamped  "This  is  a  trade  accept- 
ance"   : . .  126 

Treasury  notes,     Subject    to  taxation  3106 

Photographing  U.  S.  Notes 1759 

Notes  Payable  at  Bank,  2524-2556 

Attorney's  fee  note  i)ayal)lo  at  l);ink. . .  407 

Bank's  right  to  return  unpaid  note 

before  clo.sc  of  banking  hours 186 

Extent  of  maker's  obligation 2552-2556 

Creditor's  right  to  interest  for  two 
added  davs,  when  note  falls  due  on 

Saturday'. 2048 

Maker's  liability  on  protest  before  close 

of  banking  hours 2556,186 

Maker's  readiness  to  pay  stops  interest 

2552,2553,2050 

Question  of  discharge  of  maker  where 

presentment  omitted  and  bank  fails,  2555 

Where  bank  not  obliged  to  pay  note  at 

maturity,  interest  does  not  stop.  .  .  .  2554 

Joint  parties  and  accounts 2547-2548 

Joint  and  several  note  payable  at  bank 
which   carries   account   of  only   one 

maker 2548 

No  authority  to  pay  A's  individual  note 
out  of  joint  savings  account  of  A 
andB 2547 


747 


Opinion  No3. 

Notes  Payable  at  Bank — 

Continued 

Obligation  of  bank  to  pay 2525-2540 

Bank's  duty,     To  pay  (1)  where  pre- 
sented by  holder  (2)  where  owned 

by  bank 2526 

To    pay    note    and    dishonor    later 

presented  checks 2527 

Note  "payable  to"  and  "Payable  at" 

Indiana  bank 2529 

Purpose  of  statute  making  instrument 
payable  at  bank  equivalent  to  order 

tc  pay... 2539 

States  considered 

California , 2525 

Connecticut 2526 

Florida 2527 

Idaho 2528 

Indiana 2529 

Michigan 2530 

Mississippi 2531 

Missouri 2532-2533 

New  Jersey 2534 

Ohio 2535 

Oklahoma 2536-2537 

Pennsylvania 2538 

West  Virginia 2540 

"Payable  at  bank"  clause  not  necessary 

to  negotiabihty 2425 

Payment  after  maturity 2541-2546 

Authority  to  pay  uncertain 2542,2545-2546 

Payment  of  overdue  and  dishonored 

note  and  accrued  interest 2536 

Charging  note   against   deposit  made 

after  maturity 2544 

Clause  waiving  presentment  does  not 

confer  authority  to  pay  after  maturity  2543 

Overdue  note  presented  to  Arkansas 

bank  for  payment 2541 

Section    87  Negotiable    Instruments 

Act 2524 

Stopping  payment 2967-2971 

Usurious  note 2097 

Where  bank  cannot  pay  without  ex- 
press instructions 2549-2551 

Illinois 2549 

Minnesota 2551 

Notice  of  Dishonor  (see  Pre- 
sentment, Protest  and 
Notice) 

Obtaining  Money  Under 
False  Pretenses  (see 
Fraud  and  Crimes) 

Overdrafts 2557-2572 

Checks  without  funds 940-955 

Remedy  against  habitual  overdrafts. . .     941-942 
Payment  of  post-dated  checks  causing 

subsequent  overdrafts 1012-1013 

Classes  of  overdrafts 2557 

Overdraft  as  excess  loan 551 

Drawee  as  collection  agent  of  holder,  2564-2567 
Drawee  mailing  overdraft  for  collection 
must  pay  later  specific  deposit  as 

directed 2565 

Drawee  paying  subsequent  smaller 
check  while  overdraft  held  for 
collection 2564 


Opinion  Nos. 

Deposit  of  overdraft  on  another  bank .  2567 

Non-liability  of  drawee  to  holder  of 

overdraft 2566 

Liability  of  bank  ofi&cers  and   em- 
ployees for  allowing  overdrafts 630-631 

Payment  by  credit  to  depositor 2461-2563 

Credit    of    overdraft    to    account    of 

another  depositor 2561 

Deposit  of  overdraft  on  same  bank ....  2562 

Set-off  where  depositor  has  two  ac- 
counts   .2924-2928 

Suggested  clause  in  pass-book  giving 
bank  the  right  to  charge  back 
wrongly  credited  overdraft  on  itself .  2563 

Payment  of  overdrafts 2558-2560 

Apparent  overdraft  created  by  payment 

of  raised  check 289-290 

Bank's    right    to    pay    overdraft    of 

depositor 850 

Drawee  not  obliged  to  apply  insufficient 

balance  to  overdraft 2560 

Holder   of   overdraft   has   no  priority 

over  checks  within  balance 908-909 

Mistaken  charge  of  overdraft  received 

by  mail  to  depositor's  account 2559 

Order  of  payment  of  checks  for  more 

than  balance 908-918 

Payment  of  overdrawn  letter  of  credit,  2121-2122 

Payment  to  bona  fide  holder  a  finality,  2558 

Retention  of  paid  checks  as  evidence . .  2576 

Unlawful  overdraft  by  bank  director.  .  634 

Recovery  by  drawee 2568-2572 

Action  on  overdraft  against  maker  and 

indorser 2572 

Charge  of  overdraft,     To   customer's 
account    after    transfer    of    credit 

from  another  customer 2569 

Overdraft    of    one    department    de- 
posited in  another 900 

Collection  of  overdrafts 2570 

Recovery  of  money  paid  on  overdraft 

because  of  erroneous  credit 2568 

Partnership 

Bank  stock  issued  in  name  of  partnership  713 

Checks,    Effect  of  partner's  death 1265 

Given  for  partner's  private  debt 971 

Indorsement  by  partnership 1833 

Stopping  payment,  By  partner 2964 

Check  of  one  partner  to  another. .  .  .  3028 

Deposits,    By  partnership 1368-1370 

Cannot  be  garnished  to  pay  an  in- 
dividual debt 400 

Set-off,  of  partnership  notes 2916-2917 

Of    individual    note    due    insolvent 

bank 2945 

Notes,  Signatures 2363-2364 

Partnership  note,     Cannot  be  set-off 

against  assignee's  account 2917 

Cannot  be  set-off  against  partner's 

individual  account 2916 

Set-off  of  customer's  note  against  his 
account  put  in  partnership  name  to 

defraud  bank 2918 

Surplus  collateral  on  firm  note  cannot 
be    applied    on    partner's    note    in 

absence  of  agreement 2612 

Status  of  claim  of  co-partner  against 

bankrupt  partner 658 

Pass-Books 2573-2593 

Assignment  of  savings  pass-book 2584-2589 

Assignee  takes  only  depositor's  rights,  2584-2585 


748 


Opinion  Nos. 

Pass-Books — Continued 

Assignment — Continued 

Cannot    hold    bank    for    unentered 

withdrawals 2588-2589 

Assignee's  right  against  receiver 2586 

Bank  cashing  draft  on  faith  of  savings 
pass-book,   after  account  closed,   is 

the  loser.... 2587 

Clauses,    Limiting   bank's    liability   for 

correspondent's  defaults 1107-1110 

Stipulation  governing  withdrawals,,  606,2591,2583 

Suggested  clause  giving  bank  right  to 
charge  back  wrongly  credited  over- 
draft on  itself 2563 

Gift  by  delivery  of  pass-book 1379 

Lost  or  stolen  pass-books 2209-2216 

Pass-books 2573-2579 

Comparative  effectiveness  of  clause  on 

pass-book  and  on  deposit  slip 2579 

Duty  of  depositor  to  examine  pass-book,  2577,  360 

Mistaken  entry  of  deposit  in  pass-book 

—Burden  of  proof 2574,1385-1386 

Forged  entry 1671 

Nature  of  pass-book 2573 

Right  of  depositor  to  pass-book  and 
paid  checl^ 2576 

Signature  or  initials  of  receiving  officer 

to  entry  of  deposit 2575 

Validity  as  contract  of  pass-book 
notice  that  checks  credited  con- 
ditionally   2578 

Payment  with  and  without  presenta- 
tion of  pass-book 2590-2593 

Certification  of  depositor's  check  with- 
out presentation 2590 

National  bank  may,  under  its  rules, 
refuse  check  unaccompanied  by  pass- 
book   2591 

Payment  of  savings  deposits  to  wrong 

person  on  presentation  of  pass-book.  2592 

Protest  of  checks,     Payable  "on  pre- 
sentation of  pass-book" 2741 

Check  without  pass-book 2740 

Rules  providing  non-liability  for  pay- 
ment to  wrong  person  do  not  protect 
bank  in  absence  of  reasonable  care. .  2593 

Rules,      Relating    to    forged    order    on 

savings  deposit 1695-1704 

Stopping  interest  after  ten  years  on 

dormant  accounts 2044 

Savings  pass-books 2580-2583 

Binding  effect  rules  without  signature 

of  depositor 2582 

Nature    of    savings    pass-books    and 

rights  of  assignee 2580,  1495 

Not  negotiable 2581 

Rule  of  national  bank  that  pass-book 

must  accompany  check 2583 

Payment 

For  payment  of  the  following  (see  the 
following  titles) : 
Accommodation  paper 
Altered  and  raised  paper 
Bankers'  acceptances 
Bill  of  lading 
Certificate  of  deposit 
Checks 
Deposits 
Dividends 
Drafts 
Forged  paper 


Opinion  Nos. 

Interest 

Letters  of  credit 

Lost  and  stolen  paper 

Mortgages 

Notes 

Notes  payable  at  bank 

Overdrafts 

Post-dated  checks 

Trade  acceptances 

Trust  deposits 
Payment,      After    banking    hours    (see 
Banking  Hours) 

After     death     (see    Death     and     the 
Decedent's  Estate) 

By  mistake  (see  Mistake) . 

In  and  with  exchange  (see  Exchange) . 

In  current  funds 801-803,822 

In  legal  tender  (see  Legal  Tender) 

To     minors     and     incompetents    (see 
Minors  and  Incompetents) 

To  strangers  (see  Strangers) 

With    and    without    presentation    of 
pass-book  (see  Pass-books) 

On  holidays  and  Saturday's  (see  Holi- 
days, Saturday  and  Sunday) 

Acceptance    by    collecting    bank    of 

paper  in  payment  instead  of  monej',  1137-1139 

Application  of  payment 2504-2505,217 

Conditional  payment  by  check.  .  .  .906-907,2152 
Erroneous    credit,    overpayment   and 

dispute  as  to  deposits 1383-1392 

Guaranty  of  payment  (see  Guarantj') . 
Indorser  discharged  bv  payment.  2017-2019,1164 

Partial  payment ". 2507-2508,2623,211 

Payment,    By  credit  to  depositor 2561-2563 

By  insolvent  drawee  bank 1167-1171 

Of  decedent's  deposits 1260-1264 

Of  protested  checks 2295-2298 

Rescission  of  advice  of  credit  or  pay- 
ment  1155-1156 

Second  payment  of  checks 987-988 

Stopping  payment  (see  that  title) 

Use  of  "paid"  stamp. .  .  .1929-1934,919-920,2478 
What  constitutes  payment  of  check 

898-905,1168 

Pledge  and  Collateral  .  .2594-2649 

Accounts  receivable  as  collateral 2614-2616 

.\ssignment    of    accounts,      For    past 

indebtedness 2616 

Of  manufacturing  concern 2615 

Essentials  of  valid  assignment 2614 

Application  of  surplus  collateral 2610-2613 

Application  of  surplus  security,  Pledged 

for  specific  debt 2610 

Provision  in  collateral  note 2613 

Surplus   cannot   be   applied   on   other 

indebtedness  without  agreement.  .  2611 

Surplus  collateral  on  firm  note  cannot 
be   applied   on   partner's  note  in 

absence  of  agreement 2612 

Bankruptcy,     Enforcement  of  secured 

and  un.secured  claims 654-656 

Collateral     previously     received     but 
collected    within    four    months    of 

bankruptcy 672 

Substitution     of     mortgage    collateral 

within  four  months  of  bankruptcy  . .  662 

Substitution   witliin    four   montlis  for 

previously  surrendered  collateral. . . .  664 

Bank's    pledge    of    assets    to    secure 

deposits 459 

Certificate  of  deposit  used  as  collateral 

by  bank  officer 826 


749 


Opinion  Nos. 

Pledge    and    Collateral — 

Continued 

Collateral  notes  (see  also  Notes) 

2597-2609,2386-2395 

Collateral  loans  at  any  rate  of  interest,  2607 

Collateral  to  note  of  foreign  corporation 

executed  in  state 2606 

Contents  of  advertisement  for  sale  of 

collateral 2603 

Indorser's  liability  on  collateral  note .  .  1797 

Liability  of  maker  for  deficiency 2605 

Liability  of  pledgee  to  pledgor  for 
excess  of  collateral  misappropriated 

by  second  pledgee 2608 

Power  of  sale  in  collateral  note 2599-2600 

Power  of  attorney  to  sell  collateral. .  2598 

Remedy  of  bank  on  b/1  collateral  held 

for  mipaid  draft 2609 

Renewal  of  collateral  note  and  increase 
of  loan  within  four  months  of  bank- 
ruptcy   663 

Right  to  apply  collateral  upon  other 

indebtedness 2602 

Pledge    of    security   for    "other    in- 
debtedness"   2601 

Sufficiency  of  single  signature 2597 

Warehouse  collateral  note 3150 

Corporate  stock  as  collateral 2629-2641 

Bank  stock 691-704 

Enforcement  of  lien  of  Kansas  bank 

and  rights  as  against  pledgee 693 

Pledge  of  stock  of  state  bank  sub- 
sequently converted  into  national 

bank 523 

Certificate     of     stock     indorsed     "for 

collateral  purposes" 2631 

Common  stock  pledged  as  collateral 
depreciated    by    issue    of    preferred 

stock 2637 

Husband  pledging  wife's  certificates  in 

District  of  Columbia 2639 

Lien    of    corporation    on    stock    after 

notice  of  pledge 2635 

Necessity  of  book  transfer  to  protect 
pledgee  against  attaching  creditor 
of  corporate  stock  in  Connecticut. .  .  2634 

Pledgee's    right,       To    dividends    on 

pledged  stock 2640 

Of  Georgia  bank  stock  where  new 

certificate  issued  to  pledgor 2636 

Right     of    unrecorded    pledgee     to 
dividends    as    against    attaching 

creditor 2633 

To  dividends  on  unpaid  balance  from 

assets  of  bankrupt  borrower 2641 

Sale,    Under  power  in  note 2629 

of  stock  collateral  on  outlawed  note  2630 

Surrender  of  collateral  to  person  paying 
note,    where    bank    had    notice    of 

rights  of  third  person 2638 

Transfer  of  unindorsed  stock  collateral 
under  power  contained  in  collateral 

note 2632 

Government  securities  as  collateral .  .  .  2624-2628 
Custody  of  U.  S.  Bonds  securing  15 

day  loan 477 

Liberty  bond 2624 

Pledge  by  bank  of  deposited  Liberty 
bonds    for    which    interest-bearing 

certificates  issued 2626 

LTnindorsed  government  bond 2625 

War  Savings  Certificates 2627-2628 

Insurance  policies  as  collateral 2642-2646 

Cancellation   of  fire  insurance  poUcy 


Opinion  Nos. 

held  as  collateral 2646 

Fire  insurance  policy 2645 

Life  insurance  policy 2642 

Oral  pledge  of  life  insurance  pohcy ....  2644 

Wife's   insurance   policy   as    collateral 

to  husband's  note 2643 

Negotiable  notes  as  collateral 2617-2623 

Enforcement 2617 

By  suit  and  by  public  or  private  sale  2620 

Of  negotiable  machinery  notes  pledged  2622 

Liability  of    accommodation    indorser 

on  pledged  note 202 

Original     note     pledged     for   renewal 

note 2479,2482 

Effect  of  extension  of  time  of  pay- 
ment   202 

Part  payment  after  note  assigned 2623 

Right  of  pledgee.    To  collect  negotiable 
note  but  not  to  apply  until  debt 

matures 2619 

Of  negotiable  note 2618 

Sale  before  maturity  of  note  pledged.  .  2621 

New  York  call  loan  statute 2067,  2607 

Interest  on  demand  notes  secured  by 

collateral 2067-2068 

Pledge    of    securities    with    clearing 
house  association  to  secure  draft  in 

settlement  of  debtor  balances 1039 

Real  estate  collateral 2647-2649 

Bond  for  title  given  as  security 2649 

Deeds  pledged  as  collateral 1286 

Pledge  of  title  deeds  to  land 2647 

Remedy   of  pledgee  on  building  and 

loan  collateral 2648 

Right  of  holder  of  depository  bond  to 
look  to  surety  before    resorting   to 

collateral  security 2596 

Set-off  where  bank  holds  collateral 2910-2914 

Straight  bill  of  lading  insufficient  as 

collateral 783 

Trustee  cannot  borrow  on  security  of 

trust  funds  for  personal  uses 2595 

Unrecorded  bill  of  sale  as  collateral .  .  .  2949 

What  constitutes  a  valid  pledge? ....  2594 

Validity  of  warehouse  receipt  as  pledge,  3151-3154 


Post-dated 
Checks) 


Checks      (see 


Power  of  Attorney 


717 


Proxy  under  general  power  of  attorney. . 
Signature  of  checks  by  attorney 

863-865,1250-1253 

To  sell  collateral 2598-2600 

To  transfer  stock 1217, 1221 

Presentment,  Protest  and 

Notice 2650-2855 

By  whom  made,    Presentment 2675 

By  express  company 1047-1049 

By  post   office,   express   company    or 

Federal  Reserve  Bank 1054-1057 

Draft     "payable    through    bank    A" 

presented  to  drawee  by  bank  B . . .  2675 

"Payable  through  bank  B,  collected 

through  clearing  house" 1161 

Restriction  in  channel  of  collection. . . .  1054-1060 

Manner  of  presentment 2682-2685 

Check  not  sufficiently  presented  to 
hold  indorser  where  drawee  refuses 
payment  over  telephone 2683 


750 


Opinion  Nos. 

Presentment,  Protest  and 
Notice — Continued 

Manner  of  presentment — Continued 

Circuitous  routing  of  checks 1071-1070 

Demand  over  telephone  insufficient.  .  .  26S2 

Forwarding  direct  to  drawee  or  payor,  1080-109S 

Where  only  bank  in  place 1092-1095 

Is  mailing  draft  to  drawee  a  demand 

for  payment? 1052 

Presentment  of  sight  draft  over  tele- 
phone   2684 

Priority  where  checks  presented  through 

mail  and  over  counter 2685 

Place  of  payment,    Presentment  at.  .  .2661-2663 
Mailing   notice   to   maker   in   lieu   of 

presentment 2663 

Presentment,      At    bank    other    than 

drawee 2661 

Where    makers    have    moved    from 

place  of  payment 2662 

Presentment  and  demand  for  pay- 
ment   2650-2660 

Demand    and    notice    necessary.      To 

hold  indorser  of  note 2650 

To  hold  accommodation  indorser .  .  .  2655 

Sufficiency  of  demand  and  notice.  .  .  2651 

Diligence  in  presentment 2652 

Discharge    of    indorser    by    omitting 

demand  and  notice 2014-2016 

General  duty  of  collecting  bank 2653 

Bill  of  lading  draft 747 

Note  payable  at  bank 2555-2556 

Usurious  note  payable  at  bank 2097 

Indorser  on  forged  check  liable  without 

demand,  protest  or  notice 2658 

On  hoUdays  and  Saturday  (see  HoUdays, 
Saturday  and  Sunday) 

Post-dated  checks 1005-1028 

Presentment,    For  acceptance 1121-1122 

By     indorsee     of     "non-negotiable 

counter  check" 2660 

In  case  of  lost  instrument 2659 

Not  necessary  to  hold  accommodated 

indorser 2656 

Not  necessary  to  hold  surety-maker.  2657 

Stale  checks 974,976,2674 

Stopping    payment    does    not    excuse 
demand     and     notice     as     against 

indorser 2654 

Time  of  presentment 2664-2674 

Check  must  be  presented  within  reason- 
able time 2669 

Collecting  bank  not  required  to 
present  check  on  day  received 
unless  circumstances  exceptional . .  2670 

Delay  in  presentment  of  check  on 

foreign  bank 2673 

Drawee  withholding  presentment  of 
check  received  by  'uail  for  twenty 
days,  because  of  insufficient  funds.  2671 

Effect  of  non-presentment  for  ten 

years 2674 

Delay  in  presentment  of  b/1  pending 

arrival  of  goods 742-743 

Not  safe  to  hold  indorsed  demand  note 
over  two  or  three  months  unless  it 

contains  waiver  of  presentment 2667 

One    year's    delay   in   presentment  of 

demand  note 2666 

Reasonable  time  for  presentment.     Of 

demand  drafts 2664 

Of  demand  notes 2665 

Ten    days'    delay    in    presentment    of 


Opinion  Noe 

draft  because  of  drawee's  change  of 

address 2672 

Time  limit  for  presentment 2668 

To  whom  made.    Presentment 2676-2681 

Presentment,  By  custom,  of  draft  on 
county  treasurer  to  county  de- 
pository    2676 

At  main  office  of  note  payable  at 

designated  branch 2679 

By  parent  bank  caslung  check  drawn 

on  branch 2680 

Of  draft  addressed  to  drawee  in  care 

of  bank 2677 

Of  indorsed  note  payable  at  bank  to 

maker  personally 2678 

Accommodation  paper,  Protest 225-227 

Certificate  of  protest 2773-2774 

Certificate  signed  by  notarj^'s  clerk .  .  .  2773 

EfTect  of  certificate  in  Illinois 2774 

Double  protest 2799-2801 

Drawer  not  liable  for  double  fees 2801 

Second  protest  of  check  unjustified 2799-2800 

Forged  instruments.    Protest 2734-2735 

Instructions  to  protest  do  not  apply  to 

forged  check 2735 

Protest  of  forged  check  unnecessary. .  .2734, 1669 

Incorrect  indorsements.  Protest 2730-2733 

Protest  where  payment  refused.  Be- 
cause indorsement  incorrect 2730 

Because  check  payable  to  guardian 

is  indorsed  individually 2732 

Because  indorsement  of  certificate  of 

deposit  incorrect 2731 

Because  of  incorrect  indorsement  and 

certification  also  refused 2733 

Instruments  drawn  and  payable  in 
same  state  but  negotiated  else- 
where.   Protest 2742-2750 

Checks,      Payable    in    one   state    and 

negotiated  in  another 2742 

Dated    and    payable    in    Nebraska 

though  written  and  cashed  in  Iowa  2744 

Dated    and    payable    in    Wyoming, 

indorsed  outside  state 2743 

Negotiated  in  another  state 2745-2748 

Note  payable  in  another  state 2750 

Missing  indorsements.    Protest 2724-2729 

Protest,    Of  check  because  indorsement 

missing 2725 

Because  indorsement  lacking 2724 

Because  payee's  indorsement  lacking 
although  indorsed  by  depository 

bank 2727 

Of  draft  because  accompanying  b/1 

not  indorsed 2729 

Where  third  person   presents  check 

lacking  payee's  indorsement ......  2726 

\\herc  jiayec's  indorsement   lacking 

and  i)rior  indorsements  guaranteed  2728 

Missing  signatures,    Prt)test .2720-2723 

Protest,     Where  maker's  stamp   indi- 
cates lack  of  necessary  signature. .  2720 
Where  one  of  two  necessary  signa- 
tures   of    officers    of    corporation 

mi.'^.sing 2721-2722 

Non-negotiable  instruments,  Protest ,  2736-274 1 
Draft,     "Payable  on  arrival  of  goods" 

not  protestable 2736 

Payable  "at  sight  on  arrival  of  car".  2738 

"Payable  in  Kansas  City  exchange"  2739 

"Payable  on  arrival  of  goods" 781 

Check,    Against  savings  account 2740 

Payable   "on   presentation   of  pass- 
book"   2741 

County  warrant 2737 


751 


Opinion  Nois. 

Presentment,  Protest  and 
Notice — Continued 

Payment  of  dishonored  or  protested 

checks 2795-2798 

Authority  of  bank  to  pay  after  protest .  2795 
Drawee  has  no  authority  to  pay  pro- 
tested check  and  fees 2796 

Liabihty  to  drawer  where  bank  pays 
dishonored  check  on  second  pre- 
sentment after  drawer  has  paid 
same  without  requiring  surrender. .  .  2797 

Tender  by  drawer  on  day  of  dishonor  of 

amount  of  protested  check  and  fees .  279S 

Place  of  protest 2769-2770 

Protest  of  draft  at  place  where  drawee 
addressed  although  drawee  located 

elsewhere 2769 

Where  no  notary  in  place  where  drawee 

bank  located 2770 

Protest 2686-2719 

Abolition  of  protest 2686 

Accommodation  indorser  of  note  can  be 
held  by  demand  and  notice  without 

protest 2689 

Draft  payable  "with  exchange" 1404-1405 

Drawee's  duty,    To  protest  when  check 

presented  over  counter 2709 

Drawee  acting  as  agent  of  payee 2714 

Drawee  not  liable  to  payee  for  omis- 
sion to  protest 2715 

Where  check  received  through  mail,  2712-2713 
Duty  as  between  drawee  and  presenting 

bank 2710 

Presenting  bank  in  same  city  should 

protest  check 2711 

Instruments  which  require  protest ....  2687 

Liabihty  of  collecting  bank,    Omitting 

protest  and  delaying  retiun  of  draft  2697 

Omitting  protest  of  inland  check 2700 

Omitting  to  have  check  protested . . .  2688 

Not  necessary  against  deceased  maker.  2695 

Object    of    protesting    inland    bill    of 

exchange 2699 

Protest  for  non  certification 70 

Protest  of  check,    On  Branch  held  by 

parent  Bank 2691 

Bearing  multilated  signature 2719 

"In  exchange" 875-876 

Inland  check 2698 

Of  decedent 2694,1257 

On  failed  drawee 2696 

On  non-existent  drawee  Bank 2704 

"Payable  to  order  of  self" 2706 

Post-dated  checks 1017-1026 

Retained  by  payor  without  payment  2692 

Signed  "B  by  A" 867 

Signed  by  mark  with  notary's  certifi- 
cate in  foreign  language 862 

Signed  by  unwitnessed  mark 2718 

Undated  check 2716 

Under  $10 2693 

Where  drawer  has  no  account 2703 

Where  signature  placed  under  draw- 
er's signature 2717 

"With  exchange" 874 

Protest,    Of  instrument  providing  that 

when  receipted,  it  becomes  a  check  2690 

Of  draft  refused  because  bill  of  lading 

not  attached 2702 

Of  indorsed  note  payable  at  and  held 

by  bank 2705 

Of  note  containing  provision  that  all 

parties  be  regarded  as  principals . .  2464 

Unnecessary   to   hold   guarantor   of 

payment 2708 


Opinion  Nos. 
When  notice  of  non-payment  wired .  2701 

Surety-makers  not  discharged  by  failure 

to  protest 2707 

Trade  acceptance 191,178 

Usurious  note  payable  at  bank 2097 

Protest  fees 2802-2807,2353-2356 

Collecting  agent  of  payee  not  entitled  to 

fees 2802 

Collecting  bank  entitled  to  protest  fees 

from  sending  bank 2806 

Liability  for  fees.    On  recalled  item .  .  .  2804 

Liability  of  owner  to  collecting  bank 
for    protest    fees    and    right    of 

recovery  from  maker 2807 

When  protest  not  required 2805 

Premature  fees  not  chargeable 1022-1024 

Right  of  owner  to  fees  where  payment 
of  check  tendered  before  close  of 
banking  hours  on  day  of  protest ....  2803 

Stopped  checks 2753-2754 

Protest  instructions 2775-2794 

Collecting  bank,    Entitled  to  fees 

2783,2806-2807 

Failure  to  follow  instructions 

2775,2780,1115,1118-1119,1130 

Instructions  to  wire  non  payment. .  .1134-1136 
Liability    for    causing    omission    of 
protest    by    directions    to    corre- 
spondent    2790 

Stamping  of  item  "no  protest"  where 
forwarding  bank  instructs  not  to 

protest 2793 

Should  follow  instructions 2777 

Violation  of  instructions  to  protest 

b/1  draft 740 

Conflict  of  instructions,    On  draft  and 

in  letter 2778-2779 

Between  letter  and  "no  protest"  stamp        2776 
Between    letter    and    telephone    in- 
structions   2781 

Effect  of  "no  protest"  slip 2791-2792 

Liability    of    drawee    bank    omitting 

protest  v/hen  instructed 2787-2789 

Refusal  of  drawee  to  follow  instruc- 
tions   to    protest    check    received 

through  mail 2794 

Protest  of  certificate  of  deposit  where 

payee's  indorsement  in  doubt 2782 

Protest  of  note.    Containing  waiver  of 

protest  pursuant  to  instructions .  .  2786 

Presented  after  maturity  pursuant  to 

express  instructions  from  holder .  .  2784-2785 

Stopped  checks,    Protest 2751-2754 

Drawee  protesting  at  request  of  holder 

entitled  to  fees 2754 

Holder's  right  to  protest  fees 2753 

Protest  by  drawee 2752 

Time  of  protest 2755-2768 

Check,    Dishonored  Saturday  forenoon  2760 

May  be  immediately  protested  before 

close  of  banking  hours 2766-2767 

Received  by  drawee  in  mail  Saturday 

morning 2761 

Demand  paper  presented  on  Saturday 
and    of    time    paper    maturing    on 

Saturday 2762 

Must  be  made  on  day  of  dishonor  unless 

delay  excusable 2758 

On  hohdays  and  Saturday  (see  HoU- 
days,  Saturday  and  Sunday) 

Protest  for  better  security 2757 

Protest  of  check.    By  drawee  bank  on 

day  following  receipt 2759 

On  Saturday  afternoon  by  drawee 

legally  doing  business  in  afternoon  2763 


752 


I 


Opinion  Nos. 

Presentment,  Protest  and 
No  tice — Continued 

Time  of  protest — Continued 

Protest  of  note,     At  end  of  period  of 

extension 2765 

Before  close  of  business  hours .  .  .  2768,2556,434 
Where    check    given     in     payment 

dishonored 2764 

Unmatured  certificate  of  deposit 2755 

Unmatured  note 2756 

Who  may  make  protest 2771-2772 

Protest,    By  justice  of  peace 2772 

By  secretary  of  bank  who  is  notary.  2771 

Notice  of  dishonor 2808-2826 

Aeent  may  notify  all  indorsers  or  only 

immediate  principal •.••.••  -^  .2823-2826 

Discharge  of  indorser  by    omission  of 

demand  and  notice 2014-2016 

How  notice  is  given 2815 

Liability  of  officers  indorsing  for  ac- 
commodation note  of  corporation 
which  failed,  WTiere  notice  of  dis- 
honor omitted 2812 

Necessity  of  notice,     To  accommoda- 
tion indorser 2810-2811 

To  indorser  who  was  former  officer 

of  payee  bank 2813 

Non-necessity  of  notice  to  accommodated 

indorser 2S09 

Notice  of  ordinary  form  of  letter 2816 

Reasonable  diligence  in  inquiry  as  to 

Endorser's  address 2822 

Sufficiency  of  notice 2820 

Words  "not  sufficient  funds"  attached 

to  returned  check  as  notice 2821 

Surety-maker  of  note  not  entitled  to 

notice 2814 

Time  of  giving  notice 2817,  2819 

Note  payable  in  installments 2819 

Time  note  maturing  on  Saturday.  .  .  2818 

Waiver  of  notice  by  indorser 2808 

Waivers 2827-2855 

Bv  payee 2853 

Demand  note 2854-2855 

Dispenses  with  necessity  of  protest  and 
right  to  fees  if  protested 2837 

General  waiver,    Of  all  paper  bearing 

customer's  indorsement 2842 

Of  presentment  until  funds  sufficient  2843 

Holder   may    protest   notwithstanding 

waiver 2831 

Implied  waiver 2840 

Inaorsement  with  waiver    1809-1810 

Indorser  liable  without  protest  when 

protest  waived 2849 

Instruction  to  "deduct  freight"  is  not  a 

waiver  of  protest 2852 

Meaning  of  waiver  of  "protest" 2844 

Negotiability  not  affected  by  waiver.  .  2451 

Omission  of  protest  by  collecting  bank 

when  waived 2850-2851 

On    face    of    instrument,       Indorsers 

bound 2830,2832-2833 


Accommodation  indorsers  bound . 

Coupled    with     agreement     that    if 

notice  is  given  it  shall  not  affect 

validity  of  waiver 

Effect  of  waiver  above  signature  of 

indorser 

Oral  waiver 

Person  waiving  protest  on  back  of  note 
with    provision    that    he    becomes 

security  for  payment 

"Protest  waived  '  above  signature  of 


2836 


2835 

2827 
2839 


2847 


Opinion  Nos. 
first    of    three    accommodation    in- 
dorsers    2838 

Waiver  clause,    And  consent  to  exten- 
sion  2829,1814-1815 

Does  not  confer  authority  to  bank  to 

pay  note  after  maturity 2543 

"This  note  is  subject  to  privilege  of 

one  renewal" 2841 

With  guaranty  of  payment.  . .  .2834,1811-1815 
Waiver  of  notice  not  a  waiver  of  pre- 
sentment   2845-2846 

Waiver  on  original  note  as  affecting 

indorser  of  renewal  note 2848 

Real  and  Personal  Property 
(see  also  Deeds  and  Con- 
veyances, Mortgages 
and  Liens,  Chattel 
Mortgages) 

Collection  of  real  estate  paper 1068-1069 

National  banks,     Real  estate  transac- 
tions       533-536 

Loans  on  real  estate  security 534-536 

Limitation  of  loans  on  farm  land 561-562 

Mode  of  execution  of  real  estate  deed .  533 

Taxation,   of  banks.     Double  taxation 

of  bank  real  estate  in  New  York. . .  .3098-3099 
Deduction  of  real  estate  from  taxable 

value  of  shares 3093,3095,3097 

Reserve 

Creation  of  a  contingent  reserve  fund  451 

Federal  reserve  notes  as  reserve 524 

Reserve  against  savings  deposits 506 

Safe  Deposits 

Deposits    for    safekeeping    and    safe 

deposit  bo.xes .1350-1367 

Garnishment  of  contents  of  safe  deposit 

box 393-395 

Investment  by  national  bank  in  stock 

of  safe  deposit  company 538 

Sales 2947-2951 

Bank's  power,    To  buy  and  sell  notes. .  457 

National  bank  not  authorized  to  buj' 

steamship  tickets 545 

Sale  of  notes  with  agreement  to  re- 
purchase    457 

Bulk  sales  law.    Notice  to  creditor  bank 

where    sale    of    goods    by    partner 

(debtor  to  bank)  to  co-partner 2950 

Collateral,    Power  of  attorney  to  sell. .  .2598-2600 
Clause    in    note    permitting    sale    of 

collateral 2390-2392 

Purcha.se  by  pledgee  at  ovm  sale. .....  2604 

Conditional  sale  of  buggy — Necessity 

of  record 2947 

Conditional  sales  notes 2411 

Contracts  for  sales  (see  Contracts  and 

Agreements ) 

Foreign  exchange,  Sale  of 449-450 

Foreign    lottery    bonds  sold  on   com- 

mi.ssion 455 

Purchaser  not  obliged  to  accept  nor 

liable  for  damaged  goods 2951 

Retention  of  voting  power  on  sale  of 

stock 722 


753 


Opinion  Nos. 


Sales — Continued  Set-off , 

Sale  of  cow  includes  unborn  calf  not 

known  to  seller  but  known  to  buyer.  2948 

Unrecorded  bill  of  sale,  Alabama 2949 


Opinion  Nos. 

2856-2946 


Savings    Banks     (see    also 
Banks  and  Banking) 

Commercial  bank  and  savings  bank  in 

same  room 504 

Distribution  of  surplus  upon  liquida- 
tion of  mutual  savings  bank 468 

Investment  in  banker's  acceptances 

by  New  York  savings  bank 120 

Interlocking  directorates 641 

Lien  on  stock   692 

Pass-books  (see  that  title) 

Right  to  establish  branches 532 


Savings  Departments 

National  banks 598-606 

Right  of  private  bank  to  advertise  a 

savings  department 467 

Trust  companies 613-614 


Savings  Deposits   (see  De- 
posits) 


Seal 

Use  of  seal  on  note. 


.2373-2377 


Securities  —  Public  and 
Municipal  (see  also 
Bonds,  Liberty  Bonds) 

2952-2960 

City  warrants   not  negotiable  but  in- 

dorser  warrants  validity 2953 

Contract     for     municipal     improve- 
ments as  basis  for  loan 2959 

County  warrants,  Out-law  of  warrant  in 

Missouri 2958 

Set-off  against  deposit  of  county 2872 

Government  securities  as   collateral 
(see  Pledge  and  Collateral) 

Liberty  bonds  (see  also  that  title) 

Municipal    bond    payable    at    bank, 

Collection 2956 

Non-negotiable  state  warrants,   Lia- 
bility of  indorser 2955 

Note  of  municipal  corporation,    No 

standard  form 2383 

School  district  warrants.  Interest ....  2957 

Set-off  against  city  deposit 2871 

Stamp  tax,     On  municipal  notes 3133 

Exemption  of  notes  secured  by  U.  S. 

obligations 3134 

Taxation,     Deduction  of  loss  caused  by 

shrinkage  of  securities 3118 

Township  order.  Non-negotiability ....  2954 

Warrant  drawn  for  municipal  debt 

not  negotiable 2952 


Against  check  holder 2936-2937 

Drawee  cannot  deduct  debt  of  check- 
holder  before  payment 2936-2937,877 

Against  indorser 's  deposit 2901-2906 

Bank  holding  note  not  obliged  to 
charge    to    indorser's     account    in 

relief  of  the  maker 2458 

Demand  note 2901 

Judgment  need  not  be  obtained 2904 

Past  due  notes 2902 

Where  indorser's  liability  fixed. .  .2903,2905-2906 
Against  maker's  deposit  in    interest 

of  indorser 2907-2909 

Bank  in  Pennsylvania  bound  to  apply 

maker's  deposit  in  rehef  of  indorser .  2909 

Conflict  of  decision 2907 

Omission* to  apply  maker's  deposit  in 
partial  satisfaction  of  note  does  not 

release  indorsers 2908 

Bank's  right  of  set-off  against  de- 
positor   2856-2872 

Bank's  general  right  of  set-off .2857-2858 

Debt  must  be  contracted  in  good  faith  2863 

Deposit  received  after  maturity  of  note  2867 

County  warrant  set-off  against  deposit 

of  county 2872 

Post-dated  check 1027 

Right  of  set-off  against  depositor- 
maker  exists  whether  note  acquired 
from    him    directly    or   from     third 

person 2856 

Set-off,    By  bank  of  customer's  note .  .  2859 

Against  city  deposit 2871 

Against  correspondent's  balance  of 

items  mailed  to  it  for  collection. . .  2865 

Against  maker's  account  without 
first  presenting  at  place  of  business 

where  payable 2862 

Against  widow's  account  of  decedent's 

debt  assumed  by  her 2866 

Of  claim  for  interest 2868 

Of  customer's  indebtedness  upon 
overdraft  against  certificate  of 
deposit   transferred   by   customer 

after  maturity 2870 

Of  note  held  as  collateral    agaiust 

maker's  account 2864 

Of  overdrawn  check  not  charged  to 
account  when  smaller  check  pre- 
sented  2861 

Of  past  due  note  against  depositor's 

account 2860 

Set-off  to  defeat  attachment  of  deposit     403-406 
Consent  of  and  notice  to  depositor 

of  set-off 2873-2878 

Bank  can  charge  matured  note  against 

maker's  account  without  his  consent  2874 

Bank's    right    exists    without    special 

instruction  of  depositor 2875 

Consent  of  depositor  generally  un- 
necessary   2893 

Consent     of     depositor     required     in 

Louisiana 2876 

Notice,  To  depositor  in  South  Carolina  2877 

Notice    must   be    given   indorser  in 

South  Carohna 2878 

Debts  must  be  mutual 2915-2923 

Deposits  impressed  with  trust  character  29 1 9 
Partnership  note,     Cannot  be  set-off 
against    partner's    individual    ac- 
count   2916 

Cannot  be  set-off  against  assignee's 

account 2917 

Set-off  by  bank,    Of  deposit  known  by 


754 


Opinion  Nos. 


Set-off — Continued 


Debts  must  be  mutual — Continued 

bank  to  belong  to  another  or  held 

by  depositor  in  trust 2920 

Against  proceeds  of  livestock  draft. .  2921 

Of  claim  as  trustee  for  bondholders 
of  defaulting  corporation  against 

latter's  checking  account 2922 

Of  customer's  note  against  his  ac- 
count put  in  partnership  name  to 

defraud  bank 2918 

Surety's  deposit  set-off  against  note  of 

principal  and  surety 2923 

Depositor's  right  of  set-otf 2938-2946 

Depositor,  Can  set-off  deposit  in 
insolvent  bank  against  his  unmatured 

note 2938-2940 

Can  set-off  note  but  not  stock- 
holder's liabihty 2941 

Not  a  discrimination  against  other 

depositors 2942 

Difference  between  right  of  set-off 
where  depositor  maker  and  where 
indorser  of  note  of  a  solvent  maker .  .  2944 

Indorser's  right  to  set-uff  deposit  against 

note  held  by  insolvent  bank 2943 

Set-off  by  depositor,     Of  his  note  to 
insolvent    bank    against    indorsee 

for  value 2946 

Of  his  share  of  partnership  deposit 

in  insolvent  bank 2945 

Where  bank  holds  collateral 2910-2914 

Bank  in   Michigan   not  compelled   to 

first  resort  to  collateral 2913 

Mississippi  bank  can  set-off  deposit 
against  indebtedness  of  depositor 
notwithstanding  it  holds  collateral.  .  2914 

Rule  in  California 2910-2911 

Set-off  against  deposit  of  debt  secured 

by  collateral 2912 

Where  debt  not  matured 2879-2880 

Set-off   of   unmatured   mortgage   note 

against  garnishecd  account 2880 

Unmatured  note  cannot  be  set-off  in 
absence  of  fraud  or  (in  some  states) 

insolvency 2879 

Where  depositor  deceased 2929-2935 

Set-off,    Of  matured  debt  of  decedent .  2929 

Of  A's  (decedent's)  deposit  against 

note  of  A  and  B 2935 

Of  past  due  note  against  decedent's 

account 2930-2932 

Of  unmatured  judgment  note  against 

decedent's  account 2933 

Of  unmatured  note 1258-1259 

Of  unmatured  note  against  decedent's 
insolvent  estate  denied  in  Penn- 
sylvania    2934 

Where  depositor  has  two  accounts. .  .2924-2928 
Opinion  in  New  York  ca.se  that,  unless 
depositor  consents,  savings  account 
cannot  be  charged  with  overdraft  on 

commercial  account 2927 

Set-off   of   overdraft    where    depositor 

carries  more  than  one  account 2926 

Set-off    where    depositor    carries    both 

checking  and  savings  account.  .  .  .2926,2928 
Overdraft    on    commercial    account 
can    be    set-off    against    savings 

account 2924-2925 

Where  depositor  insolvent  or  declared 

bankrupt 2881-2900 

Collection     proceeds     set-off     against 

bankrupt 2889-2890 


Opi  nion  Nos 

Credit    form — Clause    maturing    debt 

of  insolvent  depositor 2885 

Form  of  contract  authorizing  bank  to 
set-off  unmatured  paper  on  maker's 

insolvency 2886 

Set-off     against     bankrupt's     deposit, 

Against  note 2896 

Claim  for  rent 2891 

Deposit  made  after  adjudication  in 

bankruptcy 2897,  2894 

Deposits  made  in  usual  course  within 

four  months  of  bankruptcy 2900 

Deposit  made  not  in  view  of  insolvency  2895 

Set-off  of  demand  note,     Against  ac- 
count   of    depositor    approaching 

bankruptcy 2898 

Two  days  before  depositor's  failure .  2899 
Two  months  before  threatened  bank- 
ruptcy            2893 

Two  weeks  before  bankruptcy 2892 

Set-off    of    unmatured    note    against 

insolvent  depositor,    Connecticut.  2881 

Missouri 2882-2883 

New  York 2884 

Ohio 2887 


Signatures 

Accommodation  signature.  After  de- 
livery of  note 228-235 

Indorser's  signature   not   repeated   on 

renewal  note    207-208 

Binding  effect  of  pass-book  rules  not 

signed  by  depo.sitor 2582 

By  mark,    Attested  by  witness 861 

Bank  officer  as  attesting  witness 623 

Forgery  of  signature 1501-1504 

Indorsement  by  mark 1834-1837 

Protest  of  check  signed  by  unwitnessed 

mark 2718,  862 

Certificate  of  protest  signed  by  notary's 

clerk 2773 

Corporation  signatures 869-870,1371-1372 

By  "A  President" 2488 

By  "cashier" 134 

Proper  form 135 

Countersignatures,  Forgery,141S,1427, 1429-1430 
Express  company  money  orders.  ...  .1718-1723 

Travellers'  checks 1724-1728 

Forgery  of  drawer's  signature  to  check 
Bank  responsible  for  signature  but  not 

amount  of  raised  check 270 

Bank's   right   to   require   guaranty  of 

signature 1439 

Drawee  bank  bound  to  know  signature,  1486-1488 
Indorsement  does  not  warrant  genuine- 
ness to  drawee 1859 

Forgery  of  payee's  .signature  to  certifi- 
cate of  deposit.  Bank  bound  to  know 
signature  when  kept  on  file 

1679-1684,823-824 

Forged     order    on     savings    deposit, 

Comparison  of  signatures 1695-1704 

Guaranty  of  signature,    By  certification  34 

Bank's  right  to  require  guaranty 1439 

Guaranty  of  signature  to  stock  assign- 
ment    484 

Missing  signatures,    Protest  of  checks.  .2720-2723 
Mutilated  signature,    Protest  of  check.  2719 

Partnership  .signatures 1368-1370 

Use  of  trade  or  assumed  name 1816-1818 

Protest,  where  unknown  signature  placed 

under  drawer'.s  signature 2717 

Rubber  stamp,    Indorsements 1838-1847 

Acceptance  of  draft  by  rubber  stamp. .  1412 


755 


Signatures — Continued 


Opinion  Nos. 


Shipper's  signature  on  bills  of  lading.  .  .     724-725 

Signature  obtained  by  fraud 4602 

Signature  to  checks  (see  Checks) 

Signatures  to  notes  (see  Notes) 

To  joint  and  several  notes 2378-2381 

Sufficiency     of     single     signature     to 

collateral  note 2597 

Signature  to  trade  acceptance 133-135 

Wife's    signature   to   purchase    money 

mortgage  without  signature  to  note .  2283 

Statements 

Circulation   of  unofficial  statement 

of  bank's  condition 502 

Derogatory      statements       affecting 

banks 2123-2132 

False  statements  for  credit 1750-1756 

Financial    statement,      Of    borrower 

coupled  with  collateral  agreement. . .  462 

Bank's    liability    for    misrepresenting 

customer's  financial  condition 499-500 


Statute  of  Limitations 

Accommodation  note 211 

Action  on  unpresented  foreign  draft 

in  Wyoming 1409 

Application  to  claims  on  forged  in- 
dorsements   1591-1593 

Banker's  demand  drafts 1410 

Begins  to  run  from  maturity  of  note .  2472 

Certificate  of  deposit 794-796,807,817,2169 

Certified  checks 58-59 

Continuing  guaranty 1767 

County  warrants  in  Missouri 2958 

Covenant  of  good  right  to  convey. . . .  1288 

Demand  notes 1810,2515-2520 

Guaranty  of  payment  of  note 2487 

New  York 2520 

Montana  statute 1198 

Postponement  by  extension  of  time .  2465 

Effect   of   partial   payment    by   joint 

maker  of  note 2521-2522 

Real  estate  mortgages 2303-2304 

Unclaimed  deposits 1397,  1399 


Statutes  and  Legislation 

Call  loan  statute  in  New  York 2067,  2607 

Check  without  funds 940-955 

Competency  of  notaries 2319 

Deposits  in  trust 1320 

Deposits  in  two  names 1311 

Deposits  of  minors  and  incompetents  2235 

Derogatory  statements  affecting  banks         2123 
Federal  Farm  Loan  Act 

Loans  on  security  of  first  mortgage 2312 

Federal  income  tax 3115-3127 

Forged  and  raised  checks 1416 

Forwarding    collection    paper    direct 

to  drawee  or  payor 1080 

Guaranty  of  deposits 1401-1402 

National  Bank  Act,  Savings  departments 

of  national  banks 598-606 

Non-payment     of     checks     through 

error,  (see  Note  preceding  995) 995 

Payment    of    check    after    drawer's 

death 1237-1255 

Sherman  anti  trust  law,    Restraint  of 

trade 


Opinion  Nos. 

Agreement  between  banks  as  to  uniform 

rate  of  interest  on  deposits  or  loans .  2043 

Clearing  house  collection  charges 1031-1033 

Recommendation  by  trust  company  of 

schedule  of  fees 612 

Trade  acceptance  propaganda 138 

Special   statutory   rule    in   Pennsyl- 
vania on  drawee's  right  of  recovery 

on  forged  check 1505-1513 

Stamp  tax 3128-3144 

Statute  of  limitations  (see  that  title). . 
Statutory    limit    of    bank's    deposit 

liability 1403 

Unclaimed  deposits 1395-1400 

Uniform   warehouse   receipts   legisla- 
tion   3159 

Uniform  Stock  Transfer  Act 

Attachment  of  shares 2634 

Negotiability  of  certificates 1215 

Workmen'  compensation  law.    Appli- 
cation to  national  banks 526 

Stopping  Payment 2961-3067 

Cashiers    and    certified    checks    and 

certificates  of  deposit 3055-3067 

Bank  should  require  indemnity  before 
stoppmg  payment  of  cashier's  check 

at  purchaser's  request 3058 

Bank's  liability  to  innocent  purchaser 

of  stopped  cashier's  check 3056-3057 

Cashier's   check,     Erroneously   issued 

for  too  large  amount 3059 

Fraudulently  obtained 3060 

Issued  for  worthless  check 3061 

Difference  between  cashier's  check  and 

ordmary  check 3055 

Joint  certificate  of  deposit 1318 

Stopping    payment    of    certificate    of 

deposit 3067,  966 

Stopping  payment  of  check.    Certified 

for  drawer 3063-3064,76-82 

Check  certified  for  holder 3066.79 

Bank's  liability 3065,79 

Check  certified  without  authority ...  83 

Right  of  replevin  of  stopped  certified 

check .84 

Revocation  of  mistaken  certification 

of  stopped  check 71 

Title   company  stopping  payment   of 

check  issued  in  error 3062 

Criminal  liability  of  depositor 2987-2988 

Where     check    stopped    after    cattle 

received 2987 

Where    depositor    stops    check    after 

receiving  goods 2988 

Drawer's  right  to  stop  payment 2961-2966 

After  check  stamped  "Paid"  and  re- 
mittance draft  drawn 2966 

Bearer  check 2962 

Check,     "Given  as  earnest  monev  on 

land  trade" ".  . .  .  2963 

On  branch  bank 2965 

Partner's  right 2964 

Customer  has  arbitrary  right  to  stop 

payment 2961 

Former     opinions     where     check     an 

assignment 2961a 

Duty  and  liability  of  bank. ...    2993-2997 

Bank,     Must  obey  depositor's  instruc- 
tions   2993 

Cannot    charge    stopped    check    to 

customer's  account 2994 

Need  not  notify  payee 2997 

Liabihty    of    bank    paying    stopped 

check  through  oversight 2995-2996 


756 


Stopping 

tinned 


Payment — Con- 


Opinion  Nos. 


Liability  of  drawer  and  indorsers  to 

holder 3017-3048 

Check,    For  beaver  hides 3020 

Corporation  check  to  employee  ....  3022 

For  cotton  which  was  mortgaged .  .  .  3036 

For  gambling  consideration 886 

"For  labor"  not  performed 3026 

For  misrepresented  animal 3038 

For  stolen  cow 3042 

Of  one  partner  to  another 3028 

Post-dated  checks 1014-1016,1027 

Received  through  the  mail 902-903 

Check  stopped  because 

Drawer  defrauded 3025,  3023 

Error  in  amount 3024 

Goods  misrepresented 3040 

Money  obtained  under  false  pretenses  1740 

No  consideration  received 3044 

Creditor  receiving  stopped  check  may 
recover  amount  and  protest  fees 
from  drawer 3034 

Depository  bank  can  recover  on  stopped 
check  to  extent  of  amount  ad- 
vanced,   .3033,3045 

Recovery  where  credit  of  deposited 

check  withdrawn 3035 

Drawer  cannot  interpose  defense  against 

innocent  purchaser 3021 

Drawer  liable  to  innocent  purchaser. .  .3017-3018 

Duplicate  for  stopped  check  already 
paid 3029 

Innocent  purchaser  may  recover  from 

drawer  and  indorsers 3027,3019,3031 

Purchaser  cashing  check  before  notice 

of  stop  payment 3030 

Recourse   of   creditor   of   payee   upon 

defrauded  drawer 3037 

Recovery  by  merchant  cashing  stopped 

check 3032 

Bank  cashing  check  on  identification  3041 

Limitation    of    bank's    liability    by 

agreement 3009-3016 

Agreement  not  to  hold  bank  liable,  3011,3013-3014 

Bank  must  use  resaonable  care  not- 
withstanding agreement    3012 

Exemption    agreement    construed    as 

requiring  reasonable  care 3015 

Form  of  disclaimer  of  Alabama  bank.  3010 

Unconditional    release    of    bank    from 

liability    3016 

Notes   and    acceptances    payable    at 

bank 2967-2971 

Maker  has  right  to  stop  payment 2967-2969 

Maker  orally  instructing  bank  not  to 

pay  any  of  his  notes 2971 

Stop  payment  by  acceptor  2970 

Oral  notice 2978-2983 

Given  away  from  bank 2981 

Supplemented  by  written  memoran- 
dum at  bank 2982 

Payment  by  bank,     Two  years  after 

check  orally  stopped 2979 

One  year  after  oral  notice 2980 

Sufficiency  2978 

Validity  of  notice  over  telephone ....  2983 

Post-dated  checks 1014-1016,1027 

Practice    of    stamping    check    "Pay- 
ment stopped" 2984-2986 

Bank  not  liable  for  defacing  property 

of  holder 298.5 


Opinion  Nos. 

Beneficial  effect  of  practice 2984 

No  law  forbidding  practice 2986 

Presentment  and  notice  not  excused 

because  of  stopping  payment 2054 

Protest  of  stopped  checks 2751-2754 

Recourse    of    bank    paying    stopped 

check 2998-3008 

Payment  of  stopped  check  to  bona  fide 
holder,  Irrecoverable  and  not  re- 
coverable    3004 

Bona  fide  holder  offering  to  refund 

one-half 3006 

Under  forged  indorsement  not  re- 
coverable    3005 

Question    of    drawee's    recovery    from 

purchaser  of  check  nine  months  old .  3007 

Recourse    against    payee,      Obtaining 

check  on  misrepresentation 3001 

Where  payee  guilty  of  fraud 3002-3003 

Recourse  upon  drawer,     As  equitable 

purchaser 2998 

Payment  to  holder  in  due  course 
recoverable  from  drawer  in  Indiana 
and    Tennessee    but  not   in    New 

York  unless  ratified   2999 

Subrogation    of    bank    to    drawer's 

rights  against  payee 3000 

Recovery  of  payment  made  through 

exchanges 3008 

Revocation,       By     cause     other     than 

drawer's  order 2989 

Drawer  of  check  a  fugitiv^e  from  justice  2989 

Mistaken  certification  of  stopped  check  71 

Right  of  replevin  of  stopped  certified 

check 84 

Stopped  banker's  drafts 3049-3054 

Holder  not  entitled  to  damages  from 
drawer,   in   addition   to  amount   of 

draft 3054 

Issuing  bank.    Liable  to  holder  in  due 

course 3049-3051 

Should    require    indemnity    as    pre- 
requisite to  stopping  payment.    .  .  3052 
Stopped  banker's  draft  not  j-et   pre- 
sented    3053 

Trade  acceptance 192 

Where  payee  or  third  person  requests 

payment  stopped 2990-2992 

Bank  may  be  put  on  inquiry   2991 

Effect  of  notice  by  payee  or  indorsee .  .  2990 

Notice  by  third  person  of  adverse  claim 

and  not  to  pay  depositor's  checks. .  2992 

Written  notice  to  stop  payment 2972-2977 

Ineffective    where    check   inaccurately 

described 2972 

Notice  holds  good  indefintiely 2975-2977 

Stopping  payment  of  original  and 
issuing  duplicate  after  original  paid 

and  returned  to  depositor 2974 

Sufficiency  of  stop  notice  where  check 
fully  described,  but  wrong  number 
given 2973 


Strangers 

Check  issued  and  paid  (o  strangers.  .  .     921-925 

Cashier's  check  to  stranger  paj'ee 1691 

Identification  of  holder  of  bearer  check 

cannot  be  required    2001-2003,879 

LiabiUty  of  person  identifjing  pavee 

1662-1665,1757-1758 

Recovery    by    drawee    where    forged 

check  cashed  for  .stranger 1516-1527 


767 


^1 


Opinion  Nos. 

Sureties  (see  also  Accommo- 
dation Paper,  Guaran- 
ty and  Notes) 

Defense  of  usury  by  surety 2103 

Set-off  of  surety's  deposit  against  note 

of  principal  and  surety 2923 

Surety  maker  of  note 

Clause  providing  that  sureties  shall  be 

liable  as  principals 2449 

Clause  that  sureties  agree  to  renew  note  2439 

Forged  note 1673 

Not  discharged  by  entry  of  judgment 

prior  to  maturity 2407 

Not  discharged  by  extension 2471-2477 

Not  entitled  to  notice  of  dishonor 2657,  2814 

Surety  on  indemnity  bonds  (see  Bonds) 

Bank's  power  to  become  surety 573,574,2222 

Taxation 3068-3144 

Bank  deposits,  Taxation 3103-3105 

Exemption  in  N.  Y.  does  not  include 

savings  deposits  in  national  banks .  .  3104 
Savings  deposits  not  exempt  in  Penn- 
sylvania.   3103 

Taxation  in  New  York  of  bank  accounts 

of  non-residents 3105 

Examination    of    banks,    Compulsory 
disclosure  of   customer's  affairs  for 

tax  purposes 492-496 

Visitorial  powers  of  revenue  officer.    .  .  518 

Federal  income  tax 3115-3127 

Constitutionality    of    federal    income 

tax  law 3126 

Contributions    by    national    bank   to 

Red  Cross  not  deductible 3119 

Credit    of    dividends    received    from 

corporations 3117 

Deduction,  Of  loss  caused  by  shrinkage 

of  securities 3118 

By   stockholders   of   taxes   paid   by 

banks  on  shares 3123 

Of  interest  on  government  bonds.  .  .  3125 

Of  taxes  paid  by  banks  on  shares .  .  .  3121 

Of  taxes  paid  by  trust  company,  in 

individual  return  of  stockholder.  .  3124 

Exemption   of  fees   of  executors   and 

administrators 3120 

Liability  of  trust  company  absorbing 

national  bank  for  latter's  income  tax  3116 

Penalty  for  delayed  return 3127 

State  bankers'  associations 3115 

Federal  taxation 3112-3114 

Canadian  bank  notes  and  currency. ...  3112 

Ten  per  cent,  tax,    On  Canadian  bank 

notes 3113 

On  Canadian  currency 3114 

Stamp  taxes 3128-3144 

Authority  in  note  to  confess  judgment.  3129 

Certificate  of  deposit.    3138-3139 

Deed,      Where    consideration    $5,000 

but  mortgage  $2.000 3140 

Consideration  $400  per  year  for  life.  3142 

Where  consideration  of  deed  $1,500 
cash    and    assignment    of    $2,500 

mortgage 3141 

Exemption  of  notes  secured  by  U.  S. 

obligation 3134 

Interest  coupon  notes 3131 

LiabiUty  of  collecting  bank  to  penalty 
for  unstamped  notes  held  for  collec- 
tion   3135 


Opinion  Nos. 

Municipal  notes 3133 

Non-negotiable  notes 3136 

Notes  secured  by  mortgage 3128 

Note   dated   prior  to   and  negotiated 

after  stamp  tax  law   3130 

Payment  of  interest  on  demand  notes.  3132 

Stock  transfers 3143-3144 

Trade  acceptance 193-195 

Unstamped   note   not    "complete   and 

regular  on  its  face" 3137 

State  taxation 3106-3111 

Agreement  by  mortgagor  to  pay  taxes.  3111 

Choses  in  action 3107 

Payment   of   certificate  of  deposit  to 
indorsee    after    payee's    death    not 

subject  to  inheritance  tax 1230 

Payment  of  joint  certificate  of  deposit 
to  survivor  subject  to  transfer  tax 

law.  . 1236 

Taxation  in  Iowa  of  mortgage  held  in 

foreign  jurisdiction 3110 

Transfer  tax  in  New  Jersey  on  deposit 

of  non-resident  decedent 3108 

Treasury  notes  subject  to  taxation. ...  3106 
Trust     estate     in     Maryland     where 
beneficial .  ownersliip  in  North  Caro- 
lina   3100 

State  taxation  of  national  banks ....  3068-3090 
Basis     of     value     of     shares — Book 

value  vs.  market  value  in  Illinois.  3089 

Wisconsin 3090 

Capital   stock   and   Workmen's   Com- 
pensation tax  invalid 3072 

Deductions,       Federal    reserve    stock 

not  deductible 3083 

Government  bonds  and  federal  re- 
serve bank  stock  cannot  be  de- 
ducted   3084-3085 

Government  bonds  cannot  be  de- 
ducted    3079 

Liberty  bonds  cannot  be  deducted .   3081-3082 
State  may  permit  owner  to  deduct 

non-taxable  state  bonds 3080 

Discrimination,  Against  national  bank 
shares   in    taxing   other   property 

at  lower  rate   3086 

Between  savings  depositors  in  nation- 
al and  state  institutions 3088 

Where    banks    taxed    at    different 

rates  in  different  parts  of  state .  .  .  3087 

License  tax  invalid 3070-3071 

Non  resident  shareholders 3077-3078 

Occupation  tax  invalid 3068-3069 

Power  of  state  to  compel  cashier  to 

furnish  list  of  stockholders .  3075-3076 

State  cannot  tax  national  bank  on  its 

income 3073-3074 

State  taxation  of  state  banks 3091-3102 

Deduction,     By  New  Jersey  bank  of 

amount  invested  in  mortgages . .  3096 

Of  real  estate  by  New  Jersey  bank. .  3097 

Of  real  estate  in  Massachusetts. .    .  .  3093 

Double  taxation  of  bank  real  estate  in 

New  York 3098-3099 

License  tax  on  state  bank  in  Alabama.  3091 

Non-deduction  by   Montana  bank  of 

stock  of  real  estate  company 3095 

Recovery  of  illegal  taxes  voluntarily 

paid  in  Missouri 3094 

Right  of  state  to  tax  bank  shares 3102 

Secured  debts  tax  law  of  New  York. . .  3100 

Tax  for  fraction  of  year 3101 

Tax  on  bank  stock  in   Iowa— Place  of 

assessment 3092 


758 


Opinion  Nos. 

Telephone  and  Telegraph 

Acknowledgment  over  telephone 2351 -23o2 

Bank's  payment  on  order  by  wire  prior 

to  remittance 458 

Certification,  By  telephone 311,90-99 

By  telegraph  51.85-89 

Revocation  by  telegraph 100 

Forged  telegrams 1705-1717 

Instructions    of    collecting    bank    to 

wire  non-payment 1134-1136 

Presentment  over  telephone 2682-2G84 

Unsafe   practice    to   wire   money   on 

telegram  from  customer 1717 

Validity  of  stop-payment  order  given 

over  telephone 2983 

Trade  Acceptances  (see  Ac- 
ceptances— Trade) 

Transfer  of  Stock  (see  Bank 
Stock  and  Stock- 
holders, Corporations 
and  Corporate  Stock) 

Trust  Companies  (see 
Banks,  etc.,  Trust 
Companies) 

Trusts 

Deeds  of  trust 2282-2318 

Action  by  executor  of  deceased  payee 

upon  note  and  deed  of  trust 2513 

Difference  between  deed  of  trust  and 

mortgage '  2286 

eposits,     Bank   receiving  deposit  for 

specific  purpose  a  trustee 1343 

Deposit  by  A  trustee  for  minor 2248 

Partnership  account  or  trust  fund 
cannot  be  garnisheed  to  pay  individ- 
ual debt   400 

Set-off,     Of   deposits   impressed   with 

trust  character 2919-2920 

By  bank  of  claim  as  trustee  for 
bondholders  of  defaulting  corpo- 
ration    against     latter's   checking 

account 2922 

Special  and  specific  deposits 1342-1346 

Trust  deposits 1320-1331 

Director  of  national  bank  as  trustee 

of  savings  bank 041 

Purchase   of  stock   by   national   bank 

and  disposal  by  trust  agreement      .  .  539 

Right  to  vote  stock  by  trustee 718 

Taxation  of  trust  estate  in  Maryland 
where  beneficial  ownership  in  North 

Carolina 3109 

Trust   funds.      Proceeds   in     hands   of 

failed  collecting  bank  as  trust  funds,  1172-1189 
Trustee  cannot  borrow  on  security  of 

tnist  funds  for  personal  use 2595 

Trust  powers  of  national  banks  (see 

National  Banks) 
Trust  powers  of  state  bank  in   New 

Mexico — Suggested  exercise 469 

Trust    receipt,       Bank's    right    under 

receipt  on  bankruptcy  of  borrower.  .  1199 

Voting   trust   agreement   by   national 

bank 720 


Opinion  Nos. 

Ultra  Vires  Acts 

Banks,  Accommodation  indorsement  by 

bank  of  banker's  acceptance 222 

Agreement  by  several  banks  to  jointly 
indemnify  bank  if  loss  sustained  in 

purchasing  weak  bank 617 

Guaranty  of  draft  by  third  person ....     482-483 
Power  to  become  surety  on  indemnity 

bond  for  lost  stock  collateral 2222 

Corporation  as  guarantor  of  railroad 

bonds 1208 

National  banks,    Guaranty  and  surety- 
ship       565-574 

Loans  on  real  estate  security   534-536 

Not  authorized  to  sell  steamship  tickets  545 

Power  to  deal  in  stocks  and  bonds .    .  .     537-543 

Voting 

Proxies,     Appointed  by  proxy  of  sub- 
stitute at  election  of  directors 616 

Person  eligible  to  vote  by  proxy 651 

Proxy  under  general  power  of  attorney  717 

Meaning  of  "majority" 1201 

Sufficiency  of  vote  by  majority  of  those 

present 719 

National  bank  stockholder.     Though 
not  voting  for  increase  of  stock,  has 

subscription  rights 711 

Right  to  vote  bank  stock 

Executor's  right 721 

By  trustee  in  bankruptcy  of  registered 

owner  of  pledged  stock 718 

Transactions  of  other  business  where 
notice  of  meeting  only  for  election 

of  directors 615 

Voting  power  of  stock   1225-1226 

Retention  of  voting  power  on  sale  of 

stock ...  722 

Voting   trust  agreement   bv   national 

bank .' 720 

Voucher  Checks   (see    also 

Checks) 991-994 

Forgery • 1693-1694 

Indorsement  by  payee  corporation.  .  .  .  1845 

Waiver  of  Protest  (see  Pre- 
sentment, Protest  and 
Notice) 

Warehouse  Receipts.  .  .3145-3159 

Delivery   of  goods   without   taking  up 

receipt 

Forged  elevator  storage  ticket.  . 
For  mortgaged  goods.  Warehouse  receipt 
Form  of  transfer  of  warehouse  receipt. 
Forms  recommended  by  the  .\merican 

Bankers  .\.s.sociation  and  the  .Vmerican 

Warehoui^emeii's  .Vssociation 3145 

Insurance  clause  in  receipt 

Limitation  of  '.iability  in  receipt. 
Loans  on  receipts  a,s  commercial  paper. . 
Necessity   for   Factors  acts  in  cotton 

states  

Receipt  issued,  By  milling  company  on 

its  own  grain 

By  bankrupt  warehouseman  to  himself 
By  warehouseman  on  his  own  whisky. 
To  owner  on  his  own  goods 


1761 
3149 
3148 
3147 


-3146 

31.57 

31.55 

479 

31.5S 

3151 
3153 
31.52 
3154 


759 


Opinion  Nos. 

Warehouse  Receipts — Con- 
tinued 

Responsibility  of  warehousemen  for 

weather  damage 3156 

Uniform    warehouse    receipts  legisla- 
tion   3159 

Warehouse  collateral  note 3150 

Warrants  (see  Public  and 
Municipal  Securities) 

Wills    (see    Executors  and 
Administrators 

Assignment  of  certificate  of  deposit 

to  be  paid  in  event  of  death  invahd 

as  contrary  to  statute  of  wills 1232, 1235 


Opinion  Nos. 

Attempted  testamentary  gift  of  de- 
posit   1377 

Witness 

Indorsement  by  mark,     Competency 

of  witness 1837 

Warranty  by  witness 1835 

Liability  of  witness  to  forged  signature,  1666-1668 
Signatures  by  mark  and  witness  (see 

Signatures)    

Protest  of  check  signed  by  unwitnessed 

mark 2718 


I 


760 


f 


^ 


\ 


.luiiiiimiiii 


